Posts Tagged ‘intellectual property’

For Businesses, Donald Trump’s First Year Is a Net Success

January 16, 2018

CEOs’ relationship with the president had some tense moments, but most corporate chiefs welcomed the big corporate tax cut and push to ease regulations

WASHINGTON—The tax overhaul that President Donald Trump signed into law last month capped a year in which his initiatives on taxes, regulation—and many of his public pronouncements on the economy—have been broadly welcomed by business.

It hasn’t all been smooth sailing for the president most closely aligned with business interests in decades: he was roundly criticized for his remarks about a deadly white supremacists’ rally in Charlottesville, Va., last August. After that, several CEOs resigned in protest from his business advisory councils, although administration officials say they had largely fizzled out by then.

In pure policy terms, however, business groups and executives say the $1.5 trillion of corporate-focused tax changes and the bevy of completed and proposed rule changes aimed at cutting regulatory burdens on business have made 2017 a net success for business.

“If Hillary [Clinton] had been elected, we would have had more regulation and higher taxes,” said Byron Wien, an executive at Blackstone Group L.P . , on a recent investor call. “Trump was elected; we have less regulation and lower taxes.”


  • Stock Market Roared During Donald Trump’s First Year, Boosted by Earnings and Tax Cut

Heading into his second year, the president faces some significant decisions that could create tension with business on issues executives care about, such as trade, immigration and health care.

Some of this was captured by Chamber of Commerce President Tom Donohue last week in his annual address on the state of business. He urged the president not to pull out of the North American Free Trade Agreement, to preserve temporary residency for some 200,000 workers the administration wants to deport and to avoid a confrontation with North Korea. Mr. Donohue also offered support to embattled tech firms who have come under new scrutiny in the past year.

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Chamber of Commerce President Tom Donohue

Trade presents some particularly difficult decisions. Nafta, and the president’s threat to pull the U.S. out of it, remains a concern both for U.S. companies that have grown up around the free trade it brought to the continent, and farmers who have taken advantage of markets in Mexico and Canada that the pact has opened for their exports.

China brings its own set of challenges. Many multinational companies and ardent free-traders have grown frustrated, along with Mr. Trump, with what they see as Beijing’s backsliding on market-opening promises in recent years. Even many officials from the previous Obama administration now say they should have steered a harder line on Chinese trade practices, while many business groups share Mr. Trump’s criticisms of China.

Still, the companies are nervous about how his administration will ramp up pressure on Beijing. While American executives generally still favor intensified negotiations over trade sanctions, they worry that Trump aides will deploy tariffs, quotas and investment limits that could prompt swift retaliation, triggering a costly trade war.

In October, the U.S. Trade Representative’s office held a public hearing seeking business input for a continuing probe into widespread complaints about China forcing U.S. companies to turn over intellectual property. While many witnesses confirmed the problems and said they supported the Trump administration probe, they warned against overreach.

Erin Ennis, a top official at the U.S.-China Business Council, cautioned against “simply seeking to impose penalties or to restrict trade which could have the effect of inhibiting commercial cooperation that benefits U.S. companies and U.S. citizens.”

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China’s new air liner — C919

Business leaders are also eager for the Trump administration to make good on a push to refurbish the nation’s infrastructure, which has raised expectations for companies across the economy, especially in heavy machinery and construction services. But an almost certain fight looms over how to pay for it, conspiring with election-year pressures to make it that much more difficult.

Other promises from the administration and allies in Congress—like an effort to rein in entitlement programs—are viewed with even more skepticism as the time before midterm congressional elections dwindles.

“Mark my words, there is no way in hell that they are that dumb to take up Medicare or Social Security in the election year,” said Tommy Thompson, the former Republican governor of Wisconsin and a board member of Centene Corp. , which administers some health programs, at a presentation for investors. “It would be tantamount to saying, ‘We don’t want to govern anymore.’”

Mr. Thompson said a bipartisan infrastructure bill could have a chance of passage, and an attempt to dig into more divisive issues, such as Social Security and Medicare, could come in 2019.

