Eye on China

A Stealthy Grain of Rice

A weekly bulletin offering news and analysis related to the Middle Kingdom. This week, criticisms from the US, a big hack and relations with South Asian countries dominated the headlines.

  1. Veep’s Attack

US Vice President Mike Pence stepped to the podium at the Hudson Institute on Thursday to discuss the Trump administration’s China policy. Pence began by arguing that “Beijing is employing a whole-of-government approach, using political, economic, and military tools, as well as propaganda, to advance its influence and benefit its interests in the United States. China is also applying this power in more proactive ways than ever before, to exert influence and interfere in the domestic policy and politics of our country.”

He then went on to criticise China on a range of issues – trade, industrial policy, IPR, forced technology transfers, the South China Sea, Taiwan, human rights violations in Xinjiang and Tibet, its social credit system, debt-trap diplomacy and so on. Pence’s nearly 40-minute speech was revealing in terms of how far attitudes in the US have shifted on China, given that this was largely about addressing an American audience with the November midterm elections in mind. For instance, sample this:

The Chinese Communist Party is rewarding or coercing American businesses, movie studios, universities, think tanks, scholars, journalists, and local, state, and federal officials. Worst of all, China has initiated an unprecedented effort to influence American public opinion, the 2018 elections, and the environment leading into the 2020 presidential elections… To put it bluntly, President Trump’s leadership is working; and China wants a different American President.

The Chinese foreign ministry on Friday termed Pence’s speech “ridiculous” “slandering” that was based on “hearsay evidence.”

Meanwhile, here are some other key stories this week that showcase a gradual but broadbased rupture that is underway in Sino-US ties:

Staying with the South China Sea issue, CNN reports that,

A draft proposal from the US Navy is recommending the US Pacific Fleet conduct a series of operations during a single week in November, with the goal being “to carry out a highly focused and concentrated set of exercises involving US warships, combat aircraft and troops to demonstrate that the US can counter potential adversaries quickly on several fronts. The plan suggests sailing ships and flying aircraft near China’s territorial waters in the South China Sea and Taiwan Strait in freedom of navigation operations to demonstrate the right of free passage in international waters. The proposal means US ships and aircraft would operate close to Chinese forces.

  1. Decoding China’s AI Quest

For the past few months, I’ve been working on a comprehensive assessment of China’s strategy towards achieving leadership in the domain of artificial intelligence. This week, the research report was released during Takshashila’s first Technology Horizons Group meeting. Below is a short summary of the report. You can access the full paper here.

In 2017, the Chinese government unveiled a plan to develop the country into the world’s primary innovation centre for artificial intelligence (AI) by 2030. In doing so, it identified AI as a strategic industry, crucial for enhancing economic development, national security and governance.

This report evaluates the strategy that has been adopted by the Chinese government in order to achieve these objectives. It examines the peculiarities of the Party-state-led economic model along with the evolving geopolitical and economic faultlines regarding trade and technology. In addition, it assesses China’s policies with regard to factors such as core technologies, research, manpower, data and the commercial environment, which are crucial to ensure the development of the AI industry.

The assessment finds that the Chinese government’s command innovation approach towards AI development is crafting a political economy that tolerates sub-optimal and even wasteful outcomes in the quest for expanding the scale of the industry. Consequently, going forward, the industry is likely to be plagued by concerns of overinvestment, overcapacity, quality of products and global competitiveness. In addition, increasing friction over trade with other states and President Xi Jinping’s turn towards techno-nationalism along with tightening political control could further undermine China’s AI industry.

  1. Riddle Me Xi

People across China are on a break for the Golden Week holiday, which began on 1 October, i.e. China’s National Day. Ahead of the ceremonies on Monday, Xi inspected the 79th Group Army of the PLA in Shenyang. Xinhua reports that “Wearing a special helmet, Xi boarded a Z-10 helicopter, the third-generation of China’s home-developed attack helicopters, and manipulated the airborne weapon and aiming system.” This is part of the ongoing attempt to cultivate Xi’s personality as a military man who is hands on, unlike his predecessors Jiang Zemin and Hu Jintao. During the visit, Xi also delivered a speech in which he warned “against any thought and behavior that strayed away from real combat” in order to “stay focused on the tasks, opponents and environment of combat.”

