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TM, ®, Copyright © 2019 Piero Scaruffi All rights reserved.

Articles about China after 2019
Doom and Gloom in Hong Kong
Sinophobia: China viewed from the USA and... the USA viewed from China
China's "reeducation" camps for Muslims
The Effects of the Trump Trade War on China: Waking up the Giant.
China's Anniversaries and how the Tiannamen Square massacre shaped today's China
China's Struggles
Does China steal?
What's Wrong with Huawei
Do not Wake up the Sleeping Dwarf
Malaysia and Chinese colonialism
Articles on China before 2019

  • (april 2019) China's Struggles
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  • (april 2019) Sinophobia: China viewed from the USA and... the USA viewed from China
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  • (march 2019) The Effects of the Trump Trade War on China: Waking up the Giant.
    This is a pivotal moment for China. Not because of a decision made by the Communist Party but because of a decision made by the USA. In April 2018 the USA banned US firms from providing technology to Chinese conglomerate ZTE, because ZTE had (indirectly) sold that technology to Iran, contravening US sanctions against Iran. ZTE's smartphones depend on chips from Silicon Valley and from Qualcomm, and on software from Google. ZTE, that employs more than 40,000 workers in China, almost went bankrupt. The ending was humiliating for China: to avoid bankruptcy, ZTE accepted a US monitor, fired most of its old directors and executives, and replaced them with a new board of directors and management picked by the USA.

    For about 40 years China has used the West as its research lab, free of charge. China let the West experiment with new technologies, and then adopted the winning ones, and adapted them to its market. By focusing its human and financial resources on the "application", China has managed to develop an efficient digital and physical infrastructure, from mobile payment to high-speed trains. But China remained de facto an economic colony of the USA (see my 2012 article China is a colony of the USA).

    In April 2018 China suddenly realized the limitations of that model. I call it the "Sputnik moment" of China. China depends on other countries (not only the USA but also Taiwan, Germany, Israel) for the fundamental technologies that its "applications" require. Therefore in 2018 China began a dramatic switch towards research. After all, China graduates ten times more STEM students than the USA, and that is certainly a huge advantage, although it has very little immigration of brains from other countries, unlike the USA that (despite silly immigration laws) still receives brains from everywhere, including from China.

    The Trump trade war is having two effects that are not publicized in the West: 1. It further motivates China to do the research that it had traditionally offsourced to the West and that it is now capable of doing at home; 2. It has increased China's motivation to repatriate as many expatriate Chinese students and scientists as possible offering them all sorts of incentives; 3. It is a gift to the Chinese Communist Party, convincing the Chinese public that China under the Communist Party is indeed becoming a fearsome superpower, respected in the world, catching up in tech and science, and even surpassing the USA in many fields. "Made in China 2025" was largely ignored as propaganda by the Chinese public until Trump's trade war made it popular and gave it credibility. Trump indirectly legitimized it beyond the Communist Party's wildest dreams.

    If the trade war escalates, China can wage a trade war with weapons other than tariffs. It can play the "nationalist card" so that it becomes unpatriotic for Chinese citizens to buy Apple' s smartphones, eat McDonald's burgers, drink Coca Cola or wear Nike shoes. US expatriates in Shanghai and Shenzhen already feel that their business is draining up, as the Chinese counterparts are suddenly reluctant to pay foreigners, especially US citizens. (This is not counted in the trade deficit because it is not a transfer of goods, but it accounts for billions of dollars transferred from China into the USA). China can restrict Chinese tourism to the USA, a billion-dollar business that has been growing rapidly. Chinese students can be encouraged to apply to other countries instead of US colleges and universities, and that would be another billion dollar business lost. (Chinese students are already encouraged by crime statistics alone to find alternatives to US colleges and universities). China could also limit the sale of "rare earth" minerals that US manufacturers need to make smartphones, cars, nuclear reactors, medical equipment and airplanes.

    In foreign policy, China could help North Korea avoid US sanctions, sign treaties with Iran and start a military escalation against Taiwan.

    But the worst thing that China can do to the USA is precisely what Trump wants it to do: China could stop following, copying and relying on US science, and start investing in its own fundamental research. Today nobody (certainly not Chinese citizens) thinks that China is any match for the USA: Silicon Valley alone is 20 years ahead of China in almost all new technologies, and the USA as a whole (Boston, Seattle, Chicago, New York, New Jersey and so on) is a formidable powerhouse of scientific research and technological innovation. China has humbly accepted this and focused on developing a more limited science and technology, a strategy basically about commercializing and popularizing US innovation. For example, Huawei, widely considered the greatest success story to come out of China, is a world leader in 5G, but it uses "coding" technology invented in Turkey and at MIT. In a sense, the fact that China limited itself to "copying" the USA and its allies benefited also the USA. The Soviet Union was indeed a superpower because it did NOT just copy the USA: the Soviet Union had satellites and astronauts before the USA did, the Soviet Union had some of the greatest mathematicians and physicists of the 20th century, and so on. China has none of this: so far it has been happy to let the USA dominate the world of science and technology. China's success stories are measured in billions of dollars (revenues) not in innovation. Huawei, Alibaba, Tencent and Baidu simply repackage US inventions for the (vast) Chinese market and make a lot of money. But they cannot boast a single university that can match the likes of Stanford, Princeton, MIT, etc; and they cannot boast any industrial research lab that can match Google's, Microsoft's, IBM's, etc. China's reaction to US hostility could be precisely to do what the Soviet Union did: start investing in its own fundamental research. The Soviet Union was only partially successful in challenging US supremacy in science and technology. It did succeed in space technology (to this day Russia is still launching spaceships and maintains a space station, years after the USA stopped launching manned missions) and in weapons (to this day Russia is the only country in the world that can match the US military arsenal), but it failed in many other fields, from semiconductors to software. Turning China into a new Soviet Union is not a terribly wise strategy: China graduates one million STEM students per year (for those of you who watch Fox News instead of studying, STEM = Science Tech Engineering Math) and Chinese students tend to be among the best in the world.