While executives have praised Mr. Trump’s efforts to slash rules—especially those put in place by his predecessor, Barack Obama —many of them could end up in court, to be fought all over again. That includes the Federal Communications Commission’s December action dismantling Obama-era “net neutrality” rules that required internet-service providers to treat all traffic on their networks the same. Another is Mr. Trump’s reversal of his predecessor’s “clean power plan,” along with a number of other energy and environment rules.

For some executives, life under Mr. Trump has sometimes meant reassuring investors that their companies aren’t his targets—a reference to both his policies and his actions during the presidential campaign, when he singled out companies such as United Technologies Corp. and Lockheed Martin Inc. for criticism.

On an investor call earlier this month, the chief executive of Lakeland Industries Inc., a New York-based maker of protective clothing and work gear, sought to reassure analysts that the Trump administration’s efforts to curb trade deals were aimed at changes in the automotive industry, and wouldn’t hurt Lakeland’s business.

“The apparel business,” CEO Christopher Ryan said, “is not what Mr. Trump is trying to change.”

Business advocates are hoping to channel the administration’s energies in the coming year, as Mr. Trump hopes to pivot to infrastructure and entitlement changes.

“Business is determined to be a voice of reason and a bridge between sides,” Mr. Donohue said. “We’re determined to help, and when necessary, correct our government as it does the nation’s business.”

—Jacob M. Schlesinger contributed to this article.

Write to Ted Mann at


Battle Stations: U.S. and China Prepare for Trade Clash of the Titans

January 16, 2018

A record Chinese annual trade surplus with the U.S. is the potential catalyst for hostilities

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Donald Trump and Xi Jinping at Mar-a-Lago, January 2017


SHANGHAI—The last time Washington mobilized for a trade war, Ronald Reagan was president and Japan the adversary.

Today, the White House is readying the same big guns—a mix of tariffs and quotas—aimed mainly at Chinese imports. It has in its sights everything from steel to solar panels and washing machines. A record Chinese annual trade surplus with the U.S., announced last week, is the potential catalyst for hostilities after a year of bluster from President Donald Trump.

A trade war isn’t a certainty, but if it comes, it will look nothing like the battles that raged in the 1980s over Japanese semiconductors, cars and TV sets.

The forces are more evenly matched this time: America has never faced off in a trade skirmish with an opponent like China in terms of economic size, industrial capabilities and global ambitions.

Japan was a U.S. ally, China increasingly a rival. That raises the risk of tit-for-tat escalation, especially since support for Beijing is crumbling across the U.S. political spectrum as well as in the U.S. business community, traditionally a strong advocate for China trade.

In this brewing battle fueled by protectionists in both camps (Mr. Trump’s “America First“ finds its nationalist counterpoint in President Xi Jinping’s “China Dream”), each side has an exaggerated sense of its own advantages.

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“A trade war is coming because of ideological zealotry and absolutely contradictory estimates of who has more leverage,” says Scott Kennedy, an expert on Chinese industrial policy at the Center for Strategic and International Studies, a Washington-based think tank.


China Reports Biggest-Ever Annual Trade Surplus With U.S.
U.S. Rebuffs China’s Charm Offensive, Edging Closer to Trade War
U.S. Rejects China’s Bid for ‘Market Economy’ Status
Global markets seem remarkably unprepared for what could turn into a clash of the titans. Outside of North Korea’s nuclear threat, a U.S.-China trade war is the biggest potential economic spoiler of 2018.

Once under way, the effects of a trade war would be felt well beyond the combatants themselves. U.S. friends and allies along Asian supply chains would be early collateral damage. China is still to a large extent the final assembly point for imported high-tech components from Japan, South Korea and Taiwan.

If it escalated far enough, a trade war could take down the entire global trading architecture. That may, indeed, be Mr. Trump’s goal. His longstanding view is that one of the biggest mistakes the U.S. ever made was to usher China into the World Trade Organization in 2001, enabling a competitor. Aides say he regularly threatens to pull out of the rules-setting body.

Mr. Trump has in the past suggested that Chinese help on North Korea could head off U.S. trade action. In a phone call with the U.S. president on Tuesday, Mr. Xi suggested that trade issues should be resolved by “making the cake of cooperation bigger,” Xinhua News Agency reported.