Meanwhile, for the ordinary Chinese public, the treat on television during the holidays this year appears to be Xi Jinping Thought. SCMP’s Nectar Gan reports that Hunan TV, China’s second most watched channel, has been running a five-episode show this week titled: Studying Xi in the New Era. As part of the show, she reports, “contestants were required to answer questions ranging from basic facts about Marxism and party theories to things Xi has done and said.” The BBC’s report on the show has a few more details. For instance,

The game show also plays excerpts of Xi Jinping’s speeches or interviews, which are regarded as ‘golden quotes’, and the participants need to finish Xi’s sentences or answer related questions.” The report also captures the essence of this effort, calling it “a gamified extension of the slogan-chanting and praise of leaders on television – and a clear demonstration of how Mr Xi’s personality cult works.

While we’re on the subject of Xi’s personality cult, do check out this NYT piece by Javier Hernández on Xi’s recent visit to northeast China and images of Xi in farms. Talking about the pictures, China Media Project’s David Bandurski is quoted as saying: “This is a visual sign not just of Xi’s current predominance, but of his claim to historic greatness.”

Finally, China Daily reports that a new government-sanctioned policy book hails Xi’s anti-corruption campaign for having achieved “overwhelming victory.” The “Blue Book of Combating Corruption and Upholding Integrity” has been compiled by the China Anti-Corruption Research Centre of the Chinese Academy of Social Sciences. The report quotes Jiang Laiyong, the book’s executive editor, as saying that “The overall trend of the anti-corruption campaign is getting better and better. Our survey showed that 80 percent of urban and rural residents believed corruption has been reduced over the past year.”

  1. Luo’s Interview

China’s Ambassador to India Luo Zhaohui gave a lengthy interview to The Tribune this week, discussing a whole range of issues. Luo spoke about a range of issues, from the Wuhan summit, bilateral trade, cooperation with India as part of the Sino-US trade war, the India-China Plus model and the situation in Xinjiang. Here are some of Luo’s quotes that I found interesting:

We also discussed “China-India Plus” cooperation on the Rohingya issue in Myanmar and the Iranian nuclear issue. This new model of cooperation can also be extended to South Asian countries, including Nepal.

  • As the world’s largest oil buyers, China and India can also promote the establishment of some kind of “buyers club” to safeguard common interests.
  • China is pleased to see the development of India-Bhutan relations and would like to establish diplomatic relations with Bhutan on the basis of the Five Principles of Peaceful Coexistence and resolve boundary question at an earlier date. China hopes that India could play a positive role in this regard.

Luo also spoke about China’s commitment to counter terrorism. However, a measure of how this still remains a tricky subject was evident last week when China reiterated its reluctance to support the UN listing of JeM chief Masood Azhar as a global terrorist. On a somewhat related note, state media reports that China is looking to set up a special anti-terror force. Speaking to Xinhua, Zhang Xiaoqi, intelligence chief at China’s paramilitary People’s Armed Police, said that the “mission scope of the special forces stretches from land to sea, from home to abroad.”

Another issue of concern for India is the disparity in border infrastructure between the two sides. The Hindustan Times reports that “China’s construction of underground bomb-proof shelters to house fighters at Lhasa’s Gonggar airport in the Tibet Autonomous Region (TAR) has New Delhi concerned.” The report quotes unidentified Indian security officials. One of them says: “You need blast- or bomb-proof hangers for fighters only if there is a possibility of hostilities.” Another adds that the creation of such underground bomb-proof facilities along the Indian border in Tibet is a “new development.” PTI, meanwhile, spoke to pilgrims returning from the Kailash Mansarovar yatra — many of whom lamented the disappointingly slow road infrastructure building effort along the Indian side in comparison to the efforts underway on the Chinese side.

  1. CPEC Revisions

Key Pakistani ministers held a press conference this week clarifying that while Saudi Arabian investment was welcome, the country would not be brought on board CPEC’s Joint Coordination Committee and the Joint Working Groups. The Express Tribune reports that this “statement affirms the reports that China is not forthcoming in opening the bilateral arrangement to third countries.” Minister for Planning and Development Khusro Bakhtiar, however, added that there could be many offshoots of the CPEC where third countries could be inv­olved in trilateral arr­ange­ment for infrastructure development, like China-Pakistan-Japan, China-Pakistan-Saudi Arabia or China-Pakistan-Germany. Perhaps Iran could be a player here too, given that its ambassador to Pakistan Mehdi Honardoost reportedly believes that CPEC “offers a platform to the regional countries to get united.”