    The effect of China's switch towards research will have international implications because those effects are further compounded by another tragic Trump decision: he decided to pull out from the Trans-Pacific Partnership (TPP), a masterpiece trade deal designed by Obama to integrate the economies of East Asia and North America. The TPP would have created the largest free-trade region in the world and... it excluded China. Luckily for China, Trump killed the TPP. (See Let's make China great again). China had already launched its One Belt One Road (OBOR) initiative to build land and maritime links with Central Asia, the Middle East, Africa and Europe, and its OBOR suddenly acquired a much bigger relevance in a post-TPP world. Obama pushed back against rising Chinese political power by trying to build a critical mass against Chinese international power with the TPP, and China got sincerely concerned of being cornered and isolated by the USA in Asia; but Trump, by canceling the TPP, has weakened the USA so much in Asia that now China senses a unique opportunity to get rid of the USA for good in Asia. Now it is China that is cornering and isolating the USA, with footholds even in Latin America. China's investment in Latin America has helped drive an economic boom that "doubled the size of Latin America's middle class and dramatically reduced poverty." (Ted Piccone's "The Geopolitics of China's Rise in Latin America"). Compare with the USA's actions in Latin America that, for decades, helped drive Latin American countries into poverty and dictatorship. China is trying to get 15 countries to join in the Regional Comprehensive Economic Partnership (RCEP), a free-trade agreement similar to the TPP but that will not include the USA. It will include the ten member states of the Association of Southeast Asian Nations (ASEAN) and six Asia-Pacific states (Australia, China, India, Japan, South Korea and New Zealand).

    OBOR is indirectly a way to export China's technology. So far this meant ports and railways. In the future it could mean semiconductors and robots (and possibly advanced weapons). It is a way to globalize China's firms. Even the bigger ones have so far largely relied on the domestic Chinese market. OBOR is a way for the government to force them to globalize while subsidizing the effort. OBOR exports China's infrastructure at a time when China's own infrastructure cannot grow any further at the same pace of the past.

    There's another gift from Trump to China: the science and tech world of the USA (mostly based in "blue" states) is under war fire by the Trump government, while the science and tech world of China is protected, financed and promoted by the Chinese government. China senses a unique opportunity to catch up with and maybe even surpass the USA in science and tech.

    Napoleon famously advised the West about China: "Do not wake up the sleeping giant". It took an idiot (or saboteur?) like Trump to do what generations of world politicians had carefully avoided to do.

    TM, ®, Copyright © 2019 Piero Scaruffi All rights reserved.
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  • (march 2019) China's Anniversaries and how the Tiannamen Square massacre shaped today's China
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  • (march 2019) China's "reeducation" camps for Muslims.
    In March 2017 Kazakhstan-based activists Qydyrali Oraz and Serikzhan Bilash (a naturalized Kazakh citizen born in the Chinese region of Xinjiang) started the organization Atajurt to protect ethnic Kazakhs detained in Chinese concentration camps. A flow of refugees was bringing news from the Chinese province of Xinjiang, largely Muslim, where such camps had been set up to "reeducate" the Uighur (Turkic-speaking) population of that province. China initially denied the existence of the camps, just like it has always denied that the local population is opposed to Chinese rule. Amnesty International and other organizations tried to drum up public opinon in the West, but no Western politician was in a position to start a quarrel with China in the middle of the Trump scandals and of the Brexit mess. It was Turkey to take the lead, when the news surfaced in February 2019 that a popular musician (Abdurehim Heyit) had died in the camps. China promptly produced a video of the musician to prove that he is alive, but nobody has been able to interview him. Turkey demanded that China close the concentration camps.

    Under pressure, in March 2019 the Chinese government admitted to the existence of the concentration camps but claimed the legitimacy of its "deradicalization program". China's State Council Information Office published a white paper titled "The Fight Against Terrorism and Extremism and Human Rights Protection in Xinjiang". (click to download the white paper).

    Chapter 1. is titled "Xinjiang Has Long Been an Inseparable Part of Chinese Territory" and twists history (and all the maps you can find in Chinese museums themselves) to prove that East Turkestan has always been Chinese, which is obviously false (they speak Turkic, don't they?) On the contrary, some Chinese territory was historically part of the khanates that ruled that region, so it's the Uighurs that could claim Chinese territory, not viceversa. Ironically this white paper, which distorts, fabricates and falsifies the history of Xinjiang, blames Uighur separatists for "distorting, fabricating and falsifying the history of Xinjiang".

    Part III, "Violent Terrorism and Religious Extremism Are Grave Abuses of Human Rights", is interesting because it details all the terrorist attacks carried out in this restive Muslim territory... attacks that in the past China often denied or minimized. I quote from the white paper:

