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The China Intelligence Briefs are the start of a global initiative to provide context and recommendations to businesses, non-profit organizations, and policy makers who are looking for specific examples of opportunity or disruption from global events. While analyzing the macro problems, we often identify specific issues that affect our clients and readers. Identifying both opportunities & challenges allow us to better identify solutions at home and abroad for a wide range of disciplines. In addition to the China Intelligence Briefs, we maintain detailed notes from interviews, overseas trips & business missions, conferences, conventions, and private events. We provide access to these notes and other analytical products for clients and paid subscribers.

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Executive Summary

Trade talks appear to be at a stalemate in the ongoing United States (US) and China trade disputes. Posturing continues to move the reality of tariffs closer. Meanwhile, China’s Belt and Road initiative appears to have hit a road bump due to multiple projects in South and Southeast Asia that are now causing great concern over indebtedness to China. However, this hasn’t stopped Chinese companies from continuing their spending spree on infrastructure and energy companies in Europe or South America. Google and other large western firms are still trying to penetrate the Chinese market, who recently partnered with JD.com to leverage the online market place’s stance in Asia. ZTE dodged the proverbial bullet after coming to a settlement that allows it to continue operations in the US, albeit with certain restrictions and a short leash. On the security front, imagery indicates Beijing removed controversial weapons from its disputed structures on Woody Island, as tensions in the region appear to simmer down.  All of these situations affect business operations, investments, and public relations between the various firms, governments, and the communities they are in.

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China’s One Belt One Road/Belt and Road Initiative

Myanmar Could Fall Victim to Large Debt to China  

SUMMARY

On May 25, concerns over the price tag attached to a Myanmar port construction (China’s CITIC Group won the rights 3 years ago) arose as experts questioned why the project would cost so much. In addition, the less than flattering reports of China’s motivation behind the $7.5 billion deep-sea port in Kyaukpyu are questioned by critics of the One Belt One Road Initiative (BRI). The location of the port provides strategic and economic benefits, potentially giving China direct economic access to the Indian Ocean. The project is currently under Myanmar government review, as concerns grow of massive debt burdens to China make the infrastructure project less attractive. Foreign and western investment seem unlikely as Myanmar’s human rights issues and ethnic disputes act as a deterrent for investors. Without $2 billion from outside investors, Myanmar would risk relinquishing control over the project to China.   

FAO GLOBAL ASSESSMENT

While the port may very well bring new economic activities to the region, investors and firms looking to enter the region need to be careful about what entities they involve themselves with. The Myanmar government, and military specifically, is facing a great deal of criticism regarding the treatment of the ethnic Rohingya (Muslim) people. Affiliating with the wrong partner or government organization could put a firm in a bind if sanctions are put in place, not to mention the potential public relations issues that a firm may get entangled in without proper due diligence. Firms should conduct thorough research and due-diligence before agreeing to partnerships or entering joint ventures in Myanmar, and focus on building relationships with local communities and non-government affiliated companies.

Related Links

1. Asia Times – Myanmar risks falling into a China debt trap    
2. Global Times – B&R debts to be addressed: analysts  
3. Bloomberg – China’s $7.5 Billion Myanmar Port ‘Crazy,’ Suu Kyi Adviser Says  

 

Chinese enterprises expand oversea by buying utilities 

SUMMARY 

As of May 30, Chinese construction firm, Gezhouba Group, acquired the Brazilian water supply company Sistema Productor São Lourenço as part of the expansive Belt and Road Initiative. The project is expected to help alleviate water shortage problems in Sao Paulo. Some experts are concerned that China is trying to expand its renewable energy influence in international markets by buying up foreign utility firms. This is just the latest in South American hydroelectric project acquisitions, which also includes the recent purchases of the Ecuadorian Sopladora hydro-power station as well as the nearly $6 billion project on Argentina’s Santa Cruz River. Under the Belt and Road Initiative, Chinese private and state backed firms increased investment & acquisitions of renewable energy and infrastructure companies in South America and Europe. In December 2017, there are plans to build major hydroelectric plants as part of China’s Belt and Road Initiative (BRI) in Pakistan, Nepal, and Myanmar were cancelled. Some experts believe this might in part be in response to a growing discomfort with what some are calling “China’s economic imperialism.” 

