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MERICS: China Briefing

China resorts to drastic measures while the EU is lost for words

TOP STORY: China resorts to drastic measures while the EU is lost for words

Two weeks after the introduction of the Hong Kong National Security Law, China has rapidly tightened its control. Meanwhile, the EU is struggling to formulate a collective response. The EU foreign ministers in Brussels criticized the law as a "draconian" intervention which de facto ends Hong Kong's special status of "one country, two systems" – a formula previously propagated by China itself. The security law, passed on 1 July, criminalizes activities that China interprets as subversion, separatism, terrorism or collusion with foreign actors.

In response to China's historic move, EU foreign ministers first discussed a mere export ban on tear gas and rubber bullets and the possibility for Hong Kong people to stay in the EU more easily should they feel politically persecuted. Yet, the ministers did not decide on tougher measures, such as sanctions or the cancellation of extradition agreements with Hong Kong. Conflicting positions both between and within EU member states mean that we can expect to wait a long time before we see a unanimous response to China on the situation in Hong Kong.   

Other states, like the US, Canada, Australia and Great Britain, are taking a harder line: US President Donald Trump signed a law to impose sanctions on China and revoked the special status which gave Hong Kong - unlike China - access to sensitive US technology. Trump stated that US sanctions target the “individuals and the entities involved in extinguishing Hong Kong’s freedom." British Prime Minister Boris Johnson has promised up to three million Hongkongers British citizenship.

The offer of British citizenship could become more attractive for some Hongkongers as they are now witnessing Beijing’s vigorous promotion of the far-reaching consequences of the National Security Law. On July 8, Chinese media announced that the "Hong Kong Special Administrative Region National Security Agency of the Central Government" would be based at the Metropark Hotel Causeway Bay. The new authoritative body will be led by former Guangdong Provincial Party Secretary Zheng Yanxiong who was responsible for quelling anti-corruption protests in Wukan village in 2011.

At the same time, the “Committee for Safeguarding National Security of the Hong Kong Special Administrative Region” met for the first time. The committee is chaired by Chief Executive Carry Lam. Beijing appointed the Director of the Liaison Office of the Central People’s Government in Hong Kong, Luo Huining, as the committee’s security  advisor. Such overlaps in personnel are a clear indication that the authorities in Hong Kong and Beijing are becoming increasingly intertwined.

Meanwhile, many citizens still openly oppose the power shift in Hong Kong. Ignoring warnings from official sources, more than 650,000 people participated in primaries for democratic party candidates for the Legislative Council elections (LegCo) scheduled for September. China's liaison office described the primaries as "illegal". Further clashes in the run-up to the elections are to be expected.

MERICS Analysis

"The security bodies set up in Hong Kong will be able to enforce and apply the National Security Act in almost any way they desire. This could therefore result in systematic criminalization of whatever Beijing regards as ‘unpleasant activities’" says MERICS expert Kristin Shi-Kupfer.  

MERICS Chief Economist Max J. Zenglein has commented on the situation in Hong Kong in an op-ed for Nikkei Asia Review. 

Media coverage and sources:  

Europe turns its back on Huawei

The facts:  

Huawei’s presence in Europe’s 5G networks is at a critical juncture. The UK has banned the Chinese tech giant from its 5G rollout as part of a broader government rethink on China. The French government is advising telecommunication companies against using Huawei technology and is planning for a phase-out of existing Huawei components. In Italy, where a comprehensive cybersecurity law was adopted in November 2019, officials are reportedly considering a ban, and Telecom Italia – the country’s leading telco – has already barred Huawei from competing in a tender to supply the core for 5G networks. Germany, however, remains undecided. Deutsche Telecom is under fire for its continued willingness to use Huawei equipment. Economic Minister Peter Altmaier has reasserted that Huawei’s exclusion can only be justified if “national security is demonstrably endangered”.