    "On February 5, 1992, while the whole of China was celebrating the Spring Festival, a terrorist group planted bombs on a No. 52 and a No. 30 bus in Urumqi, blowing up the 2 buses, killing 3 people and injuring 23 others. On February 25, 1997, "East Turkistan" terrorists caused explosions on a No. 2, a No. 10 and a No. 44 bus in Urumqi, destroying the 3 buses, killing 9 and causing serious injury to 68. On July 30, 2011, two terrorists hijacked a truck at the junction of a food street in Kashgar City, stabbed the driver to death, drove the truck into the crowd, and then attacked the public with their knives. In this incident, 8 were killed and 27 injured. The next day, knife-wielding terrorists randomly attacked pedestrians on Xiangxie Street, Renmin West Road, killing 6 and injuring 15. On February 28, 2012, nine knife-wielding terrorists attacked civilians on Xingfu Road, Yecheng County, Kashgar Prefecture, resulting in 15 deaths and 20 injuries. On March 1, 2014, eight knife-wielding Xinjiang terrorists attacked passengers at the Kunming Railway Station Square and the ticket lobby, leaving 31 dead and 141 injured. On April 30, 2014, two terrorists hid in the crowd at the exit of Urumqi Railway Station. One attacked people with his knife and the other detonated a device inside his suitcase, killing 3 and injuring 79. On May 22, 2014, five terrorists drove two SUVs through the fence of the morning fair of North Park Road of Saybagh District, Urumqi, into the crowd, and then detonated a bomb, claiming the life of 39 and leaving 94 injured. On September 18, 2015, terrorists attacked a coal mine in Baicheng County, Aksu Prefecture, causing 16 deaths and 18 injuries... On June 29, 2012, six terrorists attempted to hijack Flight GS7554 from Hotan to Urumqi following the example of the September 11 attacks. On October 28, 2013, three Xinjiang terrorists drove a jeep carrying 31 barrels of gasoline, 20 ignitors, 5 knives, and several iron bars onto the sidewalk on the east of Tiananmen Square in central Beijing." So we were always right in saying that these things happened. We even learn of attacks that had been carefully hidden from the Western media: "On April 5, 1990, incited by the East Turkistan Islamic Party (also known as Eastern Turkistan Islamic Movement, East Turkistan Islamic Party of Allah, East Turkistan Islamic Hezbollah), a group of terrorists with submachine guns, pistols, explosive devices and grenades, mustered over 200 people to attack the government building of Baren Township, Akto County, Kizilsu Kirgiz Autonomous Prefecture, kidnapping 10 people, killing 6 armed police officers, and blowing up 2 vehicles. From February 5 to 8, 1997, this organization again perpetrated the Yining Incident. In the riots 7 people were killed and 198 injured, including civilians, public security officers and armed police officers, 64 of whom were severely wounded; more than 30 vehicles were damaged and 2 houses were burned down. On July 5, 2009, the "East Turkistan" forces inside and outside China engineered a riot in Urumqi which shocked the whole world. Thousands of terrorists attacked civilians, government organs, public security and police officers, residential houses, stores and public transportation facilities, causing 197 deaths and injuries to over 1,700, smashing and burning down 331 stores and 1,325 vehicles, and damaging many public facilities... On August 4, 2008, terrorists drove a stolen dump truck into the back of a queue of armed frontier police at drill on Seman Road, Kashgar City, and threw homemade grenades, leaving 16 dead and 16 injured. On April 23, 2013, when terrorists were found making explosives at their home in Selibuya Town, Bachu County, Kashgar Prefecture by three visiting community workers, they killed them on the spot and then attacked local government staff and police coming to their rescue, resulting in 15 deaths and 2 severely injured. On June 26, 2013, terrorists launched attacks at the police station, patrol squadron, seat of local government and construction sites of Lukeqin Township, Shanshan County, Turpan Prefecture, resulting in 24 deaths and 25 injuries. On July 28, 2014, terrorists with knives and axes attacked the government building and police station of Ailixihu Town, Shache County, Kashgar Prefecture. Some then moved on to Huangdi Town where they attacked civilians and smashed and burned passing vehicles, causing 37 deaths and 13 injuries and destroying 31 vehicles..." The irony of course is in the choice of words. When you have "Thousands of terrorists", usually it is called a "popular uprising".

    The white paper also provides ammunitions to the critics of China's human-rghts record:

    "Since 2014, Xinjiang has destroyed 1,588 violent and terrorist gangs, arrested 12,995 terrorists, seized 2,052 explosive devices, punished 30,645 people for 4,858 illegal religious activities, and confiscated 345,229 copies of illegal religious materials." Then the white paper describes the concentration camps in which about one million Muslims are being detained and "reducated". Quote: "The centers adopt a boarding school management system, and are staffed with instructors, doctors and personnel for logistic services and management to provide trainees with a normal study and life routine. Trainees can have home visits on a regular basis and can ask for leave to attend to private affairs. The centers are equipped with indoor and outdoor sports and cultural facilities and regularly hold such activities. The centers fully respect and protect the customs and habits of trainees of different ethnic groups, care for their mental health, offer psychological counseling services, and help them solve real-life problems. " Happy conclusion: "Thanks to these preventive measures, Xinjiang has witnessed a marked change in the social environment in recent years. A healthy atmosphere is spreading, while evil influences are declining... People have a much stronger sense of fulfillment, happiness and security..."

    If you know Mao's history, you can easily recognize the function of prisons under Mao. Mao, who was a communist ideologue before being a president, didn't want prisoners to rot in jail forever, nor did he want them shot. Mao wanted them to truly repent and write lengthy confessions. Mao's goal was to prove that communism is better than any other regime. He wanted his opponents to admit it sincerely. That sometimes required lengthy sojourns in gulags, but not death. Take the case of Puyi, the last Qing emperor, considered a traitor by both Chiang Kai-shek and Mao for collaborating with the Japanese invaders. At the end of World War II, Puyi fled to the Soviet Union. When the Soviet Union extradited Puyi to Mao in 1950, Mao didn't execute him (unlike what the Italians did to Mussolini or the French did to Laval). Mao kept him in a prison for several years until Puyi truly became a communist and wrote an "autobiography" in which he admitted that communist China was much better than imperial China. Then Mao released him and Puyi lived the rest of his life as an ordinary citizen, first as a street sweeper and then as a gardener. Jean Pasqualini, who was a prisoner of Mao's China for "counter-revolutionary activity" and was forced to redact a 700-page confession before being released to France in 1964, wrote this of Mao's gulags in his book "Prisoner of Mao" (1973): "Prison is not prison, but a school for learning about one's mistakes"

    That's precisely what the camps for Uighurs are.

