China no longer growing at Ludicrous Speed

Guangdong province factory

To the extent that official GDP figures mean anything at all, it’s worth noting that Chinese growth is slackening as trade and manufacturing get hit hard:

China is expected to report on Monday that economic growth cooled to its slowest in 28 years in 2018 amid weakening domestic demand and bruising U.S. tariffs, adding pressure on Beijing to roll out more support measures to avert a sharper slowdown.

[…]

Analysts polled by Reuters expect the world’s second-largest economy to have grown 6.4 percent in the October-December quarter from a year earlier, slowing from the previous quarter’s 6.5 percent pace and matching levels last seen in early 2009 during the global financial crisis.

That could pull 2018 gross domestic product (GDP) growth to 6.6 percent, the lowest since 1990 and down from a revised 6.8 percent in 2017.

We have a culprit:

Surprising contractions in December trade data and factory activity gauges in recent weeks have suggested the economy cooled more quickly than expected at the end of 2018, leaving it on shakier footing at the start of the new year.

Sources have told Reuters that Beijing was planning to lower its growth target to 6-6.5 percent this year from around 6.5 percent in 2018.

Tepid expansion in industrial output and weaker consumer spending is squeezing companies’ profit margins, discouraging fresh investment and raising the risk of higher job losses.

Some factories in Guangdong – China’s export hub – have shut earlier than usual ahead of the long Lunar New Year holiday as the tariff war with the United States curtails orders. Others are suspending production lines and cutting back on workers’ hours.

Beijing slowing credit growth is also to blame:

Qin Nan, the chief executive of a Beijing-based manufacturer, needs to borrow at least Rmb5m ($740,000) to expand production of his company’s air purifiers and air conditioners. But because his company lacks an equivalent amount of collateral in property and other assets, Chinese banks were willing to lend only Rmb2m.

[…]

Mr Qin’s grievances, which he recently aired on social media, are increasingly common among private sector companies in the world’s second-largest economy, which have been hit by a squeeze on lending as Beijing has worked to reduce the economy’s dependence on debt-fuelled stimulus. If their complaints are not addressed, the consequences could be disastrous for Chinese officials as they try to avoid a precipitous deceleration in economic growth, which last year slowed to a 28-year low of 6.6 per cent, according to data released on Monday.

Interestingly, according to data cited by the article, “non-state companies” (including foreign-invested enterprises) received only 11% of new loans issued by the official banks in 2016, despite accounting for more than half of total economic output. (Private sector firms received 52% of new loans in 2012.) More fodder for the great debate about how much of China’s economy is really private.

More:

Mr Xi and Mr Liu [the vice-premier] appear to have underestimated both US President Donald Trump’s willingness to launch an all all-out trade war with China, which has sapped investor and private-sector investment, and also their ability to force the country’s state-controlled banking sector to direct more lending to non-state companies.

Also worth bearing in mind:

Yes, China’s 6.6% growth in 2018 is its slowest in nearly 3 decades. But given the size of its economy, that represents about $1.2trn of additional demand, nearly twice as much as it generated with 14% growth in 2007.

(And yes, we should take official figures with a big pinch of salt. And yes, China faces big downside risks. But it is worth taking a moment to look past the growth rate at the fact that, within a decade, we’ve gone from talking about a $4trn economy to a roughly $13trn economy.)

Here’s another angle on it:

China GDP growth global comparison

Huawei’s ersatz European campus

Huawei campus Dongguan

Medieval Bavaria or Chinese telecom giant’s corporate campus? You be the judge (Source)

So, this is incongruous. Huawei researchers in the city of Dongguan will be pushing the envelope of telecom technology… in a faux German castle:

Huawei’s billionaire founder, Ren Zhengfei, broke years of silence Tuesday to defend China’s largest technology company from growing espionage accusations. One thing he didn’t address was the massive new campus the telecoms giant is building in Dongguan—maybe because the complex pretty much speaks for itself.

From faux Italian towers to artificial lakes and classical palaces, Huawei is recreating a wide swathe of Europe in its backyard. Ren—a civil engineer by training—is overseeing the construction of a massive new campus that neatly sums up Huawei’s global ambitions.

