China’s Social Media Propagandists Limber Up For US Elections

WORD ARRIVES FROM our man in Washington about the growing concern there about China’s expanding disinformation campaign targeted at the United States.

Facebook, Twitter and Google’s YouTube have taken down accounts on their social media platforms they say are linked to Chinese state interests and that have been seeking to discredit Hong Kong protestors. Twitter and Google have also said they would no longer sell advertising space to media that are financially and editorially controlled by nation-states. Netizens in China have accused the US social platforms of political censorship.

In Washington, the disinformation campaign over Hong Kong is being perceived as the first significant social media-based disinformation campaign that China has geared toward US audiences. The accounts Twitter disabled are a mix of bot- and human-based ones, with some dating back to 2009, suggesting long-standing preparation. The concern among lawmakers in the United States is that this is a dry run for Beijing’s propagandists for the 2020 US presidential and Congressional elections.

That offers the unpredictable prospect of both China and Russia meddling in a US election, but possibly on different sides, with Moscow supportive of US President Donald Trump and Beijing taking the opposite tack, although Democrats are no longer as dovish on China as they once were.

Both, though, are likely to contribute to the declining US confidence in its democratic institutions, which may be success enough in Moscow and Beijing.

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US Sale Of F-16s To Taiwan Would Up Ante

THE US GOVERNMENT’S approval of Taipei’s long-sought $8 billion purchase of 66 F-16 warplanes and ancillary kit has drawn the predictable condemnation from Beijing.

The notice that Washington would go ahead with the sale was contained in a mandatory notification to the US Congress issued on Tuesday by the US Defense Security Cooperation Agency.  It follows the agency’s announcement of a $2.2 billion intended sale to Taipei of 108 Abrams tanks, 250 Stinger missiles and related equipment.

Taiwan’s air force currently flies ageing F-16s bought in 1992, although upgraded several times since. The US Congress still needs to approve the latest sale.

China says the sale of the fighter jets would be a violation of international law and international relations and of the One China policy, under which Washington formally recognises Beijing, not Taipei. It deployed similar language regarding the One China policy against the sale of the tanks.

This time, however, It has also threatened sanctions against US firms involved with the sale, which would most prominently be Lockheed Martin and General Electric.

Hitherto, the Trump administration has been relative restrained in its arms deals with Taiwan. Its two predecessors (the Obama and Bush administrations) both made bigger sales in aggregate.

However, this latest proposed sale ups the ante, and would be favoured in Washington by both those who will see it as a way to apply pressure on Beijing over the US-China trade talks and those who are security hawks on China.

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Trump’s Deft Hong Kong Suggestion

Chinese President Xi Jinping (R) meets with his U.S. counterpart Donald Trump in Buenos Aires, Argentina, Dec. 1, 2018.THERE IS NO chance that President Xi Jinping will take up his US counterpart Donald Trump’s suggestion to meet with the Hong Kong protestors. For one, it would be too reminiscent of Premier Li Peng’s meeting with the student leaders of the 1989 Tiananmen Square protest. For another, it is unimaginable that Xi would meet with the leaders of a group Beijing is branding as “rioters with behaviour that is close to terrorism”.

However, the suggestion is a deft one on the part of Trump. It tacitly acknowledges China’s right to intervene directly in the Hong Kong protests, now in their tenth week, without condoning a ‘send in the tanks’ approach. It gets Trump off the hook for his ill-judged earlier proposal that he and Xi meet to resolve the protests, and it ties the protests to the China-US trade dispute. By saying that the situation in Hong Kong has to be resolved first, it provides convenient cover for any lack of progress in the trade talks regardless.

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IMF, China And The Economic Elephant In The Room

Screenshot of IMF's Country Page for China

THERE IS SOMETHING other-worldly about the International Monetary Fund’s new report on its latest Article 4 Consultation with China: a rational analysis of structural economic reform amidst a maelstrom of tensions between Washington and Beijing.

The Fund’s report outlines the recent progress made by China in reducing financial sector fragilities and continuing to open up of the economy. It stresses the need for ‘staying the course on deleveraging and financial de-risking’ and for further progress in addressing distortions that encourage excessive household savings. It urges more reforms to enhance the social safety net and make the tax system more progressive.

It promotes greater exchange rate flexibility and deeper foreign-exchange markets to help the financial system prepare for increased capital flow volatility. It calls for increasing the role of the market and reducing the dominance of the public sector in many industries. It highlights the need to continue to move to a more price-based monetary policy framework and to address the misalignment of centre-local fiscal responsibilities.