What to watch:  

President Trump’s National Security Adviser, Robert O’Brien, and his Deputy Matthew Pottinger, are in Europe this week to meet British, French, German and Italian officials. As things stand, Huawei is unlikely to play a big role as a supplier for Europe going forward. The EU Recovery Fund appears to have played a role in the decision making, convincing Italy to discuss stronger measures. The January 2020 EU toolbox on 5G cybersecurity alerts member states to consider the security risks posed by third countries that could potentially exert pressure on suppliers to conduct espionage or interference.  

MERICS analysis:

“While the US has pushed allies to exclude Huawei from 5G, it would be wrong to chalk up European governments’ decisions to them picking sides between China and the US. These choices have been mainly informed by national security concerns. Huawei’s links to the party-state are opaque, and Chinese state security, national intelligence and counter-espionage legislation require collaboration on request by the state security apparatus,” says MERICS expert Lucrezia Poggetti.

Media coverage and sources:

China’s bull market thrills foreign and domestic investors – economic recovery far from stable

SSE Composite Index Falling

The facts:

An unexpected rise in China’s stock market prices has created a – possibly only temporary – bull market. While China’s economy experienced a historically poor economic performance in the first half of 2020, the Shanghai Composite was up by an enormous 20 percent from 15 June at the beginning of this week – the highest it has been since 2018. There are several factors that may have sparked the buying frenzy that has driven price growth. Confounding growth estimates, factors such as, surprisingly good trade performance, extensive government monetary stimuli, and foreign inflows of capital all contributed to this surprise rise in stock prices. In June exports and imports rose by 0.5 percent and 2.7 percent compared to June 2019, displaying signs of recovery. One outcome of stock prices rising and foreign investors piling in is the strengthening of the Chinese Yuan. It appreciated from around 7.14 per USD to around 7 per USD since mid-June.  

What to watch:

The surge may well have been nothing but a temporary high. On Thursday, China’s stocks plummeted more than four percent. The ups and downs show that the economic situation is far from stable. Investors seemed increasingly confident China’s economy is recovering, but remain wary of possible downturns.  

MERICS analysis:  

Current stock market prices do not reflect economic fundamentals. The government’s monetary stimulus played a role in boosting liquidity, and a significant amount of that package must have made it to the stock market. China has had a hard year; this can be seen clearly from companies’ bottom lines. By the end of May, industrial profits in China were down more than 22 percent in year-to-date comparison. Many companies will not be able to pay out dividends this year. As financial results are published it will become increasingly clear that revenues must be devoted to servicing debt instead of investing in new capacity.

Media coverage and sources:

Revenge on society? Bus crash in Guizhou sparks controversy

The facts:  

A controversial hot topic on China’s social media is the story of a bus driver in Guizhou province who deliberately caused an accident in which 21 people, including five schoolchildren, were killed. According to state media reports, the driver was drunk at the time and angry at the government who had introduced an infrastructure project that lead to the demolition of his house. Reports say that he did not accept the offered compensation of around 10,000 USD. Video footage shows the driver steering the bus across the carriageway and through the guardrail (into a lake). Some internet users on China’s social media have expressed understanding for the driver's frustration. Others, including official commentators, condemned the act and those expressing sympathy for the perpetrator. Some internet users directed their criticism towards social media channels for releasing and interpreting the driver’s private information.   

What to watch:  

Although many people died in the accident, some commentators on social media have expressed understanding for the driver. This indicates a deep discontent towards local authorities. During these times of economic crisis, local authorities are under increasing pressure to implement cost-effective infrastructure projects. As a result, disputes with citizens could become more frequent. 

MERICS analysis:  

This incident ties into an ongoing debate in China on the idea of actions coined “revenge on society”. The issue first attracted attention throughout China in 2008, when a 28-year-old unemployed man in Shanghai stabbed six police officers after disputes with the police. The man, who was later sentenced to death, saw no other way out of his desperate situation or his interrogation conducted by the police officers. His actions became symbolic for taking “revenge on society.”