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China reported its largest-ever annual trade surplus with the U.S. last year.Photo: aly song/Reuters

In private, however, senior Chinese officials point to Beijing’s tactical strengths. Some are cultural; the Chinese people, one says, are better able to “eat bitterness”—endure hardship. Perceptions of U.S. bullying would rally the population around the Communist Party, this official argues, whereas U.S. opinion would fracture among constituencies for and against trade hostilities.

Put Boeing , General Motors and Apple in the latter category. Another major difference between China and Japan is that the Japanese market was largely closed to U.S. corporations in the 1980s while China’s is relatively open, and these companies, highly dependent on China sales, would end up as hostages in any conflict.

While the White House scrambles to assemble a coherent strategy—Mr. Trump’s hands are still tied by Congress—China has a detailed game plan for a trade war, and total flexibility to carry it out. A switch to Airbus purchases is one obvious move. Diversifying soybean supplies another.


Count on Chinese retaliatory actions being highly targeted—state by state, congressional district by congressional district—to inflict the maximum U.S. job losses, and single out those politicians most gung-ho about trade action.

Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, thinks China would win. Among his reasons: China’s ability to concentrate pain, and the outcry from affected businesses in America’s more open political system. He argues that “the political costs to the Trump administration of maintaining new protectionist measures will be much higher than the costs of retaliation to the Xi regime.”

Derek Scissors, a trade expert at the American Enterprise Institute argues that the major U.S. advantage is that China is far more dependent on trade for its financial health.

“A shorter, smaller-scale trade conflict favors China due to its comparative agility,” he says. “The more serious it gets, the worse China would fare because it’s badly outmatched monetarily.”

In the 1980s, Japan had to back down, agreeing to voluntary export restraints and moving large parts of its auto manufacturing base to the U.S. to create jobs and defuse tensions. China won’t be pushed around in the same way.

A bruising and protracted war of attrition is looming.

Write to Andrew Browne at


Trump Talks Tough on Trade, But Americans Keep Buying Chinese


While Donald Trump, on the campaign trail and early into his presidency, talked tough on China — threatening to slap steep tariffs on Chinese goods and to label the country a currency manipulator — he’s taken no discernible action. Now his administration is considering fresh plans to punish China by ordering an investigation into what the U.S. perceives as Chinese violations to intellectual property that could lead to tariffs or other punitive measures. Observers are opining this approach would have the potential to ignite a full-out trade war. But the trade data indicate for now that private industry isn’t too worried. So far in 2017, U.S. imports of Chinese goods grew at the fastest pace in five years.

Qualcomm Set to Win European Backing for $39 Billion NXP Buy

January 11, 2018

European Union conditional antitrust approval of the deal could come as soon as next week

BRUSSELS—Qualcomm Inc. is set to clinch conditional European Union antitrust approval for its $39 billion acquisition of NXP Semiconductors NV, as soon as next week, according to people familiar with the matter, as the company fends off unsolicited bids by Broadcom Ltd.

The EU opened an in-depth probe into the Qualcomm-NXP deal last June on concerns the deal could lead to higher prices, less choice and reduced innovation in the semiconductor industry. Qualcomm has since made commitments to assuage those fears.


Qualcomm’s commitments include a pledge not to buy Netherlands-based NXP’s standard essential patents, plus assurances that rival products will still function with NXP’s, according to one of the people familiar with the matter.

The European Commission said in June it was concerned the merged company would hold strong market positions in both cellular chipsets and chips for near-field communications, incentivizing it to exclude rival suppliers from the market or modify NXP’s current intellectual property licensing practices. The EU also said the deal might remove competition for chips used in the automotive sector.

Qualcomm agreed to buy NXP in October 2016, in a deal that would make it one of the top suppliers of chips used in cars, at a time when manufacturers are building automobiles with greater computer power and self-driving models develop.

The U.S. has already cleared the deal, but the merger still faces review from other jurisdictions, including China.

The Financial Times has reported the EU’s clearance could come as soon as next week.

