Table.Briefing: China

Huawei store sells cars + Philippine turnaround

  • Huawei stores become car dealers
  • Philippines turns back to the US
  • Goldman Sachs grows in China
  • Apple stores its cloud data at state-owned company
  • Shenzhen skyscraper suddenly shakes
  • Study warns of risks in old economy
  • Minxin Pei: Trade dispute blocks climate policy
Dear reader,

Instead of mobile phones, it is now possible to buy EVs in Chinese Huawei stores, as our authors observed. The mobile phone business suffers from American sanctions, while the electronics group wants to make a name for itself as a vehicle supplier. The cars may not be Huawei-branded products, but all the digital technology in them is created by the company’s engineers. And for young Chinese customers, in particular, a car is the driving and connected extension of a mobile phone. Here, Huawei demonstrates how a company can react flexibly to external shocks.

How to deal with today’s China? This question runs through China.Table’s political reporting. This time we look at the Philippines, which has its own concerns with the neighboring country. After all, the People’s Republic claims vast maritime areas just off the Philippines coast. President Rodrigo Duterte is thus doing a turnaround once again. After he first drew closer to China in order to annoy the USA, he is now doing it the other way around. This is somewhat reminiscent of the Eastern and Southern European states, some of which have now ended their flirtations with China in disillusionment.

Yesterday, in a 290-meter skyscraper in Shenzhen in the middle of the bustling electronics district of Huaqiangbei, people panicked. The building started to shake for unknown reasons and had to be evacuated. Since nothing more is known so far, we only have a short report on the topic for today. Hopefully, everything will remain stable over there.

Your
Finn Mayer-Kuckuk
Image of Finn  Mayer-Kuckuk

Feature

Huawei stores evolve into car dealers

Zwei Autos des chinesischen Herstellers Sere in Huawei-Stores in Shenzen
Two cars made by Chinese manufacturer Seres at the Huawei store in Shenzen.

The Huawei store in the Wanxiang Tiandi shopping district in the southern Chinese city of Shenzhen has always been special. When the three-story glass temple opened in September 2019, Huawei called it its “first global flagship store.” Back then, the entire ground floor was lined with bright wooden tables where the company proudly displayed its latest smartphones. But things have changed inside the store.

Some of the tables disappeared in recent weeks. The first thing customers now see when entering the sprawling Huawei store are cars. The vehicles Huawei is showing are from the Chinese brand Seres. This is a Californian e-mobility subsidiary of the car company Sokon from the western Chinese metropolis of Chongqing. Huawei formally cooperates with Seres and several other car manufacturers. Huawei expressly does not want to build its own cars. Instead, the company wants to offer its technical know-how to other manufacturers. In addition to the Seres brand name, a small Huawei logo is placed on the back of the cars (China.Table reported).

At its Shenzhen flagship store, Huawei displayed two models of Seres’ SF5 compact SUV. They can also be seen in Shanghai, Chengdu, and Hangzhou, among other places. They are priced at the equivalent of €27,800 (¥216,800). Customers can not just buy them in stores but also via Huawei’s e-commerce platform VMall.

Huawei stores: out with the phones, in with the cars

The stores where Huawei used to focus on promoting its smartphone innovations became car dealerships with mobile phone sales attached, but what else can the Shenzhen-based company do?

It wasn’t long ago that Huawei ranked second in the smartphone market worldwide. After massive US sanctions, that is history for the time being. According to calculations by market researchers, Huawei’s smartphone sales slumped by a good 60 percent. In the last quarter, the Chinese slipped to seventh place with only 18.6 million phones sold, according to estimates by the analysis firm Canalys. In the first quarter of 2020, Huawei sold 49 million smartphones.

Huawei lost access to American technologies due to sanctions imposed by the US government under former President Donald Trump. This means, among other things, that Huawei cannot sell new smartphones with Google services – which largely threw the company out of the western market. Even more severe: Huawei has been cut off from chip supplies from abroad that are essential for its smartphones since last summer.

A chip stockpile frantically built up before the sanctions came into force was only of temporary help. Huawei’s chip stock is not infinitely large, and new generations of smartphones also need new types of processors. Producing the missing components itself is not an option, Huawei says. “Manufacturing these chips is very complicated and impossible for us at the moment. We are not considering it,” Jiang Xisheng, Chief Secretary of Huawei’s board of directors, said in an interview in late March but added they were working on alternatives and solutions to diversify their supply chains.

Above all, other business areas must now help to offset some of the declines. The business with wearables such as computer watches or other consumer devices such as headphones, laptops, and smart screens is developing “very well”, according to Jiang. But it is the company’s entry into the car business in particular that is expected to generate new revenue. “EVs are the only product that can offset losses in our smartphone business,” Richard Yu, Head of Huawei’s consumer division told reporters in Shanghai in April (China.Table reported).

