Posts Tagged ‘intellectual-property theft’

US senators refuse to back down on ZTE ban

July 13, 2018

Lawmakers seek a defence-bill amendment to punish the Chinese telecoms firm after Commerce Department says a less-harsh deal is almost in place

South China Morning Post

PUBLISHED : Friday, 13 July, 2018, 5:15am
UPDATED : Friday, 13 July, 2018, 8:25am

A bipartisan group of six US senators urged their colleagues now drawing up a final defence appropriations bill to retain a ban on selling components to Chinese telecoms giant ZTE Corp, a day after the US Commerce Department said a deal was close with the company to lift the ban.

Republicans Marco Rubio, Tom Cotton and Roy Blunt, together with Democrats Chris Van Hollen, Mark Warner and Bill Nelson sent a letter to the Senate and House Armed Services Committees on Thursday to urge the chairmen, Senator John McCain and Representative Mac Thornberry, to include the amendment in the defence bill.

“We strongly oppose the June 2018 deal with ZTE negotiated by the Commerce Department’s Bureau of Industry and Security (BIS) to lift the seven-year ban against the export of US parts and components to ZTE,” the senators wrote.

They expressed concerns that ZTE – along with Huawei, another telecoms giant – “are beholden to the Chinese government and Communist Party, which provides the capacity for espionage and intellectual property theft, and therefore poses clear threats to the national security, people, and economy of the United States”.

The resistance adds yet another wrinkle to a deal that Commerce struck last month to save ZTE, after US President Donald Trump directed the department to come up with an alternative to the seven-year ban, framing it as a favour to his Chinese counterpart Xi Jinping and part of a larger strategy to win trade concessions.

On Wednesday, Commerce said in a statement that it had signed an agreement for ZTE to deposit US$400 million into an escrow account, the last step before the ban can be lifted. Additionally, ZTE paid a US$1 billion fine to the US Treasury last month.

The settlement also required ZTE to replace its senior management team and put in place a compliance team appointed by the US.

ZTE shares jumped 25 per cent on the Hong Kong stock exchange on Thursday.

The company has been in a months-long effort to resume operations after the US banned it in mid-April from buying American parts, penalising ZTE for violating US sanctions by selling products to Iran and North Korea. The company shut down most its operations weeks after the ban was imposed.

After Trump instructed Commerce to devise a less-harsh penalty, the action met with bipartisan resistance in Congress, with lawmakers urging Trump to reinstate the ban because of the national security threat they said ZTE poses.

The US House and Senate have each passed amendments to their defence bills that would roll back Trump’s settlement.

An amendment restoring the ban was passed by the Senate. A few weeks later, the House of Representatives passed its own version that would allow ZTE to continue using US suppliers, but would bar ZTE from selling its products and services to US government agencies.

The Senate and the House are in the process of reconciling the differences between the two versions. The lawmakers intend to have the final version ready by the end of the month before the House goes into recess.


Tackling China’s Protectionism

March 21, 2018

A better way than tariffs to challenge Beijing’s mercantilism.

Shipping containers sit stacked in Container Terminal 9 at Kwai Tsing Container Terminals in Hong Kong, Jan. 30.
Shipping containers sit stacked in Container Terminal 9 at Kwai Tsing Container Terminals in Hong Kong, Jan. 30. PHOTO: ANTHONY KWAN/BLOOMBERG NEWS

The Trump Administration is expected to announce more tariffs as early as this week in an attempt to reduce China’s trade surplus with the U.S. While these taxes are a mistake, as is Mr. Trump’s obsession with trade deficits, there’s no denying that Beijing’s mercantilism has fueled the political backlash against free trade.

China’s increasingly predatory behavior, especially intellectual-property theft, poses a particular problem to a sustainable trading system. The question is how to respond in a way that encourages better Chinese behavior without harming the global economy and American companies and workers. It isn’t clear that the Trump Administration has given this much careful thought, and the danger is a tariff tit-for-tat that harms everyone.

U.S officials say tariffs will provide leverage to get China to agree to change its behavior. But past experience suggests that Beijing is more likely to respond in kind at such a broad public assault on its goods. China’s accession to the World Trade Organization (WTO) in 2001 initially led to lower tariffs, but its recent record of noncompliance is miserable. Nontariff barriers and subsidies have proliferated.

The experience of foreign companies doing business in China shows there is a better approach than broad and scattershot tariffs. Instead of relying on contracts, they constantly monitor the behavior of their Chinese joint-venture partners and suppliers. When problems arise, they take immediate, proportionate action to restore mutual respect and trust.

How would this model apply to trade? First consider how Beijing has turned to mercantilism over the last decade. In 2011 the Chinese government picked seven “strategic emerging industries” to support with public investment. The plan called for the industries to grow to 15% of GDP by 2020, up from 5% in 2010. The government gives subsidies in several forms, including loans from state-owned banks on easy terms and low interest rates.

Four years later the initiative grew into the “Made in China 2025” plan, which seeks to make China the global leader in 10 industries, including electric vehicles and biotechnology. Along with subsidies and government help in acquiring foreign companies, the policy explicitly requires foreign companies to transfer intellectual property in return for access to the Chinese market. The goal is to reduce the foreign-supplied value in Chinese manufactured goods below 30%.

Beijing has also stepped up its use of regulations to discriminate against foreign companies. For example, officials use the 2008 Antimonopoly Law to pressure firms to transfer intellectual property that gives them a dominant market position in China.

All of these policies violate WTO agreements, but China’s trading partners have struggled to bring cases at the WTO. Chinese officials threaten to retaliate against foreign companies if they participate in complaints. The organization’s rules on how to enforce its agreements are outdated and lawsuits proceed slowly.

Bringing cases can still have value, but another mechanism is needed to deter Beijing’s protectionism without destroying the WTO. That mechanism would quickly identify Chinese policies that break trade agreements, coordinate with the governments of other affected economies and come up with responses that would be withdrawn once Beijing backs down.

The remedies should be based on the principle of reciprocity. If Beijing pressures multinational car companies to build electric cars in China, the U.S., EU and Japan could impose a tariff on Chinese-made vehicles and restrict the transfer of related technology.

This would avoid the Trump Administration’s approach of tariffs on a wide variety of goods, a policy that alienates allies and raises the risk of a wider trade war. A targeted approach would limit damage to the U.S. economy, since affected industries would remain open to competition from other countries. It could even strengthen the WTO as China would have an interest in modernizing and using the organization’s courts to resolve the disputes.