Check out the photos at the link. It reminds me of Shanghai’s fake European villages:

Shanghai Thames Town

Shanghai Thames Town (Source)

Although, I have to admit that I would rather work in a European-style building, even a fake one, than a soulless modern glass-and-steel monstrosity like those found on Huawei’s Shanghai campus (or almost anywhere else):

Huawei Shanghai R&D center

Preview of a blueprint of a vision

Guangzhou central business district

Guangzhou (Source)

…so to speak. I am referring to the news that the Chinese government will “unveil” a “blueprint” for the 11-city “Greater Bay Area” initiative in southern China, which is believed to contain the planet’s largest concentration of humans in a single urban area. The blogger Big Lychee weighs in:

The basic proposition is that you have a bunch of coastal cities clustered around a river delta/estuary, and if you do something (to be revealed on Feb 21, fingers crossed) it will start to perform a similar ‘powerhouse’ economic function as the Silicon Valley area around San Francisco Bay, or maybe the vast industrial region around Tokyo Bay, because an estuary is sort of like a bay. Voila – the world’s top bay area.

Regional geography types might point out that the Pearl River Delta is already performing such a function, with its vast swathes of factories, banks, sea ports, airports, power stations, residential areas, road and rail links, malls, schools, 7-Elevens, pet-grooming salons and everything else an economic dynamo needs.

Promoters of the concept excitedly insist that the extra yet-to-be-announced something can unlock the area’s great additional potential. They note that it is currently divided among a dozen or so municipal jurisdictions, whose mayors and other leaders compete with one another, and two of which are de-facto city states with their own currencies and laws, separated by international-style borders.

Linking a bunch of cities together into a seamless megalopolis is certainly a compelling idea, but the enormous amount of propaganda surrounding the extremely nebulous and inchoate Greater Bay Area concept suggests an ulterior motive. What that motive might be is astutely suggested by the blog:

Skeptics point out that while merging Guangzhou, Zhuhai, Shenzhen and other mainland cities’ planning and other functions might produce economies of scale and efficiencies, it is difficult, if not unconstitutional, to absorb Hong Kong and Macau into the Mainland this way.

Some fear the whole thing is a plot to subsume Hong Kong politically and economically within a bigger cross-border entity. Others suspect the idea is more psychological or symbolic – aimed at encouraging the idea or feeling that Hong Kong is just a part of something bigger. In other words, to dilute Hong Kong’s separate identity. As in ‘We will no longer be Hong Kong people, but Greater Bay Area people’.

That sounds about right. I guess we’ll find out. By the way, I love how Guangzhou is assigned the role of “a national central city” while flashy Shenzhen gets to be “a special economic region and an innovative city.” Poor Guangzhou. At least it’s visually interesting, and the Cantonese culture is great, if you’re into that sort of thing. (It’s also the Guangdong provincial capital.)

China’s population begins to shrink

Beijing traffic jam

Welcome news for some

China’s population is believed to have shrunk last year for the first time since the founding of the People’s Republic in 1949. Despite the loosening of the one-child policy in 2016 to allow for two children per couple, new findings from a researcher at the University of Wisconsin-Madison indicate that China’s population dropped by 1.27 million in 2018. The number of live births nationwide dipped by 2.5 million last year, after being projected to grow by 790,000. Thus, China is on track to get old before it gets rich.

This is most alarming:

The number of women of childbearing age is expected to fall by more than 39 percent over the next decade and China’s two-child policy isn’t enough to shore up dwindling birth rates, [Yi Fuxian] added.

That is an absolutely colossal decline in 10 short years. For reference, a Chinese newspaper gives the total number of women of childbearing age (15 to 49 years old) as 346 million. If we apply Yi’s 39% reduction to this figure, that would mean a net removal of almost 135 million women from the childbearing population. That’s more than the whole population of Japan. In a decade!

He is now urging the government to get out of people’s bedrooms by scrapping the two-child limit and offering more incentives including generous maternity leave and tax breaks for parents.

If the government doesn’t intervene now, “China’s aging crisis will be more severe than Japan, and the economic outlook will be bleaker than Japan,” Yi said.

China’s labor force is becoming smaller as the population grays, putting intense strain on the country’s fragile pension and health care systems.

[…]

“The U.S. economy will not be overtaken by China, but by India, which has a younger population,” he said.

“China’s economic vitality will continue to decline, which will bring about a disastrous impact on the global economy.”