Huawei becomes automotive supplier

An operating system like the one in Seres’ SF5, which can control virtually all of the car’s functions, is just the beginning. Huawei is working on smart technology that will enable autonomous driving. Both artificial intelligence and the necessary hardware, such as particularly high-resolution cameras, are in development. Huawei wants to become an important supplier for car companies in China and beyond. According to Zhou Taoyuan, President of Huawei’s Digital Power product line, which includes photovoltaics and EVs, Huawei sees two current global trends – digital transformation and carbon neutrality.

As a result of the US sanctions, German carmakers and suppliers suddenly have to deal with the powerful Chinese tech company in detail. Global smartphone giants like Apple and Samsung, on the other hand, can relax for now because Huawei seems to find it increasingly difficult to produce enough phones. The company is currently unable to deliver 13 of the 23 smartphones advertised in its online shop. Gregor Koppenburg/Joern Petring

  • Car Industry
  • Chips
  • Electromobility
  • EU
  • Sanctions
  • Semiconductor
  • Trade

The Philippines on their way back to Team USA

It is unknown whether the Philippines’ Foreign Minister typed his words spontaneously or chose them carefully: “China, my friend, how politely can I put it? Let me see … Oh … Get the f*** out!” tweeted Teodoro Locsin earlier this month – comparing China to an “ugly oaf.” The foreign ministry in Beijing reacted piqued and demanded an apology. (Editor’s note: The tweet was deleted by Locsin himself on May 19).

Until recently, Philippine President Rodrigo Duterte’s demonstrative friendship with China since 2016 appeared stable. But now Chinese ships have been anchoring in the bay of a boomerang-shaped atoll called Whitsun Reef in the Philippines’ Exclusive Economic Zone (EEZ) for weeks. First, there were more than 200; now, there are said to be a handful of boats. The reef belongs to the Spratly Group – and thus to the 90 percent of the South China Sea that China claims for itself based on historical texts. And so, once again, a tiny island could cause geopolitical upheaval.

Because in the event of a military conflict, the US would actually have to assist the Philippines. That’s what a bilateral defense treaty says. US Secretary of State Antony Blinken also promised to do so at the beginning of the Whitsun saga, but without giving details. In general, the US is currently increasing its presence in the strategically important South China Sea. They are increasingly seeking contact with Indo-Pacific allies; and the Europeans, including Germany, are also sending ships from their navies to the region (China.Table reported). Yet the states are increasingly open in admitting that these activities are primarily directed against China’s assertive actions in the waters. The People’s Republic, in turn, criticizes attempts to “encircle” China, which are doomed to failure anyway, as was recently the case in a commentary in the state newspaper Global Times. China has very good relations with the ASEAN states – which also include the Philippines – and is their most important trading partner.

Duterte demonstratively cultivates friendship with China

As a former colonial power, the US has been a kind of patron of the Philippines for decades. Duterte, however, is a difficult partner for Washington. During a state visit to Beijing in October 2016, he publicly sided with China while new in office and announced the “separation” from the US with the words: “America has lost.” Duterte was betting on growing economic ties with Beijing. In contrast, he had little interest in the island disputes that had been simmering since the 1990s. That the Permanent Court of Arbitration ruled in Manila’s favor in 2016 and rejected large parts of China’s claims to the South China Sea was ignored by Duterte – and also by Beijing. For example, Beijing thanked him through generous Chinese investment regarding the New Silk Road. By 2020, China was his country’s largest trading partner. But nothing changed in Beijing’s policy in the South China Sea. In 2019 and 2020, too, ships from both countries were involved in quarrels in disputed waters.

Nevertheless, in 2020 Duterte terminated the 20-year-old Visiting Forces Agreement (VFA), which allows the US to unbureaucratic station troops in the Philippines – with a 180-day notice period during which the termination can be withdrawn. Nevertheless, the US cannot stand idly by in case of doubt. Twice already, China has taken control of islands from the Philippines after the US failed to intervene. When China built supposed shelters for fishermen on Mischief Reef in 1995, America did nothing. Today, Mischief Reef is a Chinese outpost guarded by naval vessels, despite fierce Filipino protests. In 2012, the US brokered a mutual withdrawal from the waters after clashes between Coast Guard vessels from the two countries at Scarborough Shoal. This was done out of concern that they would otherwise have to intervene themselves. The Philippines complied, but not China. Scarborough Shoal is also now a military post in Beijing. The Biden administration acknowledges the damage to Washington’s credibility from the lack of response during the conflict at the time, Derek Grossman, a defense and Asia expert at the US think tank Rand, told the South China Morning Post.

According to the constitution, Rodrigo Duterte must leave office in June 2022. The Philippines-China-US triangular relationship could then become an issue in the presidential campaign. China’s actions in the South China Sea are unpopular in the island nation. Thanks to an agreement with China’s President Xi Jinping, the Philippines had not lost territory to China during Duterte’s term, his spokesman Herry Roque stressed. “That agreement holds until today. That is the legacy of the Duterte administration.” But that only holds as long as Manila controls Whitsun Reef.

