China Expands Its Sanctions Deterrence Arsenal

BEIJING’S FAST-TRACKING of an Anti-Foreign Sanctions Law suggests it feels an increasing need for urgency in creating mechanisms for retaliating against Western sanctions on China.

With US President Joe Biden using this weekend’s G7 summit to again urge Western countries to co-operate to counter China’s growing influence, the urgency is, if anything, more pressing.

The National People’s Congress Standing Committee passed the law on June 10 without the formality of the third reading that would usually be required. Nor were drafts circulated to relevant parties for consultation, as is typically the case. The contents of the final law are not yet public. That ambiguity alone will have a chilling effect on multinational companies. 

The fast-tracking follows the expansion last week by the Biden administration of the US blacklist of Chinese companies off-limits to US investors as part of Washington’s attempts to deny China capital and technology.

The Anti-Foreign Sanctions Law adds to a growing arsenal of trade-related laws and regulations China has adopted, but not yet used, in its confrontations with the sanctions-happy United States and, latterly, the EU. These include the Unreliable Entity List, Export Control Law and Rules on Unjustified Foreign Measures.

While these new trade weapons are at this point being used primarily for deterrence, they will create (an intended) uncertainty for multinationals with China subsidiaries. Custom and practice suggest that their use will be politically driven but neither transparent nor consistent. 

Collectively they ratchet up the pressure on multinationals to choose between the penalties from their home countries for violating sanctions against China and the penalties China can now impose on them for complying.

This, in turn, Beijing hopes will create domestic pressure that will influence Washington and Brussel’s cost-benefit calculations when it comes to considering new sanctions on Chinese firms.

Hungary Grows As Beijing’s Peculiar Friend In Europe

HUNGARY OCCUPIES A peculiar place in China-EU relations. The country is run by a populist, right-wing government led by Viktor Orban, who is as strongly anti-communist as he is Eurosceptic.

However, If anything, his rift with Brussels is widening. Beijing is nurturing him as a wedge ally in Europe, although it portrays warm relations with Budapest as a bastion against those trying to weaken the China-EU relationship.

The strategy is meeting with some success. Hungary recently blocked the EU from issuing a statement criticising China’s treatment of Hong Kong. It was the first EU country to accept shipments of the Chinese Covid-19 vaccine, Sinopharm, against Brussels’ wishes, and has plans to produce it locally. Orban is also advocating the ratification of the EU-China investment agreement, about which many member states are now having second thoughts. He awarded a multi-billon dollar project to upgrade the railway line between Budapest and the Serbian capital, Belgrade, to a Chinese consortium.

Yet this weekend, thousands of Hungarians took to the streets to protest against Fudan University opening what would be its first European campus in Budapest. The campus is due to open in 2024 with a student body of some 5,000 and 500 faculty.

The protesters claim that any government subsidies Fudan is receiving would be better spent on Hungarian institutions. The Hungarian government intends to borrow $1.8 billion from China Development Bank to build the campus, and will contract China State Construction Engineering Corp. (CSEC) to do the construction using Chinese labour and materials, according to Direkt36, a Hungarian investigative-journalism site.

CSCE was on US President Donald Trump’s blacklist of companies deemed to have connections with the People’s Liberation Army, although not on the Biden administration’s new list.

The estimated construction cost is more than the Orban government’s annual budget for higher education. This is being reduced by converting public universities into independent non-profits. In 2017, Orban pushed through a higher education law that forced the Soros-funded Central European University to move from Budapest to Vienna to continue functioning as a US institution.

In April, the government amended the law so that foreign-based educational institutions could operate in Hungary if they do so under an inter-governmental agreement. This opened the door for Fudan. The Sino-Hungarian international agreement also seemingly lets the construction bidding be exempt from EU competition law.

A further complaint is that the campus will occupy land previously designated to house domestic university students. The left-wing mayor of Budapest has shown his displeasure by proposing renaming three streets around the campus as Free Hong Kong Road, Dalai Lama Street and Uyghur Martyrs’ Road.

That may be more to do with next year’s elections in Hungary than anything; the mayor is seeking to lead an opposition coalition to contest Orban’s Fidesz party. But the street renaming would be a provocation Beijing would find difficult to ignore.

Update: Following the protests, Orban’s chief of staff suggested that the Fudan University project could be put to a referendum in 18 months’ time. This co-opts an opposition proposal but would let the government defer a vote until it is too late to cancel the project. The opposition’s election campaign will likely have a strong anti-corruption and anti-Chinese theme.