FAO GLOBAL ASSESSMENT 

As illustrated by the failure of the projects in Pakistan, Nepal, and Myanmar, these types of projects are less than guaranteed and pose a increased risk to local communities who are wary of taken on Chinese funds. An opportunity for western financial companies may develop as more countries sign onto China’s infrastructure projects, which will most likely lead to extensive debt that follows completion of the project. Governments wanting investment but are wary of Chinese influence may be more interested in partnering with more sustainable packages without the worry of undue influence. The downside is that profitability and Return on Investment are often not attractive enough for Western firms to jump on, in addition to the various logistic and cultural challenges these firms face. If countries are interested to attract Foreign Direct Investment they should also be proactive in ensuring their business and regulatory environment are suitable for investment.

Related Links

1. Asia Times: Gezhouba Group buys up Brazilian water project 
2. China Economy: 中国能建葛洲坝集团完成巴西大型供水项目股权收购 (China Gezhouba Group acquired Brazilian water groups) 
3. Xinhua: 综述：中国与巴西经贸合作面向 (China and Brazil’s economic and trade cooperation is developing) 
4. The Epoch Times: Takeover of Portuguese Utility Firm Latest Power Grab by China 
5. RFi: 歐美擔憂中國三峽集團併購葡萄牙電力公司 (United States and Europe worried that China Three Gorges Corporation will acquire Energias de Portugal (EDP)) 
6. SOFREP: Major Chinese hydroelectricity projects cancelled by Pakistan, Nepal, and Myanmar 

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China Economics

Google invests in JD.com to rebuild its presence in China 

Summary 

On June 18, Google announced that it would be investing $550 million in JD.com, also known as Jingdong. JD is China’s biggest e-commerce company and claims net revenue of 100.1 billion Chinese Yuan (16.0 billion USD) in Q1 2018. As per the investment agreement, JD will join the Google Shopping advertising platform and in return, JD will work with Google on other e-commerce projects in Europe, Southeast Asia and the United States. This includes integrating into retail giants, like Walmart. The Chinese retailer has already expanded its market into Southeast Asia by setting up online retail businesses based in Indonesia and partnering with commerce ventures in Thailand and Vietnam. For JD.com, China has provide to be a massive, profitable market and enjoys an unrelenting growth of internet users. However, for many non-Chinese companies, breaking into the market have proven difficult without the right partner. In 2017, 40.7 million new users were added in China, bringing the total to 772 million, just over half the country’s total population. Google left China’s market in 2010 due to multiple disagreements over censorship and regulator issues with Beijing, but this agreement may be a be part of Google’s strategy to reclaim a share of the Chinese market. On December 13, 2017, Google built a China-based research center devoted to artificial intelligence in Beijing and signed an agreement with Tencent, the Chinese internet conglomerate, to develop artificial intelligence.  

FAO Global Assessment 

The importance of the Chinese e-commerce industry is well illustrated by Google’s persistence to regain a presence in China. American firms should consider partnering with websites familiar to Chinese consumers, such as JD.com and other big Chinese online retailers like Taobao and Tmall, three companies that dominate 80% of the market, in order to broaden their reach, either by selling products or advertising. There are multiple facets, legal implications, and public relation considerations that should be taken into account, before choosing the right local partner.

Related Links 

1. New York Times: Google, Rebuilding Its Presence in China, Invests in Retailer JD.com 
2. Reuters: Google to invest $550 million in China e-commerce giant JD.com 
3. CNN Money: Google bets $550 million on Chinese e-commerce firm JD.com 
4. Investor’s Business Daily: JD.com, Google Forge Alliance Spanning Online Shopping, Retail 
5. New York Times: Google, Looking to Tiptoe Back Into China, Announces A.I. Center 
6. Sohu: 行业报告 | 2018年中国快递行业市场前景研究报告 (2018 China Express Delivery Market Report)  
7. Jianshu: 电子商务的历史和发展现状 (E-Commerce: Its History and Development) 

 