Duterte seems to suspect this – and has been moving closer to the US again since the fall of 2020. He extended the notice period for the VFA by another 180 days. So the agreement is still in effect. In March, Manila ordered supersonic cruise missiles from India, a member of the US-led Quad Group, which also includes Australia and Japan. In April, the Philippines held a multi-day joint maneuver with the US called Balikatan. And since Duterte himself does not want to openly berate China, he just leaves that to his ministers like Locsin and Defense Secretary Delfin Lorenzana. China is seeking to occupy more and more territory in the South China Sea, Lorenzana recently warned. He was “not a fool” to believe that the ships anchored for weeks at a time at Whitsun Reef were harmless fishing boats.

“Beijing has only itself to blame if it has lost the opportunity to pull the Philippines out of the US orbit,” wrote Derek Grossman in Foreign Policy magazine. “China’s aggressive behavior in the South China Sea has made it virtually impossible for Duterte to push his pro-China and anti-US agenda.” The US is the only country capable of protecting the Philippines, Grossmann said. At the same time, the military base in the Philippines is important to the US in its campaign for freedom of navigation in the South China Sea. Actually a win-win situation. But it is still unclear whether the VFA will be reinstated on a permanent basis.

Locsin meanwhile apologized to the Chinese ambassador, tweeting, “I just lost it. But these constant provocations… no, they’re no excuse for dropping manners.” A scoundrel who suspects irony here.

  • Geopolitics
  • Indo-Pacific

News

Goldman Sachs hires hundreds of employees

Goldman Sachs is massively expanding its China and Hong Kong business and is in the process of hiring 320 people, including 70 for investment banking. The hiring drive comes as China’s financial market fully opens up to foreign brokers and asset managers, Bloomberg reports. According to the report, Goldman plans to take 100 percent ownership of its securities business in China and build its own wealth management division. After reaching an agreement with its joint venture partner late last year to acquire the remaining stake, the bank is still waiting for the green light from regulators to fully take over the securities business. Goldman Sachs would then become the first Wall Street bank to operate a standalone securities business in China. JPMorgan Chase is aiming to do the same.

Previously, other financial firms such as UBS Group AG, Credit Suisse Group AG, and HSBC Holdings Plc announced plans to hire thousands of employees in China. Blackrock recently received permission to operate as an asset manager in China (China.Table reported). nib

  • Banks
  • Finance

Chinese state-owned company has access to Apple Cloud

Apple is proactively censoring its Chinese app store and storing data on its Chinese customers on servers managed by Chinese state-owned enterprises, according to new research by The New York Times. The newspaper was able to evaluate internal documents for the first time and conducted interviews with former and current employees of the corporation. According to the report, the US company ceded legal ownership of user data in the Apple Cloud (“iCloud”) to a Chinese company – in part to comply with the terms of China’s cybersecurity law. If Chinese authorities want to access the data, they ask Apple’s business partner directly. According to the New York Times, Apple believes this gives the company legal protection from US laws that prohibit US companies from sharing data. This compromise made it nearly impossible for the company to prevent the Chinese government from gaining access to the emails, photos, documents, and locations of millions of Chinese people, the newspaper said.

Court documents also show that the US technology company very often deletes apps from the company’s own app store in China, even before censors from the People’s Republic would come forward. Data analysis by the newspaper revealed that Apple deleted more than 600 news apps. Similarly, encrypted messenger apps and those about the Dalai Lama were removed from the Chinese app store, according to the report. According to another report in the New York Times, the US company now generates 20 percent of its revenue in China and has almost all of its products manufactured there. nib

  • Censorship

Shenzhen skyscraper shakes ominously

On Tuesday, a Shenzhen skyscraper in the middle of the electronics shopping district of Huaqiangbei business metropolis shook significantly for several minutes. Eyewitnesses reported seeing tea in pots sloshing around in business premises and cartons shifting. People fled in panic before the administration formally evacuated the building. At 292 meters, SEG Plaza is a good 30 meters taller than the Commerzbank Tower in Frankfurt. The building was erected 20 years ago.

The first alarmist reports of an imminent collapse were deleted from Chinese websites in the course of the day. Instead, background information appeared on the fact that vibrations in high-rise buildings are basically provided for and taken into account by the engineers. Accordingly, experts do not see any danger to the stability of the building. In the absence of strong winds, earthquakes, or tunnel construction work, however, the phenomenon is unusual. An examination of the building’s statics is currently underway. fin

  • Real Estate

Atradius expects more defaults in classic industry

Credit insurer Atradius warns of payment risks in traditional sectors of Chinese industry. As a result of new economic priorities in the 14th Five-Year Plan, the service provider expects liquidity problems for industries that lose government subsidies. “The political and economic environment will continue to deteriorate for the Chinese old-economy sectors of steel, metal processing, shipbuilding, chemicals, and parts of the electrical industry,” said Thomas Langen, Senior Regional Director at Atradius for Germany, Central, and Eastern Europe. “Many of these companies have been highly indebted for some time.” German exporters should prepare for rising risks. It’s a very different story for industries that are benefiting from China’s plans. These are the auto industry, IT, and mechanical engineering. The credit insurance company expects demand from the People’s Republic to remain high in these sectors. niw

  • Car Industry
  • Environment
  • Raw materials
  • Renewable energies
  • Sustainability

Opinion

The limits to US-China climate cooperation

By Minxin Pei
Minxin Pei

Despite their increasingly bitter rivalry, the United States and China have recently been sending the right signals regarding potential cooperation on combating climate change. The joint statement issued after the mid-April meeting between John Kerry, US special presidential envoy for climate, and his Chinese counterpart, Xie Zhenhua, indicates that the two governments may be trying to use collaboration on climate policy to prevent their relationship from devolving into outright enmity. But the path ahead is strewn with geopolitical landmines.