Ditching the two-child limit would be most welcome. It’s questionable, however, whether pro-natalist incentives like maternity leave can make a significant dent in the problem. Chinese women have to really want children.

Here’s an insight from the financial blogger Luo Zhen (罗臻) way back in August 2013:

Consider the bigger picture. China is urbanizing and one plan for keeping growth from collapsing to near 0-3% is to push more people into cities. The fertility rates in the cities is already low by choice. China increasingly looks like Hong Kong, Taiwan and Singapore, where the fertility rates are 1.1, 1.1 and 0.8 children born/woman, respectively. China’s fertility rate is currently about 1.6 children born/woman.

If they want to raise fertility, they should deurbanize. China’s fertility rate is headed lower, one child policy or not.

There’s an idea: deurbanization. Perhaps it’s time to ease back on the crazy city-building drive and start ushering people back to the countryside. It’s been done before, sort of: China sent roughly 17 million youths to the countryside during the Cultural Revolution.

Luna incognita

Far side of moon China

A glimpse of the far side

We have a touchdown:

China successfully landed the Chang’e 4 spacecraft on the far side of the moon on Thursday morning, Beijing time, according to state news agency Xinhua, becoming the first in history to touch the lunar surface unseen by those on Earth.

The Chang’e 4 mission launched in early December. It took the spacecraft three days to travel to the moon, where it spent the last few weeks in orbit preparing for touch down on the Von Karman crater. The crater is a relatively flat spot on the moon’s far side.

“China’s Chang’e-4 probe softlands on Moon’s far side,” the state news agency tweeted on Thursday.

[…]

Landing on the far side is a technical challenge, as there is no direct way to communicate with the spacecraft as it nears its target. China put a relay satellite in orbit around the moon in May to overcome that communication challenge.

The far side of the moon has been seen and mapped before, even by astronauts of the Apollo missions. But the successful landing of Chang’e 4 represents the first time any spacecraft has touched down on the moon’s far side.

Most impressive.

Full steam ahead

China bullet train countryside

This is what a serious country looks like:

China plans to build 3,200 km of new high-speed railways in 2019, with the total length expected to exceed 30,000 km, the country’s top railway operator said Wednesday.

For all the ‘Muricans reading this, that’s nearly 2,000 miles of new track – roughly the distance from Philadelphia to Phoenix – with a total of more than 18,600 miles. Incidentally, the peak year for US rail-building was 1887, when more than 13,000 miles of track were laid down.

The 3,000-plus km of high-speed railways are part of the planned development of 6,800 km of new railways for the new year as the country will keep fixed-asset investment on railway on a large scale, Lu Dongfu, general manager of the China Railway (CR), told a work conference.

6,800 km = 4,225 mi

The country saw an expanding high-speed railway network over the years, with a total length of 29,000 km by the end of 2018, accounting for more than two-thirds of the total high-speed railway in the world. China aims to build 30,000 km of high-speed railways by 2020.

China’s railways are expected to transport 3.54 billion passengers and 3.37 billion tonnes of goods this year, the general manager said.

[…]

Lu said the CR would facilitate the investigation and research of Sichuan-Tibet railway and try to start construction by the end of the third-quarter of 2019.

Never let it be said that China isn’t ambitious. I’d love to have me some high-speed rail on the Acela corridor (Boston to DC, with stops at New York and Philly) and – what the hell, as long as we’re dreaming – between New York and Los Angeles.

Imagine if the US were an advanced country and had the wherewithal to build a high-speed superconducting maglev train that could rocket people between New York and LA in under seven hours, following in the footsteps of China, Japan, and South Korea, which all operate similar systems on a much smaller scale.

Here’s my account of taking the bullet train from Guangzhou to Beijing back in 2013.

An emerging alliance

China Russia military exercises

Harvard Kennedy School’s Graham Allison ponders the rapidly solidifying alliance of convenience between Russia and China:

Given these structural realities, the prospects for a Chinese-Russian alliance in the longer run are undoubtedly grim. But political leaders live in the here and now. Denied opportunities in the West, what alternative do Russians have but to turn East? Moreover, while history deals the hands, human beings play the cards, even sometimes practicing a quaint art known in earlier eras as diplomacy. The confluence of China’s strategic foresight and exquisite diplomacy, on the one hand, and U.S. and Western European clumsiness, on the other, has produced an increasingly thick and consequential alignment between two geopolitical rivals, Russia and China.