China Might be in the Command as Trade Tensions Rise  

SUMMARY  

On June 6, Singapore’s Finance Minister Heng Swee Keat asserted that the recent tit-for-tat trade dispute between the US and China likely carries the major risk of miscalculation, potentially spelling possible chaos on the global economy. Both the US and China appear to be exercising relatively aggressive negotiation tactics, but China’s holdings of US bonds may be Beijing’s trump card in the end. Chinese reporters point to this as a “nuclear option” which it can threaten to sell off to other entities. This is unlikely, however, as they are a liquid and secure form of maintaining foreign exchange reserves. This is especially important as Beijing’s foreign reserves continue to decrease and its foreign debt repayments continue to increase. China is currently the US’s largest debt holder, having amassed about 8% of total American debt.  

FAO GLOBAL ASSESSMENT    

It is unlikely that China would use it’s holding of US debt to push the US in trade negotiations. This would be equally detrimental to China. Policy makers are likely to utilize targeted sanctions that hit traditional “red states” in the US which significant electoral power in the republican party. These are likely to be agriculture and industry specific and proportional to any US actions. While both sides may feel validated in the argument, a prolonged trade war threatens many small and medium size enterprises that cannot outlast or diversify fast enough to weather the storm.

Related links

1. Channel News Asia – US-China trade war and its impact on the global economy: Heng Swee Keat  
2. South China Morning Post – Yes, Beijing will stick to US government bonds, no matter what happens on the trade front  
3. Forbes – China’s Largest Companies Prove Why It’s The World’s No. 2 Economy  

 

China and US are still negotiating on trade 

SUMMARY

The most recent round of US-China trade talks ended on Sunday, June 3 without any signed trade deals. Some reports earlier this week claimed that China agreed to buy more agricultural products, including soy beans, corn, and energy products such as natural gas. China will announce the final list of imports by June 15. By June 30, the US is expected to issue a proposal about restricting Chinese institutions and companies from acquiring American technologies. As a result of the ongoing trade dispute between Beijing and Washington, American farmers, microchip makers, and energy producers have been struggling to make up the difference.  

FAO GLOBAL ASSESSMENT

With no short-term solution for the ever-growing list of tariffs between the US and China, American firms need to prepare for the long haul. For firms with the necessary resources, that may mean moving production to China or seeking new markets. Other options include entering joint ventures with Chinese firms, which can insulate American imports from tariffs on US imports into China. These however are long term options but will be unlikely to mitigate the immediate impacts by pending tariffs.

Related Links

1. New York Times CN: 中美貿易談判再陷僵局，中興難題仍未解 (U.S.-China Trade Talks End in an Impasse) 
2. Xinhua: 中美博弈在繼續，美媒替白宮釋放了這兩個微妙信號！(US-China Trade Talks on-going, US Medias sent out two interesting signals for the White House) 
3. Global Times: Trade consultations make positive, concrete progress: statement 
4. Bloomberg: America’s Wells, Mines and Farms Targeted by China Trade Offer 

 

China GDP grows steadily 

SUMMARY

On May 30, the International Monetary Fund (IMF) stated that China’s GDP enjoyed a 6.8% growth in the first quarter. However, the IMF currently predicts decreasing growth, down to 6.6%, due to the Sino-American trade friction’s potential impact on the country’s trade. Currently, Beijing continues to implement policies that encourage smaller businesses to invest and continue its economic reform in order to improve future growth. The goals of the proposed reforms are to transform China from a manufacturing economy to service-based economy. As a result, China will likely focus on support small business domestically and service trade internationally. 

FAO GLOBAL ASSESSMENT

China started its economic reform around four years ago, in which many factories moved to Southeast Asia and India. Even though China’s economy enjoyed a significant amount of growth this quarter, it is difficult for many western firms to enter into the Chinese market without substantial financial resources, especially while the current United States-China trade dispute is underway. Companies looking to China should closely monitor the trade situation between Washington and Beijing before making any hard commitments as well as to expand their professional networks in China to identify on-ground opportunities in real time.