We believe in the free-trade principle that if China wants to subsidize cheap goods for U.S. consumers, then Americans benefit at the expense of Chinese taxpayers. The damage from cheaper Chinese goods since Beijing entered the WTO is overstated and in any case is mostly complete. Tariffs on Chinese goods won’t rebuild U.S. industry and are likely to shift foreign production to other countries that will still export to the U.S.

The China problem now is the predatory use of government power to punish foreign competitors to benefit Chinese companies. These columns have warned China for years that this behavior has eroded goodwill in the U.S. and Europe, and it now threatens political support for free trade. This justifies some U.S. government response.

The Trump Administration is right to take a tougher line, but it also needs a smarter approach than its new steel and aluminum tariffs. The Chinese think strategically for the long term, and so should the U.S.

Image may contain: 4 people, people smiling, people standing and suit
Donald Trump greets Jack Ma at Trump Towers in New York in January, 2017
Financial Times (FT)
January 3, 2018

A decade ago, most global companies’ strategic presentations gave pride of place to plans for China. This position is now taken by other areas — big data or artificial intelligence, perhaps. What has changed? China is now bigger, richer and more influential on the world stage. The vicissitudes of management fashion may have something to do with it. But the most powerful driver is probably years of hard experience. As China’s economy has matured, protectionism has remained one of its key organising principles.

Global companies maintain their presence in China, depend on its manufacturing capacity, and hire its graduates. In some areas — luxury goods, cars, iPhones — they sell a lot of products there. But the “China First” approach pursued by Beijing has served to shift many industries’ priorities.

This is the crucial context for news that opposition from the Committee on Foreign Investment in the United States has sunk the $1.2bn acquisition of US cash transfer company MoneyGram by China’s Ant Financial.

It is plain that if the positions were switched, with an American bidder and a Chinese target, China would block the deal. Other than, perhaps, information technology — where the “great firewall of China” constitutes the world’s biggest non-tariff trade barrier — few Chinese industries are more protected than finance. The country’s banks are state-owned. Foreign banks are allowed to operate in the country, but various official barriers mean they have never made much headway there, despite big investments and official pledges of increased openness. It took a 2012 ruling against China by the World Trade Organization for its market to be opened — nominally — to global payment processors such as Visa and MasterCard. Since the ruling, Chinese regulators have dragged their feet in allowing outsiders to set up shop.

Whether the MoneyGram deal would have presented a true security risk to the US (the only basis on which Cfius is allowed to rule) is debatable. But the politics are clear. Other than the particular companies that have received premium bids from Chinese suitors, there is no constituency willing to stand up for Chinese investment in the US. Business groups such as the Chamber of Commerce, rather than lamenting federal heavy-handedness, have expressed their own worries about China’s trade policies.

The anti-China mood in Washington is not restricted to the avowedly and indiscriminately protectionist administration of Donald Trump (the president appoints the officials who staff Cfius). It is bipartisan, and was already taking hold under former president Barack Obama, who blocked the Chinese takeover of the semiconductor equipment maker Aixtron.

The busted deal follows other measures to restrict Chinese access to world markets in the US, Europe and other countries. But this one must sting. Mobile payments, Ant’s core business, is the cutting edge of Chinese consumer technology. Jack Ma, who chairs Alibaba, Ant’s parent company, is Chinese tech’s global face, and he made a special effort to court President Trump with the promise of US jobs.

The US and the world may only be responding in kind to Chinese protectionism. It would nonetheless be a tragedy if the story ended there. Yes, it is understandable that the world demands reciprocity. But trade officials must keep their eyes firmly on the goal of a more open China — not domestic markets protected from Chinese competition. China can become a true global economic leader only if it changes its ways. Should change come, the world must be ready to welcome it.


Trump Eyes China Sanctions While Seeking Its Help on North Korea

August 13, 2017

BEIJING — In a diplomatic gamble, President Trump is seeking to enlist China as a peacemaker in the bristling nuclear-edged dispute with North Korea at the very moment he plans to ratchet up conflict with Beijing over trade issues that have animated his political rise.

Mr. Trump spoke late Friday with his counterpart, President Xi Jinping of China, to press the Chinese to do more to rein in North Korea as it races toward development of long-range nuclear weapons that could reach the United States. Mr. Xi sought to lower the temperature after Mr. Trump’s vow to rain down “fire and fury” on North Korea, urging restraint and a political solution.

But the conversation came as Mr. Trump’s administration was preparing new trade action against China that could inflame the relationship. Mr. Trump plans to return to Washington on Monday to sign a memo determining whether China should be investigated for intellectual property violations, accusing Beijing of failing to curb the theft of trade secrets and rampant online and physical piracy and counterfeiting. An investigation would be intended to lead to retaliatory measures.

The White House had planned to take action on intellectual property earlier but held off as it successfully lobbied China to vote at the United Nations Security Council for additional sanctions on North Korea a week ago. Even now, the extra step of determining whether to start the investigation is less than trade hawks might have wanted, but softens the blow to China and gives Mr. Trump a cudgel to hold over it if he does not get the cooperation he wants.

While past presidents have tried at least ostensibly to keep security and economic issues on separate tracks in their dealings with China, Mr. Trump has explicitly linked the two, suggesting he would back off from a trade war against Beijing if it does more to pressure North Korea. “If China helps us, I feel a lot differently toward trade, a lot differently toward trade,” he told reporters on Thursday.

Mr. Trump has sought to leverage trade and North Korea with China for months, initially expressing optimism after hosting Mr. Xi at his Mar-a-Lago estate in Florida, only to later grow discouraged that Beijing was not following through. The effort has now reached a decisive point with the overt threats of American military action against North Korea — warnings clearly meant for Beijing’s ears.

China is widely seen as critical to any resolution to the nuclear crisis because of its outsize role as North Korea’s main economic benefactor. China accounts for as much as 90 percent of North Korea’s total trade and supplies most of its food and energy while serving as the primary purchaser of its minerals, seafood and garments.

But even though the effectiveness of the new United Nations sanctions depends largely on China’s willingness to enforce them, the Trump administration so far has failed to come up with enough incentives to compel China to do so, analysts said.