It is not difficult to understand why the US and China are behaving responsibly at the moment. Both countries view climate change as an existential threat and have a strong interest in cooperation. And Biden and Chinese President Xi Jinping know that open intransigence or obstructionism on this issue would cost them dearly in terms of international public opinion.

During the Cold War, the ideological struggle between communism and capitalism divided the world and cemented alliances. But in the coming decade, ideology alone is unlikely to win the US and China many friends. The Communist Party of China no longer has any real ideology to speak of, while political polarization and Trumpism have tarnished America’s luster. Instead, as climate change puts human survival at risk, leadership in tackling the problem will shape international alliances.

Action must follow

Turning rhetorical climate commitments into action will sorely test both countries in the coming years. Shortly after Biden’s recent climate summit of world leaders, for example, Chinese Foreign Minister Wang Yi hinted that China’s cooperation with America would hinge on whether the US “interferes in China’s internal affairs.”

While China regards Tibet, Xinjiang, Hong Kong, and, most importantly, Taiwan as “internal affairs,” Kerry has made it clear that the US will not trade away concessions on these matters for Chinese cooperation on climate change. Unless China or the US softens its position, further escalation of Sino-American tensions over these hot-button issues can be expected to endanger bilateral climate efforts.

Besides the difficulty of insulating their bilateral conflicts from areas of potential collaboration, it is unclear what and how much climate cooperation the US and China can deliver. The brief US-China joint statement offers few specifics, and for good reason. Given the absence of trust, neither country is willing to make binding commitments.

Negotiate climate policy separately

As a result, bilateral cooperation on climate change will be volatile, modest, and incremental at best. The volatility stems from the overall instability of US-China relations, with a spike in tensions inevitably inflicting collateral damage on climate efforts. Mutual suspicion and hostility will also prevent both sides from taking big steps and motivate them to drive hard bargains. Only minor measures can test trust and produce sufficient goodwill to sustain cooperation. We should thus expect a gradual, drawn-out process.

Given the absence of mutual confidence, the US and China perhaps can best cooperate by refraining from certain actions, rather than actively trying to achieve things together. Here, the first imperative is to avoid linking climate cooperation with the most adversarial aspects of the bilateral relationship, such as human rights, trade, and security.

Exercising such restraint will demand more of China than it will of the US, because Chinese leaders apparently believe that the climate issue gives them crucial leverage over Biden’s policies in other areas. Xi needs to recognize that such linkages will be counterproductive. Strong bipartisan anti-China sentiment in the US leaves Biden little room for maneuver, and Chinese intransigence could severely damage Xi’s credibility as a global leader on climate change.

Not jeopardizing dialogue on green technologies

Suppressing the temptation to score points by attacking each other’s positions during upcoming multilateral climate negotiations will also help the US and China to stay productively engaged. On specific issues such as emissions-reduction goals and contributions to financing energy transitions in developing economies, each country should base its criticism on sound scientific, economic, and moral grounds. More important, they should accompany their criticism with alternatives that third parties deem reasonable, realistic, and beneficial.

It may be unrealistic to talk about active US-China cooperation on clean energy when the two countries are waging a technology war. Yet, although the US and China agreed in their recent joint statement only to discuss, not commit to, collaboration on green technologies, they may still explore ways to sequester such innovations from their broader strategic competition. Specifically, the US and China should seek to minimize harm whenever they weigh policies that might appear necessary to maintain a competitive advantage but could adversely affect the development and adoption of green technologies.

It is important for the world that the US and China cooperate against climate change, but we should have no illusions. Our best hope is that the two superpowers will be disciplined enough not to jeopardize humanity’s survival in their struggle for geopolitical advantage.

Minxin Pei, Professor of Government at Claremont McKenna College, is a non-resident senior fellow at the German Marshall Fund of the United States.

Copyright: Project Syndicate, 2021.
www.project-syndicate.org

  • Climate
  • Environment
  • Joe Biden
  • Minxin Pei
  • Sustainability
  • Tibet

Executive Moves

Translation missing.

Dessert

A new theatre building was recently opened in the city of Nantong (Jiangsu Province). Even beyond the well-known metropolises, the country’s culture is dressing itself in increasingly beautiful architecture.