    My savvy Chinese friends have a simple two-pronged rebuttal.
    1. Xinjiang borders on Afghanistan and Pakistan. Do we (Westerners) really want to risk the chance of creating yet another Afghanistan that will then become yet another intractable problem? Don't we (Westerners) ever learn anything from our own history? They do have a point: all the mistakes made in Afghanistan and Iraq could have been avoided if Western leaders had studied history. The West's strategy in the Islamic world was a combination of doing nothing to prevent the rise of Islamic fundamentalism and then of doing too much to repress it. Having failed in our own strategy, we are not credible when we criticize China's strategy.
    2. The USA has killed tens of thousands of Muslims all over the world (directly in Iraq and Afghanistan and through drone strikes in Lybia, Yemen, Somalia, Pakistan), has overthrown two regimes, has kept illegal prisons in Iraq and elsewhere, has tortured suspected terrorists, still keeps a dubious prison in Guantanamo, supports Israel's racist policies in Palestine, and just recently ignored the gruesome murder of journalist Jamal Khashoggi by Saudi Arabia. Why all the fuss about China's Muslims who are simply detained and "reeducated" to prevent them from becoming radicalized? China's behavior is a far cry from all the atrocities committed by the USA and its allies. The West, unfortunately, is no longer in any position to lecture China.

    TM, ®, Copyright © 2019 Piero Scaruffi All rights reserved.
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  • (february 2019) Does China steal?
    Of course it does. A nation (of 1.4 billion people) that has never won a Nobel Prize in science, but has still managed to become a high-tech superpower is suspicious by definition. Besides, everybody does. But that's a false narrative. China is not becoming a high-tech superpower because it has stolen a few industrial secrets here and there. If it were that easy, every country in the world would be a tech power.

    First of all, a bit of background on Chinese espionage. The main culprit here should be George W Bush, who is responsible of many disasters in US history. Under his watch, China was rushed into the World Trade Organization in 2001 with little or no scrutiny of its practices. Following China's ascension to the World Trade Organization, its exports grew 30% per year from 2001 to 2006, but it was already well documented that China was embarking on a methodical program of economic espionage. James Lewis, director of the technology policy program at the Center for Strategic & International Studies, said: "IP theft has been part of the opening with China from the start" When in 2003 Cisco sued Huawei for numerous patent infringements that allowed Huawei to compete against Cisco with cheaper Internet switches and routers, the Bush government, distracted by its wars of conquest in Afghanistan and Iraq, did little to raise the alarm (Huawei eventually admitted guilty).

    Fast forward to December 2018 when both John Demers, assistant U.S. attorney general for national security, and the FBI testified before the US Senate. Demers said of China: "The playbook is simple: rob, replicate and replace... rob the American company of its intellectual property, replicate that technology and replace the American company in the Chinese market, and one day, in the global market"; and the FBI testimony was titled "China's Non-Traditional Espionage Against the United States". A few months earlier, former NSA director Keith Alexander had declared on a right-wing TV program that Chinese theft of US intellectual property amounted to "the greatest transfer of wealth in history".

    These conclusions were based on a few well-documented cases: the theft from Westinghouse of designs for power plants (2010), the theft of software for wind turbines from American Superconductor (2011), the theft of DuPont's formula for a white pigment (2014), the theft of technology for building nuclear reactors from Florida Power & Light and the Tennessee Valley Authority (2017), etc.

    The problem is that the technology stolen in each of these cases was not as big a deal as the headlines makes you think. The software stolen from American Superconductor regulates a specific aspect of the wind turbines, not the whole machinery. The stolen Westinghouse designs were only about the pipes of the power-generation facilities. The DuPont formula is for a white paint that can be easily simulated with other formulas. All these events were certainly criminal and certainly damaged the US firms, but they are a far cry for an existential threat to the USA.

    Most of the "Chinese spies" that have been arrested so far were innocent. Xiafen "Sherry" Chen, Xiaoxing Xi, Guoqing Cao, and Shuyu Li were all falsely accused of spying, but later all charges were dropped.

    Peter Navarro is largely responsible for shaping the view that China constitutes an existential threat to the USA. Navarro is likely incompetent on the subject because he doesn't speak Chinese and has rareby been in China, but this fact didn't stop him from writing three books on China and producing the documentary "Death by China". Navarro said on another right-wing TV program: "China is robbing our technology blind". Navarro is now Trump's director of the Office of Trade and Manufacturing Policy. Somebody who knows him well said "If Trump wasn't the biggest asshole in Washington, Peter could be".

    If one sets aside anecdotal evidence and looks at the data on royalty payments, China does not fare too badly. According to the OECD data, in 2017 China's royalty payments to the world were $27.2 billion, compared with the USA's $40 billion: as a percentage of GDP it was almost the same amount.

    Nonetheless, a 2017 report by the independent Commission on the Theft of American Intellectual Property concluded that "IP theft" (which includes violating patents, copyrights, trademarks, and stealing trade secrets) cost the USA between $250 and $600 billion annually and that China was the main culprit.

    China, however, is not alone. For example, in 2015 a South Korean company was found guilty of stealing proprietary DuPont information about a body armor material. In 2018 a National Counterintelligence and Security Center report listed Russia next to China in economic espionage activities (Russia's economy is eight times smaller than China, so, as a percentage of GPD, Russia's economic espionage could be more significant than China's). Duncan Clarke's piece "Israel's Economic Espionage in the United States" in the Journal of Palestine Studies (Vol. 27, No. 4, 1998), published by the University of California Press, tells the story of how Israel has conducted economic espionage since its creation in 1948. In November 2019 Saudi Arabia (treated by the USA as a key ally) was accused of stealing information about thousands of users from Twitter thanks to two spies that infiltrated the company.