In international relations, an elementary proposition states: “the enemy of my enemy is a friend.” The balance of power—military, economic, intelligence, diplomatic—between rivals is critical. To the extent that China persuades Russia to sit on its side of the see-saw, this adds to China’s heft, a nuclear superpower alongside an economic superpower.

American presidents since Bill Clinton have not only neglected the formation of this grievance coalition; unintentionally but undeniably, they have nurtured it. Russia emerged from the collapse of the Soviet Union in 1991 with a leader eager to “bury Communism,” as Boris Yeltsin put it, and join the West. The story of how we reached the depth of enmity today is a long one, strewn with mistakes by all parties. The Clinton administration’s decision in 1996 to expand NATO toward Russia’s borders, Kennan observed, was the “most fateful error of American policy in the entire post-cold-war era.” He predicted that the consequence would be a Russia that “would likely look elsewhere for guarantees of a secure and hopeful future for themselves.”

The growing Sino-Russian alignment is economic, diplomatic, and most worryingly for the US, military in nature:

Most American experts discount Sino-Russian military cooperation. Commenting on this year’s unprecedented military exercise in which 3,000 Chinese soldiers joined 300,000 Russians in practicing scenarios for conflict with NATOin Eastern Europe, Secretary of Defense Mattis said: “I see little in the long term that aligns Russia and China.”

HE SHOULD look more carefully. What has emerged is what a former senior Russian national security official described to me as a “functional military alliance.” Russian and Chinese generals’ staffs now have candid, detailed discussions about the threat U.S. nuclear modernization and missile defenses pose to each of their strategic deterrents. For decades, in selling arms to China, Russia was careful to withhold its most advanced technologies. No longer. In recent years it has not only sold China its most advanced air defense systems, the S-400s, but has actively engaged with China in joint r&d on rockets engines—and UAVs. Joint military exercises by their navies in the Mediterranean Sea in 2015, the South China Sea in 2016 and the Baltic Sea in 2017 compare favorably with U.S.-Indian military exercises. As a Chinese colleague observed candidly, if the United States found itself in a conflict with China in the South China Sea, what should it expect Putin might do in the Baltics?

Pushing Russia away from the Western alliance and into China’s arms was phenomenally stupid, a foreign policy catastrophe for the ages. On the other hand, it’s probably time for the US to wind down its imperial meddling in Eurasia and focus on problems closer to home. The China-Russia rapprochement will certainly hasten that process. And being a regional, rather than a global, power isn’t so bad.

US wants China to show it the money

Wang Jisi Peking University

From David Cowhig’s Translation Blog, this is a good interview with a Chinese academic regarding the increasingly contentious state of US-China relations. Wang Jisi is Dean of the School of International Studies at Peking University. While I don’t necessarily agree with all of his points, he has a very calm and measured perspective on things that I find refreshing:

Zhao Lingmin: Why does Trump want to launch a trade war against China? Is it to hurt China?

Wang Jisi: My understanding is that American entrepreneurs still do not want to withdraw from China. They think they can make a lot of money in China. After all, the Chinese market is big, and in the past 30 or 40 years, some very strong path dependencies have been created – how can such a big and complex supply chain simply move somewhere else? There are not many places to choose from. For the present, these enterprises are opportunistic. They say that they want to exert pressure on China on the US government. On the other hand, they say to China that if you give me preferential policies, I will not leave. I think there are still many American companies see things that way. They have a wait-and-see attitude.

Their feelings about China are complex. On the one hand, they are very dissatisfied with various restrictive policies. On the other hand, they also realize that China is not the only country with these restrictions. Many many developing countries have similar restrictions. If you move your company to Egypt, don’t you think that the Egyptian government will regulate you? When they think about it, China is still good a good place to be. They can make money here. Therefore, they think that they should exert pressure on the Chinese government to continue with reform and open up some more industrial sectors to foreign investment.

Therefore, the reason the United States launched a trade war against China was not to pull out of China or to completely “decouple” from China, but to change China’s behavior so that it can make more money. This conclusion I have drawn from decades of involvement in Sino-US economic and trade relations. Some people in the US government and others in some American companies, however, are also preparing for the worst: decoupling of many of the economic links between China and the United States. This is dangerous.

[…]

Zhao Lingmin: In addition to the trade imbalance, what other causes of US dissatisfaction in the US – China relationship?