Qualcomm’s merger with NXP would enlarge the company, just as Broadcom has been angling to take it over. Broadcom, which is currently co-headquartered in San Jose, Calif. and Singapore, launched a bid in November for Qualcomm that was rejected by the latter’s board. Broadcom has since proposed replacing Qualcomm’s board of directors and the matter will be put to a shareholder vote in March.

If a deal is reached, it would face scrutiny from regulators in multiple countries over market dominance, innovation and national security.

The EU continues to scrutinize Qualcomm’s behavior in other areas. The commission formally accused Qualcomm in 2015 of illegally paying Apple Inc. to exclusively use its chips and selling chips below cost to force a competitor, Icera Inc., out of the market. Qualcomm has previously said its sales practices “have always complied with European competition law.”

Qualcomm, based in San Diego, is the largest supplier of chips for mobile devices, including baseband chips that provide cellular connections and processors that run smartphone applications.

However, Qualcomm earns most of its profits from charging handset makers royalties for using its cellular patents. Most government investigations so far have focused on its licensing practices.

The U.S. chip maker’s legal woes grew in 2017 after Apple opened a legal battle against it by suing Qualcomm in the U.S. and later in China and the U.K.—building on international resistance to Qualcomm’s patent-licensing business that has included antitrust investigations and fines in China, South Korea and the U.S.

Write to Natalia Drozdiak at

This Could Be the Month of Reckoning for Trump’s Trade Agenda

January 4, 2018


By Sarah McGregor and  Andrew Mayeda

U.S. President Donald Trump

Photographer: Mike Theiler/Pool via Bloomberg

President Donald Trump’s tough talk on trade could be reaching a moment of truth.

While Trump campaigned on clamping down on countries that engage in unfair trade, he managed to defer punitive actions in his first year by ordering his administration to study the challenges. Now the deadlines are approaching — some of them in just a few weeks — and the president will have the power then to move ahead with measures that could roil global trade.

Trump will have to decide whether to impose tariffs on imports of everything from aluminum and steel to solar panels and washing machines. Of course, he can always choose to do nothing or go for less heavy-handed remedies or ones that buy even more time, like negotiating a solution.

Mark your calendar with these milestones over the next month.

January 5 Talks to amend a five-year-old trade deal with South Korea take place in Washington. The U.S. wants Korea to provide more access for American cars and farm goods.
Mid-January U.S. Commerce must recommend whether to slap tariffs on steel and aluminum imports on national security grounds — aimed at China. Trump then has up to 90 days to take action.
January 23-28 Montreal hosts talks to revamp the Nafta pact between the U.S., Mexico and Canada. This sixth round is critical for a breakthrough so that efforts to rework the trade deal don’t soon collapse.
January 26 Trump is due to decide whether to take action on cheap solar panel imports to protect the U.S. manufacturing sector. The U.S. International Trade Commission has found that cheap foreign-made solar products are hurting domestic producers.
End-January The Trump administration could announce action on China’s intellectual property practices before his month-end State of the Union speech, according to industry publication Inside Trade. This could be delayed — an investigation into China’s alleged IP theft and forced technology transfers isn’t due until later this year.
Late-January The U.S. ITC is expected to give a final ruling on whether American industry has been hurt by Bombardier’s sales of passenger jets, as Boeing alleges. If the ITC sides with Boeing, duties on Bombardier C Series jets would become permanent.
Early February Trump is expected to make a decision on whether to impose tariffs on imported washing machines. The U.S. ITC has recommended imposing graduated tariffs over three years on a quota-basis.


Google still exploiting tax loopholes to shelter billions in overseas ad revenue

January 3, 2018

The company is enjoying a grace period for now-closed loopholes to shave 16 billion euros from its tax bill

Illustration by Alex Castro / The Verge

Google saved itself as much as $3.7 billion in 2016 by moving 16 billion euros between Ireland, the Netherlands, and Bermuda using infamous legal loopholes that allow it to skirt high tax responsibilities overseas, according to a report from Bloomberg. Citing regulatory filings in the Netherlands, the report explains how Google continues to use the “Double Irish” and “Dutch Sandwich” loopholes to cut its foreign tax bill. In 2016, Google saved seven percent more than it did in the year prior, at a tax rate of 19.3 percent.

