Have U.S.-China relations reached the ‘point of no return’?

Wednesday’s New York Times‘ “The Daily” podcast features a fascinating discussion of recent Trump administration policies aimed at “confronting China.” It’s a conversation with Edward Wong, formerly the Times‘ Beijing bureau chief and now a Washington-based diplomatic correspondent, who elaborates on a July 25 analysis he co-wrote.

Both podcast and the analysis are worth careful study. They rehearse the by-now familiar narrative of a White House divided into warring China factions: one a “confrontational” camp led by trade advisor Peter Navarro, special trade representative Robert Lightheizer, and Secretary of State Mike Pompeo; and the other a “cooperative” camp led by Treasury Secretary Steven Mnuchin.

In Wong’s account, Trump himself vacillates between the two, depending on his mood, the latest headline, or his standing in the polls. The president may bash China at one moment, then say nice things about Chinese President Xi Jinping the next. But, as Wong tells it, Trump isn’t much interested in reports that Xi’s government might be herding Muslims in Xinjiang province into concentration camps or mobilizing to silence Hong Kong’s pro-democracy protesters. Rather, his main focus has been on closing a trade deal to boost Chinese purchases of U.S. agricultural products, which he sees as crucial to his re-election.

That depiction hews closely to the assessment offered by Trump’s former national security adviser John Bolton in his recent memoir, and also to accounts in Superpower Showdown, by Wall Street Journal reporters, and Schism, by former Washington Post trade correspondent Paul Blustein.

But Wong’s narrative brings us up to the present. He describes how the global pandemic, combined with Beijing’s new national security law in Hong Kong, shifted the balance of power inside the White House decisively in favor of the China hawks. He explains how Trump’s mishandling of the pandemic and the subsequent collapse in his poll numbers have emboldened advisers to recommend demonizing China as a campaign strategy.

“The pandemic really empowers the hawks in the administration to say, ‘we really have to go after China’,” Wong tells The Daily. “‘Look at how their misgovernance, how their political system led us to this point — led America into an economic crisis that’s been the worst since the Great Depression.’ And even the people in the cooperation camp are starting to change their minds a bit.”

What’s extraordinary about Wong’s account is the suggestion that Trump has now capitulated to the confrontationists, who seem intent on doing so much damage to the U.S.-China relationship in the final months before the election that no one will be able to repair it.

Wong sees U.S. closure of the Chinese embassy in Houston as the defining moment in a slash-and-burn campaign that has included revoking Hong Kong’s special trade status, imposing new visa restrictions on some Chinese students, and a proposal to block all 92 million members of the Chinese Communist Party and their family members from the U.S.

And things may be about to get even worse. On Wednesday, Mnuchin said the Treasury would advise Trump this week on what to do about TikTok, the Chinese-owned video-sharing app that has become hugely popular in the U.S. TikTok has come under fire in the U.S. for censoring videos about Xinjiang and Hong Kong. The U.S. Committee on Foreign Investment has raised questions about its parent Beijing-based ByteDance, one of the world’s most valuable startups. A group of U.S. senators, citing privacy and national security risks, is pressuring Trump to curtail or ban the app. A consortium of U.S. investors led by Sequoia and General Atlantic has urged ByteDance to sell them a majority stake in the company to allay U.S. government concerns, but the leading Senate critics insist on full Chinese divestment.

TikTok CEO Kevin Mayer, a former Disney executive, is scrambling to convince regulators that TikTok is an American business that operates independently from its Chinese owner. On Wednesday, he blasted Facebook CEO Mark Zuckerberg for warning in his testimony before Congress of the dangers of allowing Chinese companies to dominate the Internet. “Let’s focus our energies on fair and open competition in service of our consumers, rather than maligning attacks by our competitor—namely Facebook—disguised as patriotism and designed to put an end to our very presence in the U.S.,” Mayer said in a blog post.

But it probably didn’t help that, at a briefing for foreign media in Beijing yesterday, Chinese foreign ministry spokesman Wang Wenbin explicitly defended TikTok as a Chinese company.

This week’s Eastworld Spotlight conversation is with Lucy Gazamarian, co-chair of the blockchain committee of the FinTech Association of Hong Kong. She explains why the People’s Bank of China wants to become the first major central bank in the world to roll out a centralized digital currency.

More Eastworld news below.

Clay Chandler
clay.chandler@fortune.com

This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com. 