Related Links

1. Reuters: China shows faster pace of economic restructuring, but still relying on credit: Moody’s 
2. Reuters: IMF maintains China’s 2018 GDP growth forecast at 6.6 percent 
3. South China Morning Post: Cutting corporate debt will drag China’s economic growth down to 4.5 per cent, says Fitch 
4. Xinhua: China’s service trade continues to grow 

 

China seeks to be a world power supplier 

SUMMARY

On March 31, six countries sharing banks of the Mekong River agreed to an aggressive investment program involving 227 projects expected to cost $66 billion over five years. Leaders from Vietnam, Cambodia, Laos, Thailand, Myanmar, and China reached the agreement at a summit in Hanoi. The investment program is expected to include the construction of a 41 dams through Southeast Asia. Cambodia, the economically weakest of the six, hopes to enjoy additional foreign investment as a result of the program. Although the projects could bring new wealth to the region, local activists warn of possible negative environmental consequences. 

FAO GLOBAL ASSESSMENT

New infrastructure projects in the region will likely bring additional business opportunities and greater ease of trade. For American firms looking to enter the Southeast Asian market, this program might create an entrance at the ground floor. Companies hoping to get involved, however, should be aware of the environmental movement currently underway in the region, as it might create obstacles for foreign businesses.  Additionally, many of the countries involved are going through intense political transitions and disruptions. Businesses seeking to enter these markets should understand the local politics, potential impacts on operations and PR, and how this affects sales and distribution channels before making significant investments or promoting potential inroads to the region.

Related Links

1. Financial Times – China eyes role as world’s power supplier  
2. South China Morning Post – Are Chinese-funded dams on the Mekong River washing away Cambodian livelihoods?  
3. CNBC – Study says China-backed dam would destroy Mekong  
4. Foreign Policy – China’s Mekong Plans Threaten Disaster for Countries Downstream 

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China Policy

U.S. Push-back Against China’s “Made in China 2025” is Spelling Trouble for Tech Industry 

Summary 

On Monday, June 25, a Wall Street Journal report indicated that additional Chinese tech investment barriers severely impacted global investors’ confidence. Some restrictions pending review include limiting high-tech exports to China, tightening Chinese investment restrictions on U.S. tech companies, and prohibiting Chinese companies – defined as 25% or more Chinese ownership – from buying American companies involved in industrially significant technology. On the day of this announcement, the United States’ technology and energy sectors’ S&P 500 fell more than 2.8% due to fears of potential tech export restrictions curbing confidence in the tech industries. Chinese investors are also concerned as even low valuation IPO’s from Chinese tech companies – which almost guarantee higher yields because the stocks are under priced – are not enough to attract investors given the current climate. In other words, Chinese tech investors’ confidence in its own tech industry is waning as US investor confidence weakens as well. This is likely due to the US push-back against China’s increasing restrictions, making it more difficult for tech-related developments and potentially hurting both the US and China. 

FAO Global Assessment 

Declining investor confidence may indicate trouble for American businesses in two ways: exports and financing. High-tech manufacturing companies could lose a lot of their business if restrictions are put in place as officials highlight the interdependence of the US-China tech supply chain. Investors are growing wary of the potential impacts from said restrictions on the supply chain, putting American tech companies at risk for suffering financially. This means less opportunity from investors to raise capital for innovation, which hurts smaller publicly traded tech companies as their investments decline. These companies may have to seek loans from investment banks to compensate for losses that would come as a result of pulled investments. One aspect that is often overlooked is the multitude of other ways tech companies and investors from both countries can still work together. Although Chinese companies may face more scrutiny buying companies as a whole, there are still opportunities to do partnerships, joint ventures, and many other sectors not deemed national security interests.

Related Links  

1. Ars Technica – Report: Trump officials planning escalation of US-China tech trade war 
2. The Washington Post – U.S stocks sag as U.S.-China trade war talk heats up 
3. South China Morning Post – Hong Kong retail investors give Xiaomi’s IPO the cold shoulder, put off by high financing cost and valuation 

 

US and China’s ZTE has reached a deal 

Summary 

On June 7, 2018, United States Commerce Secretary Wilbur Ross announced a settlement deal with Chinese smartphone manufacturer ZTE requiring that the Chinese firm pay a $1 billion fine, shuffle top leadership, and deposit $400 million in an escrow account in case ZTE violates the deal. Should ZTE agree to the terms, the Chinese manufacturer will regain access to the American market. In April 2018, the US government announced that American companies would be prohibited from selling goods to ZTE following allegations that ZTE failed to abide by American sanctions on Iran. This is likely to come as welcomed news by American microchip makers, such as Qualcomm and Intel, who raised concerns over potential revenue loss as a result of the ban.  