“We pay all of the taxes due and comply with the tax laws in every country we operate in around the world,” Google said in a statement given to Bloomberg. ”We remain committed to helping grow the online ecosystem.” Similar to Apple, which was recently ordered by the European Union to pay the government of Ireland billions in back taxes, Google makes ample use of arcane tax loopholes to shuffle overseas revenue to tax havens, with stops in the Ireland and the Netherlands on the way to Bermuda, which enjoys a corporate income tax rate of zero.

Google does this by using what is effectively a shell company in Ireland to collect overseas ad revenue, a Dutch subsidiary to hold that revenue, and another Irish shell company, this one physically located in Bermuda, with the right to license Google’s intellectual property to ultimately report it as income. Moving the money this way is where the names “Double Irish” and “Dutch sandwich” come from, and Google has continuously used these loopholes in the past. Ireland announced back in 2014 that it was closing these loopholes, effective 2015, after intense regulatory scrutiny, but a grace period has been extended to 2020 for companies to comply. That’s given Google the legal leeway to continue exploiting them for another three years.

Google reportedly has $60.7 billion in overseas revenue it has yet to repatriate for fears it would lose too much of it to US taxes, which are set at 35 percent for corporations. That means the money must stay overseas. That arrangement may change in the months and years to come, however, as the new tax bill passed by the House and Senate last month is aimed at pleasing corporations and the wealthy. The new law sets a more generous minimum tax rate on overseas profits and offers companies a less burdensome path toward bringing that money home on a regular basis at greatly reduced rates.

That means Apple, Google, and others may bring more money home, yet still enjoy many of the benefits these tax loopholes have afforded them for decades now. Of course, there is no clear indication that businesses will reinvest that money into domestic manufacturing, hiring, or any other of the intended recipients of the profit windfall being handed to corporate America. Some companies have made strategic use of the PR opportunity to publicly celebrate the tax bill with $1,000 bonuses to employees.



Google’s ‘Dutch Sandwich’ Shielded 16 Billion Euros From Tax

 Updated on 
  • Amount for 2016 was seven percent higher than the year before
  • Tax shelter saved Google billions of dollars in 2016

Alphabet Inc.’s Google moved 15.9 billion euros ($19.2 billion) to a Bermuda shell company in 2016, regulatory filings in the Netherlands show — saving the company billions of dollars in taxes that year.

Google uses two structures, known as a “Double Irish” and a “Dutch Sandwich,” to shield the majority of its international profits from taxation. The setup involves shifting revenue from one Irish subsidiary to a Dutch company with no employees, and then on to a Bermuda mailbox owned by another Ireland-registered company.

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The amount of money Google moved through this tax structure in 2016 was 7 percent higher than the year before, according to company filings with the Dutch Chamber of Commerce dated Dec. 22 and which were made available online Tuesday. News of the filings was first reported by the Dutch newspaper Het Financieele Dagblad.

“We pay all of the taxes due and comply with the tax laws in every country we operate in around the world,” a Google spokesman said in a statement. “We remain committed to helping grow the online ecosystem.”

Google is under pressure from regulators and authorities around the world for not paying enough tax. Last year, the company escaped a 1.12 billion euro French tax bill after a court ruled its Irish subsidiary, which collects revenue for ads the company sells in France, had no permanent base in the country. The European Union has been exploring ways to make U.S. technology companies, many of which use similar tax shelters, pay more.

The Irish government closed the tax loophole that permitted “Double Irish” tax arrangements in 2015. But companies already using the structure are allowed to continue employing it until the end of 2020.

According to U.S. financial filings, Google’s global effective tax rate in 2016 was 19.3 percent, which it achieved in part by shifting the majority of its international profit to the Bermuda-based entity. Applying that tax rate, Google would have saved $3.7 billion via the 2016 transfer.

Tax expert Robert Willens said a better way to calculate Google’s savings would be to apply Ireland’s 12.5 percent tax rate to the amount of money shifted to Bermuda because the income would otherwise have been taxed there. Under that scenario, Google would have saved about $2.4 billion in taxes.

Google held $60.7 billion overseas at the end of 2016 on which it hadn’t yet paid U.S. income taxes or “foreign withholding taxes,” the company said in a filing with the U.S. Securities and Exchange Commission.

