Beijing’s cyber-protectionism

An extraordinary coalition of business federations from the United States, Europe and Japan teamed up this week to send Beijing a message: back off of proposed cyber-security regulations that would force foreign firms to store data in China and surrender information and technology to Chinese security inspectors.

The business groups, which included the US Chamber of Commerce, BusinessEurope and Japan’s Keidanren, decried the new rules in a letter sent to Chinese premier Li Keqiang. Other signatories included more than 40 global industry groups representing financial services, technology and manufacturing sectors, and business lobbies from Australia, Mexico and Switzerland.

The petition was a response to draft regulations, announced by the China Insurance Regulatory Commission last month, requiring foreign insurers to use Chinese hardware and software to store and encrypt data. But global firms also are fuming over new banking regulations that would require them to hand over key technologies such as source codes and encryption algorithms to the Chinese government. (Beijing has delayed implementing those rules after protest from Washington.)

China insists it needs tighter controls on cyber-security and the Internet to guard against terrorism. Global companies aren’t buying it. The letter casts the regulations as thinly disguised protectionism and warns they will further isolate China from the global digital economy. The new provisions would “have no additional security benefits but would impede economic growth and create barriers to entry for both foreign and Chinese companies,” the letter declares.

The high-profile petition, submitted as China prepares to host world leaders at the Group of 20 summit in Hangzhou next month, reflects mounting frustration among global companies operating in China. In years past, when China was growing by double digits and China’s homegrown firms depended heavily on foreign technology, global firms favored a more diplomatic approach to dealing with Beijing. But many Beijing-based executives say they’re fed up. Fairly or not, there’s a widespread perception among global business leaders and investors that China has turned hostile to foreign firms–especially firms in the technology sector–under the leadership of President Xi Jinping.

In recent years, Beijing has gone after firms including Mead Johnson and Abbott Laboratories as well as twelve Japanese automakers for price fixing. Regulators have investigated Microsoft for “monopolistic behavior” and Qualcomm for violating anti-trust rules. In April, officials blocked access to Apple’s iTunes movies and iBooks services. Last month, China introduced new national regulations for ride-hailing services that some say forced Uber’s China exit.

A recent American Chamber of Commerce of China survey found that 77% of the group’s members felt foreign firms are less welcome in China than in years past. That’s a big jump from the 60% who said they felt unwelcome in 2014 when Fortune first called attention to the “Cold War” on western businesses operating in China and Russia.

But hostility works both ways. The perception that China treats foreign firms unfairly is fueling a backlash against Chinese investments abroad. Yesterday Australia, until recently an eager recipient of Chinese capital, rejected a bid from Hong Kong billionaire Li Ka-shing and China’s state-owned State Grid Corp for control of Ausgrid, the Australian power network. In Britain, prime minister Theresa May has put the brakes on what she says was an excessively “gung ho” approach by her predecessor, David Cameron, to solicit Chinese investment in two new British nuclear reactors.

More grim economic data

China’s industrial production rose 6.0% in July from a year earlier, slower than 6.2% in June and below market expectations. Factory output, retail sales, and exports all slowed last month. Looks like China’s slump isn’t over yet.

Wall Street Journal

Alibaba shrugs off the slowdown

Alibaba, unbowed by the lackluster economy, reported its biggest quarterly revenue gain since its 2014 IPO.  The Chinese tech giant said revenue in the three months to June 30 jumped $4.84 billion, a 59% increase over the same period a year earlier. The company said the value of mobile transactions surpasses those of non-mobile transactions for the first time in its history.


Manchurian candidate?

WSJ reporters Bob Davis and Jon Hilsenrath visit struggling furniture factories in in North Carolina to trace connections between the rise of China’s exports to the US and the popularity of Donald Trump. In effect, they argue Trump’s candidacy was “made in China.” That may sound a little batty, but this is a thoughtful, well-reported piece by two outstanding journalists. I don’t buy the many assumptions baked into the data in its main graphic (or maybe I just don’t understand them). But it’s hard to quibble with Davis and Hilsenrath’s main point, which is that the boom in US trade with China walloped American workers, especially those with few skills, a lot harder than earlier trade “invasions” from Japan, the Asian “tigers” or Mexico. China, they write, “rattled the American economy more violently than economists and policy makers anticipated at the time or realized for years later.”

Wall Street Journal

Japan searches for missing Chinese fishermen after collision near disputed islands

On Thursday, a Chinese fishing boat, Minjinyu 05891, collided with a Greek freighter, the Anangel Courage, about 70 kilometers from islands between Okinawa and Taiwan claimed by Japan and China. The Minjinjyu sank. The Japanese coast guard rescued six fishermen and had them flown to a hospital in Okinawa. Eight more remain missing.

The waters around the islands have been a flashpoint this past week. The Japanese Foreign Ministry claims that 200 Chinese fishing vessel made 14 different “incursions” into waters patrolled by Japan. It’s not clear why so many private Chinese boats would suddenly appear in such numbers in the area. But if the aim was to escalate tensions, the disappearance of the fisherman seems to have had the opposite effect. Coastguard vessels from Japan and China joined in what Japan’s Asahi called a “rare act of cooperation” to search for the missing crew.

Is China looking for an exit strategy in the South China Seas?

Robert Manning of the Atlantic Council and James Przystup of the Institute for National Security Studies argue that Beijing’s “nationalist venting” in response to The Hague’s verdict for the Philippines’ claims in the South China Sea “undermines once and for all China’s claims about its peaceful rise.” But they also see the judgment as an opportunity for Beijing to climb-down from a foreign policy that isn’t working: “Beijing’s current demeanor may reflect increasing recognition of the consequences of how the world perceives China’s rise. And on that score, the ruling at The Hague does offer Beijing a chance to rethink the complex issues of sovereignty in the South China Sea. Creative thinkers in Beijing could see the ruling as providing China with a much-needed off-ramp.”

Foreign Affairs

Or is China gearing up for war?

James Holmes in the National Interest argues Chinese leaders have painted themselves into a corner: “If Beijing relented from its maritime claims now, ordinary Chinese would—rightly—judge the leadership by the standard it set. Party leaders would stand condemned as weaklings who surrendered sacred territory, failed to avenge China’s century of humiliation despite China’s rise to great power, and let jurists and lesser neighbors backed by a certain superpower flout big, bad China’s will.”

In the same issue, Mike Scrafton argues that if the US adopts a hard-line policy in the South China Sea, it could make things much much worse.

National Interest

Will Big Data strengthen the Chinese government’s capacity to control its citizens?

Surprise: all the experts on this panel say yes. But Darmouth College history professor Pamela Kyle Crossley asks the smarter question: “Is there some place in the world where Big Data is not increasing state control?”

China File

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