Analysis

Tensions between the US and China will persist. Recent meetings between Chinese and US officials over Taiwan indicate that despite a willingness to talk, both sides remain committed to their own positions. Taiwan took center stage in talks between Chinese and US military leaders last week, with both sides indicating that they were unwilling to back down from their current positions on the archipelago’s status. PRC Minister of National Defense Dong Jun 董军 met US Defense Secretary Lloyd Austin in Singapore in the first high-level US-China military meeting since President Biden and General Secretary Xi agreed to military exchanges in November 2023. Dong Jun said of Taiwan that the island would never be independent and that Taiwan’s recent domestic politics were undermining chances of a peaceful “reunification.” Aside from Taiwan, China has also noted concerns about US overtures towards its regional partners, including Japan, South Korea, and the Philippines, although it predictably failed to mention that China’s own actions are largely the cause of these states’ pursuing closer relations with the US. As with other meetings between senior Chinese and US officials, the outcome of the meeting was largely expected, although the Biden Administration will see the outcome as a win for dialogue over no dialogue. 

As with most security conversations about Taiwan, Taiwanese participants were not present despite their centrality to these discussions. Yet Taiwan continues to dominate US-China relations. China has increased its military drills and incursions into Taiwanese territory, while the US approved $300m in arms sales to Taiwan. President Biden also noted that he would consider deploying “US military force” to defend Taiwan, provoking a response from Beijing that Taiwan was an “internal affair.” These persisting tensions suggest that Taiwan will continue to define US-China relations and narrow the scope for the two countries to cooperate on other non-military areas, like the environment or trade. Businesses with operations in China should therefore prefer contingencies in case of both a maintained status quo and a worsening in US-China relations, as improved relations are increasingly unlikely. Businesses operating in both China and Taiwan will also likely face increasing pressure from the CCP to effectively choose one over the other.

Analysis

China’s aggressive pursuit of US business’s data and IP at the behest of central state and party actors is an increasing but often unrecognized threat to US businesses. Michael C. Casey, director of the National Counterintelligence and Security Center (NSCS), commented at a recent summit that China is actively targeting US workers in the latest iteration of global IP threat. Casey highlighted cyberattacks and “insider threats,” including the targeting of disgruntled employees to steal IP, as two of the biggest risks for US companies. Focusing on “human assets” and employees of US firms, Chinese tactics are becoming more brazen. Casey noted that he was “stunned by the number of companies that have no concept of their insider threat.” Importantly, insider threats are not only an issue for companies with China-based operations. Nor are they restricted to companies who employ PRC citizens. As recent economic espionage reports demonstrate, China targets employees in key industries, particularly in the tech sector, and then operationalizes state resources to pursue sensitive information from companies in those sectors. Notably, employees co-opted by Chinese actors to steal IP losses often do so unknowingly, rather than explicitly breaking the law, as they are often unaware of CCP tactics to extract sensitive company information. 

China’s documented aggression in pursuing sensitive corporate information is catalyzing a global realignment of corporations into “China-based” and “non-China based” entities. Concurrent with Casey’s remarks, international businesses in China reported that they are struggling to attract foreign talent, in part because many individuals and companies see China is as an increasingly undesirable posting. One consequence is that this will facilitate the separation of international corporations into China-based and non-China based employees. While this is a shift that many companies are already pursuing as they segregate their Chinese and global business operations, the lack of interaction between China and global offices poses additional challenges for communication and integration. It also helps to fulfill the CCP’s own position that only “Chinese” employees can understand Chinese markets. As companies separate their business operations, a major challenge will therefore be maintaining sufficient integration between employees while insulating the company from China-based risks.

Analysis

Australian Treasurer Jim Chalmers ordered Chinese investors to sell-down shares in rare-earths miner Northern Minerals last week, demonstrating the increasing influence of geopolitics and national security on equity markets. The Chairman of Northern Minerals referred the company to the Foreign Investment Review Board (FIRB) after the Singapore-registered Yuxiao Fund, representing Chinese national Wu Yuxiao, purchased 80 million shares last September. This is not the first time Canberra has intervened in proposed Chinese investments into Australia’s rare-earths sector, a fact that has irked Beijing and made the issue a top priority for Chinese Premier Li Qiang’s visits next month. 

The case of Northern Minerals highlights an important feature of the new global market that companies must take into account and plan for. Companies must recognize that governments are abandoning laissez-faire trade economic policies of the past to account for national security interests. Whether it is FIRB in Australia or the Committee on Foreign Investment in the United States (CFIUS), such regulatory, state-level bodies are more actively interfering in markets to protect key industries from foreign adversaries. Australia is currently working to build a new rare-earth processing plant that is set to open in 2026, but it will take some time for it to reach maximum capacity. In the meantime, China produces approximately 60% of the world’s rare-earth metals and processes up to 90%, which can easily be withheld by Beijing if they are not placated by Canberra soon.

The issue of governments’ interfering in markets in the name of national security also manifests in the way the US and the EU have handled the rise of Chinese EVs. President Biden announced up to 100% tariffs on Chinese EVs entering US markets last month, in part as an appeal to auto unions ahead of November’s election. The European Commission, by contrast, is set to announce provisional duties on all made-in-China EVs entering EU markets this week. Beijing has retaliated by threatening vague action against the US and already launched an anti-dumping probe into European brandy that could be expanded to include the region’s pork and cars. 

