Category Archives: China-U.S.

Droning On

DJI Phantom 2 drone with GoPro camera. Licenced under Creative Commons.

IT IS A sign of the increasing sophistication of the country’s technology that Beijing is imposing controls on exports of some advanced drones and supercomputers. Or at very least a sign that Beijing wants its technology so regarded.

From the middle of this month, export licenses will be required for drones that can fly 1,500 meters high, stay airborne for longer than an hour and handle strong winds. Licences will be granted or withheld on grounds of national security, which will, in the manner of the times, inevitably be judged case by case.

There is also a bit of tit-for-tat at play. The export licensing scheme also covers supercomputer chips and follows US restrictions on computer hardware that can be sold to China. China’s Tianhe-2 is currently the world’s fastest supercomputer though the Obama administration has announced a programme to reclaim that title for the U.S. The Americans have concerns that the Tianhe-2 is being used for nuclear-weapons development

Meanwhile, China has become a leader in drone manufacturing. DJI Technology, the Shenzhen-based company whose drones have been flown (uninvited) into the White House grounds in Washington and onto the roof of the office of the Japanese prime minister in Tokyo, had sales of $500 million in 2014, more than any another maker of unmanned aircraft.

Sales of its best-selling Phantom line of commercial drones (seen above mounted with a GoPro camera) are unlikely to suffer from the new regulations, and so DJI will remain on track to become this year the first drone maker to record $1 billion in sales.

Update: DJI has 70% of the world market for commercial drones and is valued at $10 billion, according to an FT interview with one of its earliest outside investors, Neil Shen, who runs the China arm of the Silicon Valley investment firm, Sequoia Capital.

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Beijing Counts Its AIIB Blessings — And Reaches 46 So Far

THE ASIAN INFRASTRUCTURE Investment Bank (AIIB) is turning into the gift that just keeps on giving for Beijing. State media report that the China-instigated lending institution attracted 46 applications by the March 31 deadline for would-be founding members. The list includes the likes of Australia, the U.K. and a raft of other European nations who defied Washington’s desire that its allies have nothing to do with the AIIB.

It also includes Taiwan. Even this potentially awkward application for Beijing (and controversial one in Taipei) is being turned by Beijing to its advantage. “The AIIB is open and inclusive,” Taiwan Affairs Office spokesman Ma Xiaoguang is quoted as saying. “We welcome Taiwan to participate in the AIIB under an appropriate name.” (Taiwan belongs to the Asian Development Bank as Taipei, China.) Beijing’s magnanimity in accepting its “renegade province” pointedly makes the U.S. stance look even more mean-spirited.

It also opens the door to Hong Kong to join by the time the founders list is finalised on April 15. Members’ stakes seem set to be based on relative GDP. Hong Kong membership would provide Beijing with a conveniently captive wodge of votes to add to its own, and the AIIB with the city-state’s financial markets expertise.

The April 15 date might also provide time for the sole Asian holdout, Japan, to come on board, though June is the more likely date being mentioned in Tokyo. As for the U.S., the only position that would be worse than being left isolated over the AIIB would be to join now in what the rest of the world would inevitably regard as an embarrassing climb-down. Even Beijing would scarcely believe its good fortune should that happen.

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Filed under China-Southeast Asia, China-Taiwan, China-U.S., Economy

China’s Unexpected European Bank Bonus

CHINA IS PLAYING a long game when it comes to gaining the power and influence over the world’s multilateral institutions to befit its standing as an emerging global power. But it has gained a big short-term win with its proposed $100 billion Asian Infrastructure Investment Bank (AIIB).

Britain, first, and now France, Germany and Italy have broken ranks with the United States in signing on to be founding members. South Korea and Australia are reconsidering their initial adherence to the U.S.’s line of having nothing to do with the AIIB.

