Analysis

While the CAC guidance omits many details, the grandiose and moralistic positioning of the CCP, as the savior of both the Chinese people and the world, suggests that Xi sees his leadership as historic and verging on messianic. One point of particular interest was the continued mention of the BRI, which has survived recent questions about its continuing relevance and instead flourished as a central pillar of Xi’s global ambitions. Readers in Europe will be particularly intrigued by the document’s prominent discussion of China’s investment in Greece’s Port of Piraeus, particularly as states like Italy question their engagement with China. Rather than because of any particular economic benefit to the Chinese state, the BRI’s sustained centrality stems from its ideological contributions to China’s overarching foreign policy vision and because it is tied so closely to Xi’s personal agenda.

The CAC’s draft documentation, however, hints at intra-party arguments between pro-business and pro-security factions. If the draft passes, which is not guaranteed, it will allow foreign corporations to largely resume the export of data as it was prior to the revisions made to China’s national security law earlier this year. A consequence of the earlier revisions was that the definition of “national security,” and therefore what information counted as “sensitive,” proved extremely expansive. This led individual state agencies to be unable to determine the limits of the law, which led to widespread confusion among both businesses and government officials. If the new draft documentation passes, then it suggests that the CCP has calculated that it should indeed welcome (some) foreign businesses after all, and that the pro-business–or at the least not explicitly “anti-business”–caucus within the party still wields some clout, even if the official narrative from the politburo is that development and security are inseparable.

Analysis

Xi’s visit to the US would be a significant sign of a thaw in US-China relations, although his absence from APEC does not necessarily signal a decline in US-China relations; rather it highlights a continuation of the status quo. A factor weighing against a potential Xi visit is that the current tone in DC regarding US-China relations is particularly sharp. The House Select Committee on the CCP,  for example, announced that it is investigating four US-based venture capital firms “with ties to China,” and promised to expand its investigations to additional firms in the tech sector. While the CCP has a sense of the separation of powers within the US political system, it is more than willing to use anti-China sentiment stemming from Congress as leverage in negotiations with the executive branch, or as justification for inhibiting increased dialogue with the US more broadly. 

The challenge for US firms with business relationships in China is that their rivals are using China ties against them. For example, GM is reportedly lobbying the federal government to deny Ford’s eligibility to receive a $7,500 tax credit for US consumers who purchase new electric vehicles on the grounds that those vehicles contain battery components from China, which is a disqualifying term of the tax credit. Additionally, both an overall decline in Chinese business operations in the US and greatly reduced travel between the two countries undermine optimism for improved political relations. 

Despite the hurdles, increased dialogue could bring tangible benefits, including Chinese assistance in negotiating the repatriation of a US soldier who attempted to defect to North Korea. Businesses should therefore see a potential Xi visit as an encouraging sign. That said, the overall business environment remains challenging, and high-level exchanges will likely do little to change the tightening restrictions on foreign businesses operating in China. Foreign businesses operating in China, particularly in areas like tech, would therefore do well to continue pursuing mitigation strategies to insulate China-based operations from other business functions outside the country.

Analysis

While statistics vary, the property market accounts for as much as 30% of China’s GDP. With Country Garden still teetering on the financial edge and expected to default on another bond coming due in January 2024, and Evergrande likely to go into default, if not bankruptcy, by the end of this year, it will be important to insulate any overseas operations from the potential fallout at all stages along the supply chain. Evergrande is the world’s most-indebted developer, with liabilities totaling more than USD$300B as of July 2023. It has been under close scrutiny since it defaulted in 2021 and triggered the current downward spiral of China’s property bubble. This means that even should it miraculously survive this round of financial woes, there is little cause for optimism, especially after it was forced this week to scrap a debt-restructuring plan that had been more than a year in the making. Hui Ka Yan’s house arrest is a bad omen. The Chinese government detained Hainan Group Chairman Chen Feng 陈峰 in 2021 under the similar guise of “suspected crimes,” and the Group was declared defunct by the end of that year; the government also detained Anbang Insurance Group Chairman Wu Xiaohui 吴小晖 on similar charges in 2017, and the company declared bankruptcy in 2020.