In their phone conversation on Friday night, Mr. Xi stressed that it was “very important” for the two leaders to maintain contact to find “an appropriate solution to the nuclear issue on the Korean Peninsula,” according to a statement carried in the Chinese state-run media. The language indicated China wants to push forward with a diplomatic proposal for North Korea that the Trump administration has brushed aside.

The Chinese statement urged the “relevant sides” — a reference to North Korea and the United States — to “avoid words and actions that exacerbate tensions.” It did not explicitly criticize North Korea, which issued its own searing rhetoric all week, including a threat against Guam, and did not draw a clear distinction between Washington and Pyongyang.

In its own account of the call, the White House emphasized points of concurrence. “President Trump and President Xi agreed North Korea must stop its provocative and escalatory behavior,” read a statement from the White House issued early Saturday morning. “The presidents also reiterated their mutual commitment to denuclearization of the Korean Peninsula.”

If Mr. Trump was trying to move Mr. Xi toward bolder action against the North, he did so while the Chinese leader is preoccupied with his own domestic political machinations, attending to a once-every-five-year political shake-up in the top ranks of the Communist Party.

Mr. Xi is believed to be at the beach resort at Beidaihe on the coast east of Beijing, where the leadership conducts a secretive retreat every summer, sometimes emerging casually dressed in open neck shirts and Windbreakers for photographs on the strip of sand along the beachfront.

The final stages of the political process to win Mr. Xi’s favor for a place on the standing committee of the party, now a seven-member body that makes the final decisions on the nation’s affairs, is underway among the resort’s villas and hotels, China’s political analysts said.

The selection will be unveiled at a national congress in Beijing sometime between September and November. Until then, almost all other matters, including foreign policy, are put on hold, the analysts said.

Still, the leadership has been vexed that the Trump administration has paid scant attention to China’s proposal for a “freeze for freeze” solution to North Korea. Described many times by China’s foreign minister, Wang Yi, the notion calls for North Korea to freeze its nuclear weapons and ballistic missile program at current levels in exchange for the United States drawing down military exercises off the Korean Peninsula.

So far, the United States has dismissed the proposal as a nonstarter. Instead, to China’s irritation, the United States is looking to increase missile defenses in South Korea. In some respects, though, Secretary of State Rex W. Tillerson has tried to please Beijing by pledging that Washington does not seek to overthrow the North Korean leader, and does not plan to send American troops north of the 38th parallel that divides North and South Korea.

Mr. Xi is said to be exasperated with Kim Jong-un, a leader much his junior, whom he openly disparaged during his meetings in Florida in April with Mr. Trump, American officials say. But despite the frustration with Mr. Kim, China still prefers to have what it considers a relatively stable North Korea under Mr. Kim rather than a collapsed state that could result in a united Korean Peninsula on its border, with American troops in control.

In rebuffing the “freeze for freeze” proposal, Washington has raised suspicions in Beijing about its true intentions, said Yun Sun, a China expert at the Stimson Center in Washington. Chinese leaders believe the United States sees its true rival as China, a mammoth economy, and not North Korea, one of the poorest countries on earth, Ms. Sun said. In this estimation, Washington is merely using North Korea to mount a military containment strategy around China, she said.

“The Chinese operate from the conviction that China remains and will always be the No. 1 strategic threat to the U.S., so the issue of North Korea will be used against China — through sanctions, provocations and everything else,” she said. China was also annoyed, Ms. Sun said, that the United States refuses to discuss a “grand bargain” or “end game” on the future of the Korean Peninsula. Of most interest to China, she said, is the future disposition of American forces in South Korea, now standing at 28,500 troops.

The phone conversation between Mr. Trump and Mr. Xi will be followed by a visit from the chairman of the Joint Chiefs of Staff, Gen. Joseph F. Dunford Jr., who is expected in Beijing on Monday. General Dunford will also visit South Korea and Japan.

The general’s visit, planned earlier this summer, is the first by a senior American official to Beijing since Mr. Tillerson met with Mr. Xi in March.

Much of the diplomacy between China and the United States has been conducted between Mr. Trump’s son-in-law, Jared Kushner, and the Chinese ambassador in Washington, Cui Tiankai. Those talks have concentrated on Mr. Cui’s efforts to stave off punishing trade tariffs against China that are gathering momentum in White House discussions.

During his two-day visit, General Dunford is likely to use the opportunity to drive home arguments for the Chinese to put more pressure on the Kim government, said Brian McKeon, who was a senior Pentagon official in the Obama administration.

A major point of dispute will likely be American plans to deploy more missile defenses in South Korea, he said. China vehemently opposes the Terminal High Altitude Area Defense system, or Thaad, that has already been deployed in South Korea, calling it a threat to its own security.

“I would expect that Dunford will make the usual request that they put more pressure on the regime to behave, and to recognize that Kim’s actions threatens our core interests, which means we will have to continue to take measures that Beijing doesn’t like, for example the deployment of Thaad,” Mr. McKeon said.

Trump Administration to Begin Probe of Alleged Chinese Technology Theft

August 13, 2017

Investigation of China’s government agencies is unrelated to North Korea nuclear crisis, officials say


Updated Aug. 12, 2017 2:33 p.m. ET

WASHINGTON—The Trump administration announced plans Saturday to pressure China over alleged intellectual property theft, adding the threat of trade retaliation to an ongoing campaign seeking greater cooperation from Beijing in the North Korean nuclear crisis.

Aides said President Donald Trump will sign a directive Monday ordering his trade representative to start a formal probe into whether Chinese government agencies and companies were unfairly acquiring valuable patents and licenses from U.S. firms, either through outright theft, or by pressuring Americans to turn over their inventions as the price of entry into China’s market.

“Such theft not only damages American companies, but can threaten our national security,” a senior administration official said in a Saturday morning briefing for reporters.

Officials at the briefing stressed that while they were casting a spotlight on what they consider a major irritant in bilateral commercial relations, they weren’t rushing into action. They said Monday’s directive would launch a study into whether a formal trade investigation was warranted, and that probe would take a year or more. They declined to discuss what sorts of penalties the U.S. might impose against China, saying that question was “premature.”

The administration made the announcement a day after Mr. Trump held a phone call with Chinese President Xi Jinping to discuss escalating tensions over North Korea’s rapidly advancing nuclear weapons program. Mr. Trump has repeatedly said he would cut Beijing slack over trade issues if he felt the Chinese were being helpful in reining in Pyongyang.