    Let me be very clear: military espionage is not only widely practiced by all powers, and in particular by the USA, but basically excused by international law. That's why the 2014 case of Su Bin, caught stealing plans for the C-17 and the F-22 warplanes, would not be shocking if it weren't for China's reaction (Su Bin was arrested in Canada and, to dissuade Canada from extraditing him to the USA, China arrested two Canadian citizens, Kevin and Julia Garratt, who had nothing to do with spying - read their book "Two Tears on the Window") (For the record, Su Bin was extradited, tried and convicted in 2016 but then released in october 2017). When in 2017 admiral Dennis Blair and general Keith Alexander wrote in the New York Times (august 2017) that China has stolen documents about the F35 fighter, the Patriot missile system, the Aegis combat system and so on, they shot themselves in the foot: the USA does the exact same thing to Russia, China, and countless other countries. The CIA is not illegal, nor are the Russian and Chinese counterparts. Israel itself has always maintained spies in the USA, from Jonathan Pollard in 1985 to the 2012 scandal reported by the Associated Press. Articles about Israeli spying on the USA have a way to disappear from websites (all the webpages that had excerpts from it now give the error message "Page Not Found", including the original story on the AP website, and the AP report followed a report in Insight magazine that used to be at but no more), but you can still read about in in this piece written by former NSA counterintelligence officer John Schindler in 2012. In 2019 Israel was even suspected of having deployed spying devices near the White House.

    Economic espionage, on the other hand, is illegal under international treaties signed by both the USA and China: if you want to be part of international trade, you need to comply with rules and regulations that forbid the theft of intellectual property. Reports of Chinese theft of I.P. surfaced already under George W Bush but the first president to take action was Barack Obama who in 2015 forced China to comply with the rules. IP theft declined dramatically... until Trump became president. In 2016 the CEO of the CrowdStrike cybersecurity firm stated that the 2015 agreement was "the biggest success we've had in this arena in 30 years"; but, by the end of 2017, Dmitri Alperovitch, CrowdStrike's cofounder, had to correct himself: "There's been a massive pickup in the last year and a half". In 2017 China's economic espionage had resumed unbridled. The Section 301 Report (march 2018) confirmed this as did Peter Navarro in person.

    However, many of us who are familiar with Chinese government and business practices suspect that the "transfer of wealth" has taken place in a different way, and mostly a legitimate one; that maybe we have to blame more the greed of Western capitalists than the wickedness of the Chinese communists.

    Eager to infiltrate the large Chinese market, Western manufacturers sometimes sell one of their machines to a Chinese firm... and that is the only one they will ever sell. China has millions of very smart engineers, plus millions of workers who didn't graduate in engineering but are very capable of understanding how a machine works. It doesn't take long for a Chinese firm to reverse engineer the machine and build a similar one. Western firms to do this to each other all the time, otherwise Intel, Xerox and Ford would not have had any competitor. Whether this infringes on a patent is always hard to determine if the machine is rebuilt from scratch.

    When China opened its market, Western firms rushed to sell it cars, trains, computers, telephones, airplanes, power plants and so on. China typically attached a requirement that Chinese firms be allowed to "co-produce" the product, typically by making the parts at competitive costs, i.e. saving the Western firm on production costs. Western firms accepted. But, 30 years later, it is obvious that Chinese firms moved quickly up the supply chain: once they learned how to build the parts of a car, they also learned how to build the whole car. The transfer of know-how mostly took place without any need to recur to IP theft. In fact, IP theft can be a lot less effective than simply learning by doing. When you make a photocopy of a diagram, you don't train the workers who will have to implement it. When you work with a Western firm, you train thousands of workers. This is routine in China: any foreign firm that wants te have access to the Chinese market is asked to make concessions in technology transfer. China trades market for technology.

    China acquired know-how about trains from Siemens and about nuclear power from Toshiba and Westinghouse. For example, CTE is the main Chinese company that builds rail tunnels. Initially, it rented the advanced GPS-guided tunnel-boring machines made by Germany's Herrenknecht. CTE eventually set up China Railway Engineering Equipment Group in Zhengzhou, purchased some German designs and reverse engineered others, and it even hired top German engineers. Then (around 2008) CREEG started producing its own tunnel-boring machines and in 2012 started exporting them to Israel, India, Singapore, Vietnam and Malaysia. In 2013 it purchased (purchased, not stole) the tunnel-boring technology of another German firm, Aker Wirth. There was nothing illegal about the way China became the main manufacturer of these highly sophisticated machines.

    Last but not least, China has the best students in the world (just check the statistics of the ethnic groups of top students in US universities and colleges) and it is very good at learning from freely shared knowledge: conference talks, journal articles, and open-source software. You don't need to steal Google's secrets in order to build a deep-learning system: just study the scientific literature. In many cases Chinese universities and firms acquired Western technology by simply studying Western publications. A significant contribution to the Chinese high-tech industry came from returning scientists who attended Western universities and worked in Western laboratories. Don't blame it on China if the USA makes it difficult for top foreign students and scientists to find a job in the USA. And don't blame it on China if the US government is more interested in rescuing the coal mining industry and natural gas industry than in improving STEM education and creating high-tech jobs.

    China uses a variety of policies to acquire foreign technology (one should add at least the massive financial investments in foreign firms), and only a tiny fraction of these policies fall under "espionage". In many cases the acquisition of foreign technology resulted in Chinese firms becoming the leaders in the field, i.e. displacing the very foreign firms from which the technology was acquired. It is widely believed that half of the technology now in the hands of Chinese entities originally came from foreign firms, but this doesn't mean that it was stolen: it was mostly acquired legally. If you don't like it, blame foreign greed and stupidity, not Chinese wisdom.

