The Case Against China ‘Panic’

China child holds flag in Beijing snow
A child holds a Chinese flag while walking through Tiananmen Square as snow falls in Beijing, China, on Thursday, Feb. 14, 2019. U.S. President Donald Trump is considering pushing back the deadline for imposition of higher tariffs on Chinese imports by 60 days, as the world's two biggest economies try to negotiate a solution to their trade dispute, according to people familiar with the matter. Photographer: Qilai Shen/Bloomberg via Getty Images
Qilai Shen—Bloomberg via Getty Images

Greetings from Hong Kong.

President Trump is lashing out against the World Bank for lending to China, the US and China still don’t have a trade deal, and global investors are back to fretting the trade war between the world’s two largest economies will drag on forever.

In other words, it’s a pretty slow week in China news. So permit me to use this space to direct your attention to two thoughtful China analyses published yesterday—one in Foreign Affairs by CNN’s Fareed Zakaria on U.S.-China relations, and the other by Fortune’s own Grady McGregor on the epic boom and bust of China’s bike sharing industry.

Zakaria’s essay bears a provocative title: “The New China Scare.” It opens by challenging the received wisdom among just about everyone in Washington these days that “China is now a vital threat to the United States both economically and strategically, that U.S. policy toward China has failed, and that Washington needs a new, much tougher strategy to contain it.”

Zakaria argues that that consensus, widely shared by U.S. voters, is both overdone and dangerous. He decries misleading talk of a new Cold War resembling the confrontation between the U.S. and the Soviet Union.

Xi Jinping’s China, Zakaria says, is neither Stalin’s USSR nor Putin’s Russia. Where those regimes were/are bent on disrupting and discrediting Western democracy throughout the world, he contends, Xi’s China has focused primarily on preserving its own sovereignty, proved “remarkably responsible” in avoiding military conflict and contributed substantial sums to bolstering international institutions like the United Nations. And unlike Russia, he notes, China’s economy actually matters.

The upshot of the essay is that a Cold War predicated on exaggerated fears of China would prove longer and far more costly to US interests than did the one based on exaggerated fears of the USSR. Instead of trying to “contain” China, Zakaria concludes, America’s best option is to continue a policy of engagement combined with deterrence.

Zakaria also notes China faces a host of internal problems, including a rapidly aging workforce and a centrally controlled economy with a long history of misallocating capital. McGregor’s piece, entitled China’s Big Gamble, shows how even the most freewheeling sectors of China’s economy have a penchant for squandering billions of investment dollars.

Drawing on interviews with a host of analysts, investors and entrepreneurs, McGregor argues that China’s tech industry has learned little from the spectacular collapse of the bike sharing sector, and that that lack of reflection has important implications for its investments in other tech sectors, especially artificial intelligence. It’s a great read.

More China news below.

Clay Chandler


Pork scratchings

China waived tariffs on some U.S. pork and soy imports but hasn’t given figures for the tonnage of product now exempt from the Trade War levies. The tariff break was granted to individual companies that have requested exemption. China’s food services industry is struggling to adapt to surging pork prices caused by an African Swine Fever epidemic that has decimated China's pork stocks. Financial Times

Banking on China

China will make a “gigantic” investment in El Salvador, funding the construction of a stadium and a water treatment facility initially. El Salvador President Nayib Bukele was in Beijing this week, meeting with Xi Jinping for the first time since being elected in February. Bukele’s Central American nation established diplomatic ties with Beijing earlier this year, having severed relations with Taiwan last year. A number of Taiwan’s few remaining allies have cut ties this past year, seemingly wooed by the prospects of Chinese financing. South China Morning Post

Bail businesses; businesses bail

Private companies bailed out by Beijing in a massive rescue operation last year are still defaulting on debts. According to Financial Times, 75 of the 339 companies that have received bailout funds since Beijing began its campaign in August last year have reneged on payments, despite warnings from courts. Financial Times


Call me back

Huawei sued the U.S. government for the second time in nine months, this time filing a complaint against the FCC, which has prohibited U.S. network operators from using Huawei equipment. The Chinese telecom manufacturer says the ban, which comes after the U.S. officially labelled Huawei a national security threat, is unconstitutional. Fortune

Switch partners

Nintendo is due to launch its Switch gaming console in China next week through a partnership with Chinese gaming giant Tencent. The Switch console worldwide in 2017 but has struggled gaining access to China, which enforces strict rules on game content. Tencent will work to localize Nintendo Switch’s games. However, the Japanese gaming icon doesn’t anticipate great sales for the Switch in China. The Switch’s main selling point is that it’s portable; Chinese gamers already favor mobile games. The Verge

Follow me on TikTok

A student in California is suing TikTok, alleging the video-sharing app sent their user data to servers in China. The lawsuit claims TikTok gleaned biometric data from the user’s videos, which were never posted publically. TikTok, which is owned by Beijing Bytedance, has previously denied it shares data with its Chinese parent company or that it stores any data in China. TikTok says its servers are in Singapore and the U.S. Reuters


Want a SIM Card in China? You’ll Now Need to Get Your Face Scanned First Fortune

China Uses DNA to Map Faces, With Help From the West NYT

Virtual boyfriends a match for China's single women CAN 

China Once Welcomed the World’s Trash. Now It’s Using A.I. and Facial Recognition to Handle Mountains of Its Own Fortune

Looming China Default Shines Light on New State Asset Managers Bloomberg

Are 5G-Powered Cloud Robots the Future of Work? For One Chinese Company, They Are Fortune

China’s ‘Big Gamble’: Lessons From the Bike Sharing Bust May Hang Over Its A.I. Boom Fortune


Uyghur paper

The House of Representative passed legislation this week that paves the way for the U.S. to sanction Chinese companies and officials involved in the mass detention of Uyghurs in China’s Xinjiang province. Beijing, of course, condemned the bill, calling it “extremely sinister,” and threatened retaliation. The legislation still needs to pass the Senate and be signed by President Trump, who said the bill has damaged the prospects of reaching a trade deal. Reuters

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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