Another issue discussed during the press conference was the change in the cost of the ML-1 railway line from Peshawar to Karachi from $8.2 billion to $6.2 billion. Reuters reports that one option for ML-1, according to Pakistani officials, is the build-operate-transfer (BOT) model, which would see investors or companies finance and build the project and recoup their investment from cash flows generated mainly by the rail freight business, before returning it to Pakistan in a few decades time.” The report adds that Chinese ambassador Yao Jing has indicated that Beijing was open to BOT and would “encourage” its companies to invest.

All of this is, of course, part of the renegotiation that’s underway owing to political change in Pakistan and the deteriorating balance of payments situation. The Express Tribune this week carried a story quoting Naveed Kamal Citi Head of Public Sector, Middle East, Pakistan & Levant, Head of Banking, UAE and Oman, as saying that Pakistan will have to head to the IMF along with seeking support from friendly countries. “No one party appears to be willing to provide the entire amount ($18-20 billion) required to run the country in the current fiscal year 2019,” he says.

  1. The Big Hack

This is the kind of stories that movies are based on. Bloomberg this week published an incredible report of what seems to be a systematic Chinese hacking operation. According to the report, US authorities began probing this in 2015 after Amazon reported finding “a tiny microchip, not much bigger than a grain of rice” inserted in motherboards of its servers. It says that investigators have found that “the chips allowed the attackers to create a stealth doorway into any network that included the altered machines.”

The report adds that investigators determined that the “chips had been inserted during the manufacturing process…by operatives from a unit of the People’s Liberation Army.” The attack has reportedly affected almost 30 companies, including a major bank, and government contractors. Amazon, Apple and Supermicro, three key companies mentioned in the report, have issued statements denying knowledge of any of the above.

The report acknowledges this and adds that, “the companies’ denials are countered by six current and former senior national security officials, who—in conversations that began during the Obama administration and continued under the Trump administration—detailed the discovery of the chips and the government’s investigation.”

Meanwhile,Reuters reports that the US Department of Homeland has issued a technical alert for cloudhopper, a hacking group believed to have ties with the Chinese government. The report adds that this comes after, “experts with two prominent U.S. cybersecurity companies warned earlier this week that Chinese hacking activity has surged amid the escalating trade war between Washington and Beijing.”

  1. Maldives & Sri Lanka

After conceding defeat last week, Maldives’ outgoing President Abdulla Yameen questioned the election result this week. One wonders if stirring passions is a policy to chart a safe exit route, given that already corruption allegations against him are surfacing. In addition, his prime benefactor appears to have moved on. Xi Jinping on Sunday sent a congratulatory message to Ibrahim Mohamed Solih on his election as the president of Maldives. Xinhua reports Xi as saying that he “is willing to join hands with Solih to lift the comprehensive friendly cooperative partnership between China and Maldives to a new level.” This Global Times piece assesses that while the Maldives opposition coalition is “pro-India’, “Solih himself is moderate.”

Moving to another Indian Ocean state, speaking to CGTN, Karunasena Kodituwakku, the ambassador of Sri Lanka to China, dismissed the talk about a debt trap. Interestingly, he said that the suggestion of handing over the Hambantota port for a 99-year lease was made by the Sri Lankan government. “The Chinese government (has) never asked to hand over the Port to the Chinese government or to the Chinese venture. It was a proposal that came from Sri Lanka, asking partnership from China,” he is quoted as saying. He also dismissed reports that China was militarising the port, saying: “The security of Port Hambantota, the security of territorial coverage of Sri Lanka in the Indian Ocean, is an entire matter for Sri Lankan security forces. China never asks us. We never offered it.” Meanwhile, the PLA Navy’s ship Hai Yangdao docked in Colombo port this week. The ship, which is there for a “goodwill visit,”will set sail on 7 October. Also visiting Colombo this week was Japan’s Kaga helicopter carrier, which is the country’s largest warship.

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About the author

Manoj Kewalramani

Manoj Kewalramani is a multimedia journalist based in New Delhi. Over the past 11 years, he has worked with prominent news networks in India and China. His news and editorial work includes field reporting, commissioning and managing assignments and producing shows and documentaries along with formulating and executing digital news strategies. Manoj is an alumnus of Takshashila’s Graduate Certificate in Public Policy. At Takshashila, he curates a weekly brief, Eye on China, which tracks developments in China from an Indian perspective.