The Wall Street Journal reported earlier in the month that a new trade investigation over China’s alleged forced technology transfers was in the works and had been planned for an early August announcement. But that was delayed until after an Aug. 5 U.N. Security Council vote imposing new financial penalties on North Korea, which China supported.

Asked if Mr. Trump discussed the pending trade investigation with Mr. Xi on Friday, an official pointed to the official White House summary of the call, which didn’t mention trade issues.

The White House aides said the new trade probe wasn’t tied to the administration’s North Korea strategy, despite the president’s earlier linkage of the subjects. “These are totally unrelated events,” one official said. “Trade is trade. National security is national security.”

Write to Jacob Schlesinger at

WASHINGTON — The Trump administration announced plans Saturday to pressure China over alleged intellectual property theft, adding the threat of trade retaliation to an ongoing campaign seeking greater cooperation from Beijing in the North Korean nuclear crisis.

Aides said President Donald Trump will sign a directive Monday ordering his trade representative to start a formal probe into whether Chinese government agencies and companies were unfairly acquiring valuable patents and licenses from U.S. firms, either through outright theft, or by pressuring Americans to turn over their inventions as the price of entry into China’s market.

“Such theft not only damages American companies, but can threaten our national security,” a senior administration official said in a Saturday morning briefing for reporters.

Officials at the briefing stressed that while they were casting a spotlight on what they consider a major irritant in bilateral commercial relations, they weren’t rushing into action. They said Monday’s directive would launch a study into whether a formal trade investigation was warranted, and that probe would take a year or more. They declined to discuss what sorts of penalties the U.S. might impose against China, saying that question was “premature.”

The administration made the announcement a day after Mr. Trump held a phone call with Chinese President Xi Jinping to discuss escalating tensions over North Korea’s rapidly advancing nuclear weapons program. Mr. Trump has repeatedly said he would cut Beijing slack over trade issues if he felt the Chinese were being helpful in reining in Pyongyang.

The Wall Street Journal reported earlier in the month that a new trade investigation over China’s alleged forced technology transfers was in the works and had been planned for an early August announcement. But that was delayed until after an Aug. 5 U.N. Security Council vote imposing new financial penalties on North Korea, which China supported.

Asked if Mr. Trump discussed the pending trade investigation with Mr. Xi on Friday, an official pointed to the official White House summary of the call, which didn’t mention trade issues.

The White House aides said the new trade probe wasn’t tied to the administration’s North Korea strategy, despite the president’s earlier linkage of the subjects. “These are totally unrelated events,” one official said. “Trade is trade. National security is national security.”

The new probe does signal a bit of a hardening shift in Trump administration’s China trade policy, as it is the first White House trade directive aimed directly at Beijing. During the 2016 presidential campaign, Mr. Trump regularly blasted the U.S.’s $347 billion trade deficit with China, and vowed to take swift, drastic retaliation if he were elected, from across-the-board tariffs to branding Beijing a “currency manipulator.”

But the early months of Mr. Trump’s presidency have seen a considerably softer tone toward China over trade. He quickly dropped the campaign-trail threats, and during a genial April summit with Mr. Xi at his Mar-a-Lago Florida resort, the two countries launched a new “comprehensive economic dialogue” aimed at resolving bilateral commercial disputes amicably. A month later, China announced some modest market-opening moves, like ending a 14-year ban on U.S. beef imports, and Commerce Secretary Wilbur Ross declared economic ties between the world’s two largest economies were “hitting a new high.”

But the first round of economic dialogue talks in mid-July were tense and ended up with no agreements. Officials said Saturday that impasse was one factor behind the decision to launch the new trade review.

In focusing on China’s voracious appetite for American intellectual property, the Trump administration responding to a longstanding complaint by Western trade groups, who say the country’s industrial policies effectively force foreign companies in sectors such as autos to transfer technology to stay in the market.

Beijing has been emboldened by the growing strength of its own companies to make more demands of foreign firms, industry executives say, and the government is careful to keep regulations vague. U.S. high-tech companies have struck a string of investments and technology-sharing agreements in software, semiconductors and other areas in the past couple of years, often under pressure from officials in closed-door meetings.

China’s government rejects assertions that it forces foreign companies to transfer technology or permits infringement of intellectual property. Premier Li Keqiang denied it was using industrial policies to strong-arm foreign companies into turning over technology, telling a World Economic Forum meeting in Dalian in June that “such cooperation is voluntary and helps companies expand in the Chinese market and even in third countries.”

While many U.S. companies and policy makers agree Chinese forced technology transfer is a problem, they also say it is difficult to figure out a solution.

One challenge is that many U.S. firms are reluctant to lodge formal complaints, making it difficult for trade officials to make their case.

“An important question going forward will be whether U.S. companies and trade associations who have highlighted the problem will actually come forward and assist our government in the investigation,” said Michael Wessel, a member of the congressional U.S.-China Economic and Security Review Commission. Or, he added, “whether they will hide the facts fearful that our government won’t follow through, that the Chinese will retaliate against their interests or that they’ll have to admit what’s happened to their critical assets.”

Another question is just what remedy the U.S. government might pursue if it felt it had a case. Options might include imposing new limits on technologies that U.S. firms could license to China, or imposing new limits on Chinese investment in the U.S. But those would likely draw complaints from U.S. firms, and may contradict other policy goals. Mr. Trump personally touted China’s Foxconn Technology Group’s announcement in July to build a new display panel factory in Wisconsin.

The new China probe also marks a noticeable change in the process for how the Trump administration is processing trade policies, and suggests that a newly more organized and measured way to proceed with those complaints may be emerging.

Earlier Trump trade threats were made seeking swift action, and were done without broad consultation from stakeholders, drew widespread concern from business groups and lawmakers. Among them, an April promise to impose new steel and aluminum tariffs by June — a plan that remains stalled amid resistance. Mr. Trump also in April threatened to pull out of the North American Free Trade Agreement, but backed down after intense lobbying from allies, business groups, lawmakers and his own aides. He instead agreed to renegotiate the pact with Canada and Mexico, a process that begins Wednesday.

In choosing the China trade probe, Mr. Trump is targeting an area that business groups and Republican and Democratic lawmakers have identified as a concern. His aides Saturday also stressed that in contrast with the rushed earlier attempts at handling trade matters, they were setting no deadline and that any investigation would closely follow intricate procedures, including discussions with Beijing.