Human Rights Drives Deeper Wedge Between Beijing and Washington

BEIJING IS LIKELY to bat aside as false and hostile the latest annual human rights report issued by the US State Department on March 30 as readily as it did a statement of concern by the UN Working Group on Business and Human Rights the day before about allegations of the forced labour of Uighurs in Xinjiang.

The US State Department’s reaffirmation of its designation of China’s treatment of Uyghurs as ‘genocide’ will do nothing to reduce tensions in the China-US relationship. If anything, these have increased under the new Biden administration, not eased as expected.

Announcing the report, US Secretary of State Antony Blinken also signalled a broadening of the US human rights focus from the previous Trump administration’s narrow concern with individual freedom and religious rights.

Further US economic sanctions and visa restrictions against Chinese officials are likely with Washington looking to act in concert with its allies.

Commensurate retaliation can be expected from Beijing, along with more rhetoric about Western nations’ hypocrisy over their domestic civil rights issues and Trump-like denigrations of Western media for not reporting the party line at face value.

More trouble for Western businesses seems likely as Beijing experiments with expanding consumer boycotts‘ scope to apply leverage on the US and other Western governments through their multinational companies.

However, Blinken made clear that human rights were ‘front and centre’ of the Biden’s administration’s foreign policy, and Beijing will find that US business does not have Biden’s ear in the way that it did Donald Trump’s.

Retaliation against European companies will also do little to encourage European countries to ratify the EU and China’s investment agreement that Beijing rushed to conclusion ahead of Biden taking office and which it saw as a potential wedge issue it could drive between Brussels and Washington.

The Hard Edge To The Soft Power Of Chinese Patriotism

WESTERN COMPANIES ARE not the first multinationals to suffer the power of a ‘patriotic’ Chinese consumer boycott when they get caught in the crosshairs of a political dispute.

US and European apparel retailers such as Nike, Adidas, H&M, Tommy Hilfiger and Burberry are now getting the same treatment that South Korea’s confectionary-to-hotels conglomerate Lotte and Japanese carmaker Toyota were subjected to in the past.

They are being abandoned by Chinese consumers and celebrity endorsers, and ‘disappeared’ from social media marketing and retail outlets. Their own-brand stores may remain open, but they are empty of customers, who are turning to indigenous brands.

In this case, the core dilemma for Western firms is whether they should continue to use cotton from Xinjiang in their products and face Western consumers’ censure for condoning the use of forced labour and other human rights abuses against Uighurs. Or should they stop using it and face the loss of their lucrative Chinese markets through boycotts by Chinese consumers whose shopping patriotism is being whipped up by the government?

In January, the United States banned the import of cotton from Xinjiang, and the United Kingdom told domestic firms doing business in China that they would be fined if they cannot show their products are not linked to forced labour in the region. Then, earlier this month, those two countries were joined by Canada and the EU on sanctioning Chinese officials over Xinjiang.

China has retaliated with countersanctions and knows that turning the economic screws on Western companies is a potentially more powerful way to silence its critics, as evidenced by how it has bought the silence of Islamic governments over the treatment of the Muslim Uighur minority in Xinjiang.

Western technology companies could be the next to be drawn into this as Xinjiang is a significant high-tech manufacturing sector feeding into global supply chains.

Beijing is defiantly maintaining in the face of international condemnation that accusations of cotton picked by forced labour and other charges of human rights abuses in Xinjiang are false. It describes its repression in Xinjiang as a campaign against terrorism, separatism and religious extremism.

This Bystander can allow that authorities are sincere in their view. Many governments view the violent repression of terrorism, separatism and religious extremism as legitimate. Some take their expression within ethnic minorities as evidence of them as being inherent in ethnic identity, as Beijing does with Uighurs.

Its policy response now abandons any pretence of affirmative action and accommodation of ethnic sensitivities towards the Uighurs and instead actively and often forcibly promotes their assimilation into the culture and society of China’ majority ethnic group, Han Chinese.

This justification of its near-total elimination of the Uighurs’ traditional ethnic identity appears a disproportionate policy response from the perspective of liberal democratic values. However, Beijing has no ideological qualms about repression and is restrained in its use only by its assessment of what is feasible and effective in pursuing its goals. Hong Kong provides another case in point.

Similarly, it calculates that Western sanctions and criticism over Xinjiang are unlikely to approach a severity that would force it to change course. It is betting that many Western companies will self-censor and quitely press their governments not to censure Beijing over Xinjiang and only criticise Beijing when they judge they will pay a higher price in their home market for not doing so.