Wang Jisi: The US military is unhappy. The military is a big interest group. A few year ago, it did not believe that China was strong enough to pose a threat to the United States, and that China did not mean to truly exclude the United States from the Asia-Pacific region. During the past two years, China has taken a very firm position on the South China Sea issue. The United States has begun to feel that that the Chinese military is much stronger than before. They feel that if the US does not exert pressure on China, it will not have a foothold in the Western Pacific. The military, including the military-industrial complex, are hardliners on China policy. Formerly, when terrorism was the top concern, there was a lot of military spending and a great many companies and others forming a huge chain of interests linked to the manufacture and sale of weapons. Now, by pointing to China, contradictions with China on military security issues can be used to argue for more military spending.

In addition, the Confucius Institutes in the United States have made Americans feel that China’s values are different from those of the United States. China’s promotion of Chinese values in the United States is very difficult for Americans to accept. The ideological contradictions between China and the United States are also reflected their attitudes towards Chinese students and scholars studying in the United States.

I wrote about Confucius Institutes here.

Zhao Lingmin: Some say that the pressure that the United States has put on China was to a great extent the cause of the firm line of Chinese foreign policy over the past several years.

Wang Jisi: I am not here to make political and moral judgments. If we are looking for the cause, it was the change in Chinese policy that led to adjustments in US policy towards China. In recent years, China’s strength has been increasing rapidly along with its international influence. China has increased its operations maintain protect China’s territorial sovereignty and maritime rights. China has put increased pressure on “Taiwan independence” and other splittist forces. China has strengthened the leadership of the Communist Party. The United States has become increasingly uncomfortable with China’s actions and has begun to react strongly. We can expect that these US reactions to Chinese actions will become ever more intense. The US may switch from the defensive to the the offensive.

The cause-and-effect relationship we see today also applies to 1949 and 1979. In those two years, changes in Chinese internal affairs led to big changes in Sino-US relations. Changes in US internal affairs have always had relatively little impact on Sino-US relations despite the many different presidents since then and many different political currents swept the US during those decades. The financial crisis broke out in 2008. That was major event for the United States. Did it cause a major change in Sino-US relations? Not at all.

I very much agree with my colleague Professor Tao Wenzhao that for over 200 years, the United States has never changed its strategic goals for its relationship with China:

  • Free flow of goods and capital, and
  • Free free flow of information and values.

Chinese have always had reservations or imposed boycotts to oppose two goals. We should criticize and have reason to criticize the United States but we should realize that China’s own actions have changed Sino-US relations and US perceptions of China.

China and the Chesapeake-Leopard affair

Huawei CFO Meng Wanzhou pizza

Pizza delivered to Vancouver home of Meng Wanzhou, who has been released on bail

More information is coming out about the arrest in Canada and possible extradition to the US of Huawei CFO Meng Wanzhou (Sabrina Meng) – aka the Huawei Affair. The New York Times filled in some of the details yesterday. In a nutshell, US counterintelligence and federal prosecutors have been exploring action against Huawei on national-security grounds as far back as 2010, but the authorities decided it would be easier to go after the telecom giant for financial crimes:

But criminally charging Huawei or its executives for espionage or other security crimes was not likely to be simple. Former federal prosecutors said doing so often risked exposing the sources of confidential information. As a result, they said, prosecutors often look to bring more conventional cases involving crimes such as bank fraud. Think of it as the Al Capone strategy: Prosecutors went after the notorious gangster by charging him with tax evasion. […]

This summer, the prosecutors decided to file criminal charges against Ms. Meng — fulfilling their yearslong goal of going after Huawei executives for allegedly acting as an extension of the Chinese government.

Prosecutors filed the charges, under seal, on Aug. 22, and a federal judge in Brooklyn signed a warrant for Ms. Meng’s arrest. The charges focused, at least in part, on her allegedly tricking at least four banks, including HSBC and Standard Chartered, into facilitating the company’s Iranian transactions.

While Ms. Meng’s main home is in Shenzhen, China, she regularly traveled to Canada; she and her husband own two houses in Vancouver. The authorities figured it was only a matter of time before she traveled there, and the United States and Canada have an extradition treaty.

On Dec. 1, Ms. Meng flew from Hong Kong to Vancouver International Airport, where she stopped for a 12-hour layover before flying to Mexico. As she got off the plane, the Canadian police arrested her.

