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Trade war, day 168: Fresh accusations of stolen technology, but no sanctions (yet)

SupChina com

The U.S. Justice Department has, for the fourth time in three months, unveiled a significant indictment (press release here; full charging document here) against Chinese actors for alleged technology thefts.

Zhu Hua and Zhang Shilong are two computer hackers, the U.S. government says, who “compromised...clients in at least a dozen countries,” and accessed computer networks in “banking and finance, telecommunications and consumer electronics, medical equipment, packaging, manufacturing, consulting, healthcare, biotechnology, automotive, oil and gas exploration, and mining.”They operated under China’s Ministry of State Security, like the hackers in previous indictments, the Justice Department says. Their actions violate a 2015 pledge by China to not use computer hacking “with the intent of providing competitive advantages to companies or commercial sectors,” the Justice Department said.Deputy Attorney General Rod J. Rosenstein was very explicit in his remarks tying these hacks to China’s efforts to develop technology in ten sectors identified in the Made in China 2025 initiative — click here to read SupChina’s explainer on that program.For more on the details of the hacks, see the New York Times (porous paywall) or the Wall Street Journal(paywall).

The first two indictments that the U.S. Justice Department announced in recent months, SupChina reported on as standalone stories: Chinese spy extradited from Belgium, faces aviation espionage charges in the U.S.U.S. accuses 10 Chinese nationals of stealing aerospace technology. The third was part of a trade war update — Trade war, day 119: Trump has ‘good conversation’ with Xi, then issues another technology theft indictment.

But they are all clearly part of the broader pushback by the United States on unfair Chinese economic practices, and so therefore part of the trade war. Now that pushback is going more global, at least among the “Five Eyes” countries that cooperate on intelligence sharing — The U.S., UK, Australia, Canada, and New Zealand. The Washington Post reports:

In London, Canberra, Ottawa and Wellington, ministers knocked China for violating a 2015 pledge, first offered by Chinese President Xi Jinping in the Rose Garden and later repeated at international gatherings such as the G-20, to refrain from hacking for commercial gain.

The Sydney Morning Herald reported on the increased coordination of these countries on China last week. A few other western countries are also voicing concerns now, too, the Washington Post reports:

The foreign ministries of Denmark, Sweden and Finland later tweeted statements saying they shared the concerns over rampant cyber commercial espionage.

Other countries identified as victims of the hacking, which have not yet expressed a reaction to the news, are France, Germany, and Japan.

While the extent of this pushback is significant, noted China watcher Bill Bishop points out (paywall) that the most significant angle on the story may be that it did not go as far as expected. The original Washington Post story from last night flagging that the indictments were coming further stated, “Sanctions related to the cyber economic espionage effort also are expected to be announced.”

“I hear from multiple people that the Trump administration backed off on any sanctions because Treasury Secretary Mnuchin was worried about Beijing's reaction and a possible impact on the trade talks,” Bishop reports. In the distinctly possible scenario that trade talks break down before they reach the end of the current 90-day period, that calculation could change quickly.

In other trade war news

The third Canadian detained has been identified, and there are interesting updates on the other two detainees as well.

Sarah McIver, a teacher from Alberta province in Canada, was sentenced to “administrative punishment” for a visa issue, but the Chinese foreign ministry “did not explain what that means,” the CBC reports.Her case “doesn’t seem to fit the pattern of facts on the previous two,” Prime Minister Justin Trudeau said, though like the others, she had worked and lived in China without problems for months before suddenly running into issues, the SCMP reports.Michael Kovrig, the International Crisis Group employee and former Canadian diplomat, also has Hungarian nationalityaccording to Reuters. Hungary has been seeking access to him but that has “not been granted yet,” as the new development threatens to entangle the EU in the Canada-China-U.S. situation.Friends of Michael Spavor, the NGO worker who was the second detained, have been raising money online to “support him on his eventual release,” SCMP says.“Developments such as these [arrests] increase uncertainty and distrust among foreign scholars who regularly conduct research within China, as they fear for their safety. This will clearly undermine efforts to better understand developments in China and to further constructive relations between China and other countries,” wrote the directors of six Berlin-based policy institutions in a joint statement.“Travel Alberta is suspending marketing efforts in China along with trips by its staffers to the Asian country amid a deepening diplomatic row between Ottawa and Beijing,” Calgary Herald reports.