    The real question is why other countries don't do the same to Chinese firms. The nationalist narrative that China steals IP is predicated on the assumption that the West has valuable technology and China doesn't. But that is no longer true, and it hasn't been true in a while. The Jan/Feb 2019 issue of the MIT Technology Review had a special issue on Chinese technology and never mentioned IP theft. Quote: "Our writers examine China's progress in autonomous and electric vehicles, microchips, nuclear power, high-voltage grids, space exploration, quantum computing and communications, and gene editing." No matter how advanced China is, the "technology transfer" seems to happen only in one direction: from the world to China. There are several reasons for this and it will be difficult to change them. First of all, the USA is suspicious of any high-tech product coming from China. China would gladly sell millions of Huawei phones to the USA if the USA only allowed Huawei to sell them. When a Chinese company won contracts to build subway trains for Boston, Chicago, Los Angeles and Philadelphia senators such as Mark Warner, vice-chairman of the Senate Intelligence Committee, warned against Chinese using the subway cars to spy on the USA, and Shawn Dooley, a Republican lawmaker, launched a campaign to block the sale for fear that China may eventually launch cyberattacks on the transportation network. In October 2018 the USA enacted a new law, the Foreign Investment Risk Review Modernization Act (FIRRMA), that indirectly limits investments by foreign countries in US firms because it increases the degree of scrutiny of any such deal. It is widely assumed that the main reason to enact such law is to guard against growing Chinese investment in the high-tech industry of the USA; but don't blame the Chinese is they stop investing in the USA.

    Chinese students in the USA can study about technology that US firms cannot sell to China because of US restrictions on such sales. The same Chinese students are discouraged from staying in the USA by ridiculous immigration laws and now also by xenophobic sentiment among Trump voters. Therefore they go back to their country carrying in their brains the know-how they learned in US universities, while the US firms that build products based on that know-how will not be allowed to sell them to China. Don't blame it on China.

    Last but not least, the USA should study its own history. During the 19th century the USA had no major scientist but it rapidly caught up with Britain, that had introduced all the fundamental theories. Mostly, the USA "stole" British ideas, and in most cases it did it in ways that were legal if not too ethical. The USA in the 19th century and China in the 21st are more similar than US historians would like to admit.

    Finally, the radical right-wing Trump associates who are accusing China of "stealing" should explain why they don't target Russia and India the same way. India is as much as a target of the 2018 Special 301 Report by the USTR as China is. And, as any kid who has ever illegally downloaded music and videos from the Web knows, most of the websites that steal IP are hosted in Russia. The damage to the music and movie industry of the USA has been estimated in tens of billions of dollars. And yet no Trump associate seems concerned about Russians stealing IP from the USA. Of course, one reason is that Russia's GDP is one tenth of China's GDP, i.e. Russia is a failed state. If so, why not say it loud and clear: Russia is a failed state that can never rival the USA economically (if it wants to rival the USA, Russia has to use other means, such as disrupt presidential elections to get a Russian puppet elected president).

    See also The Effects of the Trump Trade War on China


  • (february 2019)

    Let's also clarify What's Wrong with Huawei.
    Huawei, founded in 1987, was one of the very early Chinese high-tech companies. It was founded by a former officer of the Chinese People's Liberation Army and it has maintained close ties with the Chinese government. Huawei has become the second-largest smartphone seller behind Samsung and before Apple. It also makes telecommunications equipment that is used all over the world (except the USA) and, in particular, it has become a leader in 5G technology, the technology that is replacing the current mobile-phone networks. In other words, its chips could soon be deployed in every country of the world to handle all mobile-phone communications. There is no question that Huawei's engineers are among the smartest in the world and that Huawei's story is an amazing success story.

    There are three legal cases that often get conflated: a warrant for the arrest of a specific Huawei executive; an indictment against the whole of Huawei for theft of trade secrets; and warnings from multiple international agencies about the cyber-security of Huawei's 5G technology.

    Donald Trump's administration had nothing to do with the warrant to extradite Huawei's CFO, who also happens to be the daughter of the founder. The investigation was started under Obama and it simply took time for the FBI to gather the evidence required for such an international warrant. Canada simply obeyed extradition treaties it has signed, regardless of Iran sanctions. Huawei's CFO (not the whole company) committed a crime that is not what most Chinese think it is. She is not charged with violating the US sanctions against Iran. She is charged with bank fraud. She lied to a New York bank about Huawei's involvement in a Hong Kong company that used the New York bank to do business with Iran. Huawei is free to violate the sanctions, but the US bank is not, hence she caused the bank to commit a crime, and that's defined as fraud. It's like me swearing to you that it is not a crime to do what you are about to do but knowing that i am causing you to break the law of your country.
    The indictment against Huawei for theft of trade secrets is a different story and stems from a separate investigation (also started under Obama) into how Huawei engineers stole T-Mobile proprietary technology, notably about a robot named Tappy. Quote: "Huawei engineers violated confidentiality and non-disclosure agreements with T-Mobile by secretly taking photos of Tappy, taking measurements of parts of the robot, and in one instance, stealing a piece of the robot so that the Huawei engineers in China could try to replicate it." The FBI investigated and concluded that this was a "company-wide effort".
    Nothing the USA has done in these two cases is unusual. Plenty of non-Chinese companies and executives (including US ones) have been prosecuted the same way for similar alleged crimes. There is plenty of politics behind the "Huawei paranoia" in the Senate, but so far i have seen no political motives behind these two criminal cases. The evidence that Huawei's CFO lied to the New York bank seems to be solid. If an ordinary US citizen had done the same thing (lying to a bank causing the bank to violate the law), without the means to hire the kind of attorneys that Huawei has hired, that citizen would already be in jail.
    The problem is that Trump himself undermined the criminal case in a December 2018 interview with Reuters. To the Chinese (and not only the Chinese), Trump's statement that charges could be dropped in exchange for concessions by China in the trade talks proved that the case is indeed politically motivated. Trump's own words put Canada in an odd position: now Canada, in uphelding its laws against China's pressure, is risking a political conflict with China over a case that the whole world thinks is politically motivated. Canada is not receiving support by anybody after Trump made that statement. As Michael Zeldin noted, this is precisely the way things work in China: the president can tell the judges how to rule on a case; and therefore Trump's actions encouraged China (and the whole world) to think that there is no difference between the (non-existent) rule of law in China and in the USA.
    Finally, Huawei's 5G technology has been singled out by several governments as a "threat". The US government has provided no evidence that there is anything wrong with it, so that's just propaganda and maybe a bargaining chip in the trade negotiations. But the USA is not the only country to be concerned. Australia and New Zealand have both vetoed the usa of Huawei's equipment in 5G networks. In january 2018 the French newspaper Le Monde Afrique published a report according to which the African Union's computers were hacked for five years by China. In january 2019 Poland arrested Weijing Wang, a Chinese employee of Huawei, on allegations of spying for China (Huawei promptly fired the employee claiming that he acted on his own). In march 2019 Britain's National Cyber Security Centre issued a report that warns against using Huawei's 5G equipment simply because it is not cyber-secure enough. The British watchdog has repeatedly complained with Huawei about security flaws (that could be exploited by any hacker, not just Chinese spies) and Huawei has so far failed to find remedies. This has nothing to with espionage and a lot to do with sloppy design and sloppy practices. In other words, Huawei's products are cheap because Huawei took short cuts in building them. But the bottom line is that, so far, no evidence whatsoever has been produced to justify the discrimination against Huawei's 5G technology: not a single chip has been found in any way "corrupted" to serve as a tool for espionage. So far, the evidence is that Huawei, quite simply, has the best 5G technology in the world. It is also a bit embarrasing for countries like Australia and Britain to claim that Huawei's chips are dangerous: countries like Australia and Britain have plenty of bright engineers who can easily check what Huawei's chips do.