China-EU Investment Deal Riles Incoming US Administration

THE INVESTMENT AGREEMENT between China and the EU has been long in the making — seven years. Nevertheless, no sooner has agreement in principle finally been reached than it is running into criticism for undermining the prospective unified front of allies US President-elect Joe Biden plans to construct to confront Beijing. Prospective members of Biden’s administration are quietly but firmly making it clear that the agreement is premature. They say that Beijing’s last-minute concessions to get the deal done before Biden takes office were tactical moves to drive a wedge between the US and the EU.

The Comprehensive Agreement on Investment has been a high priority for Brussels. Itis being touted there as a big win.

It will open multiple industries in China to EU businesses, ranging from electric carmaking to healthcare and cloud computing. It will also put EU financial services on the same footing as US rivals by matching the opening of the insurance and asset management sectors achieved for US firms in the Phase One US-China trade deal struck a year ago. EU firms will also get similar assurances as US firms on subsidies, forced technology transfer and non-discrimination compared to state-owned enterprises.

Beijing also agreed in a late concession to making ‘continued and sustained efforts’ to ratify International Labour Organization conventions against the use of forced labour. However, the enforcement mechanisms for holding China to its promises look woolly.

For Beijing, the accord mostly secures existing EU market access rights. These would hamstring Brussels from driving Chinese firms out of some EU market sectors, as Washington has attempted in its domestic markets. However, the one-sided nature of the economic gains in the EU’s favour strongly suggests that China has prioritised geopolitical gains while leaving open plenty of potential pressure points on Brussels outside the agreement should it subsequently need to apply the squeeze.

That would seem to be confirmed by reading between the lines of President Xi Jinping’s pro-forms comments and statement during a video link-up with EU leaders that the agreement will make ‘significant contributions to the building of an open world economy’. It will undoubtedly allow Beijing to reinforce its narrative of market opening and reform.

The agreement’s legal text has still to be finalised and will then need to be ratified by both sides to come into force. Another reason for striking the deal now is to do so before German chancellor, Angela Merkel, a strong supporter of it, leaves office in 2021.

Brussels aims for the deal to take effect in early 2022, leaving plenty of time for the Biden administration to correct the misalignment it perceives the agreement creating. The incoming US national security adviser, Jake Sullivan, has already said that the new US administration ‘would welcome’ early consultations — welcome in the sense of is demanding.

China-Europe Relations Get Another Kick

THE TERMINATION BY England’s elite football league, the Premiership, of its broadcast rights deal in China potentially gives another kick to the already bruised relationship with Europe.

The cause of the cancellation of the three-season £564 million ($700 million) contract is said to be streaming service PPTV withholding a £160 million payment that was due in March. PPTV is owned by retail billionaire Zhang Jindong’s Suning Holdings.

With the suspension of the Premier League because of Covid-19, there were no games to stream. Negotiations between the two sides over a rebate and revised terms for the coming season, which will start next week behind closed doors, have come to nothing so far but reportedly are not entirely dead.

The cancellation could be a negotiating ploy, but Suning’s talk of a ‘strategic adjustment‘ does not suggest the door is open too far. Nonetheless, the cancellation will take a bite out of the £4.2 billion the League has sold the overseas rights to its games last season, this and next.

The dispute appears to be contractural. However, but politics is never far from sport. The NBA, the globally expanding dominant professional basketball league in the United States, got a sharp lesson in that last year when its games were temporarily taken off-air in China following a tweet supporting Hong Kong protestors by an official of one of its teams.

Last December, what looked like an organised social media campaign called for one of the Premier League’s top teams, Arsenal, to fire one of their star players, Mesut Ozil for being critical of Beijing’s treatment of his fellow Muslims.

Relations between the United Kingdom and China have since taken a turn for the worse over Hong Kong and after the U-turn by the UK government excluded Huawei from its 5G network.

The cancellation also came as Foreign Minister Wang Yi concluded a five-nation bridge-building visit to Europe ahead of the China-EU summit on September 14. The trip did not go as well. It highlighted that the distances between Europe and China on issues such as Huawei, human rights, Hong Kong and Taiwan remain enormous.

Wang’s warning in Norway that awarding the Nobel Peace Prize to any Hong Kong protesters would be taken as interference in China’s internal affairs particularly didn’t go down well, kindling memories of the years-long rift caused by awarding of the 2010 prize to the late activist Liu Xiaobo.