Chinese companies’ investment in Morocco comes amidst a wider series of recent rare-earth mining setbacks for China in Asia, including the suspension of mining operations in Nigeria and the Democratic Republic of Congo and canceled mining licenses in Namibia; violence against Chinese citizens across its overseas investment destinations is also on the rise. While these new deals are certainly good for the specific companies, they paint a grimmer picture of exploitation and neocolonial practices across the continent. Of particular concern for US businesses is that they may end up buying batteries or other EV parts from companies engaging in such practices, which could be an inadvertent PR nightmare. As Chinese companies devise new strategies for circumventing legal restrictions on their products in the US–such as production in countries that have free-trade status with the US or partnering with US allies, like South Korea–companies will need to remain increasingly careful as they seek out new partners and conduct full due diligence on each stage of their supply chains.

Analysis

Predatory behavior by Temu is similar to other apps, but its position as a Chinese tech company raises national and corporate security concerns that are unique to apps with data centers in China. One example is the prevalence of cheap, poor quality goods available on apps like Temu and Shein. Many of these products are likely sourced from entities in Xinjiang that are subject to restrictions from the Department of Homeland Security’s “entity list.” This further undermines the US government’s authority in trying to ban products from this list entering the US market and makes it challenging for US companies to outcompete the flood of cheap, Chinese products. A further example is the capacity for Chinese actors to shape narratives that at first appear unrelated to Chinese interests, like the recent deadly fire in Maui, but that nevertheless intend to sow distrust within the US population. 

Moreover, recent announcements of collaboration between Telegram and WeChat’s owner Tencent suggest that Russia and China are collaborating closely on digital technologies, with Telegram aiming to mirror WeChat’s success as a “superapp” capable of collecting vast amounts of user data. This collaboration also suggests that even if Telegram is banned in the US, Russia could still be able to access data from users of non-banned apps, like WeChat, through its partnership with Tencent. 

Continued political focus on how Chinese apps pose a threat to US citizens and businesses will remain sharp, as evidenced by Nikki Haley’s references to the national security challenges posed by Chinese apps at the recent Republican debate, and by concerns arising from TikTok’s appointment of senior executives from its parent company Bytedance. US companies with accounts on these apps, particularly TikTok, will therefore need to prepare for potential alternative platforms with which to pursue marketing or sales strategies.

Analysis

The dramatic increase in China’s cyber espionage activities (that we know about) and their sophistication serve as a reminder that corporations need to be vigilant in protecting their IP and sensitive data. Regular reviews and updated due diligence reports on vendors should become industry standard, as vendors will also regularly change their practices, employees, and partners. As the US government is doing, adopting multifactor authentication is also one way to increase your company’s baseline cyber security. For companies concerned about IP theft or potential hacking endeavors, hiring external expertise is highly recommended as a way to help mitigate the potentially dramatic consequences of a cyber attack.

Analysis

Taiwan has paid close attention to Russia’s invasion of Ukraine and the Ukrainian military’s ability to defend against its larger aggressor. The defense report aims to replicate Ukrainian successes in asymmetric warfare, particularly through the effective use of drones, for which the Taiwanese government is making efforts to both increase its arsenal and to increase domestic production rather than relying on foreign shipments. This is good news for drone manufacturers, as product demand in Taiwan, particularly from US suppliers, will most certainly increase. 

Looking south from Taiwan, recent meetings between the US and the Philippines appear to have emboldened Manila’s willingness to react to Chinese provocations. If tensions escalate between China and the Philippines, which the US is tied to through a Mutual Defense Treaty, then hopes for a thaw between the US and China may be scuppered, regardless of the Biden Administration’s efforts to reduce tensions. The Philippines’ maritime activity is therefore a key externality for foreign–particularly US–businesses that wish to sustain operations in China.