While the sinking political reputation of Chinese EVs may have been a contributing factor in curtailing the expansion of Chinese EV companies in Europe, such protectionism is having other, unintended consequences. Specifically, it is causing Chinese companies to seek out new markets for their products. Rather than exporting to new countries, China’s most successful EV manufacturer, BYD, is set to build a new production plant in Brazil and is considering something similar in Mexico. Companies need to recognize that governments are increasingly willing to meddle in domestic markets, and that such protectionist measures are pushing Chinese goods into new global markets where they may additionally take away from companies’ existing or future market shares.

Analysis

China reached a scientific milestone by landing an uncrewed Chang’e-6 lunar probe on the far side of the moon. Yet, while the mission aims to collect important rock samples for analysis, it is more of a symbolic victory for China. It showcases China’s scientific achievements and demonstrates its status as a technological (and military) power. Indeed, emphasizing the symbolism of the mission, the landing craft carved a “中” for China (中国) on the moon’s surface. Dominance of near- and outer-space technology is a relatively recent addition to China’s economic and military ambitions, with the formation of a “Near Space Command” in 2023 as a rival to the US’s own “Space Force.” This mission to the moon therefore represents China’s ability to overcome the technical challenges of a lunar landing and relaunching, as well as a signal to Washington that Beijing sees a new space race as an additional frontier in the bilateral contest for geopolitical dominance. 

China’s lunar ambitions, which include planned trips to the moon’s poles in the coming years, akin to NASA's Artemis program, aim for an eventual station on the moon’s surface that could be used for economic and military purposes (and which has already attracted support from China’s supporters, like Serbia). Closer to earth, China’s Tiangong (天宫) space station, the Beidou (北斗) constellation of satellites that provide alternatives to the US’s GPS system, and other programs like the Tianwen (天问) Mars missions underscore how space is increasingly central to Beijing’s strategic ambitions. This means that investment in space and satellite-related technologies will significantly increase in the coming decades as China, the US, and other states like India rush to ensure early-mover advantages–or to provide parallel services–in key areas like GPS, satellite photography and monitoring, and near-space defense. 

This contest in space will not only affect companies involved in space technology. To give one example, most companies rely on satellite technology for everything from communications to GPS location services. If businesses are compelled to use Chinese satellite services for their China-based operations, which is a strong possibility given Beijing’s move towards technological decoupling from the West, then companies need to monitor China’s space ambitions to keep ahead of the next phase of requirements for their business. Given Beijing’s access to companies’ records, stored data, and even IP, this possibility is a further reason why companies should insulate their Chinese-based branches from central operations.

Analysis

Charges against individuals suspected of spying for China are reshaping political alignments and influencing voting patterns in upcoming elections across the world. In Germany, reports that linked far-right AfD party officials with Chinese intelligence agents, including the arrest of an aide for the AfD's top candidate in the EU elections, severely undermined the party’s claims that it represents German “patriots.” Where the AfD was widely predicted to lead the surging far-right bloc in the European Parliament in last week’s elections, these accusations of ties to China and Russia significantly affected their ability to win votes. The AfD’s collapse, and with it the German far-right’s hopes for a significant voice in the EU, were caused in part by AfD’s associations with CCP agents, a factor that took pollsters and political pundits by surprise. 

It should surprise no one that Russia and China are infiltrating extremist European political parties, particularly given Russia’s strong historic ties to right wing politics in countries like Italy. However, the capacity for these connections to broadly reshape voting outcomes is new. Reports of Chinese espionage are therefore not only heightening China’s perceived threat to Europe, but are reshaping domestic politics within European electorates. This will make it increasingly challenging for businesses with China connections to maintain operations without contingency plans in case their business is targeted by European governments or publics in the context of espionage and national security concerns. Companies will need robust IP and cyber protections, due diligence on employees and suppliers, and to be prepared in case they need to suspend their China-based operations.

Analysis

Speaking at the Shangri-La Dialogue in Singapore, Ukrainian President Volodymyr Zelensky denounced China’s continued support for Russia in its war against Ukraine. Where the Ukrainian president’s remarks on China have previously been muted, these comments reveal a tougher stance against countries abetting Russia’s aggression. Zelensky went so far as to call Beijing Moscow’s “instrument.” The remarks hint at increasing frustration in Ukraine and the West with China’s double standard of calling for countries to respect each other’s territorial integrity, while simultaneously supporting Russia’s invasion of Ukraine. In response, Beijing quickly moved to try to mitigate accusations that it is prolonging the war in Ukraine. Shortly after the Dialogue, Ukrainian First Deputy Foreign Ministry, Andrii Sybiha, traveled to Beijing to meet Vice Foreign Minister Sun Weidong 孙卫东. China’s Foreign Ministry issued statements supporting a “political settlement” to the “crisis,” rather than a “war,” in an attempt to placate Ukraine and to use Russia’s preferred language for the conflict. While this does not change China’s stance towards the war–indeed, a day later China declined an invitation from Ukraine to attend a peace conference in Switzerland–it does suggest that Beijing’s support for Russia has some limits. Ukrainians note that Russia can end the war anytime it decides to by removing all Russian forces from all of Ukraine’s internationally recognized borders, which includes all of Crimea.

China’s support for Russia is about both convenience and an ideological stand against what Beijing and Moscow both see as the “collective West.” However, it is unclear how much  support will end up costing China if the West increases its collective pressure against Beijing. China’s moves to appease Ukrainian officials suggest that it is nervous about other states being encouraged to publicly criticize China’s support for war, particularly from Europe and the Philippines. While China is still firmly in Russia’s camp, the Foreign Ministry’s reaction hints at the alignment as perhaps more marriage of convenience than a “lasting friendship.” For now, China needs Russia for oil, trade, and alliance, but this alliance seems as though it may have limits.