The new bank will be a rival to the World Bank (U.S. dominated) and to the Asian Development Bank (dominated by Japan) when it comes to funding development projects in the region — although Asia’s infrastructure needs, at an estimated $8 trillion, are so great there would be plenty of lending demand to go around. However,  an ability to dispense large scale investment funding will give Beijing new-found political clout in the region, not to mention an order pipeline for China’s state-own engineering firms and their legions of suppliers — a honeypot also irresistible to the Europeans.

Beijing is already backing two other development funding initiatives, the $100 billion BRICS Bank with Brazil, India, Russia and South Africa, and its own $40 billion Silk Road Fund. For its part, Washington is promoting the TransPacific Partnership, a trade and investment agreement that Beijing has pointedly not been invited to join and is countering with the partly overlapping proposed common market with ASEAN plus India, the Regional Comprehensive Economic Partnership, and the bigger Free Trade Area of the Asia-Pacific. (That is TPP vs RCEP and FTAAP for acronym collectors.)

With the U.S. and China jockeying for position in the region via these new economic institutions, one indication of Washington’s desire to emasculate the AIIB from the outset was the unusually sharp and public criticism that it heaped on Britain for applying to be a founding member. It is now the U.S. rather than the U.K. that looks the outcast.

There is still much to be decided about the AIIB. The deadline for signing up for founding membership is the end of this month, but the target date for articles of association is not until the end of this year. The working assumption has been that capital participation and thus voting power, will be proportionate to members’ GDP.

Absent the U.S., that was always going to mean that China would have the most votes among the now 27 countries Beijing says have signed on. The involvement of four big European economies would deny it a majority. Matters like veto rights over projects, required voting majorities and even the basis on which GDP is calculated now become matters to watch carefully in the drafting of the AIIB’s charter as the new bank’s governance standards become another front in the China-U.S. rivalry in their own right.

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Sony Cyber Attack: The China Connection

IT WAS, PERHAPS, only a matter of time before China was dragged publicly into the war of words between the U.S. and North Korea over Pyongyang’s alleged cyber attack on Sony Corp. in retaliation for the company’s provocative Hollywood comedy about a plot to assassinate North Korean leader Kim Jong Un. China is North Korea’s main onramp to the internet. North Korea runs the overwhelming majority of its telecoms traffic through Chinese state-owned telco China Unicom. Its own networks are limited, as are its telecoms connections to its other outlet to the world, Russia. To get its cyber warriors even close to the internet backbone, Pyongyang stations some of them over the border in China.

Now Washington has reportedly asked Beijing to rein in Pyongyang’s use of Chinese routers and servers for cyber attacks, including expelling North Korean hackers based in China — a request Beijing has met with polite silence or neutral platitudes. The Sony incident is another Pyongyang embarrassment it could do without — even if it doesn’t mind a company with one foot in Hollywood and the other in Japan being embarrassed even more. Yet it is not going to open that particular can of worms. And especially not in public.

Cyber warfare is almost as sensitive a topic in Beijing as even a fictional assassination attempt on the Beloved Leader is in Pyongyang. Washington has repeatedly accused Beijing of hacking into U.S. companies, charges Beijing has repeatedly denied, saying it is a victim of cyber attacks not a perpetrator. But for both countries’ cyber warfare has become the “fifth dimension” of defence, adding to land, sea, air and space military operations.

Pyongyang, for the record, has also denied that it cyber attacked Sony. It has demanded a joint investigation with the U.S., following that up with a predictable burst of typical bombastic rhetoric.

So far, Beijing has walked a fine line over the Sony incident. It has condemned both the movie as being culturally arrogant and cyber attacks and terror threats. But, it is equally aware that the U.S. has become more forceful this year in pressing cyber-attack allegations against Beijing. In May, Washington broke new ground in bilateral relations by bringing its first cyber-spying case against China, charging five Chinese army officers in May with hacking into U.S. companies. The following month a Chinese businessman was charged with hacking into the computer systems of U.S. defence contractors, including Boeing.