FAO Global Assessment 

Scandals surrounding Chinese firms’ misbehavior while operating inside the US have plagued newspaper headlines for the last few years. This opens a window for law and public relations firms specializing in international business and trade. Chinese investment in the United States has shown vital to small business growth, especially for the tech companies nestled in California’s Silicon Valley. Ensuring that Chinese companies understand the vast differences between Chinese and American business cultures and how to successfully navigate potential pitfalls will be critical to their success in the future. Moreover, this announcement will relieve some concerns by US firms that fall in the downstream supply line to ZTE.

Related Links 

1. CNN Tech: US cuts a deal with Chinese smartphone maker ZTE 
2. New York Times: U.S. Strikes Deal to Help China’s ZTE 
3. BBC China: 中興與美國政府達成和解 認罰10億美元並改組 (ZTE and the US government have reached an accommodation, ZTE is willing to pay $1 billion fine and change the management and board) 
4. Xinhua: 美国商务部与中兴公司达成新和解协议 (U.S. Department of Commerce and ZTE Corporation agree the accommodation) 
5. Caixin: 中兴与美国政府达成和解 认罚10亿美元并改组 (ZTE and the US government have reached an accommodation, ZTE is willing to pay $1 billion fine and change the management and board) 
6. Rhodium Group: Chinese Investment in the United States; Recent Trends and the Policy Agenda 

 

United States may lift ban on Chinese company ZTE on a deal worth $1.7 billion  

SUMMARY

As of the end of May 2018, multiple outlets indicated that the United States may soon be lifting its ban on Chinese telecommunications company ZTE after talks of a preliminary $1.4 billion agreement is met. The deal is broken up into $1 billion in fines, $400 million in damage control for intellectual property violations, and over $350 million from amending a 2017 settlement agreement. Recently, ZTE has been under heavy scrutiny after 126 counts of patent infringement were levied against them. In addition, ZTE has been accused of having access to Facebook user information amidst the recent Facebook data misuse ordeal. United States’ President Trump’s decision to offer the agreement in order to lift the ban is being criticized, many saying he is being too lenient with ZTE Corporation.   

FAO GLOBAL ASSESSMENT

For American companies looking to partner with or rely on products from ZTE as a matter of conducting business should not consider this agreement as an absolute guarantee. As this is already a controversial decision, should the Chinese telecommunications firm cross the line again, Congress likely seek a much more permanent solution.

Related Links

1. Tech Crunch – What President Trump Doesn’t Know About ZTE 
2. NPR – China’s ZTE Reportedly Strikes Preliminary Deal To Lift U.S. Ban 
3. South China Morning Post – ZTE claws back bonuses, reprimands 35 staff over Iran sanction breach to meet US pledge

 

Facebook giving access to Chinese hardware firms  

SUMMARY  

June 5, American social media giant Facebook released a statement revealing it had data-sharing partnerships with four Chinese electronics manufacturers, including Huawei which had been tagged by the US intelligence community as a potential threat to national security. While the partnerships are still active, Facebook representatives said that their relationship with Huawei would be ending by the mid June. Back in to 2007, the intent of the partnerships was to encourage greater social media usage among mobile users. After being banned in 2009, Facebook has been making efforts to re-establish a presence in China. After the United States decided to no longer allow those living and working on military bases to use Huawei mobile phones, AT&T cancelled its contract with the Chinese firm in January 2018. Thus adding to the ripple affect of firms having relationships with Huawei being scrutinized in the public sphere.

FAO GLOBAL ASSESSMENT  

This revelation is another jab at Chinese electronics companies due opaque, alleged, and/or proven relationships to the Chinese military or government . The reputation for being closely connected to Beijing and willing to do Chinese leaders’ bidding is a difficult public relations issue to solve, and a narrative that has been pushed by politicians and critics of China for sometime. The addition of the US intelligence community commenting on Huawei further puts those doing business with the tech behemoth in the limelight. US firms looking to partner with Chinese electronics companies should weigh their options carefully as any hint of unauthorized data sharing could be extremely damaging in the public eye, even if certain relationships are not illegal.