Nor did his threat that president of the Czech Senate, Milos Vystrcil, would ‘pay a heavy price’ for leading a delegation to Taiwan. This earned Wang an sharp rebuke from Germany’s foreign minister, Heiko Maas, that was supported by several of his EU colleagues. Such tough talk, even if couched in diplomatic niceties, marks a turn for the Europeans.

None of that, however, undermines Beijing’s need for better relations with Europe as insurance against a US-European coalition against it — or the Premier League’s need to serve one of its biggest markets.

China Fires Back Fast Over Disinformation

AN EXAMPLE OF Beijing giving as good as it gets over Western accusations of China running disinformation campaigns has arrived quickly. Foreign ministry spokeswoman Hua Chunying (above) dismissed the EU accusations, saying:

Anyone with no bias can see clearly who is the biggest perpetrator to make and spread disinformation about the pandemic. There are many media reports on that across the globe. The EU should be well aware if anyone has disseminated disinformation within the EU.

She also criticised Twitter for shutting down 170,000 accounts the social media platform said were linked to a disinformation campaign orchestrated by the Chinese government. She called for Twitter to shut down accounts that smear China overseas.

As with her remarks on disinformation in the EU, the unnamed elephant in the room was from the United States. However, there was less need to read between the lines of her comments about Twitter:

At the same time, as you can see, since the outbreak of the pandemic, some people and forces in the international community have been almost crazy and hysterical in slandering and badmouthing China with rumors. You must have known that as exposed by the Politico website, the US National Republican Senatorial Committee has sent campaigns a 57-page memo advising GOP candidates to address the coronavirus crisis by “aggressively attacking China”. A few days ago, the same news website reported that in late March, 2.6 million tweets related to coronavirus were retweeted 25.5 million times within 10 days, and a lot of them spread rumors like “the coronavirus was a bioweapon created in China”. According to the report, an analysis of these Twitter accounts found that many of them are linked to supporters of the GOP and the right wing in the US, and had the hallmarks of “bots”.

Separately, Zoom, the video meeting app that has blossomed during the Covid-19 pandemic, acknowledged that Beijing had told it to suspend the accounts of three (non-mainland based), Chinese activists, for organising virtual June 4 anniversary meetings. The company justified its compliance as the cost of doing business in China.

That is a line that this Bystander expects to return to haunt Zoom in the United States, where there is already concern about its connections to China and attitudes towards corporate postures towards Beijing are changing.

Now The EU Gets Blunt With Beijing

THE EU’S ACCUSATION that China, just as much as Russia, is waging a disinformation campaign in Europe over the Covid-19 pandemic is unusually blunt — and underlines a growing willingness among the leaders of the advanced economies to be more openly forthright with Beijing.

In a joint policy paper on tackling coronavirus disinformation across the EU (the image above is courtesy of the EU), the European Commission and the EU High Commissioner for Foreign Affairs and Security Policy, Josep Borrell Fontelles, said:

Foreign actors and certain third countries, in particular Russia and China, have engaged in targeted influence operations and disinformation campaigns around COVID-19 in the EU, its neighbourhood and globally, seeking to undermine democratic debate and exacerbate social polarisation, and improve their own image in the COVID-19 context.

The policy paper references as evidence an update published late last month by the European External Action Service to its Covid-19 Disinformation report laying out multiple examples and showing how Beijing has updated its propaganda playbook for social media.

The Trump administration has led by example in confronting Beijing, but until recently European officials have been more reticent. However, this Bystander expects Beijing to continue to give as good as it gets in this respect. Thus relations are unlikely to become less tense.

Deepening mutual hostility provides a less than ideal backdrop to a video summit scheduled for later this month between Chinese leaders and European Commission President Ursula von der Leyen and the European Council’s President, Charles Michel.

Transparency Matters Less To Beijing Than Control

BEIJING’S FIERCE RESPONSE to the call by Australia’s prime minister, Scott Morrison, for an independent international inquiry into the origins of the coronavirus pandemic was both predictable and along predictable lines.

It has threatened an economic boycott of Australian products by Chinese consumers and accused Canberra of being Washington’s pawn. Beijing sees foreign demands for transparency as hostile and subversive. To it, transparency matters less than maintaining domestically the Party’s reputation for competence, one of the underpinnings of its claim on monopoly power. It will not countenance for one minute any risk to that. Political considerations are paramount, as they were in the early stages of the outbreak in Wuhan when local officials suppressed early warnings.

