Two weeks ago I mused about mounting concern in Washington that, as U.S.-China trade relations deteriorate, Beijing is ramping up espionage operations targeting the United States. The examples I cited involved Chinese efforts to gather intelligence on matters of diplomacy and security: Chinese government-backed hackers stealing U.S. plans for a super-sonic anti-ship missile, mysterious “sonic attacks” against U.S. diplomats in China, former U.S. intelligence officials arrested on charges of accepting Chinese bribes.
This week brought a flurry of new reports of Chinese spying, several of which highlighted China’s efforts to steal secrets from America’s universities and corporations, not just from operations of the federal government.
- On Thursday, Tony Schinella, a senior U.S. military intelligence officer, warned in testimony to the House Armed Services Committee that China has a sophisticated and far-reaching program to enlist the help of Chinese citizens educated or employed in the U.S. in transferring American technology to China.
- That same day, U.S. authorities arrested a Chinese national living in Wellesley, Massachusetts on charges that he conspired with an entity controlled by China’s military to illegally smuggle hydrophones that could be used for anti-submarine warfare.
- On Friday, The New York Times published a fascinating account describing how engineers at UMC, a Taiwanese chip maker, sought to smuggle semi-conductor designs from Idaho-based Micron Technology to mainland China, where they were to be used to inform the construction of a sprawling $5.7 billion chip factory in China’s Fujian province.
Donald Trump’s call for sanctions against imports from China was largely inspired by tales like these, and the claim that China’s program for stealing intellectual property from American companies is systematic and widespread. On Tuesday, the White House Office of Trade and Manufacturing Policy, headed by trade hawk Peter Navarro, issued a 65-page report charging China with a myriad of unfair trade practices. Its bellicose title: “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World.”
Trump has argued that the threat of steep tariffs and new restrictions on Chinese investments in the U.S. will compel China to abandon its efforts to pilfer American tech secrets. So far, however, Trump’s “get-tough” policies seem mainly to have strengthened Beijing’s resolve to develop its own technologies and curb its dependence on U.S. know-how.
More China news below.
Economy and Trade
Up the ante. President Trump warned China that his administration would impose tariffs on a further $200 billion worth of Chinese imports, in response for China’s retaliation against previous levies. The extra tariffs would bring the total value of sanctioned goods to $450 billion, about $50 million short of the total value of goods imported from China last year. The New York Times
Cash cushion. Following Trump’s warning, China’s central bank injected Rmb200 billion ($31 billion) into domestic financial institutions on Tuesday. Analysts reckon the sudden funding was designed to pre-empt a fallout from the trade conflict. Later, after the Shanghai composite index dipped to its lowest level in 20 months, the bank injected another Rmb40 billion into the financial market. Financial Times
Trade split? Some White House officials are trying to restart trade talks with Beijing in a last-ditch effort to head off sanctions scheduled to take effect July 6. One idea floated by some Trump advisors is to invite Chinese Vice President Wang Qishan to Washington for talks before the tariff deadline. Bloomberg
Xi summons CEOs. As the U.S.-China trade war escalated, a group of American CEOs gathered in Beijing Thursday for a meeting of the Global CEO Roundtable. Attendees, a large group of whom posed for a photo with President Xi, included David Abney of UPS, Pfizer’s Albert Bourla, Arnold Donald from Carnival, Cargill’s David MacLennan, Hamid Moghadam of Prologis, Thomas Pritzker of Hyatt and David Solomon from Goldman Sachs. South China Morning Post
Innovation and Tech
Pay and play. Tencent’s gaming subsidiary will notify parents if their child spends more than Rmb500 ($77) in a single day on its games, as per a new policy. Tencent’s games have been criticized as an unhealthy influence on young minds. Last year the People’s Daily called Tencent’s leading title, Honor of Kings, a “poison”. TechNode
Now hear this. One of China’s leading voice-recognition companies, iFlyTek, is teaming up with China’s mobile network operators to develop voice-activated hardware. iFlyTek’s co-founder asserted that “the smartphone will not be the only means for communication in the future”. South China Morning Post
Little rice, lower price. Xiaomi has secured seven cornerstone investors for its IPO, but it also downgraded its valuation from roughly $100 billion to between $55 and $70 billion following a decision to forestall its mainland share offering. Xiaomi (literally, “little rice”) had intended to float CDRs on the Shanghai bourse, but the phone maker will now wait until after its Hong Kong IPO is complete. Reuters
Gone to the shops. Google is investing $550 million in China’s second largest online retailer, JD.com. The partnership could help JD.com expand into Western markets, while for Google the investment is the latest in a series of moves into retail, butting into rival Amazon’s territory. Reuters
In Case You Missed It
Politics and Policy
Back to Beijing. Kim Jong-un made his third visit to China this year, meeting with Xi Jinping and briefing him on his recent summit with President Trump. Kim also visited an infrastructure company and the Chinese Academy of Agricultural Sciences, demonstrating his interest in using Chinese know-how to advance his home economy. Xinhua
The Party or the pope? Pope Francis has said talks with China about accepting bishops appointed by the Holy See are at a “good point”. The state-run Chinese Patriotic Catholic Association is currently responsible for appointing Chinese bishops, an issue that has vexed diplomatic relations between China and the Holy See for nearly 70 years. South China Morning Post
Betting big. In China’s southern Hainan province, a number of resorts are beginning to operate quasi-casinos, called “entertainment bars”. At the bars, players put down money but win points, which can be redeemed in local shops, restaurants and hotels. Gambling is illegal in China, outside of Macau, and the Hainan resorts haven’t won approval yet. But developers are optimistic that change is coming. Bloomberg