For North Korea’s part, it could now return to the U.S.’s list of state sponsors of terrorism, from which it was removed in 2008 after agreeing to verification of its nuclear sites. The incident has also thrown a spotlight on Unit 121 of North Korea’s military intelligence agency. This is an elite if shadowy group of cyber warriors, some of whom are based in the Chilbosan hotel, a Chinese-North Korean joint venture in Shenyang in Liaoning  province. Estimates of their number vary from a few hundred to several thousand.

Little is known definitively about the group outside its own circles. What there is comes from defectors from several years ago. In truth, not much if anything new about it has been learned lately despite Unit 121 being written about relatively widely in the Western press since the Sony attack. A sign of how active it is is that North Korea has reputedly carried out more cyber attacks than another nation. Denial of service attacks on South Korea are its weapon of choice, but it is believed to have hacked about in the U.S., penetrating both the U.S. Department of Defense and U.S.-based companies. Part of its brief is to cause North Korea’s enemies monetary loss.

Some note similarities between the Sony attack and a broad based hack of South Korean banking and media companies last year widely believed to be the work of Unit 121. If it was responsible for the cyber hack of Sony, as charged, that would mark its boldest and most sophisticated attack to date.

With or without Beijing’s help, U.S. President Barack Obama has promised “proportionate” retaliation for what he has called an act of “cyber vandalism.” It is difficult to know what that might be. The hermit kingdom’s internet isolation has long offered Unit 121 an unlikely degree of protection. There isn’t much internet infrastructure in North Korea against which to retaliate; there are barely a dozen web sites using the country’s domain, .kp, all state run. Washington’s best bet is to get China to lean on its ally — which isn’t much of a bet at all.

Update: The internet went down in North Korea for nine and a half hours on Dec. 22 after more than a day of increasingly instability, suggesting an onslaught of denial-of-service attacks.  It could also be a result of a power failure, accidental or because someone pulled the plug. On either score, China has said it wasn’t its doing. The U.S. has declined to make comment. Well, both would, wouldn’t they — and hacktavist groups are just as likely suspects.

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Xi Blows Hot And Cold Over Apec

The Asia-Pacific Economic Co-operation Summit (Apec) in Beijing brought together the leaders of the world’s three biggest national economies, President Xi Jinxing, Japan’s Prime Minister Shintaro Abe and U.S. President Barack Obama. It was not a particularly happy confluence.

While Xi and Abe shook hands  — the first meeting of the leaders of China and Japan for more than two years — the rest of the body language was scarcely cordial. Icy, in fact. The tension over the two nations’ maritime territorial dispute in the East China Sea won’t easily be shaken off.

Obama arrived bearing gifts, extensions to the terms of multiple entry visas, from one year to 10 for business people and tourists, and to five years for students. But while China and South Korea agreed to sign their proposed bilateral free-trade agreement (FTA), the U.S-led Trans-Pacific Partnership (TTP) continued to tread water. Nor did the U.S. make any apparent progress in its negotiations to update the 18-year old agreement it has with China on trade in high-tech goods and services.

If anything, in rounding out its FTAs with Japan and the U.S. by signing one with China, South Korea has less need to pursue membership of the TTP with any urgency. While that could be read as score one for Xi, similarly Seoul also has less need to pursue the Beijing-proposed rival to the TTP, the Free Trade Area of the Asia-Pacific (FTAAP). Washington has been, behind the scenes, resisting that determinedly, though it couldn’t prevent Apec leaders agreeing to a two-year study of the scope of an FTAAP. That wasn’t as much movement towards a drawing up a roadmap as Beijing wanted, but it was still more ground than Washington had wanted to yield.

The summit was Xi’s show, his first big international meeting since he assumed power, and an opportunity to show how China is increasingly dictating the region’s pecking order. In the group photograph at the end of the summit, Russia’s Vladimir Putin is standing next to Xi on his right. The two countries signed a big oil-and-gas deal ahead of the summit and promised further cooperation. Obama is down the line to Xi’s left, halfway to the end of the front row. Abe is relegated to the second row.