    See this paper by Christopher Balding and Donald Clarke about who owns Huawei: the founder (Ren Zhengfei) only owns about 1%. The "employee shares" in Huawei are actually not owned by its employees at all.

    TM, ®, Copyright © 2019 Piero Scaruffi All rights reserved.
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  • (january 2019) Do not Wake up the Sleeping Dwarf
    Napoleon famously advised the West about China: "Do not wake up the sleeping giant". If China is a giant, then Taiwan is certainly a dwarf: 23 million people versus 1,400 million in mainland China. Nonetheless, i think that Napoleon's warning fits Taiwan as well as the giant mainland.

    In January 2019 Xi gave a speech that sent shivers down the spine of Taiwanese citizens. He spoke of coercive unification. Traditionally, both mainland China and Taiwan have spoken of peaceful unification. However, an increasing number of Taiwanese see Taiwan as an independent country, and the rise of Xi has probably done little to reverse the tide. A 2009 poll found that 49% of Taiwanese don't consider themselves Chinese. A 2017 poll found that 84% of young Taiwanese don't consider themselves Chinese. Taiwan was shifting towards "peaceful coexistence" with communist mainland China, not "peaceful unification". Xi's speech, possibly a reaction to these surveys, was greeted largely with silence in Taiwan, despite the direct threat.

    The reason for Taiwan's silence is that an escalation would be riskier for Taiwan than for China. The economics has changed. And the USA has changed. Today it is hard to believe that in 1990 tiny Taiwan had a GDP that was almost half the GDP of much larger China ($170 billion vs $400 billion). Today, China's GDP is about than 20 times bigger than Taiwan's. Back then, Taiwan had advanced technology whereas China didn't even have personal computers. Today, China is a world leader in artificial intelligence and many other technologies. China now has 1,500 missiles aimed at Taiwan. Taiwan has limited "security clearance", which means that the USA does not transfer the kind of high-tech weapons that it transfers to Israel. This didn't matter when mainland China didn't have sophisticated weapons but now China has them. Furthermore, the Taiwanese army is largely a volunteer force, not the highly professional People's Liberation Army of mainland China.

    The second factor that explains Taiwan's prudence is that the USA has changed too under Trump. For almost 40 years, Taiwan relied on a treaty signed with the USA, the Taiwan Relations Act of 1979, according to which the USA pledged military assistance in case of a military attack against Taiwan. Trump's speeches have not been any less disturbing for Taiwan than Xi's speech. Trump has projected the image of a cynical immoral leader who would sell just about anything for the right price, a wildly different image from the principled (anti-communist) country that the USA was when it signed the Taiwan Relations Act.

    Xi's speech was just the latest move in a slow, patient chess game. China has been enforcing a unilateral definition of Taiwan's status, demanding the developing countries of the world to accept it. It is now only the USA and the European Union that still recognize Taiwan as a legitimate entity. Everybody else, if they want to do business with China, had to severe diplomatic ties with Taiwan. In a sense, China has been building a Great Wall in the Pacific Ocean around Taiwan. If democracy wins all over the world, future generations will be shocked to read that peaceful and democratic Taiwan was discriminated at the United Nations because most countries sided with a much less democratic country, mainland China. But, in history, economics always prevails over principles.

    At the same time, China has slowly enacted a program of "legal" annexation. The Taiwanese who travels to China is treated like a Chinese citizen with a particular status, not like a foreigner. Increasingly, Taiwanese will have to obey Chinese laws if they want to visit or do business in mainland China.

    Mainland China, even if it managed to get around the US ships, is unlikely to attack Taiwan because of the international repercussions: the Taiwanese government would flee abroad and would immediately declare independence, the USA and the European Union would recognize it, a major crisis would ensue in the United Nations and potentially break it apart, many developing countries would get scared of China and distance themselves from the new imperialist power, and Japan would probably go nuclear to avoid being the next victim. If Taiwan manages to prolong the conflict, the whole world will be rooting for the underdog. This is a huge price to pay for mainland China.