China.Table Editors

CHINA.TABLE EDITORIAL OFFICE

Licenses:
    • Huawei stores become car dealers
    • Philippines turns back to the US
    • Goldman Sachs grows in China
    • Apple stores its cloud data at state-owned company
    • Shenzhen skyscraper suddenly shakes
    • Study warns of risks in old economy
    • Minxin Pei: Trade dispute blocks climate policy
    Dear reader,

    Instead of mobile phones, it is now possible to buy EVs in Chinese Huawei stores, as our authors observed. The mobile phone business suffers from American sanctions, while the electronics group wants to make a name for itself as a vehicle supplier. The cars may not be Huawei-branded products, but all the digital technology in them is created by the company’s engineers. And for young Chinese customers, in particular, a car is the driving and connected extension of a mobile phone. Here, Huawei demonstrates how a company can react flexibly to external shocks.

    How to deal with today’s China? This question runs through China.Table’s political reporting. This time we look at the Philippines, which has its own concerns with the neighboring country. After all, the People’s Republic claims vast maritime areas just off the Philippines coast. President Rodrigo Duterte is thus doing a turnaround once again. After he first drew closer to China in order to annoy the USA, he is now doing it the other way around. This is somewhat reminiscent of the Eastern and Southern European states, some of which have now ended their flirtations with China in disillusionment.

    Yesterday, in a 290-meter skyscraper in Shenzhen in the middle of the bustling electronics district of Huaqiangbei, people panicked. The building started to shake for unknown reasons and had to be evacuated. Since nothing more is known so far, we only have a short report on the topic for today. Hopefully, everything will remain stable over there.

    Your
    Finn Mayer-Kuckuk
    Image of Finn  Mayer-Kuckuk

    Feature

    Huawei stores evolve into car dealers

    Zwei Autos des chinesischen Herstellers Sere in Huawei-Stores in Shenzen
    Two cars made by Chinese manufacturer Seres at the Huawei store in Shenzen.

    The Huawei store in the Wanxiang Tiandi shopping district in the southern Chinese city of Shenzhen has always been special. When the three-story glass temple opened in September 2019, Huawei called it its “first global flagship store.” Back then, the entire ground floor was lined with bright wooden tables where the company proudly displayed its latest smartphones. But things have changed inside the store.

    Some of the tables disappeared in recent weeks. The first thing customers now see when entering the sprawling Huawei store are cars. The vehicles Huawei is showing are from the Chinese brand Seres. This is a Californian e-mobility subsidiary of the car company Sokon from the western Chinese metropolis of Chongqing. Huawei formally cooperates with Seres and several other car manufacturers. Huawei expressly does not want to build its own cars. Instead, the company wants to offer its technical know-how to other manufacturers. In addition to the Seres brand name, a small Huawei logo is placed on the back of the cars (China.Table reported).

    At its Shenzhen flagship store, Huawei displayed two models of Seres’ SF5 compact SUV. They can also be seen in Shanghai, Chengdu, and Hangzhou, among other places. They are priced at the equivalent of €27,800 (¥216,800). Customers can not just buy them in stores but also via Huawei’s e-commerce platform VMall.

    Huawei stores: out with the phones, in with the cars

    The stores where Huawei used to focus on promoting its smartphone innovations became car dealerships with mobile phone sales attached, but what else can the Shenzhen-based company do?

    It wasn’t long ago that Huawei ranked second in the smartphone market worldwide. After massive US sanctions, that is history for the time being. According to calculations by market researchers, Huawei’s smartphone sales slumped by a good 60 percent. In the last quarter, the Chinese slipped to seventh place with only 18.6 million phones sold, according to estimates by the analysis firm Canalys. In the first quarter of 2020, Huawei sold 49 million smartphones.

    Huawei lost access to American technologies due to sanctions imposed by the US government under former President Donald Trump. This means, among other things, that Huawei cannot sell new smartphones with Google services – which largely threw the company out of the western market. Even more severe: Huawei has been cut off from chip supplies from abroad that are essential for its smartphones since last summer.

    A chip stockpile frantically built up before the sanctions came into force was only of temporary help. Huawei’s chip stock is not infinitely large, and new generations of smartphones also need new types of processors. Producing the missing components itself is not an option, Huawei says. “Manufacturing these chips is very complicated and impossible for us at the moment. We are not considering it,” Jiang Xisheng, Chief Secretary of Huawei’s board of directors, said in an interview in late March but added they were working on alternatives and solutions to diversify their supply chains.

    Above all, other business areas must now help to offset some of the declines. The business with wearables such as computer watches or other consumer devices such as headphones, laptops, and smart screens is developing “very well”, according to Jiang. But it is the company’s entry into the car business in particular that is expected to generate new revenue. “EVs are the only product that can offset losses in our smartphone business,” Richard Yu, Head of Huawei’s consumer division told reporters in Shanghai in April (China.Table reported).

    Huawei becomes automotive supplier

    An operating system like the one in Seres’ SF5, which can control virtually all of the car’s functions, is just the beginning. Huawei is working on smart technology that will enable autonomous driving. Both artificial intelligence and the necessary hardware, such as particularly high-resolution cameras, are in development. Huawei wants to become an important supplier for car companies in China and beyond. According to Zhou Taoyuan, President of Huawei’s Digital Power product line, which includes photovoltaics and EVs, Huawei sees two current global trends – digital transformation and carbon neutrality.