Before making any decisions on an investigation, the trade representative “would consult with the appropriate advisory committees,” one official said, and “if the investigation is instituted, we would consult with China. We would give interested parties the opportunity to comment. There would likely be a hearing. And these investigations can take as much as a year before we reach a conclusion.”

Eva Dou in Beijing contributed to this article.

Write to Jacob Schlesinger at



U.S. Plans Trade Measures Against China

August 2, 2017

Trump administration aims to force Beijing to crack down on intellectual-property theft and ease market access

A cargo ship is loaded at a port in Qingdao, in eastern China's Shandong province. China had a $347 billion trade surplus with the U.S. last year.
A cargo ship is loaded at a port in Qingdao, in eastern China’s Shandong province. China had a $347 billion trade surplus with the U.S. last year. PHOTO: AGENCE FRANCE-PRESSE/GETTY IMAGES

WASHINGTON—The Trump administration is planning trade measures to force Beijing to crack down on intellectual-property theft and ease requirements that American companies share advanced technologies to gain entry to the Chinese market.

The administration is considering invoking a little-used provision of U.S. trade law to investigate whether China’s intellectual-property policies constitute “unfair trade practices,” according to people familiar with the matter.

That would pave the way for the U.S. to impose sanctions on Chinese exporters or to further restrict the transfer of advanced technology to Chinese firms or to U.S.-China joint ventures.

American business frustration with Chinese trade and market-access practices has mounted in recent years, with U.S. business groups urging the government to take a tougher trade line with China. Many organizations have complained that the Trump administration hasn’t pushed hard enough in areas like intellectual property, as it has focused more on Chinese manufacturing and China’s $347 billion trade surplus with the U.S. last year.

That discontent has intensified as China’s economy continued to expand and its computer and software sectors became bigger competitors internationally. Western firms fear China will use the regulations to bar foreign investments in areas that Beijing targets for investment, including semiconductors, advanced-machine tools and artificial intelligence.

One big question hanging over the White House review is whether the administration pursues any complaint through the World Trade Organization, or whether it chooses to impose penalties on its own without first seeking permission from the international body, which some Trump advisers have argued is incapable of dealing with China’s trade practices. Trump aides have regularly vowed to pursue a more unilateral approach to trade but have so far done little along those lines.

It is unclear how long the administration’s internal review will take before an announcement is made. Officials at one point had signaled that an announcement could come as soon as this week.

A White House spokeswoman declined to comment on the prospect of trade sanctions.

The White House has been wrestling in recent weeks with how to navigate trade relations with China following a stalemate during mid-July bilateral economic talks that yielded no concrete progress. President Donald Trump in recent days has also expressed open disappointment with Chinese efforts to curb North Korea’s nuclear program and administration officials have been increasingly outspoken in their criticism of Chinese trade practices.

Mr. Trump’s commerce secretary, Wilbur Ross, wrote an op-ed in Tuesday’s Wall Street Journal blasting China, as well as the European Union, for “formidable nontariff trade barriers” and vowing to “use every available tool” to fight those limits.

The White House expects that a crackdown on alleged Chinese intellectual-property expropriation would have widespread support among U.S. businesses, which have complained about Chinese business practices.

The response may be more divided, say industry officials. Those U.S. companies that want to keep their most advanced technology from Chinese hands would probably back the move, while others that want to license technology to Chinese firms could find the measures a hindrance.

China could also retaliate by blocking U.S. investments or making life tougher for U.S. companies in China.

Still, any action on Chinese intellectual property is bound to be more popular with the business sector than other trade moves the president has made, including his decision to withdraw from the Trans-Pacific Partnership as well as his threats to pull out of the North American Free Trade Agreement and to impose tariffs on steel imports.

Treasury Secretary Steven Mnuchin, Chinese Vice Premier Wang Yang and Commerce Secretary Wilbur Ross
Treasury Secretary Steven Mnuchin, Chinese Vice Premier Wang Yang and Commerce Secretary Wilbur Ross.  PHOTO: BRENDAN SMIALOWSKI/AGENCE FRANCE-PRESSE/GETTY IMAGES

The Trump administration’s exploration of new trade remedies against Beijing is significant in that they might involve dusting off long-ignored or little-used powers. In this case, one option under discussion is to use Section 301 of the Trade Act of 1974, which gives the U.S. government the authority to investigate alleged wrongdoing by trading partners and decide by itself the relevant penalty—to act, in the eyes of critics, as judge, jury and executioner.

Another option under discussion would be to invoke the International Emergency Economic Powers Act, a 1977 law that gives the president broad powers to regulate commerce after declaring a “national emergency.”

Widely used in the 1970s and 1980s, Section 301 cases have largely disappeared since the 1995 creation of the WTO, which has its own dispute-settlement process. A main goal of the Geneva-based institution was to curb such unilateral trade actions and to have them handled by a more neutral international arbiter. U.S. administrations over the past two decades have decided to steer nearly all trade complaints through the WTO and have rarely touched Section 301.

But Trump aides have often said they didn’t consider WTO rules sufficient to deal with Chinese practices and have indicated they may resort to pre-WTO unilateral practices.

“If any other administration self-initiated a Section 301 investigation, I would have found it highly unusual,” said Chad Bown, a trade-remedy expert at the Peterson Institute for International Economics. “But with Trump’s administration of U.S. trade policy, it appears that even the most obscure and unused U.S. law on the books is fair game.”

In May, more than four dozen U.S., European and Asian trade associations wrote a letter to the Communist Party group overseeing cybersecurity, for instance, complaining about a new law that the associations felt would require their companies to place data centers in China, find Chinese partners and transfer technology to the joint ventures. Beijing generally argues that it is trying to protect itself from efforts by Western intelligence services to tap into Chinese computer systems.

“All countries have legitimate concerns over privacy and national security, but China is the principal country addressing these concerns by requiring foreign companies to transfer their technology and to surrender their brand and operating control in order to do business,” the group wrote.

Write to Jacob M. Schlesinger at and Bob Davis at

Appeared in the August 2, 2017, print edition as ‘U.S. to Press China on Trade.’

China’s foreign reserves fall again in November even as Beijing tightens screws on capital outflows

December 8, 2016

Reserves shrank by US$69.1 billion last month to hit US$3.052 trillion, central bank says

By Frank Tang
South China Morning Post

Thursday, December 8, 2016, 5:20 a.m.

The fall in China’s foreign ­exchange reserves accelerated in November even though Beijing is gradually closing the door on ­capital outflows.

