The Long Winter: Bracing for a Protracted US-China Cold War

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Greetings from Hong Kong. Clay Chandler here, filling in for Alan with CEO Daily’s weekly Sino-Saturday edition.

The rift between the world’s two largest economies widened further this week:

  • On Friday, China announced plans to create an “unreliable entities list” to ban foreign companies or people who “do not follow market rules, violate the spirit of contracts, blockade and stop supplying Chinese companies for noncommercial reasons, and seriously damage the legitimate rights and interests of Chinese companies.”
  • The Financial Times reports Huawei Technology, which the U.S. added to a blacklist of its own last week, has ordered employees to cancel technical meetings with US contacts, and has repatriated all U.S. employees working in the company’s Shenzhen research and development facilities.
  • In Singapore Saturday, U.S. Acting Defense Secretary Patrick Shanahan blasted China for stealing technology from other nations and militarizing a cluster of tiny atolls in the South China Seas.

And that’s just the hostilities of the last 48 hours!

Bloomberg on Friday featured interviews with investors Ray Dalio, Mark Mobius, and Stephen Jen, all three of whom said they are “bracing for a protracted superpower conflict and adjusting their portfolios accordingly.”

Wise counsel.

Donald Trump and Xi Jinping will be in Osaka, Japan on June 28 for the Group of 20 summit. No word yet on whether the two leaders will hold bilateral discussions. Global investors aren’t expecting any breakthroughs.

More China news below.

Economy and Trade

Naked economic terrorism. That’s how China Vice Foreign Minister Zhang Hanhui described Washington’s measures on trade. Zhang accused the U.S. of “deliberately provoking trade disputes,” speaking to reporters on Thursday. Today, China’s latest tranche of tariffs went into effect, hitting $60 billion worth of imports with a 25% levy. BBC

Baoshang takeover. Privately-held Baoshang Bank has been taken over by the government due to its “serious credit risk.” It’s the first Chinese bank takeover in 18 years but the move has raised questions about the stability of China’s financial system. Worries of bad debt build up have burgeoned for years and there are mounting signs that China’s economy is entering a hard slowdown. Financial Times

Innovation and Tech

Huawei discounted. The IEEE, a major international U.S.-based professional association that publishes academic papers on engineering, has excluded Huawei employees from participating in the peer-review process. Last month the U.S. placed Huawei on its “entities list,” making it difficult for businesses to collaborate with the Chinese telecoms company. IEEE is attempting to not fall foul of the new regulations. The China Computer Federation has responded by cutting ties with the IEEE.WIRED

Huawei subsidized. Huawei has received hundreds of millions of dollars in grants from the state, the AFP says. A Huawei spokesperson said the company does not receive “special government aid.” Some of the subsidies Huawei receives come from national, government investment schemes; other perks include lower rental rates on land. A former assistant U.S. trade representative suggested the state pay-outs could still be significant enough for other nations to challenge at the WTO. Channel News Asia

On a roll. Alibaba is pumping $100 million into Vmate, a video sharing app owned by Alibaba’s subsidiary UC Web, to take on rival ByteDance in India. Alibaba has made a number of unsuccessful attempts to enter the social media space. The market for short-video apps surged 745% in China last year, reaching $6.8 billion. TechCrunch

In Case You Missed It

Why Alibaba’s Hong Kong IPO may signal a retreat from Wall Street Fortune

China pushes self-made chips in response to U.S. threats FT

China's Rare Earth Metals Aren't the Trade War Weapon Beijing Makes Them Out to Be Fortune

China hopes Canada understands consequences of siding with U.S. Reuters 

The Fox-CCTV trade war “debate” was polite, dull and condescending Quartz

Dell revenue misses as China softness hits server business Reuters 

China’s Factories Take a Bigger-Than-Expected Hit From U.S. Trade Battle WSJ

Politics and Policy

Tension in Taiwan. Acting U.S. Defense Secretary Patrick Shanahan is in Singapore, attending an Asia security summit where he met with China Defense Minister General Wei Fenghe. Taiwan was a major topic of discussion. The U.S. has sent warships through the Taiwan strait once since trade tensions with China intensified early May and once just before. This week, Taiwan held military drills designed to simulate an invasion by China. Meanwhile, China is assuring El Salvador the Central American nation it was right to ditch Taipei as an ally and accept Beijing instead. South China Morning Post


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

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