    As a result of the US sanctions, German carmakers and suppliers suddenly have to deal with the powerful Chinese tech company in detail. Global smartphone giants like Apple and Samsung, on the other hand, can relax for now because Huawei seems to find it increasingly difficult to produce enough phones. The company is currently unable to deliver 13 of the 23 smartphones advertised in its online shop. Gregor Koppenburg/Joern Petring

    • Car Industry
    • Chips
    • Electromobility
    • EU
    • Sanctions
    • Semiconductor
    • Trade

    The Philippines on their way back to Team USA

    It is unknown whether the Philippines’ Foreign Minister typed his words spontaneously or chose them carefully: “China, my friend, how politely can I put it? Let me see … Oh … Get the f*** out!” tweeted Teodoro Locsin earlier this month – comparing China to an “ugly oaf.” The foreign ministry in Beijing reacted piqued and demanded an apology. (Editor’s note: The tweet was deleted by Locsin himself on May 19).

    Until recently, Philippine President Rodrigo Duterte’s demonstrative friendship with China since 2016 appeared stable. But now Chinese ships have been anchoring in the bay of a boomerang-shaped atoll called Whitsun Reef in the Philippines’ Exclusive Economic Zone (EEZ) for weeks. First, there were more than 200; now, there are said to be a handful of boats. The reef belongs to the Spratly Group – and thus to the 90 percent of the South China Sea that China claims for itself based on historical texts. And so, once again, a tiny island could cause geopolitical upheaval.

    Because in the event of a military conflict, the US would actually have to assist the Philippines. That’s what a bilateral defense treaty says. US Secretary of State Antony Blinken also promised to do so at the beginning of the Whitsun saga, but without giving details. In general, the US is currently increasing its presence in the strategically important South China Sea. They are increasingly seeking contact with Indo-Pacific allies; and the Europeans, including Germany, are also sending ships from their navies to the region (China.Table reported). Yet the states are increasingly open in admitting that these activities are primarily directed against China’s assertive actions in the waters. The People’s Republic, in turn, criticizes attempts to “encircle” China, which are doomed to failure anyway, as was recently the case in a commentary in the state newspaper Global Times. China has very good relations with the ASEAN states – which also include the Philippines – and is their most important trading partner.

    Duterte demonstratively cultivates friendship with China

    As a former colonial power, the US has been a kind of patron of the Philippines for decades. Duterte, however, is a difficult partner for Washington. During a state visit to Beijing in October 2016, he publicly sided with China while new in office and announced the “separation” from the US with the words: “America has lost.” Duterte was betting on growing economic ties with Beijing. In contrast, he had little interest in the island disputes that had been simmering since the 1990s. That the Permanent Court of Arbitration ruled in Manila’s favor in 2016 and rejected large parts of China’s claims to the South China Sea was ignored by Duterte – and also by Beijing. For example, Beijing thanked him through generous Chinese investment regarding the New Silk Road. By 2020, China was his country’s largest trading partner. But nothing changed in Beijing’s policy in the South China Sea. In 2019 and 2020, too, ships from both countries were involved in quarrels in disputed waters.

    Nevertheless, in 2020 Duterte terminated the 20-year-old Visiting Forces Agreement (VFA), which allows the US to unbureaucratic station troops in the Philippines – with a 180-day notice period during which the termination can be withdrawn. Nevertheless, the US cannot stand idly by in case of doubt. Twice already, China has taken control of islands from the Philippines after the US failed to intervene. When China built supposed shelters for fishermen on Mischief Reef in 1995, America did nothing. Today, Mischief Reef is a Chinese outpost guarded by naval vessels, despite fierce Filipino protests. In 2012, the US brokered a mutual withdrawal from the waters after clashes between Coast Guard vessels from the two countries at Scarborough Shoal. This was done out of concern that they would otherwise have to intervene themselves. The Philippines complied, but not China. Scarborough Shoal is also now a military post in Beijing. The Biden administration acknowledges the damage to Washington’s credibility from the lack of response during the conflict at the time, Derek Grossman, a defense and Asia expert at the US think tank Rand, told the South China Morning Post.

    According to the constitution, Rodrigo Duterte must leave office in June 2022. The Philippines-China-US triangular relationship could then become an issue in the presidential campaign. China’s actions in the South China Sea are unpopular in the island nation. Thanks to an agreement with China’s President Xi Jinping, the Philippines had not lost territory to China during Duterte’s term, his spokesman Herry Roque stressed. “That agreement holds until today. That is the legacy of the Duterte administration.” But that only holds as long as Manila controls Whitsun Reef.