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Washington Lays Out Its Annual View Of China’s Military Capabilities

The U.S. military’s newly released annual assessment of China’s defense capabilities will surprise no one in saying that Beijing is improving its military training, weapons and surveillance so as to be able to conduct more sophisticated attacks against Washington and other adversaries closer to home. Neither is it any surprise that this is a result of China’s two-decades-long drive to modernize the People’s Liberation Army (PLA).

If anything, this report to the U.S. Congress is a restatement of the justifications for Washington’s ‘Asian pivot’ announced in 2012. It is also perhaps the clearest statement to date of how that doctrinal shift is being tempered by U.S. budget cuts — and provides an implicit counterargument for curtailing them.

In light of those budget-cutting pressure, the Pentagon sees an opportunity for offshoring some of the cost of its increased Asian presence to its Asian allies. In every region of the world, the Pentagon says, it will seek to build the capacity of partners’ forces so that they, not Washington, can take the lead in providing security. That should also provide a bonus for America’s arms manufacturers who should see increased export demand for their wares as a result.

Equally predictably, Beijing has dismissed the report as a holdover of Cold War thinking, and says that its armed forces are still 20-30 years behind those of the U.S., which spends more than another nation on its military at 4% of GDP. Beijing also asserts that its military build-up is solely for defending its own sovereignty, though as the continuing conflicts in the South and East China Seas testify, sovereignty can be in the eye of the beholder.

“Probable” drone reconnaissance in the East China Sea was among the most significant military developments of last year identified by the Pentagon in its report. Others include:

  • air-defense upgrades to destroyers and frigates;
  • test flights of China’s Y-20 transport planes to move ground forces quickly across great distances;
  • at least eight launches to expand intelligence and surveillance from space;
  • integration of anti-radar missiles into the PLA Air Force’s fighter-bomber fleet; and
  • the PLA Navy’s development of long-range, over-the-horizon radar as a targeting mechanism for DF-21D anti-ship ballistic missiles carried on new Jiangdo-class corvettes, which previous Pentagon reports have identified as a threat to the U.S. new Littoral Combat ships.

The Pentagon’s assessment is couched in terms that suggest its working assumption for any future China-U.S. military conflict is that it would be a high-tech naval and missile fight. Thus the U.S. military’s need is to invest in technology more than capacity, and to ensure that its partner militaries in Tokyo, Manila and elsewhere in the region are willing and able to undertake U.S.-led training.

They may want to wait until after 2016 when the U.S. will have a new administration which may have a new set of priorities. Beijing will be quite happy to continue its PLA modernization in the meantime.

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Chinese Buy Up Manhattan Apartments

THIS BYSTANDER IS not surprised to read a Reuters report saying that when it comes to buying apartments in Manhattan Chinese buyers are outspending all other foreign buyers for the first time. The news agency polled leading estate agents in the city who were unanimous in their view, though divided as to whether Russians, other Europeans or South Americans were the new number 2.

Chinese buyers have been pouring money into U.S. property ever since the housing market collapsed in 2008. Even though prices fell less in New York City than elsewhere in the country, and the price for luxury apartments hit a record in the first quarter, the city still appears a bargain compared to China’s big cities and other favored havens for wealthy Chinese such as Hong Kong and Singapore. In London, where Chinese have been the leading foreign buyers since last year, luxury apartments are selling for twice the price per square foot of New York’s.

One broker says Chinese buyers in New York City typically buy in the $1million-$5 million range, but will often buy two or three properties at a time. This has driven a boom in new construction in New York. There is an estimated 2 years supply of unsold luxury apartments and more coming on the market, which leads some to wonder if the rate of price rises may tail off.

Really well heeled Chinese, Reuters says, are flocking to One57, a luxury skyscraper on Central Park designed by Pritzker Prize-winning French architect Christian de Portzamparc. A three bedroomed apartment there starts at $19 million; a whole floor could cost $55 million.

As well as providing a bolt hole for their cash, Chinese buyers have been particularly attracted to cities where there a leading universities. Most wealthy Chinese want their children to attend an overseas college, surveys have found. New York is well situated with Columbia and New York University both having large campuses in Manhattan.

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