All are laudable policy points, for which the Fund has long argued. The report summarises its prescriptions thus:

• Adjust macro policies and allow for a more flexible exchange rate. The announced policy measures are sufficient to stabilize growth in 2019 provided there are no further increases in tariffs. If trade tensions escalate further, additional stimulus, mainly fiscal, would be warranted.
• Improve external policies and frameworks by working constructively with trading partners to better address shortcomings and enable a trading system that can more readily adapt to economic changes in the international environment. The global economy would benefit from a more open, stable, and transparent, rules-based international trade system. China can also benefit from further opening up and other structural reforms that enhance competition.
• Continue strengthening the financial sector by fully implementing the announced regulatory reforms, strengthening bank capital, especially for smaller banks, and enhancing macroprudential tools to address vulnerabilities from rising household debt. Developing a clear resolution regime would facilitate the exit of weak banks. Removing the implicit guarantees and hardening the budget constraints for state-owned enterprises (SOEs) would improve credit allocation and limit SOEs’ advantage in accessing credit.
• Boost competition by opening up non-strategic sectors, particularly in services, to private and foreign enterprise, and unifying product markets across localities.
• Modernize policy frameworks by eventually moving to a single policy rate in the monetary policy framework, reducing the misalignment of centre-local fiscal responsibilities, and further improving transparency and statistics.

The elephant in the room is identified with masterful understatement by the first sentence of the accompanying press release: “The Chinese economy is facing external headwinds and an uncertain environment”.

The consultation and report predate the latest round of tariffs announced (and partially delayed) by the United States on Chinese exports and the Trump administration’s labelling of China as a ‘currency manipulator’, a designation that will drag the IMF unwillingly into that aspect of the trade war between Washington and Beijing.

It already has had Fund officials dancing gingerly around the question. In their view, China has not for some years been a predatory currency manipulator in the way US President Donald Trump now suggests to keep the yuan cheap to help Chinese exporters. If anything, of late, Beijing has been propping up the currency.

As this Bystander has previously noted, the conflict between the Trump administration and China goes beyond bilateral trade. It extends to structural issues related to the foreign investment regime, intellectual property protection, technology transfer, industrial policy, cybersecurity and the economic role of the Chinese state.

On many of these fronts, Fund staff would be happy for Washington to make headway, provided that it lead to more opening up of China’s economy in line with their long-standing policy recommendations. They would be less pleased, however, if any U.S.-China agreement resulted in managed trade. That, they believe, could negatively affect the multilateral trading system, and lead to an even more uncertain and challenging environment than we now have.

Even in the likely event that the two countries do not reach a comprehensive and durable agreement any time soon, persistent uncertainty is likely to weigh on both the near and longer-term economic outlook as China’s access to foreign markets and technology may be significantly reduced. That would mark a decoupling of the two largest economies that would be anything but ethereal.

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United States Brands China A Currency Manipulator, Escalates Trade Dispute

100 yuan notesIT IS A quarter of a century since the United States branded China as a currency manipulator. President Bill Clinton did so in 1994. Now President Donald Trump has followed suit.

The unexpected move marks an escalation in the bilateral trade dispute. As the Reuters news agency notes:

The announcement came hours after China let the yuan break through the key 7-per-dollar level for the first time in more than a decade, in a sign Beijing might be willing to tolerate more currency weakness as Washington threatens to impose more tariffs on Chinese goods from Sept. 1.

The decision will have more symbolic than practical impact. The sanction for currency manipulation is tariffs, which are already being applied. The US Treasury is now required to hold special talks with China, but broader talks over trade and technology are already in train.

If there is a new element, it is that the US Treasury will consult with the International Monetary Fund, dragging that institution into the bilateral dispute. Just three weeks ago, the Fund declared the yuan to be in line with China’s economic fundamentals and the US dollar to be overvalued by up to 12%. Awkward.

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Hong Kong’s Summer of Discontent

Hong Kong protesters demonstrating against the government's China extradition bill. Pictured on Harcourt Road, Admiralty, Hong Kong at 13:30 on 12 June 2019, adjacent to the Central Government Complex. Photo credit: Citobun. Licensed under the Creative Commons Attribution-Share Alike 4.0 International license.

PRO-DEMOCRACY PROTESTS have again being staged in Hong Kong this weekend, with a city-wide strike called for Monday.  Again tear gas has been fired to disperse the crowd. What started barely four months ago as an attempt to block a bill that would have allowed extradition to mainland China has swelled into broad-based civil opposition to Beijing’s governance of the city.

As the protests have become more violent, both Beijing and the People’s Liberation Army, which has a garrison in Hong Kong, have issued warnings to the protesters to desist, labelled the protests ‘riots’ and ramped up accusations of unnamed ‘foreign forces’ (for which read the governments of the United States and the United Kingdom) being behind them.

Earlier this week, 40 demonstrators arrested after last weekend’s demonstrations turned violent were charged with rioting, and face up to ten years in prison if convicted. The PLA, meanwhile, released a video of soldiers undertaking anti-riot training exercises.

The protests are mainly led by people, mostly students, in their late teens and early twenties, some too young to have taken part in 2014’s Umbrella protests in support of democratic elections, though not too old to be likely to see the end of the 50 years of ‘one country, two systems’ settlement under which Beijing resumed sovereignty of Hong Kong from the United Kingdom in 1997. To many of them, not only does 2047 seem close, but it also feels that Beijing has been accelerating the countdown to when Hong Kong becomes just another big city in southern China.