    Duterte seems to suspect this – and has been moving closer to the US again since the fall of 2020. He extended the notice period for the VFA by another 180 days. So the agreement is still in effect. In March, Manila ordered supersonic cruise missiles from India, a member of the US-led Quad Group, which also includes Australia and Japan. In April, the Philippines held a multi-day joint maneuver with the US called Balikatan. And since Duterte himself does not want to openly berate China, he just leaves that to his ministers like Locsin and Defense Secretary Delfin Lorenzana. China is seeking to occupy more and more territory in the South China Sea, Lorenzana recently warned. He was “not a fool” to believe that the ships anchored for weeks at a time at Whitsun Reef were harmless fishing boats.

    “Beijing has only itself to blame if it has lost the opportunity to pull the Philippines out of the US orbit,” wrote Derek Grossman in Foreign Policy magazine. “China’s aggressive behavior in the South China Sea has made it virtually impossible for Duterte to push his pro-China and anti-US agenda.” The US is the only country capable of protecting the Philippines, Grossmann said. At the same time, the military base in the Philippines is important to the US in its campaign for freedom of navigation in the South China Sea. Actually a win-win situation. But it is still unclear whether the VFA will be reinstated on a permanent basis.

    Locsin meanwhile apologized to the Chinese ambassador, tweeting, “I just lost it. But these constant provocations… no, they’re no excuse for dropping manners.” A scoundrel who suspects irony here.

    • Geopolitics
    • Indo-Pacific

    News

    Goldman Sachs hires hundreds of employees

    Goldman Sachs is massively expanding its China and Hong Kong business and is in the process of hiring 320 people, including 70 for investment banking. The hiring drive comes as China’s financial market fully opens up to foreign brokers and asset managers, Bloomberg reports. According to the report, Goldman plans to take 100 percent ownership of its securities business in China and build its own wealth management division. After reaching an agreement with its joint venture partner late last year to acquire the remaining stake, the bank is still waiting for the green light from regulators to fully take over the securities business. Goldman Sachs would then become the first Wall Street bank to operate a standalone securities business in China. JPMorgan Chase is aiming to do the same.

    Previously, other financial firms such as UBS Group AG, Credit Suisse Group AG, and HSBC Holdings Plc announced plans to hire thousands of employees in China. Blackrock recently received permission to operate as an asset manager in China (China.Table reported). nib

    • Banks
    • Finance

    Chinese state-owned company has access to Apple Cloud

    Apple is proactively censoring its Chinese app store and storing data on its Chinese customers on servers managed by Chinese state-owned enterprises, according to new research by The New York Times. The newspaper was able to evaluate internal documents for the first time and conducted interviews with former and current employees of the corporation. According to the report, the US company ceded legal ownership of user data in the Apple Cloud (“iCloud”) to a Chinese company – in part to comply with the terms of China’s cybersecurity law. If Chinese authorities want to access the data, they ask Apple’s business partner directly. According to the New York Times, Apple believes this gives the company legal protection from US laws that prohibit US companies from sharing data. This compromise made it nearly impossible for the company to prevent the Chinese government from gaining access to the emails, photos, documents, and locations of millions of Chinese people, the newspaper said.

    Court documents also show that the US technology company very often deletes apps from the company’s own app store in China, even before censors from the People’s Republic would come forward. Data analysis by the newspaper revealed that Apple deleted more than 600 news apps. Similarly, encrypted messenger apps and those about the Dalai Lama were removed from the Chinese app store, according to the report. According to another report in the New York Times, the US company now generates 20 percent of its revenue in China and has almost all of its products manufactured there. nib

    • Censorship

    Shenzhen skyscraper shakes ominously

    On Tuesday, a Shenzhen skyscraper in the middle of the electronics shopping district of Huaqiangbei business metropolis shook significantly for several minutes. Eyewitnesses reported seeing tea in pots sloshing around in business premises and cartons shifting. People fled in panic before the administration formally evacuated the building. At 292 meters, SEG Plaza is a good 30 meters taller than the Commerzbank Tower in Frankfurt. The building was erected 20 years ago.

    The first alarmist reports of an imminent collapse were deleted from Chinese websites in the course of the day. Instead, background information appeared on the fact that vibrations in high-rise buildings are basically provided for and taken into account by the engineers. Accordingly, experts do not see any danger to the stability of the building. In the absence of strong winds, earthquakes, or tunnel construction work, however, the phenomenon is unusual. An examination of the building’s statics is currently underway. fin

    • Real Estate

    Atradius expects more defaults in classic industry

    Credit insurer Atradius warns of payment risks in traditional sectors of Chinese industry. As a result of new economic priorities in the 14th Five-Year Plan, the service provider expects liquidity problems for industries that lose government subsidies. “The political and economic environment will continue to deteriorate for the Chinese old-economy sectors of steel, metal processing, shipbuilding, chemicals, and parts of the electrical industry,” said Thomas Langen, Senior Regional Director at Atradius for Germany, Central, and Eastern Europe. “Many of these companies have been highly indebted for some time.” German exporters should prepare for rising risks. It’s a very different story for industries that are benefiting from China’s plans. These are the auto industry, IT, and mechanical engineering. The credit insurance company expects demand from the People’s Republic to remain high in these sectors. niw

    • Car Industry
    • Environment
    • Raw materials
    • Renewable energies
    • Sustainability

    Opinion

    The limits to US-China climate cooperation

    By Minxin Pei
    Minxin Pei

    Despite their increasingly bitter rivalry, the United States and China have recently been sending the right signals regarding potential cooperation on combating climate change. The joint statement issued after the mid-April meeting between John Kerry, US special presidential envoy for climate, and his Chinese counterpart, Xie Zhenhua, indicates that the two governments may be trying to use collaboration on climate policy to prevent their relationship from devolving into outright enmity. But the path ahead is strewn with geopolitical landmines.