A second-order to this is Beijing’s strategic rivalry with Washington. Beijing is attempting to grasp an opportunity to project its diplomatic influence by presenting itself both as having handled the pandemic the better of the two and as being the international leader of the global response, dispatching medics and supplies to the rest of the world. It will not risk an inquiry that could draw conclusions that China had failed to contain the disease early on or had allowed its spread by not curtailing international travel soon enough.

The sensitivities and willingness to strong-arm support were evident in the run-up to the publication of the European External Action Service report that explicitly accused China and Russia of sowing disinformation and distrust over Western nations’ handling of the pandemic and implicitly accused them of deflecting attention from shortcomings in their own responses. The final report was watered down following at least three interventions by Beijing.

However, it was still a sign of how Beijing is finding it more difficult to manage its image internationally than domestically, and how Western perceptions of China’s emergence as a global power are changing. Beijing’s proven formula of a mix of bribes and threats is less effective where it cannot control the flow of information. Hence its new infowars strategy taking a leaf out of Russia’s propaganda book mixed with a dash of US President Donald Trump’s combat tweeting.

Huawei’s 5G Coins It In Despite Washington’s Objections

HUAWEI’S FIRST-QUARTER results suggest that the United States’s campaign against the world’s biggest telecoms equipment maker is having limited effect, especially outside the advanced economies.

The company has long denied Washington’s allegation that Beijing ultimately controls it and that its equipment could be used for espionage in the service of Chinese state security, the basis of the Trump administration’s campaign to prevent other governments from using Huawei’s 5G equipment.

Huawei says its income was 179.7 billion yuan ($26.8 billion) in January to March, a 39% increase on the same period a year earlier. It did not disclose its net profit but said it operated at an 8% net profit margin, slightly higher than in the first quarter of 2018.

It reported sales increases in all its three customer groups — carriers, enterprise and consumer customers. On the contentious 5G technology, it said it had signed 40 contracts with leading global carriers, and shipped more than 70,000 5G base stations, a number it expects to reach 100,000 by May. It says 2019 will be ‘a year of large-scale deployment of 5G around the world’.

In practice, only a handful of countries have heeded Washington’s exhortation to follow it in banning Huawei from their 5G telecoms network: Australia, New Zealand and Japan, all close US allies in Asia.

Europe, which will likely lead 5G rollouts — eleven EU countries have 5G auctions scheduled for this year and six for 2020, with 30% of its internet users expected to be on 5G by 2025 — has been more ambiguous in its response.

Denmark, Germany, Italy, Norway, Poland and the United Kingdom all have expressed concerns about the cybersecurity risks of contracting a firm with opaque links to Beijing. However, Belgium has declined to ban Huawei, saying it has found no deliberate technological compromises in its equipment that could be misused by China’s state, but it will keep the equipment under review. Germany has taken a similar line but is drafting quality and cybersafety standards for 5G suppliers and talking about a ‘no-spying agreement with China.

France is debating 5G legislation that would impose extensive security tests. The report of a Dutch government investigation into Huawei is due in May when the United Kingdom is also expected to make a final decision. London has repeatedly raised concerns about Huawei equipment and the firm’s ability to fix cybersecurity problems but also has one eye on a post-Brexit trade deal with China.

For all of Europe, keeping China, a critical trade and investment ally, on side while securing the Internet of Things devices and automated vehicles that 5G will enable, from malicious state and non-state cyber attacks will be a delicate balancing act, made harder still by the current unease of the transAtlantic relationship. Washington may ban US firms from working with any others, including European firms, who use Huawei technologies and equipment.

Brussels and EU member governments will try to keep the decision-making process on the technical level and not get sucked into the political dimensions that saw Meng Wanzhou, Huawei’s chief financial officer and daughter of its founder, Ren Zhengfei, arrested in Canada in December at Washington’s request on charges of bank and wire fraud in violation of US sanctions against Iran. (She denies wrongdoing.)

The European Commission’s recently published recommendations on 5G network cybersecurity rejected bans on specific suppliers (unnamed, but for which read Huawei) and told member states to come up with joint EU-wide security checks for firms building 5G networks in Europe by the end of this year.

While Europe will be an important beachhead for Huawei’s 5G equipment and offers a near-term market, the company is looking beyond Europe. Many parts of Asia, Africa, Latin America and the Middle East will transition from 2G/3G/4G to 5G over the next ten years. That is where Huawei’s future sales lie.