Related Links 

1. New York Times: What Facebook Shared With Chinese Hardware Companies: DealBook Briefing  
2. New York Times: Facebook Gave Data Access to Chinese Firm Flagged by U.S. Intelligence  
3. CNN Money: Facebook says it gave Huawei and other Chinese firms access to user data  
4. The Washington Post: Facebook granted devices from Huawei, a Chinese telecom firm, special access to social data  
5. Sina HK: Facebook承認與華為等中國公司共享數據 將結束合作 (Facebook admitted sharing data with Huawei, and will end their partnership)  
6. TechNews: 被封鎖不代表沒商機！年貢獻 1,490 億元，中國成 Facebook 第二大廣告市場 (Being blocked does not mean end of business. China became the second advertising market for Facebook)  

 

Canada blocks Chinese company from acquiring Aecon 

SUMMARY

In the last week of May, the Canadian government announced that it was blocking a proposed $1.18 billion acquisition of the Canadian firm Aecon Group Inc. by the China Communications Construction Company (CCCC), citing national security concerns. Had the deal gone through, CCCC would have potentially received troves of documents from the Canadian government detailing government contracts, including nuclear reactors agreements. This is the latest in a series of blocked acquisitions by western countries, as fears over Beijing interference have spread. In early May, the United States blocked the Chinese attempt to acquire American company SkyBridge Capital, following the Committee on Foreign Investment in the United States (CIFUS) rejected the proposal. In January 2018, CIFUS rejected plans for Ant Financial, a Chinese online payment company, to acquire MoneyGram International, an American money transfer company, again citing cyber-security concerns.  

FAO GLOBAL ASSESSMENT

The recent rise of blocked Chinese company acquisitions in North America could mean more business for western firms that specialize in cross-cultural marketing, consulting, and legal firms. Would be Chinese investors would likely benefit from public messaging and public relations campaigns aimed at winning over consumers, legislators, and businesses. Likewise, US companies should also understand the broader sociopolitical implications that affect the investment climate and the regulations that govern these types of investments. 

Related Links

1. Bloomberg — Trudeau Says ‘Australian Colleagues’ Warned on China’s Aecon Bid 
2. Reuters — Canada blocks Chinese takeover of Aecon on national security grounds 
3. Bloomberg — China Warns of Canada Investment Chill After Aeson Deal Blocked 
4. New York Times — Canada Blocks Chinese Takeover on Security Concerns 
5. Business Times — China shunned Australia’s minister during recent visit: diplomat 

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China Security

U.S. issued warning to Americans in China of possible sonic attacks 

Summary 

On June 8, the United States State Department issued an alert to American citizens living and traveling to China to seek medical attention if they experienced strange ‘auditory or sensory’ symptoms. The symptoms described in reports are eerily similar to those experienced by the American diplomats evacuated to the United States from Guangzhou, China in late May 2018 and from Cuba in 2016. In response to the supposed ‘sonic attack’ in Cuba, the United States Treasury issued a new restriction for Americans traveling to Cuba independently. According to a November 8, 2017 Treasury Department publication, individual travel for tourism was no longer permitted and for those with official business, special licenses would be required. As a result, tourism in Cuba was severely impacted. The Chinese government has not yet publicly released any statements on this issue.  

FAO Global Assessment 

The Chinese tourism industry could be negatively impacted if the security concerns surrounding these possible attacks are not quickly resolved. China could acquire a reputation as an unsafe travel and business destination, which would force significant public relations assistance to mitigate. As a result, fewer Americans would be interested in going to China to seek investment and business opportunities. If American businesses are seeking new locations for labor-intensive manufacturing, Southeast Asia offers a palatable alternative. Wages for Chinese labors are increasing, making manufacturing increasingly expensive. This gives US businesses a unique opportunity to explore the market in other parts of Asia. 

