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For U.S. China Watchers, the New Watchword is “Vigilance”

Good morning. For China watchers, all eyes today are on Buenos Aires where, on Saturday evening in the Americas, Donald Trump will dine with China’s president Xi Jinping. The two leaders, who traveled to Argentina for meetings of the Group of 20, are expected to talk trade, Taiwan, South Korea, and the fate of two young Americans detained in China.

The outcome of the encounter is anyone’s guess. At the Fortune Global Tech Forum in Guangzhou Thursday, Alan moderated a panel of experts from both countries who held out slim hope the meeting will defrost the escalating Cold War between the two nations. But this report in the Wall Street Journal suggests the two sides are exploring a temporary truce in which Trump agrees to wait until spring to decide whether to slap more and higher tariffs on Chinese imports, and Xi promises that in the interval China will come forward with significant new proposals for changing the “architecture” of the U.S.-China economic relationship.

For both leaders, stakes are high. A flurry of recent data suggests the outlook for China’s economy is deteriorating quickly. The U.S. economy remains robust—for now. But retaliatory Chinese tariffs are inflicting pain in the farm states that helped Trump win the White House. Many analysts see GM’s decision to shutter five factories and axe 14,000 jobs as a harbinger of trouble to come. And despite Federal Reserve chairman Jay Powell’s seemingly dovish comment Wednesday that he considers interest rates to be “just below” the neutral range, it’s unlikely the Fed is done putting rates higher.

Speaking of China watchers, on Thursday, a distinguished group of American China specialists—nearly all of whom have previously championed the idea of “strategic engagement” with Beijing—issued a lengthy report urging the U.S. to take new precautions against Chinese efforts to undermine democratic values. It’s an extraordinary document, produced by 32 experts convened by Stanford’s Hoover Institution and the Asia Society’s Center on U.S.-China Relations. The report’s title—“Chinese Influence & American Interests: Promoting Constructive Vigilance”—reflects its recommendations that government agencies at all levels, as well as universities, think tanks and other institutions, adopt more aggressive measures to prevent the risk of economic espionage by China.

This isn’t a document that can be dismissed as the rantings of paranoid scaremongers who see “reds under every bed.” One of the contributors, my former Washington Post colleague John Pomfret, describes it as “the most comprehensive study of China’s influence operations in the United States to date.” Other contributors include former U.S. ambassador to China Winston Lord; former Obama national security adviser Evan Medeiros; Council on Foreign Relations Asia studies director Elizabeth Economy; Harvard China scholar Ezra Vogel; and veteran journalist Orville Schell. These are Americans with deep knowledge of China who have devoted their careers to bringing the two countries closer together. That they now counsel “vigilance” over “engagement” is a profound and troubling shift.

More China news below.

Clay Chandler
@claychandler
clay.chandler@timeinc.com

Economy and Trade

 

Trade war, by other means. U.S. trade restrictions on China have affected $369 billion worth of goods, far more than the $278 billion basket targeted by the Trump administration’s “trade war” tariffs. That’s according to the Global Trade Alert Report, a regular assessment of G20 trade restrictions, issued this week. Reuters

P2P purge. China is preparing to purge its $176 billion P2P loan market, Bloomberg reports, targeting small and medium-sized lending platforms across the nation. The P2P market has been a breeding ground for Ponzi schemes, debt defaults have surged. Generally, fraud runs rampant and a broad crackdown seems overdue. Bloomberg

Innovation and Tech

New genes. He Jiankui, a Chinese scientist claims to have used CRISPR, a gene-editing technique, to alter the DNA of two babies. It would be a world first, but some question the veracity of He’s claim. True or not, the Chinese government condemned He’s work, which he conducted in secret, as illegal and unethical. His work is currently under investigation, but He says he is proud of his actions. New York Times

Asleep at the wheel. The Ministry of Transport slammed ride-hailing giant Didi Chuxing in a post on social media, claiming the company had violated multiple safety rules and gone ‘out of control’. Didi has suffered scrutiny following two murders committed by Didi drivers this year. On Wednesday, CEO Cheng Wei released an open letter outlining Didi’s steps to improve safety. The company is also facing an antitrust investigation for its merger with Uber two years ago. Bloomberg

Huawei’s poor reception. New Zealand is the latest member of the “Five Eyes” security alliance to block Huawei from developing domestic 5G networks, following Australia and the U.S. Huawei is seeking clarification from the GCSB, New Zealand’s intelligence bureau, on the roadblock. On Thursday, a GCSB official denied New Zealand had been pressured by other Five Eyes members to block Huawei’s bid and claimed the issue was with the proposed technology, not the company. Financial Times

In Case You Missed It

Chinese Influence & American Interests: Promoting Constructive Vigilance Hoover Institution

Chip wars: China, America and silicon supremacy The Economist

China Slaps Down Dolce & Gabbana in Fight Over Offensive Videos Bloomberg

Noam Chomsky joins call for boycott of China forums Financial Times

China defends holding fugitive businessman’s US children BBC

We are Google employees. Google must drop Dragonfly Medium

Politics and Policy

Party at Jack’s place. The People’s Daily, a state-owned paper viewed as the Communist Party’s mouthpiece, revealed that Alibaba founder and chairman Jack Ma is a member of the Communist Party. Ma has cultivated an apolitical image, but has reportedly been a CCP member since the 1980s. It’s unclear why the Party chose now to announce Ma’s membership, but Alibaba said in a statement that the political affiliation of its executives does not influence business decisions. Reuters

Taiwan turnout. Voters in the self-governing island of Taiwan delivered two crushing blows over the past week: one to incumbent President Tsai Ing-wen’s pro-independence Democratic Progressive Party (DPP) and the other to gay marriage. In local elections, the DPP ceded seven of the 13 territories it previously held, including Kaohsiung city – a DPP stronghold for 20 years ­– forcing Tsai to step down as party chair. In a referendum the same day, voters rejected enshrining same-sex marriage into law. But Taiwan’s constitutional court demanded last year that same-sex marriage be written into law by 2020. CNBC

 

This edition of CEO Daily was edited by Eamon Barrett. Find previous editions here, and sign up for other Fortune newsletters here.