The larger-than-expected decline in the world’s biggest stockpile of foreign exchange exposed the flaws in Beijing’s current ­approach of selling state reserves to support the yuan and was very likely to force the authorities to take a stricter line on outbound investment and payments, analysts said.

The reserves shrank by US$69.1 billion last month to US$3.052 trillion, according to data released by the People’s Bank of China on Wednesday. The mainland has lost nearly US$1 trillion worth of reserves since the figure peaked in June 2014.

November’s drop, the largest monthly fall since January, came as the US dollar index hit a 13-year high following Donald Trump’s victory in the US presidential ­election.

Tim Condon, chief Asia economist at ING in Singapore, said the rapid fall was undermining the Chinese government’s plan of a gradual and orderly decline.

“The authorities will respond by tightening capital controls and stabilising the daily midpoint, which they have done in past episodes of market turbulence,” Condon said.

In a joint statement released on Tuesday, the central bank and the National Development and Reform Commission, the state’s economic planning agency, warned of “irrational investment” in foreign properties, hotels, cinemas, entertainment and soccer clubs.

Documents obtained earlier by the South China Morning Post show capital outflow controls are already in force involving forex clearance for outbound investment of more than US$5 million, plus stricter reviews in place over very large deals. Both outbound investment and these mega deals are set to limit the speed and size of capital flow.

“The recent control measures are pre-emptive to prevent capital outflow pressure from rising on the US Federal Reserve’s highly likely interest rate rise in December,” said Zhu Qibing, chief macro analyst at mainland brokerage CITIC Securities International.

The fall in the value of the yuan, the reduction in foreign exchange reserves and the government measures to control outbound investment have all come at once.

They have dealt a blow to Beijing’s ambitions to make the yuan an international reserve currency along with the US dollar, the euro, the British pound and the Japanese yen, which together comprise the special drawing rights basket of the International Monetary Fund.

Beijing’s efforts to calm market concerns about the yuan’s value, or breaking the one-way bet on the yuan’s depreciation, have so far achieved only limited success, if any at all.

Trump’s Chinese Currency Manipulation

December 8, 2016

His tweets are driving the yuan down against the dollar.

The wall Street Journal
Dec. 7, 2016 6:59 p.m. ET


Donald Trump says he’ll declare soon after he takes office that China is a currency manipulator because it is devaluing the yuan against the dollar. He may want to rethink that. These days China is intervening in the capital markets to prevent the yuan from going into free fall. The currency is now close to an eight-year low, down 12% from its peak in January 2014.

One irony is that Mr. Trump is contributing to the yuan’s fall with his critical tweets about China, as traders see economic trouble ahead. The Chinese government has tried to slow the yuan’s fall by selling dollars—in essence manipulating the currency in the opposite direction of Mr. Trump’s accusation. As a result, China’s reserves have shrunk to $3.05 trillion in November from $3.99 trillion in June 2014.

Even Washington’s Peterson Institute, a weak-dollar outfit that has long accused China of keeping the yuan artificially low, now admits that the currency is overvalued and capital flight from China is a problem. Chinese companies and individuals are trying to move money out before the yuan falls further. Bank of America Merrill Lynch estimates that $113 billion left the country in the third quarter, up from $99 billion in the second.

Beijing has responded by tightening capital controls. Companies that could move $50 million without much fuss now face a cap of $5 million. Banks face increased scrutiny, and large overseas acquisitions have been put on hold. These measures will help stem the capital outflow, but the underlying problem is that China’s lending and investment spree since 2008 hurt competitiveness by creating overcapacity.

The prices that companies can charge for their products has fallen, driving up the real rate they pay on debt. Wages continue to rise because the workforce began to shrink in 2012. Company profits overall are stagnant, and many state firms are losing money.

Many governments in this predicament would depreciate their currencies quickly to gain a trade advantage. But China’s leaders know this would be self-defeating in an economy of its size. The weak global economy can’t absorb a surge in Chinese exports, and the political backlash could lead to a wave of protectionism.

Beijing also knows that China’s spectacular growth after 1994 was underpinned by a stable yuan, not a weak one. That stability encouraged China’s most productive citizens to invest at home, rather than stashing wealth abroad.

China responded to American political pressure in the 2000s by revaluing the yuan—from 8.28 to the dollar in 2005 to a peak of 6.03 in 2014. (It’s now 6.88.) But that arguably made the yuan overvalued, with speculators betting that the yuan would keep rising. Defending the yuan meant keeping interest rates artificially high, slowing domestic growth.

Hence Beijing’s preferred course of action since August 2015 has been to allow market forces to gradually erode the yuan’s value. As long as the pace is slow, traders can’t make enough of a profit on shorting the currency to cover their cost of borrowing. Slow devaluation is hard to pull off, and it can easily become a stampede.

China will face more pressure to devalue in the year ahead as the U.S. Federal Reserve raises interest rates and the dollar strengthens. Mr. Trump’s election is accelerating that reckoning, with the paradoxical effect of making the yuan even weaker. Stronger U.S. growth from Mr. Trump’s policies would also increase the demand for Chinese goods, and thus the U.S. trade deficit with China is likely to increase too. Domestic companies couldn’t possibly meet the demand for products if U.S. growth hits 3% or 4% a year.

All of this shows how complicated it will be for Mr. Trump to reset what has become an interdependent U.S.-China economic relationship. Mr. Trump can have faster U.S. growth or a smaller trade deficit, but he’s unlikely to have both during his Presidency. His choice Wednesday for U.S. Ambassador to China, Iowa Governor Terry Branstad, understands this and is an advocate of U.S.-China trade.

If Mr. Trump wants a new deal with China, our advice is to focus on negotiating a pact for stable exchange rates while aiming to change abusive Chinese practices against U.S. companies, such as intellectual-property theft, rather than slap a 45% tariff on Chinese goods. Meanwhile, if he keeps tweeting, the Chinese may accuse him of talking down the yuan.

South China Sea: Not An Issue of U.S. Concern, Says Former Chinese Foreign Minister Yang Jiechi

September 12, 2015

China Wants U.S. To Keep Quiet: Former foreign minister Yang Jiechi says China’s business in the South China Sea is not the Business of the U.S. — word comes two weeks before a summit in Washington between Chinese President Xi Jinping and U.S. President Barack Obama.