US action against Huawei is long overdue. The problem is that “personalizing” this issue by targeting one of China’s most famous female executives (ranked #8 on the 2017 Forbes China list of the country’s Top 100 Businesswomen) – who now faces up to 20 years in prison in the US – is an example of shocking jurisdictional overreach that, if the nationalities were reversed, would be viewed by the American public and government as tantamount to an act of war.

Key unanswered question: Did Meng make her fraudulent presentation to HSBC in the US?

The Guardian draws an intriguing parallel between the US mindset here, and that of the US’s former colonial master more than two centuries ago:

Blame the British, as usual. In 1807, in the midst of a struggle with Napoleonic France, HMS Leopard, a Royal Navy ship of the line, attacked, boarded and captured an American frigate, USS Chesapeake, off Norfolk, Virginia. The British claimed their action was justified by the presence on the American ship of four English deserters, whom they arrested. But, for President Thomas Jefferson, it was an outrageous, illegal infringement of the sovereignty and independence of the infant republic, eventually leading to the 1812 war.

It’s fair to say the Americans never forgot lessons drawn from the Chesapeake humiliation – and have been faithfully following Britain’s script ever since. As its power grew, the US, too, assumed the right to extend its national writ beyond its shores. One modern example is the way the US justice department ruthlessly pursues foreign nationals, such as the Scottish hacker Gary McKinnon, who are deemed to have broken US law. McKinnon’s extradition was ultimately blocked in 2012 by Britain’s then home secretary, Theresa May, after a public outcry.

Here’s a bit more about the Chesapeake-Leopard affair:

The Royal Navy’s humiliating attack on the USS Chesapeake left many Americans clamoring for war, but there was little the ill-prepared United States could do to answer British aggression.

“Never since the Battle of Lexington have I seen this country in such a state of exasperation as at present, and even that did not produce such unanimity.”

–President Thomas Jefferson

As his Royal Navy vessel patrolled off the coast of Virginia, Londoner and former tailor Jenkin Ratford and four other crewmen decided to steal a boat and desert to the shores of Norfolk. Ratford later boasted of his escape to the “land of liberty” in Norfolk’s streets, where his contempt incurred the ire of British authorities. They vowed to make an example of the brazen Englishman, who joined the crew of an American frigate, the USS Chesapeake.

In June 1807, the Chesapeake set sail from Norfolk for the Mediterranean. Its decks scattered with cargo and its guns unwisely stowed, the vessel made an appealing target for the crew of a British vessel, the HMS Leopard, who intercepted it off the coast of Norfolk and aimed to take revenge.

When the British commander requested permission to search the ship for deserters, the American commodore James Barron refused to muster his crew for inspection. Moments later, the captain of the Leopard responded with a barrage of broadsides, killing three Americans and wounding eighteen. British officers then proceeded to board the crippled Chesapeake and seized what they had come for: a handful of suspected deserters, including Jenkin Ratford.

The humiliating exchange infuriated the American public. War fever raged up and down the coast of the United States. President Thomas Jefferson maintained that the country was more exasperated than at any time since the 1775 battle at Lexington Green that touched off the War of Independence, “and even that did not produce such unanimity.” With Republicans and Federalists—normally bitterly divided political factions—both clamoring for action, war between Britain and the U.S. seemed imminent.

In reality, however, there was little President Jefferson could do militarily to respond to the British transgression. America’s small navy was already deployed in the Mediterranean checking the Barbary pirates. America’s army had been long since been gutted by Republicans anxious to reduce government spending. As Jefferson bided his time and war fever subsided, he instead pursued economic coercion as an alternative to war. That economic pressure began a few months later with the passage of the Embargo Act.

The exchange between the Chesapeake and the Leopard had other consequences for its participants, however. Commodore Barron was later court martialed; found guilty of “neglecting on the probability of an engagement, to clear his ship for action,” he was suspended from the navy for five years without pay.

And on August 31, 1807, the Royal Navy got its revenge on the tailor who had deserted his vessel. Tried by court-martial for mutiny, desertion and contempt toward a British naval officer, and sentenced to death, Jenkin Ratford met his end—hanged from the fore yardarm of his former vessel, the HMS Halifax.