Eastworld news

A new reality

Beijing’s new national security law in Hong Kong is showing its teeth. On Wednesday, Hong Kong police arrested four students, ranging from 16 to 21 years old, suspected of violating the new law. Police allege that the students advocated for Hong Kong independence via social media posts, an act that is punishable with lengthy prison sentences under the new law. Earlier this week, Hong Kong University fired prominent pro-democracy activist Benny Tai from his position as a tenured law professor at the university for “misconduct.” Tai said that the arrest marked the “end of academic freedom” in Hong Kong. And on Friday, the Hong Kong government barred 12 pro-democracy figures from running for the city's legislature in upcoming September elections. South China Morning Post

The NBA and China: Part 2

Last fall, Houston Rockets general manager Daryl Morey tweeted support for the Hong Kong protests, sending the NBA’s relationship with China into a tailspin that cost the league roughly $400 million in lost sponsorship and streaming revenue. A new ESPN investigation reveals that the league’s problems in China may run much deeper. The report found that coaches in NBA’s youth development programs in China have physically abused teenage athletes. Last week, the NBA also announced the league would sever ties with its training facility in Xinjiang, a region where the U.S. government has denounced China for its suppression of the ethnic Uyghur population. ESPN

A 1MDB Reckoning

On Tuesday, Malaysia's former prime minister Najib Razak was sentenced to 12 years in prison and fined nearly $50 million for his role in 1MDB, one of the world's largest-ever financial scandals. The verdict against Razak is only the first in a string of cases alleging that he siphoned hundreds of millions in state funds from his country's sovereign wealth fund. Led by mastermind Low Taek Jho, the 1MDB fund is accused of grafting over $4 billion in state funds for private use. Earlier this week, the U.S. bank Goldman Sachs agreed to pay the Malaysian government $3.9 billion in exchange for authorities dropping criminal charges for the bank's role in the alleged corruption. Fortune

A holy hack

A state-backed group of Chinese hackers have carried out a series of cyberattacks on the Vatican, breaching internal Catholic Church networks in the lead-up to planned talks between Beijing and the Vatican in September. In a new report, the cybersecurity firm Recorded Future claims hackers targeted the Vatican itself along with other missions in Hong Kong and Italy. Vatican and Chinese officials declined to comment on the report, but Recorded Future says the Chinese government is attempting to gather intelligence and gain an upper hand for the upcoming talks. New York Times

Unicorns no more

COVID-19 has put a damper on Southeast Asia’s once-booming startup ecosystem. From the region's darling unicorns—Singapore-based ride-hailer Grab, Indonesian multi-service platform Gojek—to smaller, ambitious startups, tech companies are struggling to stay afloat amid the pandemic. For the last few years, global investors have flocked to Southeast Asia's startup scene, hoping to grab a foothold in economies growing at double-digit annual rates. However, amid lockdowns and an uncertain economic atmosphere, investors have suddenly gone cold, leaving startups across the region in survival-mode. Nikkei Asian Review

Coronavirus by country

Vietnam

In May, Eastworld called Vietnam an “unheralded success story” of the pandemic. While the country remains the largest country in the world yet to record a coronavirus death, it is now dealing with its first local outbreak since the middle of April. In the last week, the eastern city of Danang has reported dozens of new COVID-19 cases and authorities have yet to trace the source of the outbreak. Vietnam’s economy and society have been open for much of the last few months, but the outbreak comes as a surprise since the country still has a ban on foreign nationals entering its borders as well as strict quarantine measures on Vietnamese nationals returning home. In Asia, Vietnam is just one example of COVID-19 poking new holes in previously successful pandemic responses. Hong Kong, South Korea, Japan and Australia are all among those battling to contain new waves of the virus. Fortune

Markets and movers

Li Auto Inc – The Chinese electric vehicle maker is set to raise $1.1 billion at a $10 billion valuation when it debuts on Nasdaq on Thursday. The company’s better-than-expected debut in New York comes amid heightened scrutiny of Chinese-listed firms on U.S. exchanges. Deal Street Asia

Tokyo Gas – Japan’s largest gas supplier is investing $657 million to take a 70% stake in U.S. shale gas operator Castleton Resources, Tokyo Gas announced on Wednesday. In a separate deal, Tokyo Gas announced that it will purchase a solar plant project in Texas from the renewable energy firm Hectate Energy for $467 million. Reuters

Qualcomm – The U.S. chip maker said it resolved a licensing dispute with Chinese tech giant Huawei, which has agreed to pay Qualcomm $1.8 billion as part of a multi-year licensing deal. The agreement will allow Huawei to use Qualcomm’s technology and cover Huawei’s previously unpaid fees. Wall Street Journal

Uber – The American ride-hailing giant reversed course on Thursday, announcing it will not go ahead with plans to shift its Asia base from Singapore to Hong Kong. The company said it will remain in Singapore until 2022, citing a lack of support for ride-hailing regulation reform from the Hong Kong government. Channel News Asia

Final figure

46%

As Huawei fights to survive globally, the Chinese tech giant is becoming increasingly dominant in its home market. In the second quarter of 2020, Huawei sold 46% of all new smartphones in the China, up from 39% in the first quarter, according to a new report from Counterpoint Research. The report also showed that Huawei now dominates the market for 5G-enabled phones, representing 60% of 5G device sales in the second quarter. In a separate report, the market research firm Canalys found that Huawei surpassed Samsung in the second quarter to become the world’s largest smartphone company based on shipments. Fortune