Media coverage and sources:  

METRIX

Metrix 46.4

The Covid-19 pandemic has plunged China into a deep economic crisis, but now there are first signs of recovery. Imports and exports have slightly increased over the second quarter, the most successful sector being medical instruments and devices. These exports were up 46.4 percent in the first six months, according to China’s General Administration of Customs. On the height of the pandemic, Chinese manufacturers had delivered masks and other gear to countries worldwide. 

REVIEW

“China's National Security: Endangering Hong Kong's Rule of Law?” by Cora Chan and Fiona de Londras (eds.) (Hart Publishing, 2020)  

This timely new book examines if and how the national security interests of the Chinese party-state can be reconciled with rule of law in Hong Kong. The highly readable collection of articles by legal scholars from Hong Kong and around the world was finalized as citizens of the semi-autonomous city were taking to the streets in 2019 to protest against a proposal for new extradition rules – and the National Security Law for Hong Kong (HKNSL), imposed by Beijing on July 1, seemed unimaginable.  

The HKNSL has already started to change Hong Kong’s institutions and society and left the world grappling to understand its long-term impact. So the book’s exploration of ways to maintain “Hong Kong’s vibrant common law system, with its respect for human rights and the separation of powers, within the envelope of China’s Leninist legal system” has been largely overtaken by events. But that does not make it any less valuable for anyone interested in the past and future of Hong Kong.  

China’s National Security excels in explaining Beijing’s political motivations, the central-local dynamics at play, and the tensions within Hong Kong politics and society. It shows how – in an ever more vicious circle – mainland China’s existential fear of secession and subversion compelled it to renege on promises about universal suffrage and forcefully encroach on Hong Kong’s liberties. These moves by Beijing in turn increased the pushback from and radicalization of Hong Kong’s opposition movement.  

The HKNSL has placed major constraints on the judiciary, professional associations, media, academia and civil society. But the authors also show how deeply rooted in Hong Kong society these groups are – and that we should not discount them as sources of resilience that will continue to advocate for and safeguard the rule of law even after China imposes its vision of national security in the city.  

Review by Katja Drinhausen, Analyst  

VIS-À-VIS

Norbert Frischauf on Beijing’s Mars mission: “China is a potential partner we should keep an eye on”

China is sending its first spacecraft to Mars, probably in late July. MERICS put three questions to Norbert Frischauf, a partner at SpaceTec Capital Partners and advisor to the European Space Agency and the European Commission, among others.  

1. How does Tianwen-1 fit into the Chinese space program, and does it alter the competition with NASA or ESA?  

Norbert Frischauf: Tianwen – "Heavenly Questions” – is meant to take a Chinese research vehicle to Mars for the first time. It is the logical next step after the Yutu or Jade Rabbit mission to the moon in 2013 – after the moon rover comes the Mars rover. If you want to be taken seriously in the space business, you have to go to Mars. The mission has a lot to do with prestige, it is not a big leap scientifically or technically. China is using established technology and analyzing Mars’ ground and atmosphere, something that Americans, Russians and Europeans have been doing for a while. It is a flag-waving mission and nothing is allowed to go wrong. But the competition between countries is always overstated. They compete, but they also cooperate again and again. Next to the USA, Europe, Russia, Japan and India, China is still relatively isolated. But the China National Space Administration (CNSA) has worked with the European Space Agency (ESA) in other fields. Europe can only do manned moon or Mars missions with the help of America or Russia – or in future perhaps with China’s.     

2. We have recently seen a surge of Great Power competition on earth – does the same hold true for space, and what consequences will this have?  