    I don't think that the young Taiwanese would start a real civil war because they have not been raised to think about war: they have been raised to think about technology and business. As long as China accords Taiwan the same rights to use Google, Facebook, etc that Hong Kong has, i think the one thing that China doesn't have to fear in Taiwan is door-to-door guerrilla warfare.

    Nonetheless, there is also another, unspoken, reason not to attack Taiwan: no matter how smaller the Taiwanese army is, there is still a chance that the mainland would be defeated, and this would become a national humiliation of the kind that China hasn't experienced since 1860 when an Anglo-French expedition force destroyed the summer palace of the Chinese emperor. The combination of the Hsun Lien naval combat system (basically a smaller version of the Aegis system deployed by NATO, Japan and Korea) and the Tien Kung system (that can intercept Chinese missiles at ranges of about 200 kms) plus the long-range early-warning radar system Pave Paws that the USA maintains in central Taiwan, is enough to make Taiwan more impenetrable than Iraq was to the USA in 2003. And the lesson of Iraq was that it was terribly difficult for the US air force to destroy Iraq's mobile missiles, of which Taiwan has hundreds: 400 long-range surface-to-air mobile missile launchers, at least 1,000 short-range surface-to-air mobile missile launchers, 400 mobile antiaircraft guns, and 12 mobile cruise missile launchers. (See for example "The Emerging Military Balance in East Asia" by Michael Beckley of Harvard and Tufts universities in the International Security journal vol 42 No 2 of 2017, and the book "The Chinese Invasion Threat" of 2017 by Ian Easton, a fellow at the Project 2049 Institute).

    Therefore a Chinese invasion of Taiwan is unlikely both because it is unnecessary (Taiwan is slowly being annexed in other ways), because it would negatively affect China's foreign relations, and because, quite simply, it won't be easy.

    The real concern is that Taiwan may react to Xi's speech and to Trump's speeches by embarking on its own military program: Xi theatens to use force (to annex Taiwan), and Trump threatens not to use force (to defend Taiwan). The two threats are equally alarming for Taiwan.

    Taiwan has certainly watched intently the developments on the Korean peninsula. The silly and murderous North Korean dictator is getting a lot of respect from the US president (who even called him "honorable"). Why would such a silly and brutal dictator of such a poor and failed country get such an honor? Because he is armed with nuclear weapons. Taiwan gets zero respect from communist China and little from the US president. One simple reason is that it is not armed with nuclear weapons.

    It could be that one of mainland China's many mistakes in regard to Taiwan was to demand the expulsion of Taiwan from the United Nations. Taiwan is the only major country not represented in the United Nations because China, one of the five countries that has veto power, does not recognize it as an independent country. But this means that Taiwan is under no obligation to comply with international nonproliferation treaties or nuclear control regimes since the United Nations recognizes mainland China as the country that has signed those treaties. It is mainland China itself that forbids the United Nations to sign such treaties with Taiwan.

    Taiwan does not possess nuclear weapons, but historically it did possess a nuclear weapons program. Taiwan's nuclear program dates back to 1964, when mainland China tested its first nuclear device. China's test was not a surprise for outside observers, but it was still Taiwan's nightmare come true. The Taiwanese bomb program began in 1967, using the Chung-Shan Institute of Science and Technology's Institute for Nuclear Energy Research as a cover. Apparently, Ta-you Wu (the most famous Chinese physicist, who fled mainland China when Mao seized power in 1949) initially succeeded in dissuading Taiwan's dictator Chiang from building a bomb, but Taiwan acquired a heavy-water nuclear research reactor in 1969 from Canada. This reactor went critical in 1973, and Taiwan, using heavy water from the USA and uranium from South Africa, started producing weapons-grade plutonium (Chiang died in 1975). Taiwan's nuclear weapons could have been mounted on its missile Tien Ma, which had a range of 1,000 kms, not enough to strike Beijing but enough to strike Shanghai. In 1988 one of Taiwan's nuclear scientists, Hsien-yi Chang, deputy director at Taiwan's Institute of Nuclear Energy Research, defected to the USA and revealed the full scope of the program (it is debatable whether he was hired by the CIA or not). US president Reagan, eager to keep friendly terms with mainland China while he was fighting the Cold War with the Soviet Union, ordered Taiwan to shut down the program. See David Albright's and Andrea Stricker's "Taiwan's Former Nuclear Weapons Program" (2018).

    Since then Taiwan has pursued peaceful nuclear research and in January 2014 Taiwan's president and US president Obama renewed an agreement for peaceful nuclear cooperation. Nobody doubts that Taiwan could build a nuclear bomb in a relatively short time, depending on how much plutonium it is hiding. In 2012 Taiwan's National Chung-Shan Institute of Science and Technology acknowledged that it had developed the Yun Feng missile that can reach Beijing. Over the last two years there were reports in Taiwan and Hong Kong of new Taiwanese missiles: the Wan Chien air-to-ground cruise missile and the Hsiung Feng IIE missiles. If Taiwan developed nuclear weapons, it would be able to mount them on sophisticated missiles.

    The risk is that the combination of Xi's speech and Trump's speeches may cause a subtle but crucial psychological shift within Taiwan. The Taiwanese people have never been particularly fond of the USA. They want dignity, security, and prosperity; and for 70 years the USA has provided them. But a combination of Xi's arrogance and Trump's cynicism may be igniting a new wave of Taiwanese nationalism that could result in Taiwanese rearmament with the goal of becoming self-sufficient in defense matters and, last but not least, of being respected at least as much as North Korea is.

    TM, ®, Copyright © 2019 Piero Scaruffi All rights reserved.
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TM, ®, Copyright © 2019 Piero Scaruffi All rights reserved.