You should’ve listened

GreenlandGreenland is suddenly all over the news. ‘Member that time, in December 2017, I wrote that the autonomous Danish territory “increasingly seems like a place to watch”? I ‘member.

Consider this your periodic reminder that in 2013, a controversy stemming from a proposed Chinese-backed iron ore project resulted in a change of government in Greenland.

Also, that China has tried to surreptitiously build a satellite ground station with military applications in Greenland’s capital (emphasis mine):

In May 2017, a project to set up a dual-use satellite ground station in Nuuk was “officially launched” on Greenlandic soil. The ceremony was attended by Cheng Xiao 程晓, the leading remote sensing expert in charge of the project, and a hundred Chinese visitors, including retired PLAN Rear Admiral Chen Yan 陈俨, former political commissar of the South China Sea fleet and NPC delegate between 2003 and 2008. A Beidou pioneer with a military background spoke at the event. The trip to Greenland was also used to fly the first Chinese remote-sensing drone in Greenland, the Jiying 极鹰 3. Although these events were reported in Chinese, the Greenlandic government remained unaware of the project months after its official launch. First mentioned in English on my blog, the project’s existence only became known to the Greenlandic public and their elected representatives after it was covered in a story by Andreas Lindqvist for the local paper AG, using my translations from Chinese sources. My full account, including the background of the main individuals in attendance, was posted in December.

The project illustrates the PRC’s double messaging in the Arctic. It was possible to organise a discreet event with a hundred participants in a town with a population of 493 by bringing them as a tour group. After the event, the tourists continued on an eight-day cruise of eastern Greenland. The tour was organized by Souluniq, a high-end tour operator long associated with communicating the importance of the polar regions to China’s national interest. The fact that the Chinese public for the event was a tour group attending this ‘launch’ as a patriotic-themed attraction, after lunch in a restaurant, was not disclosed in Chinese media accounts: indeed, the phrasing allowed readers to imagine a joint ceremony with the Greenlandic government, marking the actual start of the station’s construction. In fact, no date had been fixed for the actual construction of the station, a 7m antenna to be installed outside Nuuk; the required authorisation had not been sought with the Greenlandic authorities. To a Chinese audience, this was the launch of a major project in Greenland; for the locals, it was just another group of Chinese tourists. The project’s local partner saw its leader as just a fellow scientist, a perception that can help the project’s chances with the local authorities. Relevant Chinese audiences, on the other hand, have been made aware of Cheng Xiao’s key role in China’s polar strategy. A global network of satellite receiving stations is of strategic importance to the PRC; in the Arctic, one opened in Kiruna, Sweden, in 2016, to be followed by another one in Sodankylä, Finland. The dual-use Beidou satellite navigation system, in particular, needs more ground stations. The military aspect of the PRC’s polar strategy is clear to Cheng, who warns that “China’s threats come from the Arctic” and, according to a participant, discussed the military significance of the project during the Greenland tour. […]

Had it remained confined to the local domain, the project might have proceeded smoothly, perceived as cooperation between fellow scientists, then presented as a fait accompli for the approval of the local authorities. Its exposure, attracting the wrong kind of attention, could complicate its prospects. No further information on the project has emerged since its ‘official launch’ was revealed and it remains unclear when it will be built.

I referenced this project on my blog here.

Axios cites me

piece in Axios discussing a report on the precipitous decline of Chinese investment in the US in 2017, and what it means:

When Chinese investment in U.S. companies plunged by 83% last year, it was the result of Beijing’s crackdown on capital. But it also reflected a reckoning for four Chinese titans who Beijing cut down to size, according to new research. […]

  • But, but, but: When Ma looked at the individual investments, she saw that just four companies — what MacroPolo calls the Group of 4 — accounted for 61%, or $34 billion, of China’s entire 2016 investment.
  • The four: Anbang Insurance, HNA Group, Oceanwide Holdings and Wanda Group.
  • Absent those six deals, 2016 would have been just a tad higher than the three prior years, Ma writes.

Beijing noticed too: For years, Beijing has encouraged China’s companies to “go out” and invest around the world. But that’s not how the government viewed the Group of 4, which it proceeded to treat as something akin to traitors. […]

Oceanwide appears to be the exception. Just two weeks ago, it got final approval for yet another U.S. deal — a $3.8 billion takeover of Genworth Financial, an insurance company, reports Mingtiandi’s Greg Isaccson.

The article cited is “China Oceanwide Gets US Green Light for $3.8B Genworth Deal.”

Lu Zhiqiang Oceanwide

Oceanwide chairman Lu Zhiqiang is the only member of China’s outbound investment Gang of Four to escape Beijing’s regulatory wrath

Talk about burning your bridges

Actually, “nuking your bridges from orbit” might be a better characterization of this hectoring statement by the Chinese ambassador to Canada, Lu Shaye, after the Canadian government blocked the acquisition of Canada’s third-largest construction firm by a Chinese state-owned enterprise (emphasis mine):

I regret that the Canadian government rejected the acquisition of the Canadian construction company, Aecon, by China Communications Construction Company (CCCC) on national-security grounds. China does not agree with politicizing and wantonly using the concept of national security and opposes adopting discriminatory policies against Chinese enterprises. Canada’s rejection of Aecon shows that Chinese enterprises are suffering from unfair treatment – and it’s not the first time.