Hillary Clinton talks with Chinese Foreign Minister Yang Jiechi during a press conference at the Great Hall of the People on September 5, 2012

By Elizabeth Shim

BEIJING, Sept. 11 (UPI) — Chinese State Councilor Yang Jiechi said the United States should not get involved in the territorial dispute over the South China Sea and the two countries should stay in “close touch” despite cybersecurity and other conflicts.


President Xi Jinping says he wants all countries to respect each other as equals

Yang, a former foreign minister, said in an interview with state-owned China Dailythat President Xi Jinping‘s upcoming visit to Washington, D.C., should “further chart the course of the China-U.S. relationship.”

Xi and U.S. President Barack Obama have met four times since Xi assumed office in March 2013, and Obama is expected to offer a full state welcome during the Chinese leader’s visit Sept. 24-25.

China’s rise and the changing nature of U.S.-China relations have often presented challenges for Washington. U.S. naval commanders have previously denounced China’s activities in the South China Sea.

A recent Pew research survey showed more than 50 percent of Americans hold an unfavorable view of Asia’s No.1 economy, and former Sen. Kit Bond, R-Mo., said in an editorial on CNBC the Chinese government has been launching tactics against U.S. companies in China, including fines, an opaque regulatory system and intellectual property theft.

But trade and interdependence between the world’s two largest economies have continued to grow, and according to China, annual bilateral trade surpassed $550 billion in 2014.

Despite protests from the United States, the Philippines and other countries with conflicting territorial claims, Yang said in the interview published Friday that China has a commitment to a peaceful resolution to maritime and other disputes, and asked that differences do not result in countries taking sides.

U.S. Secretary of State John Kerry makes a point with Yang Jiechi, July 8, 2015. Reuters photo

“If there are friends of China who would like to be friends of the [United States] or the other way around, both countries should welcome that, and we should have more mutual friends,” he said.

But Yang neither claimed nor denied China’s responsibility for recent hacking incidents into U.S. servers, saying instead China also has been a victim of cyberattacks and that he hoped countries work together in the spirit of “mutual benefit.”


John Kerry In Beijing: Four Good Reasons Why The Chinese View American Leaders Starting With Obama As Empty Suits

July 9, 2014


Both sides know this is a lot of empty posturing

Chinese President Xi Jinping welcomes U.S. Secretary of State john Kerry to the Strategic and Economic Dialogue in Beijing, July 9, 2014 (AP photo)

By EamonnFingleton

It is hard to exaggerate the audacity with which China now kicks sand in Uncle Sam’s face. On everything from trade barriers to industrial espionage to intellectual property theft, Washington is regarded in Beijing as an empty suit.

Washington never finds the courage to confront Beijing. And the result is that American economic power has been ebbing away at a rate unprecedented in Great Power history.

Secretary of State John Kerry, who is currently in Beijing for an annual Sino-American summit, is unlikely to reverse the trend. Quite the contrary, he gives every indication that he has brought to Sino-U.S. relations the standard Beltway mindset. It is a mindset of fudge, compromise, and peacock-like strutting. It is a mindset that the Chinese have come to know and love. The betting is he will return from China with a panoply of Chinese promises that both sides know are no more than empty posturing.

Even if most Americans haven’t realized it yet (and probably won’t be told by their media for decades to come), China is now the senior partner in the China-America relationship. The key to the relationship is America’s utter dependence on Chinese finance to fund the federal budget deficits. In return, China helps itself to massive transfers of American manufacturing technologies.  Washington now seems powerless to staunch the hemorrhaging.

As for U.S. manufacturers, they have long since stopped thinking in national terms. Led by Ford and General Motors, they see no alternative but to cooperate with Beijing’s technology transfer agenda. After all they would get no support from Washington if they were to resist Beijing’s demands. Meanwhile if they go along with Beijing’s demands, they might earn some brownie points with the new superpower.

Of course, once transferred, American technologies quickly leak to local Chinese competitors. But for today’s top U.S. business leaders that will be someone else’s problem. By the time – five to ten years down the road – when the Chinese start competing seriously in the industries concerned, today’s U.S. CEOs will long since have retired – and cashed in their stock options.

Even where U.S. corporations try to withhold technology, their efforts may come to nothing. As Pat Choate has recorded in Hot Property: The Stealing of Ideas in an Age of Globalization, the Chinese automaker Chery even went to the extent of making a replica of a General Motors car when it created its so-called QQ model. The QQ’s components were knockoffs of those in the Spark, a locally-made GM car!

In recent years Chinese spies have even been emboldened to launch cyber attacks on top American media organizations, not least the New York Times and Washington Post. Other major victims of in-your-face Chinese espionage have recently included Alcoa and Allegheny Technologies.

America’s laidback approach contrasts remarkably with how China is viewed elsewhere – not least in the European Union. The Europeans are far more willing to stand up to Beijing. The result is that European exports generally enjoy far greater access to the Chinese market than American ones.

Bejing: traditional Chinese theatre

Posturing in Beijing. (Photo credit: Wikipedia)

Germany in particular has been a major beneficiary and on a per-capita basis its exports to China last year ran nearly 2.4 times America’s. Virtually everything Germany sells to China moreover counts as advanced technology. By contrast China buys little from America other than coal, iron ore, wheat, and other commodities in which America’s comparative advantage going forward will be cheap labor.

Where did America go wrong? From a Chinese point of view – and a German one – the issue is American intellectual leadership: no serious nation in modern history has been led by such naifs.

American China policy has failed on four key points:

1.    American policymakers have backed the wrong horse in prioritizing the information economy over traditional manufacturing. Little discussed in the American media, a hidden problem with the information economy is that it is remarkably labor-intensive. By comparison modern advanced manufacturing (of the sort typically dominated by Japan and Germany) is highly capital intensive. For a nation that aspires to rise in the global wages league table, labor-intensive industries are a hiding to nothing. The problem is that opportunities for increased productivity are heavily circumscribed. The information economy moreover comes up short on exports – in large measure because many of its most significant advances can be easily reverse-engineered by other nations, not least such mercantilist nations as China. By comparison, China’s manufacturing-focused economy is, of course, a prodigious exporter and as a result has been able to accumulate the massive financial surpluses that fund deficit nations such as the United States.

