Analysis

The BRI continues to receive positive interest from states in the Global South, particularly among new BRICS members, but its appeal is significantly dimmer in the West. Among EU and NATO countries, only Hungary’s illiberal, pro-Putin leader, Viktor Orban plans to attend the BRI Forum in Beijing this month. Moreover, the questionable delivery of Chinese infrastructure projects around the world is generating concern among political elites in target countries that the BRI is more broken promises than a viable alternative world order.

Nevertheless, Beijing has found success courting Venezuela and Peru, where it has broken ground on the new Port of Chancay as the next step in the BRI. The first stage of construction for the deep-water port is scheduled to finish in 2024, and will allow for larger ships that cannot currently dock elsewhere in South America and inaugurate what is being billed as “the gateway from South America to Asia.” This should concern US trade officials: while the US is still the main trading partner for Central America, China is now the top trading partner for South America, particularly as deep-sea ports have the ability for dual-use as military ports.

The US is not simply letting China into its backyard, however, and is actively lobbying Lima to rethink its port deal with China. The port in Peru will make already prevalent Chinese goods cheaper to deliver and more quickly available, further diminishing US competitiveness in the region. While this certainly does not spell the end of business opportunities in South America, US companies will need to be prepared to compete with cheaper Chinese goods entering the US market from south of the border.

Analysis

While this high-level congressional visit was supposed to emphasize the growing commitment by both the US and China to deepening communication in the lead up to APEC, events in the Middle East defined the conversation. During the visit, Senator Schumer asked Xi about China’s stance on the current conflict between Israel and Hamas. China gave its standard response in supporting a two-state solution (the irony of which was not lost on Taiwanese media). Despite China renewing its foreign policy focus on the Middle East through an expansion of the BRICS group to include four additional partners in the region (UAE, Egypt, Saudi Arabia, Iran), the CCP has tried to avoid committing on Israel-Palestine as it seeks to balance its trade relationship with Israel alongside its other strategic partnerships with Israel’s neighbors. The result, however, is that Xi’s calls for a new (Chinese-led) multilateral world order have crashed into reality–many of the states that China depends on for realizing its global ambitions simply will not cooperate with each other. Moreover, increasing pressure from Arab partners and the US’s firm backing of Israel

China would be happy to see less cooperation between the US and EU, which China seeks to divide. However, Washington and Brussels are increasingly aligned in their positions towards Beijing. The EU’s recent anti-dumping investigation into subsidies for Chinese wind turbine manufacturers and electric vehicles aligns with the Biden administration’s calls for a tougher and more unified response to China among Western allies. Western companies operating in China will therefore face continuing scrutiny over their business relationships amid growing political pressure at home, which Senator Schumer’s visit has failed to alleviate.

Analysis

The default of Country Garden, combined with the impending liquidation of the Evergrande Group, will deal a heavy blow to the Chinese economy, as suggested by the Hong Kong stock market having its worst day in three months on October 3. While Country Garden has a chance to recover and reorganize its debt, the potential off-loading of Evergrande’s unfinished projects is likely to leave incomplete buildings around not only China but all of East Asia. The potential collapse of China’s two largest property developers also sends a grim signal to other businesses–domestic and foreign joint-ventures alike–as it proves that China is willing to let the major drivers of its economy fail to adhere to conservative party directives. As 2430 Group’s Glenn Chafetz notes, China’s “aggressive fragility” in its crusade to stamp out dissent at the expense of economic growth will likely result in a renewed emphasis on state repression against any alternative sources of information.

The European Commission’s probe into Chinese government subsidized EV batteries was met with anger by Beijing, which has labeled the inquiry a protectionist measure. While Tesla has been caught up in this probe, it is not alone, and all Chinese suppliers whose products end up in Europe are currently up for investigation. Tesla’s use of Chinese suppliers is clearly becoming a liability, as it is preventing Tesla’s products from entering key markets. This issue is also reflected in the current debate between GM and Ford about “foreign entities of concern.” GM believes it unfair that Ford could use Chinese-made products in its EVs and still apply for the Biden Administration’s $7,500 IRA incentive. This outcome would render uncompetitive GM’s products that do not use cheaper Chinese parts. We previously raised concerns about China’s ability to circumvent US restrictions on Chinese tech, and we strongly suggest regular due diligence on all suppliers, especially those that have ties to China, so as to avoid similar complications.

Analysis

While many Chinese investors are still flush with cash and ready to spend overseas, companies should be wary. Chinese acquisitions of foreign tech can lead to transfers that can set back domestic industries and raise national security concerns. This is precisely why Berlin prevented Chinese companies from investing in two domestic semiconductor producers last November. Moreover, as 2430’s Glenn Chafetz and Xavier Ortiz wrote in August, China's interest in low-earth orbit satellites is well documented, including its interest in KLEO. Chafetz and Ortiz explain how the costly lawsuits that often accompany Chinese acquisition attempts mitigate those projects’ potential economic revenue, pointing to ulterior motives that are most likely military in nature.

The challenge for states like Germany is that Chinese investment in sensitive technology has largely already happened. Germany has a much higher reliance on Chinese technology than other countries, with around 60 percent of the country’s 5G network relying on China’s Huawei compared to just 17 percent in France. As China continues to exploit overseas technology assets for data collection, intelligence gathering, and to outcompete local competitors with state-backed capital offers, Western companies need to be increasingly aware of the risks posed by Chinese technology throughout the world, even if they do not operate within the PRC.

Analysis

The arrest of a navy noncommissioned officer highlights a key challenge for determining the vulnerability of U.S. secrets and the personnel who have access to those secrets. This is not simply a question of nationality or citizenship, as the recent case of a Massachusetts Air National Guardsman highlights, but rather a deeper question of who has and requires access to what information and how that information is secured.

Analysis

Higher levels of Republican support for Taiwan are consistent with established partisan divisions, but somewhat buck the trend of Republicans favoring isolationist, rather than interventionist, foreign policies. The survey results, which are supported by other similar findings, reinforce the point that anti-China (and therefore pro-Taiwan) sentiment is now part of the Republican mainstream, and a popular position for the party ahead of the 2024 elections. Consequently, the Biden administration’s recent overtures to China contribute potential fodder for Republicans. This dynamic will therefore likely lead to a surge in anti-CCP messaging from both parties looking to avoid accusations of being “soft” on China.

For US businesses operating in China, the run up to the 2024 election will likely be a rocky time for navigating geopolitical changes. It will require close monitoring of what both national and state-level political candidates say about China, as the CCP is willing to engage in extraterritorial punishment against its critics, and may punish US businesses in response to negative comments by politician candidates. This is particularly true if a company is headquartered in a state that has particularly vocal anti-China representatives.