    It is not difficult to understand why the US and China are behaving responsibly at the moment. Both countries view climate change as an existential threat and have a strong interest in cooperation. And Biden and Chinese President Xi Jinping know that open intransigence or obstructionism on this issue would cost them dearly in terms of international public opinion.

    During the Cold War, the ideological struggle between communism and capitalism divided the world and cemented alliances. But in the coming decade, ideology alone is unlikely to win the US and China many friends. The Communist Party of China no longer has any real ideology to speak of, while political polarization and Trumpism have tarnished America’s luster. Instead, as climate change puts human survival at risk, leadership in tackling the problem will shape international alliances.

    Action must follow

    Turning rhetorical climate commitments into action will sorely test both countries in the coming years. Shortly after Biden’s recent climate summit of world leaders, for example, Chinese Foreign Minister Wang Yi hinted that China’s cooperation with America would hinge on whether the US “interferes in China’s internal affairs.”

    While China regards Tibet, Xinjiang, Hong Kong, and, most importantly, Taiwan as “internal affairs,” Kerry has made it clear that the US will not trade away concessions on these matters for Chinese cooperation on climate change. Unless China or the US softens its position, further escalation of Sino-American tensions over these hot-button issues can be expected to endanger bilateral climate efforts.

    Besides the difficulty of insulating their bilateral conflicts from areas of potential collaboration, it is unclear what and how much climate cooperation the US and China can deliver. The brief US-China joint statement offers few specifics, and for good reason. Given the absence of trust, neither country is willing to make binding commitments.

    Negotiate climate policy separately

    As a result, bilateral cooperation on climate change will be volatile, modest, and incremental at best. The volatility stems from the overall instability of US-China relations, with a spike in tensions inevitably inflicting collateral damage on climate efforts. Mutual suspicion and hostility will also prevent both sides from taking big steps and motivate them to drive hard bargains. Only minor measures can test trust and produce sufficient goodwill to sustain cooperation. We should thus expect a gradual, drawn-out process.

    Given the absence of mutual confidence, the US and China perhaps can best cooperate by refraining from certain actions, rather than actively trying to achieve things together. Here, the first imperative is to avoid linking climate cooperation with the most adversarial aspects of the bilateral relationship, such as human rights, trade, and security.

    Exercising such restraint will demand more of China than it will of the US, because Chinese leaders apparently believe that the climate issue gives them crucial leverage over Biden’s policies in other areas. Xi needs to recognize that such linkages will be counterproductive. Strong bipartisan anti-China sentiment in the US leaves Biden little room for maneuver, and Chinese intransigence could severely damage Xi’s credibility as a global leader on climate change.

    Not jeopardizing dialogue on green technologies

    Suppressing the temptation to score points by attacking each other’s positions during upcoming multilateral climate negotiations will also help the US and China to stay productively engaged. On specific issues such as emissions-reduction goals and contributions to financing energy transitions in developing economies, each country should base its criticism on sound scientific, economic, and moral grounds. More important, they should accompany their criticism with alternatives that third parties deem reasonable, realistic, and beneficial.

    It may be unrealistic to talk about active US-China cooperation on clean energy when the two countries are waging a technology war. Yet, although the US and China agreed in their recent joint statement only to discuss, not commit to, collaboration on green technologies, they may still explore ways to sequester such innovations from their broader strategic competition. Specifically, the US and China should seek to minimize harm whenever they weigh policies that might appear necessary to maintain a competitive advantage but could adversely affect the development and adoption of green technologies.

    It is important for the world that the US and China cooperate against climate change, but we should have no illusions. Our best hope is that the two superpowers will be disciplined enough not to jeopardize humanity’s survival in their struggle for geopolitical advantage.

    Minxin Pei, Professor of Government at Claremont McKenna College, is a non-resident senior fellow at the German Marshall Fund of the United States.

    Copyright: Project Syndicate, 2021.
    www.project-syndicate.org

    • Climate
    • Environment
    • Joe Biden
    • Minxin Pei
    • Sustainability
    • Tibet

    Executive Moves

    Translation missing.

    Dessert

    A new theatre building was recently opened in the city of Nantong (Jiangsu Province). Even beyond the well-known metropolises, the country’s culture is dressing itself in increasingly beautiful architecture.

    China.Table Editors

    CHINA.TABLE EDITORIAL OFFICE

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