Beijing was able to face down the Umbrella movement and yield no concessions. A similar tactic of letting the city ‘stew in its own juices’ and the application of a measured degree of force and intimidation while keeping a tight clamp on news of the unrest seeping into the rest of China has not been as successful this time. It has had to accept a suspension of the extradition bill (and likely full withdrawal), the embarrassment of a Hong Kong government apology for its handling of the bill, and the weakened authority of its handpicked leader. The escalating level of intimidatory violence and the use by police of tear gas and rubber bullets are further signs of Beijing’s rising concern.

For their part, the demonstrators have taken lessons from 2014. They are clear in their demands — preservation of the rights and freedom’s they have — as opposed to the calls for various forms of expanded suffrage heard in 2014. They have become more sophisticated in their use of social media and digital devices to foil surveillance by authorities, and better prepared with medical and other supplies, such as inhalers for those tear-gassed, for when protests turn violent.

The size of the protests is one measure of the public mood in Hong Kong. Two recent opinion polls provide another. One shows negative opinion of the Hong Kong government at its highest and positive opinion at its lowest, with negative opinions outrunning the positive ones by two and a half to one.

The other, perhaps more concerning for Beijing given its efforts to instil ‘patriotic values’ in the city’s youth, shows more than 50% of citizens identify themselves as Hongkongers rather than Chinese, with the gap widening in recent years. A growing sense of separate identity bodes ill for Beijing and also suggests that the political fault line between the Party and Hong Kong is deepening.

There are signs that the Party leadership is re-evaluating its current tactics for dealing with Hong Kong. A more heavy-handed approach — ‘sending in the tanks’ — carries international diplomatic and business risks and especially at a volatile moment in China-US relations. It is thus still mostly seen in Beijing as a last resort.

However, foreign governments, including the United Kingdom, would, on balance, be unlikely to react punitively in the event of a decisive crackdown on the protestors. Broader considerations of countries’ relationships with Beijing would weigh more heavily in diplomatic calculations, especially for the Trump administration in the United States, which has been noticeably measured in its public comments on Hong Kong even while piling more tariffs on Beijing’s exports.

Hong Kong’s special status makes it a separate jurisdiction from China for customs and trade. That is an arrangement that Western governments will not want to jeopardize. Neither will Asian neighbours want to be seen to be profiting from it for fear of upsetting their biggest neighbour, China.

An internationally driven change to the city’s 1997 settlement is all but unimaginable. Beijing would have no truck with it even if there were any appetite from Western nations.

More likely, Beijing will let the demonstrations run through the summer, albeit with the ever rougher treatment of the protestors in the streets and the courts, in the hope that time and the return of university terms will diminish their momentum. That may dissipate but not solve the underlying political conflict.

Update: Beijing gave one of its sternest warnings to date to Hong Kong protestors following Monday’s general strike, telling them not to “mistake restraint for weakness”. The Hong Kong and Macau Affairs Office, which rarely holds news conferences, used its second briefing in two weeks to repeat allegations that Western “anti-China forces” were “meddling hands behind the scene”, instigating unrest led by “radical and violent” elements. State media reports omitted much of that detail.

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A Rubbish Protest In Wuhan

Yangluo Yangtze River Bridge, Xinzhou district, Wuhan. Photo credit: fading, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=56142131

PUBLIC PROTESTS AGAINST construction of a waste incineration plant in Wuhan (above), capital of Hubei province, were of a larger scale and allowed to run longer than is typical before being expunged from the streets and censored from public attention last weekend. Beijing may have been focused elsewhere, but this kind of social protest will be no less concerning to authorities.

Not least because it happened in a city that embodies the change to China’s economy. Whether you are looking for the growing domestic consumption story, the move up the industrial value chain, urbanisation or, self-evidently, the environmental challenges narrative, Wuhan has a piece of it. It is also, by repute, an above average incubator if the countries business talent.

If the city is indeed the everyday face of modern China away from the razzmatazz of Beijing and Shanghai, then flagrant denial of authority is not a feature of the official description.

Wuhan has now reportedly put the project on hold, saying it will consult residents over their concerns of potential toxic pollution and a further addition to the stench already created by a waste landfill in the same district as the proposed incinerator.

Protests against pollution have been the one area of civic unrest that has flourished over the past decade, albeit to an extremely limited extent. A couple of years back a city incinerator plant project in Guangdong was scrapped but not before police had fired tear gas at protestors. This time around, the policing was less trigger happy but still harsh.

The Party remains vigilant against any prospect that an environmental movement might blossom into a political challenge to its monopoly on power. None the less two facts are inescapable. China is generating ever more rubbish, and its citizens are ready to push for more say over how it is disposed of, especially not in their own backyards.

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