Related Links 

1. New York Times: U.S. Issues Alert to Americans in China in Wake of Sonic Attack Fears 
2. South China Morning Post: US embassy in China sends new mystery illness alert as concerns over Cuba-style ‘sonic attacks’ grow 
3. South China Morning Post: More Americans flee US consulate in China as mysterious sonic sickness linked to Cuba illness spreads 
4. The Storm Media: 美國駐廣州外交官又遭「聲波攻擊」？中國官媒開嘲諷：是你們的情報設備功率太強了吧 (US consulates in Guangzhou were sonic attacked. Chinese media said: it is because the power of your intelligence gathering equipment is too strong.) 
5. New York Times: What the State Department Warning on Cuba Means for Travelers 

 

Race to 5G Networks Can Spell Conflicting Decisions for United States Regarding Security 

Summary 

On June 7, news of Huawei’s 5G phone models hit the internet, bringing China one step closer to winning the race to implementing a 5G network. The United States and China are among a number of countries seeking to build and develop a 5G network, the next generation of mobile internet expected to employ blazing fast network speeds. Said technology is described as the next chapter in how electronic infrastructure is built and operated, with the potential to be a game changer for billions of advanced technologies for consumers, smart cities, and driver less cars. A leaked US National Security Council document argued that China would win politically, economically, and militarily if the United States falls behind on network development. It would allow for faster military communications, more efficient economic systems, and greater information capacity and transfer. The goal for China is to write the rules on Chinese letterhead and potentially benefit financially from licensing out their technology all over the world. Some American sources warn that this much technological influence would potentially give Beijing a backdoor to Western networks. The China 5G deployment is expected to begin in early 2019 with enough 5G bases expected to cover Germany by December 2019. Some experts argue that the race to 5G could be the source from which the recent Sino-American trade dispute stems. As part of that dispute, China telecom giants ZTE and Huawei have faced major obstacles in the American market. So, is China leaving the United States in its dust? Not according to the numbers. Chinese patents accounted for just 10% of the global intellectual property for 5G in 2017. In comparison, American telecommunication manufacturer Qualcomm alone owns 15% of current 5G patents.  

FAO Global Analysis 

With 5G appearing to be the inevitable future for tech, a flurry of technological advancements are more than likely on the horizon. Companies that manufacture electronics or provide services reliant on mobile networks will see a mix of big winners and big losers as the private sector competes to lead the industry once 5G becomes available. Investors who are contemplating putting their money into 5G must conduct thorough research of a said firm’s quality and quantity of patents held.  China may be the first to bring 5G to market, but it may not be able to expand abroad as rapidly as it’s competitors. Especially when you consider the amount of western firm’s patents.

Related Links

1. Wired – Does t matter if China beats the US to build a 5G network? 
2. ZD Net – MWC 2018: Huawei unveils first 5G customer premises equipment 
3. The Conversation – Explainer: why Chinese telecoms participating in Australia’s 5G network could be a problem 
4. CNBC – A major factor behind the US-China trade war is winning at a $12 trillion technology – 5G 
5. Politico – Telcogeopolitics: West vs. China in 5G race 

 

China removed missile systems from disputed South China Sea

SUMMARY

As of June 6th, images taken in the first week of June show that China has removed or relocated the surface-to-air missile systems from Woody Island, a disputed territory in the South China Sea. Beijing-based naval expert, Li Jie, said that the removal was temporary and for the purpose of maintenance. China accused the United States is militarizing South China Sea by sending attacking weapon to the region. Territorial tensions between China and the Philippines and Vietnam have been less heated even though Beijing has been continuing to build military and industrial outposts in man-made islands in the South China Sea.  Militarizing the disputed territories further added to the political backlash from regional neighbors and the U.S.

FAO GLOBAL ASSESSMENT

Roughly $5 trillion USD in goods rely on safe passage through the South China Sea for shipping China and other Asian countries, it will be important to carefully watch how territorial disputes evolve. If Beijing decides to make major moves to take control of the area or affect shipping routes, the US Trump administration will likely respond swiftly and place naval assets in the area, more so than in previous months. However, Beijing’s approach seems to be slow and measured, only picking fights with less capable neighbors and keeping this disputes cold, ensuring that the tensions don’t escalate into a conflict where the US may become directly engaged.