Even more significant trade-war-related links from just the past 24 hours:

World Bank and EU want changes in Chinese tech transfer
China should address US concerns on investment and tech transfer to defuse trade war, says World Bank / SCMP
“China should address the concerns expressed by the United States and other major trading partners over forced transfer of technology and openness to investment to de-escalate ongoing trade tensions, the World Bank advised on Thursday.”
EU expands WTO case against Chinese technology transfers / Reuters
“The European Union expanded its challenge against China at the World Trade Organization on Thursday over laws it says force the transfer of technology in areas including electric vehicles and crop seeds.”American influence at international institutions
US warns of Chinese influence at multilateral lenders / FT (paywall)
“At a congressional hearing last week, David Malpass, the top US Treasury official on international affairs, issued a thinly disguised warning that might have seemed unthinkable just a few years ago: the World Bank and other bastions of the US-led international economic order are at risk of being captured by Chinese influence.”Meng Wanzhou’s bail
These are the Canadians who paid millions in bail for Huawei’s Meng Wanzhou, putting homes and retirement savings on the line / SCMP
“They include a property agent, a mansion-owning homemaker and a part-time yoga-instructor – a veritable casting call of modern Vancouver.”More soybeans
China poised to buy more U.S. soybeans soon: sources / Reuters
“China plans to make a third round of U.S. soybean purchases within days, two sources familiar with the matter said on Thursday, after a trade war truce between Washington and Beijing earlier this month triggered two waves of buying…More than 2 million tonnes of additional purchases are likely before the Christmas holiday on Dec. 25, according to one of the sources, bringing total U.S. sales to China to more than 5 million tonnes in December.”Analysis of 90-day talks
Clock ticks for China to reach a deal with US in trade talks / AFP
“Chinese President Xi Jinping's trade war strategy is getting more complicated, with slowing growth and disagreements about his approach within the Communist Party adding new battlefronts, according to analysts. With the clock ticking since December 1 on a 90-day deadline to reach a deal with the United States, China has only made superficial peace offerings as it tries to buy time…”
Opinion | China Is Willing to Make a Deal / NYT (porous paywall)
Eswar Prasad writes, “The official word is that everything is fine…In private, Chinese officials admit they are worried. During a trip to Beijing last week, I encountered varying degrees of concern about the economy among bureaucrats, academics and business executives…Against this backdrop, there is a real opportunity for a deal to end the damaging trade war with the United States.”
Will U.S. trade pressure actually change China’s industrial policy? / Washington Post
Yeling Tan, an assistant professor of political science at the University of Oregon, compares the current trade war to historical U.S.-Japan disputes, and concludes, “Trade pressure on China is therefore far from historically unprecedented, but as long as those in China see it as part of a broader external effort to weaken or curtail the country, it is unlikely to result in the kinds of deep structural concessions that the United States has won in previous battles.”
Goldman Says China-U.S. Deal Would Be 2019's Top Economic Event / Bloomberg (porous paywall)
Ex-U.S. Treasury Chief Thinks Trade War Will Last Past March Deadline / Caixin (paywall)
“The U.S. and China are unlikely to negotiate an agreement that could end the trade war by their March deadline, former U.S. Treasury Secretary Lawrence Summers said on Tuesday, warning that the possibility of the U.S. slipping into a recession in the next two years would put even more strain on the relationship.”Criticism of Trump, uncensored
Please Welcome China’s WeChat To The #Resistance / BuzzFeed
“Negative articles and comments about Trump were censored on the Chinese internet as recently as this summer. But now the floodgates appear to be open.”Interview with Graham Allison on the “Thucydides Trap”
Thucydides Trap author Graham Allison says China and US must work together and not end up on path that leads to war / SCMP
“The scholar who warned that China and the US could be heading for war said the two powers needed to redefine their relationship with a ‘new strategic concept’. Graham Allison, who said Beijing and Washington could fall into what he called the Thucydides Trap – where a rising power threatens to eclipse a rival and conflict may result – told the South China Morning Post that the two were ‘in a dangerous period’.”

—Lucas Niewenhuis


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