New Law

For years, U.S. tax law has given American companies an incentive to keep their foreign earnings offshore by allowing them to defer U.S. taxes until they return those profits to the U.S. But that changes this year; the U.S. tax law passed last month will require companies to pay taxes on the overseas income they’ve stockpiled to date at one of two rates: 15.5 percent for income held as cash or cash equivalents and 8 percent for less liquid assets.

Going forward, U.S. companies that pay relatively low global effective tax rates — a sign that they’re using tax havens — would pay a minimum U.S. tax. That new tax, which begins at a rate of 10.5 percent, wouldn’t apply in cases where a company’s global effective tax rate is 13.125 percent or higher.

Google Ireland Ltd. collects most of the company’s international advertising revenue and then passes this money on to Dutch subsidiary Google Netherlands Holdings BV. A Google subsidiary in Singapore that collects most of the company’s revenue in the Asia-Pacific region does the same.

The Dutch company then transfers this money on to Google Ireland Holdings Unlimited, which has the right to license the search giant’s intellectual property outside the U.S. That company is based in Bermuda, which has no corporate income tax. The use of the two Irish entities is what gives the structure its “Double Irish” moniker and the use of the Netherlands subsidiary as a conduit between the two Irish companies is the “Dutch Sandwich.”

— With assistance by Joost Akkermans, and John Voskuhl

Ant-Moneygram’s Demise Spells the End for China-U.S. Deal Making

January 3, 2018

With Washington now officially joining in the protectionism party, the future for deal making looks bleak

Jack Ma in Argentina in December. Photo: Associated Press


When even Jack Ma can’t get a deal done, it’s time to call an end to meaningful Chinese acquisitions in the U.S. Just a year ago, President-elect Donald Trump boasted that he and Mr. Ma—China’s best-known businessman and the founder of tech giant Alibaba—would “do great things” together, amid talk of creating one million American jobs.

Not so much. Even Mr. Ma’s assiduous efforts to play to the current nationalistic tone in Washington haven’t been enough to ensure the approval of Alibaba-affiliate Ant Financial’s planned $1.2 billion acquisition of U.S. based money transfer company MoneyGram International Inc. The deal was blocked Tuesday by the Committee on Foreign Investment in the U.S. (CFIUS), a multiagency government panel that normally scrutinizes deals for potential impacts on national security.

An Ant-Moneygram tie-up raised some concerns about the protection of U.S. customers’ data, mostly stoked by rabble-rousing from Kansas-based Euronet Worldwide, a rival bidder for MoneyGram. And it’s true that China isn’t the most open country to foreign ownership.

Even so, Beijing has softened its attitude somewhat recently, relaxing its foreign-investment policies to lure more capital into specific sectors, including financial services. With the CFIUS decision on Ant and MoneyGram, it’s clear such moves aren’t going to be met with much reciprocity.

For investors, the takeaway is that the “China bid” that has helped boost global asset prices this century may be gone for good, at least in developed markets. Beijing has been cracking down on asset-buying abroad by busy acquirers like Anbang Insurance and HNA Group. Money from China could still find a home in favored sectors like high-end manufacturing. But with Washington now officially joining in the protectionism party, the future for deal making looks bleak indeed.

Write to Anjani Trivedi at


China’s Ant Financial drops MoneyGram deal as US approval fails

January 3, 2018


© AFP | The decision to drop the MoneyGram buyout deals a blow to Alibaba chief Jack Ma’s hopes of moving into the US financial market

Ant Financial, an affiliate of Chinese internet titan Alibaba, has been forced to abandon a $1.2 billion deal to buy US remittances firm MoneyGram after failing to get approval from regulators in Washington.

The decision by the Committee on Foreign Investment (CFIUS) will deal a blow to Alibaba boss Jack Ma’s push into the world’s biggest financial market and follows a number of moves to prevent Chinese purchases of US firms.

The companies jointly announced the termination of the proposed takeover on Tuesday, with MoneyGram chief executive Alex Holmes saying: “The geopolitical environment has changed considerably since we first announced the proposed transaction with Ant Financial nearly a year ago.