Space is an arena on which a state shows what it can do. We saw that in the 1960s with the race to the moon. The Soviet Union and the USA sought to impress allied and neutral states. The Soviets initially took the lead, which shocked the USA. A civil space program is a demonstration of what a state can do militarily – a rocket to the moon or to Mars is the basis of a space base, or it is an intercontinental carrier for all kinds of warheads. I do not think the upcoming Mars missions – NASA and the United Arab Emirates are also launching missions in July or August – represent a new space race just yet. But another one could develop – US President Donald Trump recently rekindled it by founding the "Space Force" as part of the US armed forces. Space is strategically essential from a military point of view. It's about communication, navigation and earth observation, and all major militaries now use these capabilities. We are seeing a big technology transfer from civil to military uses – and companies like SpaceX, Planet or Spire are profiting handsomely.   

3. Does China’s space program offer new opportunities for Europe’s ambitions in space? If so, how? And are there any concomitant risks?  

Of course, this offers Europe some great opportunities. The Europeans are the only ones who can cooperate with everyone else, partly because we are less concerned with military power in space than with science. We are constantly working with the USA, Russia, India, Japan – and have worked with China. It may be a consequence of Europe's decentralization or polite understatement, but there is too little public recognition of the fact that no country can really do without Europe when it comes to space programs – we are the number one when it comes to space science. For example, researchers at the University of Geneva won the Nobel Prize for discovering exoplanets orbiting a star like our sun. In international comparison, China is not yet as good as the USA. But we Europeans must ask ourselves how reliable the USA will be in future. China is a potential partner we should keep an eye on. The Chinese system offers one huge advantage – whatever the leadership decides can be implemented rigorously. As a newcomer to the space business, China still has a long way to go, especially in fields like computers, robotics or energy systems.

The interview was conducted by our editor Gerrit Wiesmann.  

PROFILE: Xu Zhangrun

Fearless critic of Xi’s rule is pressured by police and loses his job

Ten police cars blocked access to the Beijing home of Xu Zhangrun on July 6 as authorities detained the renowned Chinese jurist and legal scholar. The official reason given for the move was that Xu had solicited prostitutes. But observers widely denounced this as an attempt to intimidate and undermine the integrity of an outspoken critic of China’s deteriorating political and social conditions. According to media reports, he was allowed to go home after one week of detention but lost his job at prestigious Tsinghua University.    

The 57-year-old professor in May and June published two widely read essays rebuking China’s Covid-19 crisis management and describing the problems faced by Beijing at home and abroad. Xu, who holds a PhD from Melbourne University, was already under investigation after being suspended by the Tsinghua University in 2019 for criticizing the lifting of the two-term limit for Chinese presidents.  

Xu’s detention was the latest in a series of similar moves seen since the start of the year and a sign that Beijing might be intensifying efforts to weed out dissenters. Xu Zhiyong, a civil rights activist and legal scholar, Ren Zhiqing, a billionaire entrepreneur, were arrested in February and March respectively after they criticized President Xi Jinping for his handling of the Covid19-crisis.   

Since 2013, Xu Zhangrun has published many essays and articles, that discuss China’s current politics and governance, and criticized constitutional and human-rights abuses. He has been a leading voice in advocating for the abolition of temporary residence-permits, which block migrant workers from using welfare services, and for honoring the right of each citizen to have equal access to education.  

One of his most influential essays is “Imminent fears and immediate hopes” from 2018. Borrowing from the Confucian tradition of addressing “a Memorial to the Throne”, he appealed to the Chinese Communist Party by criticizing Xi Jinping’s policy shifts towards totalitarianism and suggesting ways to restore order and legitimacy. He was ignored and placed under investigation a few months later.

Media coverage and sources:   

 

MERICS China Digest

MERICS’ Top 3

International relations

Politics, society and media

Economics, finance and technology

Editorial team

Managing editor: Claudia Wessling, Director Publications, MERICS

Editors: Kerstin Lohse-Friedrich, Director Communications, MERICS, Gerrit Wiesmann, Freelance editor, Fiona Bewley, Johannes Heller, MERICS

Graphics: Alexandra Hinrichs, Graphic designer, MERICS

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