Spy Games: Can Trump Stop Xi From Listening In On His Meeting With Kim?

CNBC News reports that members of the U.S. delegation participating in the Singapore summit have been instructed to remove batteries from their mobile phones to prevent eavesdropping and presume China has recruited informants among the waiters and other staff at hotels and restaurants. U.S. security personnel will sweep for bugs in rooms throughout the Capella Hotel where the talks will be held and erect special indoor security tents to hide classified documents from hidden cameras.

The heightened security measures in Singapore reflect U.S. fears that, as U.S.-China trade relations deteriorate, China is ramping up espionage operations targeting the United States. Current and former U.S. intelligence officials tell CNBC News that Chinese espionage against the U.S. is “more pervasive than that of any other adversary.”

Among the many recent examples of rising cloak-and-dagger conflict between the two great global powers:

• The Washington Post reported Friday that Chinese government hackers had compromised the computers of a Navy contractor, stealing a trove of “highly sensitive data related to undersea warfare — including secret plans to develop a supersonic anti-ship missile for use on U.S. submarines by 2020.”
• That same day, a Virginia jury found former CIA case officer Kevin Mallory guilty of espionage and lying to the FBI about his contacts with Chinese intelligence. Prosecutors allege Mallory accepted more than $25,000 in exchange for passing documents containing classified information to his Chinese handlers.
• On Wednesday, the U.S. State Department confirmed that it had evacuated two more Americans from China for medical testing amid concerns that U.S. diplomats in the country have been subjected to mysterious “sonic attacks” leading to symptoms similar to those “following concussion or minor traumatic brain injury.”
• In Seattle last weekend, FBI investigators arrested Ron Hansen, a former Defense Intelligence Agency case officer, on charges of attempting to sell U.S. national security secrets to China. The Justice Department alleges Hansen received more than $800,000 in “funds originating from China” over the last five years.
• In May, U.S. authorities indicted former CIA officer Jerry Chun Shing Lee on charges that he had helped intelligence officials in China identify and destroy a network of U.S. informants in the country.

All this comes as the U.S. and China continue to spar over trade, technology and intellectual property. (In case you missed it, this piece by Bob Davis, Peter Nicholas and Lingling Wei in the Wall Street Journal about how Trump, in ten tumultuous days, vaulted from China Hawk to China Dove, then back to China Hawk again is an absolute must-read.)

Does the proliferation of U.S. media reports about Chinese spying reflect a genuine expansion of China’s espionage activities against America? Or is it a symptom of American paranoia about China’s rise? Undoubtedly it’s a bit of both—and further reason to worry about prospects for the world’s two largest economies to get along.

More China news below. Enjoy the weekend!

Economy and Trade

Saved, at a price. Commerce Secretary Wilbur Ross announced that the US government struck a deal with ZTE to lift sanctions on the embattled company. Under the agreement, ZTE will pay the US a $1 billion fine, plus $400 million as collateral against possible future violations. ZTE is also required to accept a US-appointed compliance team onto its management board. CNBC

Welcome home. China is piloting new rules that allow Chinese firms listed overseas to float shares on the Chinese market. The policy allows “innovative firms”, such as NYSE-listed Alibaba and NASDAQ-listed Baidu, to issue China Depositary Receipts (CDRs) through a secondary listing on the domestic market. Bloomberg

Cloudy overheads. China has suspended the allocation of new quotas and cut subsidies for solar farms until further notice. The sudden halt is aimed at ensuring the industry’s sustainable growth, the government said. Some analysts believe Beijing’s solar slowdown is good news for India, a competitor in the field. Quartz

Exports corked. Australian exporters allege that a political fallout between Canberra and Beijing is impacting their trade with China. Relationships soured last year when Canberra singled out China for having undue influence over Australia’s domestic politics. This week, Australian winemakers urged Prime Minister Turnbull to visit China to resolve the spat. Reuters

Technology and Innovation

Down, but not out. Despite being blocked in the country, Facebook provides data to four Chinese companies, including Huawei, a company US authorities have flagged as a threat to national security. Lenovo, Oppo and TCL – all consumer electronics companies – also have data-sharing partnerships with the social media platform, dating back to at least 2010. New York Times

Passports, please. Tencent is working with the government to develop an e-pass for citizens crossing the Hong Kong-China border. The e-pass would work through Tencent’s WeChat app, linking the user’s account with their identity documents. Tencent hopes that the technology can be rolled out across the entire Greater Bay Area and, eventually, the rest of China. Reuters

Less fin, more tech. Ant Financial is shifting its focus to technology services, reducing its involvement in payments and consumer finance. The change in strategy is a response to the government’s increasing restrictions on financial service providers. Ant expects revenue from financial services will decrease from 11% to 6% over the next five years, while revenue from tech services will rise from 34% to 65%. Reuters

In Case You Missed It

EU takes a stand against China’s ‘technology violations’ Asia Times

China’s Generation Z shrug off gaokao reputation  South China Morning Post

How blockchain could revolutionize China’s media Sixth Tone

A Trump-Kim deal could send China’s trade with North Korea soaring New York Times

The odd reality of life under China’s all-seeing credit score system Wired

The French navy stands up to China Wall Street Journal

Politics and Policy

BFFs. Vladimir Putin arrived in China yesterday, a day ahead of the annual Shanghai Cooperation Organisation summit. The SCO is a coming together of eight Asian countries, founded by Russia and China to further their mutual interests. At his one-on-one meeting with President Xi, the Chinese president awarded Putin a large “Medal of Friendship”, the first of its kind, calling Putin his “best, most intimate friend.” The Independent

New week, new leak. Patrick Mallory, a former CIA agent, was found guilty of selling state secrets to China. He faces life in prison. Former Defense Intelligence Agency (DIA) agent, Ron Hansen, was arrested as he boarded a plane for Beijing, also this week. A spokesperson for the National Counterintelligence and Security Agency said that, despite the recent flurry of trials and arrests, this is “not a new problem”. Wall Street Journal

Sounds funny. More officials from the US consulate in Guangzhou have been evacuated to America for medical screenings, following further reports of suspected “sonic attacks”. The US issued a health alert to its citizens in China urging them to report any “unusual acute auditory or sensory phenomena”. China’s foreign ministry said it had not been informed of the new cases but was willing to investigate if prompted. The Guardian