Related Links

1. South China Morning Post: China ‘removes missile systems’ from disputed South China Sea island – but sends warning to US 
2. CNN: Beijing may have removed missiles from disputed South China Sea island 
3. Council on Foreign Relations – Territorial Disputes in the South China Sea  

 

Misconceptions in South China Sea Can Raise US-China Tensions

SUMMARY

At the recent Shangri-La Dialogue in the first week of June, United States Secretary of Defense, James Mattis, accused the Chinese occupation in the South China Sea to be a militarization tactic aimed at intimidating and imposing its power in the region. Further, the Pentagon rescinded its invitation to China for the 2018 Rim of the Pacific exercise (RIMPAC), an international military exercise administered by the US in order to seek interoperability of the Pacific rim countries. Chinese officials claim their presence in the South China Sea is misconceived and misinterpreted by US military. This follows new US policy from December 2017 in which US National Security Strategy deemed China a competitor and a revisionist of international order.  

FAO GLOBAL ASSESSMENT  

As instability threatens the Sino-American relationship now both militarily and economically, the waters are especially rough for American businesses looking to operate in China. If security issues continue to arise between the two countries, it could potentially worsen the trade disagreement currently underway. American firms currently involved in the Chinese market should pay close attention to not only new tariff announcements, but also any military developments. However, it is unlikely that there will be military conflict between the US and China in the foreseeable future. With tensions on the Korea peninsula simmering down, US firms should focus their efforts on the looming trade was, but stay cognizant of the potential impacts from military disputes in the region, however unlikely.

Related Links

1. South China Morning Post – South China Sea tensions: does the US have an endgame, beyond war?  
2. VOA News – Rising China-US Tensions Affect Southeast Asia  
3. New York Times – U.S. Disinvites China From Military Exercise Amid Rising Tensions  

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Primary Contributors

These briefs were put together through open-source analysis, insight from interviews, conference attendance in the US and China, and on-ground experience in the US Government, International Think-Tanks, and Conducting business in China. 

Senior Analyst – Brandon Hughes

Brandon Hughes is the founder of FAO Global, a former Senior Regional Analyst-Asia for Planet Risk. He has previously worked with the U.S. Army, the Carnegie-Tsinghua Center for Global Policy, and Asia Society. He is a combat veteran and has conducted research on a wide variety of regional conflicts and foreign affairs in countries as diverse as China, Myanmar, Afghanistan, and Kosovo. Brandon holds a L.L.M in International Relations from Tsinghua University, Beijing and a Bachelors in International Business and has studied at Johns Hopkins University, Beijing Language & Culture University, and Rangsit University, Thailand. He has extensive overseas experience focused on international business, international security and U.S.-China relations.

Asia Policy Analyst – Adriana Ray

Adriana Ray is an Asia Policy Analyst at FAO Global where she researches and writes on Economic, Security, and Political issues in the region. Adriana is currently a graduate student at Georgetown University’s School of Foreign Service where she is pursuing a Masters in International Security. She is also an alum of Tsinghua University and Furman University.

International Business Associate- Dillon Billingham

Dillon Billingham is currently studying at University of South Carolina’s Darla Moore School of Business, majoring in international business and finance while minoring in Chinese studies with a data analytics concentration. His focus is on the promotion of US-China business through mutually beneficial relationships.

International Policy Associate- Ziqing Zhang

Ziqing “Sunny” Zhang is an international policy intern and a Masters student in the Elliott School of International Affairs at George Washington where she is majoring in Asian Studies with a concentration in international development and focusing on East Asia and development in Southeast Asia. A native Chinese speaker, Ziqing is fluent in both Mandarin and Cantonese as well as English. She has previously interned at the U.S.-China Education Trust, the Japan-American Society of Washington, DC, and is an alum of American University in Washington, DC.

International Policy Associate- Weiting Li

Weiting Li is an international policy intern at FAO Global, where she focuses on international trade, technology, and environmental policies. Weiting is currently a second year graduate student pursuing dual master’s degrees in public policy at Georgetown University and Business Administration at University of Geneva. Prior to Georgetown, she was the assistant for government relations and working groups at European Chamber of Commerce in China. She graduated from Gettysburg College with a major in Sociology and a minor in Business. 

 

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ABOUT FAO Global

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