The rejection will result in much greater loss for Canada than China. The acquisition offered by CCCC at a premium of $1.5-billion was definitely good news for Aecon. It would not only greatly improve Aecon’s international competitiveness and tap into its development potential, but also help increase employment opportunities and employee welfare, from which its shareholders would also benefit. Yet, the Canadian government made this impossible, leaving the employees and shareholders of Aecon disappointed. But for CCCC, a world construction giant, the Canadian construction market is insignificant and being rejected for acquiring Aecon may only mean that it has saved $1.5-billion.

We have noticed that since CCCC reached an acquisition agreement with Aecon in October last year, the Canadian media have repeatedly hyped CCCC as one of the state-owned enterprises of China, which they described as monsters. These reports are neither objective nor fair. I have always stressed that China has no objection to Canada’s security review of acquisitions by foreign enterprises. But we oppose demonizing Chinese state-owned enterprises and abrasively smearing them. I have said that slandering Chinese state-owned enterprises in this way is immoral.

Still, some people are so full of imagination that they claim China’s development depends on stealing technologies from western countries. I’d like to advise them to keep calm and think: How could a country such as China – with a population of more than one billion – develop by solely stealing technologies from other countries? It would be too arrogant for someone to think that innovation capacity is exclusive to western countries.

In fact, China has long been a major powerhouse of independent innovation. According to data released by the World Intellectual Property Organization, China was the largest holder of newly registered patents in the world in 2016 and 2017. These people are advised not to believe that developing countries will always lag behind the West. At present, it is an inevitable trend for countries to carry out international technological co-operation in the era of globalization. Being complacent and conservative are not only against the international trend, but also bound to be left behind. To maintain the leading position in technology fields, western countries must run faster, instead of tripping other countries up and making dirty tricks. Some people also attack CCCC’s participation in construction on islands and reefs in the South China Sea. But this just proves that CCCC boasts advanced technology in the infrastructure field. Perhaps what they are really afraid of is the strong competitiveness of China’s state-owned enterprises.

And some people have said that western standards are global standards in terms of investment, trade and protection of intellectual-property rights. Such logic seems domineering and centres around the idea that westerners have the final say on international rules. On the contrary, I think that global standards are by no means western standards. Using standards defined by the West to ban or suppress the progress of developing countries is futile, and runs counter to international morality.

The world is colourful – and Canada has always boasted diversity and multiculturalism. I hope Canadians can embrace China as simply a different country and not regard China as a threat just because of our differences. Only by getting rid of such kinds of demons can Canada relieve the burden, co-operate with China and come aboard the express train of China’s development.

Pretty astonishing language from China’s top diplomat in Canada, even by the Chinese government’s usual swaggering, self-righteous standards. It’s amazing that Beijing would consider this an appropriate response to a rebuffed corporate takeover bid. This statement is more of an angry, narcissistic lashing-out than a considered diplomatic response by a great power. And could China do more to vindicate the critics of the Aecon deal than this blithe and insulting dismissal of their concerns?

We have heard a lot about China’s “soft power” offensive, but all the Confucius Institutes and newspaper advertorials in the world cannot undo the damage done by this sort of grandiose approach to foreign relations. From the standpoint of China’s national interest, it makes no sense to alienate a potential partner this way.

I assume this episode will be remembered the next time a Chinese company bids on a sensitive Canadian asset. The US is watching, too.

CBRC crackdown

A helpful comment by Richard Balding, Professor of Economics at Peking University, on the reported crackdown by the China Banking Regulatory Commission (CBRC) on some of China’s most aggressive overseas investors:

Briefly on the matter of the Chinese regulators telling banks to review loans made to HNA, Anbang, Dalian, and others. I should note that parts here are speculative and anyone who tells you they really know really does not.

First, we should not be under any illusions that these firms are in anyway ethically or legally saints. At best they have pushed the boundaries of what even in China was considered legal and would definitely be allowed any place else.

Second, it is important to note that these firms were widely encouraged not just in their overseas acquisitions but their domestic build up. There is a mountain of evidence and other information that these firms were encouraged to do the behavior that is now being called into question. I do not mean to say this to necessarily defend them but more to provide context on these events.

Third, this begets the questions, so what exactly is going on? […]

I think the most likely explanation is that there are very real financial stresses. I think there is a wealth of evidence of increasing financial stress in Chinese markets. One thing that has become abundantly clear in Chinese markets is that problems arise unexpectedly and there is always a massive amount of information that should have been revealed before. I have no secret information but I believe this is the most likely explanation though others are always possible.

As usual, Chinese policy-making is a black box, and unless your job title includes the words “Central Committee of the CPC,” there is essentially no chance you understand what’s going on…

They know, you don’t