DRIVING THE DAY
1. The trade war is confusing as ever
China doesn’t want a trade war with the US.
It wants to strike a deal.
But there is one big problem: Chinese negotiators do not trust their American counterparts.
Some context: The Chinese have received contradictory messages from different American interlocutors for over a year.
Bloomberg gets the skinny from three officials:
- “As both sides hint at the possibility of restarting talks, China is worried that it might get played again, according to three Chinese officials who asked not to be identified discussing strategy.”
- “Xi’s administration still wants to cut a deal with the U.S…but it will be hard for Chinese negotiators to trust their American counterparts.”
More context: Chief negotiator Liu He was embarrassed after his May trip to DC. While Liu was there, the Americans promised to keep talking. But soon after Liu left, US President Trump announced USD 50 billion in tariffs.
The Chinese have not forgotten that episode:
- “Anger at the U.S. for making one of Xi’s senior aides look bad remains one of the biggest obstacles to an agreement.”
Get smart: Mutual distrust is another reason that a quick resolution looks unlikely.
Bloomberg: Burned Once by Trump, China’s Xi Wary About Fresh Trade Talks
FINANCE and ECONOMICS
2. The NXP deadline looms
Qualcomm’s deal to buy Dutch chipmaker NXP looks dead.
The American company has been waiting for weeks to get approval from Chinese anti-trust regulators for its takeover of NXP. The deadline for a decision is at midnight on Wednesday in New York.
As Yicai reports, mum’s the word:
- “The California-based company has heard nothing from Chinese regulators about its proposed USD43 billion takeover of the Dutch firm, a Qualcomm executive familiar with the deal told Yicai Global in an exclusive interview.”
- “If [the deadline is] missed, Qualcomm will need to cough up USD2 billion in recompense.”
Why it matters: Many analysts thought that US President Donald Trump’s decision to back off the harsh penalty on ZTE would mean that China would approve the NXP deal as a quid pro quo.
Get smart: There are many elements to economic tensions between China and the US – the trade piece is just a fraction of the story. But given the current tensions, and frustration in Beijing, there is little incentive for China to help out the US – despite the reprieve for ZTE.
What to watch: The coming tech war will make the trade war look like peanuts.
Yicai:China Stays Quiet as Qualcomm-NXP Deadline Looms, Executive Says
FINANCE and ECONOMICS
3. Facebook’s latest China play
Facebook wants to get into China so badly, the company just can’t help itself. For years, CEO Mark Zuckerburg has courted regulators in the hope that they would lift the ban on his social media platform.
The latest move is an effort to invest in research in China (Bloomberg):
- “Facebook set up a Chinese subsidiary, Facebook Technology (Hang Zhou) Ltd., earlier this month, according to a filing with the National Enterprise Credit Information Publicity System.”
- “The subsidiary, which was approved July 18, has registered capital of $30 million, according to the filing.”
- “Asked for comment, a Facebook spokesman said the company is looking into setting up an ‘innovation hub’ in Zhejiang.”
Why it matters: This appears like Facebook’s attempt to align with China’s domestic policy drive to improve innovative capacity. China wants to build up its homegrown tech companies, but if foreign tech giants want to help kickstart the process, then all the better.
Get smart: Facebook is not going to be allowed to operate its platform in China, as currently constructed. Ever. No matter how much it supplicates itself to Chinese authorities. The platform is simply too powerful for spurring and spreading social movements – which Chinese authori will do anything to avoid.
Bloomberg: Facebook Sets Up China Subsidiary to Build Innovation Hub
POLITICS AND POLICY
4. Sino-Japanese ties still warming
Premier Li Keqiang met with Tadamori Oshima, speaker of the House of Representatives of the Japanese Diet, on Tuesday.
It’s the latest sign of warming ties with Japan.
Li tried to leverage growing Japanese disillusionment with the protectionist policies of the USA (Gov.cn):
- “Against the backdrop of rising trade protectionism and anti-globalization, China and Japan – as the world’s two major economies and beneficiaries of free trade – should jointly safeguard multilateralism and a rules-based international order and free trade system.”
- “China will open up further to the outside world and further ease market access.”
- “Companies from all over the world, including Japan, are welcome to expand cooperation with China.”
The two may soon collaborate on the Belt and Road (Asahi Shimbun):
- “Japan and China plan to hold the first meeting of a committee in Beijing in September to discuss economic cooperation projects in third countries related to China’s ‘One Belt One Road Initiative.’”
Get smart: As ties with the US deteriorate, China is eager to bolster ties with neighboring countries.
What to watch: Japanese Prime Minister Shinzo Abe is likely to make his first official visit to China later this year.
Gov.cn: Premier meets with Japan’s lower house speaker
Asahi Shimbun : Japan, China set to work out joint development projects
POLITICS and POLICY
5. Tackling rural pollution
China’s environmental regulators have done an admirable job in reducing air pollution in major cities recently (though they still have a long way to go).
Now they are trying tackle a more difficult problem – water pollution:
- “China’s environment ministry has approved a new plan to tackle growing pollution threats in its vast countryside and will strive to clean up contaminated…drinking water and improve waste management, it said on Tuesday.”
- “The new plan, approved ‘in principle’ by the Ministry of Ecology and Environment on Monday, also mandates cuts in fertilizer and pesticide use and improved recycling rates throughout the countryside.”
- “China’s countryside has struggled to cope with land and water pollution caused not only by unsustainable farming practices, but also by poorly regulated, privately-owned mines and manufacturing plants, as well as rising volumes of plastic waste.”
Get smart: China’s countryside is a mess. And remediating its environment is a long-term project. But Xi Jinping has shown time and again that he is serious about environmental protection, so we expect there to be progress here.
Get smarter: This is part of Xi’s plan to revitalize the countryside.
Reuters : China’s environment ministry approves new plan to tackle rural pollution
POLITICS and POLICY
6. A quiet cybersecurity inspection disadvantages foreign tech providers
Foreign ICT products and services are a threat to cybersecurity.
That is essentially the message from a recent – and ongoing – cybersecurity inspection campaign.
The Ministry of Public Security (MPS) quietly initiated the six-month, nationwide inspection in June.
According to a provincial police department telegraph that we’ve seen, local departments will inspect:
- Critical information infrastructure
- Government information systems, including those of SOEs
- Surveillance technology in transport systems, power grids, and public areas
- Big data gathering techniques of internet companies, infotech companies, big data centers, cloud-computing service providers, and Artificial Intelligence companies
The directive for these inspections seems to come directly from the top.
Regulators are selling the inspections to the public as a move to ensure privacy protection (Xinhua):
- “Protection of citizens’ personal information will be the top priority of law enforcement.”
But one item on the inspection checklist got our attention – they are looking at companies’ ratio of Chinese-made information products and services, with an eye toward growing the percentage of local providers (last link).
Get smart: Campaigns like this will pressure foreign tech companies to either localize their product offerings or get out of market.