The Chesapeake-Leopard affair was one of the events that precipitated the War of 1812, in which the British burned down Washington DC. The Americans got their revenge more than a century later, when FDR stripped the British Empire of its life savings in exchange for desperately needed war supplies at the outset of World War II. History has a dark sense of humor.

Huawei insanity

The Huawei Affair just keeps escalating. I hope this doesn’t lead to a Sino-American war. It’s really not worth it.

A second Canadian has just disappeared into detention in China – by sheer coincidence, of course.

Meantime, the permanent bureaucracy shows the president who’s boss:

Despite President Trump’s statement that he might intervene in a criminal case against the chief financial officer of Huawei Technologies Co., such a move would break from longstanding tradition and advisers have warned him that his options are limited, according to people familiar with the matter.

When news broke last week of the arrest of Meng Wanzhou, threatening the president’s trade talks with China, he asked for options, according to one person, and advisers told him the arrest and potential prosecution of Ms. Meng was essentially out of his hands.

The arrest was a Justice Department matter, they said, and the White House should stay out of it for now, this person said. There are no immediate plans to intervene in the matter, officials added.

Trump can and absolutely should make the DoJ drop this case:

Former Justice Department officials said that while Mr. Trump’s intervention in the Meng case would be a departure from the norms against White House involvement in criminal cases, there is nothing in the Constitution that bars it. Such actions are more common – though still unusual – if the action is framed as a national-security matter.

While the circumstances were different, President Obama pushed the Justice Department to drop cases against several alleged Iran-sanctions violators while negotiating a plan for that country to curb its nuclear program.

David Goldman is probably right that certain elements of the national security state are trying to sandbag Trump.

Here’s an explainer on the legal niceties of the case. All well and good, but it blithely ignores the insanely provocative nature of this move, how it is *perceived* outside the US (backlash is bad), as well as the selective way in which the law is being applied:

The arrest of Huawei chief financial officer Meng Wanzhou is a dangerous move by US President Donald Trump’s administration in its intensifying conflict with China. If, as Mark Twain reputedly said, history often rhymes, our era increasingly recalls the period preceding 1914. As with Europe’s great powers back then, the United States, led by an administration intent on asserting America’s dominance over China, is pushing the world toward disaster.

The context of the arrest matters enormously. The US requested that Canada arrest Meng in the Vancouver airport en route to Mexico from Hong Kong, and then extradite her to the US. Such a move is almost a US declaration of war on China’s business community. Nearly unprecedented, it puts American businesspeople traveling abroad at much greater risk of such actions by other countries.

It may not be kidnapping but it certainly looks like kidnapping. From FT:

To put the incident’s shock value in an American context, it was as if a daughter of Steve Jobs, who was following him up the corporate ladder at Apple, had been detained in Moscow pending her possible extradition to Beijing.

The hypocrisy of this move against an extremely high-profile Chinese businesswoman is a little hard to take:

Meng is charged with violating US sanctions on Iran. [Ed: Not quite.] Yet consider her arrest in the context of the large number of companies, US and non-US, that have violated US sanctions against Iran and other countries. In 2011, for example, JPMorgan Chase paid US$88.3 million in fines for violating US sanctions against Cuba, Iran and Sudan. Yet chief executive officer Jamie Dimon wasn’t grabbed off a plane and whisked into custody.

And JPMorgan Chase was hardly alone in violating US sanctions. Since 2010, the following major financial institutions paid fines for violating US sanctions: Banco do Brasil, Bank of America, Bank of Guam, Bank of Moscow, Bank of Tokyo-Mitsubishi, Barclays, BNP Paribas, Clearstream Banking, Commerzbank, Compass, Crédit Agricole, Deutsche Bank, HSBC, ING, Intesa Sanpaolo, JP Morgan Chase, National Bank of Abu Dhabi, National Bank of Pakistan, PayPal, RBS (ABN Amro), Société Générale, Toronto-Dominion Bank, Trans-Pacific National Bank (now known as Beacon Business Bank), Standard Chartered, and Wells Fargo.

None of the CEOs or CFOs of these sanction-busting banks was arrested and taken into custody for these violations. In all of these cases, the corporation – rather than an individual manager – was held accountable. Nor were they held accountable for the pervasive lawbreaking in the lead-up to or aftermath of the 2008 financial crisis, for which the banks paid a staggering $243 billion in fines, according to a recent tally.