2.   American policymakers have procrastinated in meeting the  Chinese challenge because they have constantly – for more than a decade now – been misled by siren American voices predicting an imminent Chinese financial collapse. China is a big economy and large financial collapses are not inconceivable. But even the most disastrous such collapse would be unlikely to stop the Chinese export drive in its tracks. American policymakers have failed to pay sufficient attention to the central objective of Chinese policy, which is to take over from the United States, Japan and Germany as the world’s premier source of advanced manufactured products.

3.   American policymakers have grossly overestimated America’s comparative advantage in innovation. In the standard version, the United States holds an ace in the hole in competing with China: America’s supposedly incomparably more innovative culture. The secret, it is widely held in Washington, is America’s free and open society. China can never come even close to American levels of economic success without first opening up to American-style freedom. A moment’s reflection is all that is necessary to see that this is nonsense. After all, none of the most creative societies of the ancient world was free. Ancient Egypt, with all those slaves who built the pyramids, was far from free. But it was without doubt one of the most creative societies in history. By comparison, the British Isles, for instance, which were then undoubtedly much freer, were far less creative. Mesopotamia, another highly creative society of the ancient world, was also hardly a model of American-style freedoms. Meanwhile – in the lifetime of many Americans still alive today – there is the evidence of Nazi Germany. Germany in the 1930s was hardly free. Yet the evidence is that on a per-capita basis it was one of the world’s most creative societies. In reality what drives creativity is wealth not freedom. The richer a society becomes, the more it can afford to invest in developing new ideas and technologies. China is already becoming markedly more innovative and is now the global leader in such a key field of future growth as genomics. For further details check out this article in MIT’s Technology Review.

4.   In one of the most remarkable delusions in modern diplomatic history, American policymakers have imagined they have stolen a march on Beijing by adopting an increasingly “proactive” foreign policy. Perhaps the most outspoken recent statement of this view has come from the Washington-based China watcher David Shambaugh. Writing in The National Interest magazine, Shambaugh has commented: “China is a passive power, whose reflex is to shy away from challenges and hide when international crises erupt. The ongoing crises in Ukraine and Syria are only the most recent examples of Beijing’s passivity.” This may pass for commonsense in Washington but it doesn’t in Beijing – or indeed in virtually any other foreign capital. The view in Beijing, of course, is that Washington has covered the American nation in disgrace by  compulsively meddling in the affairs of nations like Iraq and Afghanistan whose cultures are  misunderstood by American policymakers and policy analysts alike.

Eamonn Fingleton is the author of In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is  the Key To Future Prosperity (published in paperback as Unsustainable).

China Hacked Into Personal Computers of G20 Summit Leaders

December 10, 2013

By Jim Finkle


Police are reflected in the window of a shop displaying traditional nesting dolls with images of Russian President Vladimir Putin (R), Prime Minister Dmitry Medvedev (C) and French President Francois Hollande at the sea port in St. Petersburg September 3, 2013. REUTERS/Alexander Demianchuk

Police are reflected in the window of a shop displaying traditional nesting dolls with images of Russian President Vladimir Putin (R), Prime Minister Dmitry Medvedev (C) and French President Francois Hollande at the sea port in St. Petersburg September 3, 2013.   Credit: Reuters/Alexander Demianchuk

BOSTON (Reuters) – Chinese hackers eavesdropped on the computers of five European foreign ministries before last September’s G20 Summit, which was dominated by the Syrian crisis, according to research by computer security firm FireEye Inc

The hackers infiltrated the ministries’ computer networks by sending emails to staff containing tainted files with titles such as “US_military_options_in_Syria,” said FireEye, which sells virus fighting technology to companies. When recipients opened these documents, they loaded malicious code onto their personal computers.

For about a week in late August, California-based FireEye said its researchers were able to monitor the “inner workings” of the main computer server used by the hackers to conduct their reconnaissance and move across compromised systems.

FireEye lost access to the hackers after they moved to another server shortly before the G20 Summit in St. Petersburg, Russia. FireEye said it believes the hackers were preparing to start stealing data just as the researchers lost access.

The U.S. company declined to identify the nations whose ministries were hacked, although it said they were all members of the European Union. FireEye said it reported the attacks to the victims through the Federal Bureau of Investigation.

A spokeswoman for the FBI, Jenny Shearer, declined to comment.

“The theme of the attacks was U.S. military intervention in Syria,” said FireEye researcher Nart Villeneuve, one of six researchers who prepared the report. “That seems to indicate something more than intellectual property theft…The intent was to target those involved with the G20.”

The September 5-6 G20 summit was dominated by discussion of the Syrian crisis, with some European leaders putting pressure on U.S. President Barack Obama to hold off on taking military action against Syrian President Bashar al-Assad.

Villeneuve said he is confident that the hackers are from China based on a variety of technical evidence, including the language used on their control server, and the machines that they used to test their malicious code.

Villeneuve said he did not have any evidence, however, that linked the hackers to the Chinese government.

“All we have is technical data. There is no way to determine that from technical data,” Villeneuve said.

Officials with the Chinese Embassy in Washington could not immediately be reached for comment.


Western cybersecurity firms monitor several dozen hacking groups operating in China, most of which they suspect of having ties to the government. The firms also suspect the hacking groups of stealing intellectual property for commercial gain.

China has long denied those allegations, saying it is the victim of spying by the United States. Those claims gained some credibility after former National Security Agency contractor Edward Snowden began leaking documents about U.S. surveillance of foreign countries, including China.

FireEye said it has been following the hackers behind the Syria-related attack for several years, but this is the first time the group’s activites have been publicly documented. The company call the group “Ke3chang,” after the name of one of the files it uses in one of its pieces of malicious software.

FireEye said it believed the hackers dubbed the Syria-related campaign “moviestar” because that phrase was used as a tag on communications between infected computers and the hackers’ command-and-control server.

In 2011, the group ran another operation dubbed “snake,” which enticed victims with a file that Fireye said contained nude pictures of Carla Bruni, the Italian-French singer, songwriter and model who in 2008 married then French President Nicolas Sarkozy.

The host name for that campaign’s command-and-control server contained the string “g20news,” which might indicate that it was related to the G20 Finance Ministers meeting in Paris in 2011, FireEye said.

The email address used to send those malicious files had the phrase “consulate” in it, which also bolstered the possibility that the attack was politically motivated, Villeneuve said.

He said researchers only gathered evidence about “snake” through reviewing emails and malicious code. They did not have access to its command-and-control server, which they did in the case of the “moviestar” attack.

(Editing by Tiffany Wu and Grant McCool)