“Despite our best efforts to work cooperatively with the US government, it has now become clear that CFIUS will not approve this merger.”

The deal, announced a year ago, had been submitted to the CFIUS several times, but failed to allay its concerns about the security of US customers’ data.

Controlled by Ma, Ant Financial — which provides mobile payment, lending and credit services to a mostly Chinese clientèle — has looked to expand abroad along with Alibaba, China’s largest e-commerce platform.

Nasdaq-listed MoneyGram’s shares sank in after-hours trading.

The two companies will still look to cooperate in other ways despite the setback, Doug Feagin, president of Ant Financial International, said in a statement.

“While Ant Financial won’t have a direct ownership relationship with MoneyGram, we look forward to working closely with the MoneyGram team to make our platform even more accessible — particularly to unbanked and underserved communities globally.”

The news comes almost a year after Ma met then President-elect Donald Trump, promising to bring a million jobs to the US.

The personal relationship did not sway the Trump Administration, though, which has launched a number of anti-dumping trade cases against China and is in the process of investigating it over intellectual property issues.

The administration labelled China a “revisionist” power last month.

The CFIUS, which reviews all foreign takeovers of US firms with potential national security concerns, has squashed a number of Chinese purchases of US businesses in recent years, as concern grows in Washington about selling critical technology to China.

In September, Trump blocked the sale of Oregon-based Lattice Semiconductor to private equity firm Canyon Bridge, its Chinese partner Yitai Capital and Yitai’s parent the China Venture Capital Fund Corp over national security concerns.

The CFIUS has also thwarted takeovers US chip makers Micron Technology and Sandisk by state-owned Tsinghua Unigroup.

West grows wary of China’s influence game

December 22, 2017

Australia’s Prime Minister Malcolm Turnbull’s attempt to paraphrase Chairman Mao last week was not just a mildly farcical example of political theatre. It also marked an important turning point in a decades-long debate over how the West should respond to China’s rise.

“Aodaliya renmin zhan qi lai! The Australian people have stood up,” Mr Turnbull told reporters in mangled Mandarin – a deliberate echo of Mao’s declaration in 1949 that the Chinese people had stood up, thus ending a century of humiliation at the hands of colonial aggressors.

Mr Turnbull was defending new Australian laws drafted this month which are designed to limit the influence of foreign governments and which have one particular target in mind – the Chinese Communist Party (CCP).

With only a brief pause following the 1989 Tiananmen Square massacre, most developed democracies have engaged with China since the late 1970s in the belief the country would integrate into the US-led global order and eventually become more like them.

But those assumptions are now under assault as the West belatedly realises China has no intention of opening up its political system. At the same time, there is growing disquiet over Beijing’s efforts to shape the way Western countries think about its authoritarian model.

In just the past two weeks, the intelligence services of Germany and New Zealand have publicly warned about the threat of Chinese espionage and influence operations in their countries. Last week, the US Congress held a hearing to discuss the “long arm of China”.

“Attempts by the Chinese government to guide, buy, or coerce political influence and control discussion of ‘sensitive’ topics are pervasive, and pose serious challenges in the United States and our like-minded allies,” said Mr Marco Rubio, chairman of the Congressional-Executive Commission on China.

While the world has been fixated on allegations of Russian interference in US elections in the past year, China’s more widespread operations have garnered far less attention, until recently.

“Chinese operations are much more subtle, less targeted and more about long-term influence-building than Russian operations,” says Mr Christopher Johnson, the former head of the China desk at the Central Intelligence Agency and now a senior fellow at the Centre for Strategic and International Studies in Washington.

China’s President Xi Jinping and Australian Prime Minister Malcolm Turnbull at the Apec meeting in Danang, Vietnam, last month. The Turnbull government has moved to revamp the country’s espionage and foreign influence laws. The draft laws would ban foreign political donations and force lobbyists to reveal when they are working for overseas entities. ST PHOTO: KUA CHEE SIONG

“But as we start to realise that China intends to socialise us rather than become more like us, the debate in the West has taken on a harder edge and people are asking whether 40 years of engagement might have been a sham.”


Distinct from traditional spying activity, which most countries engage in, China’s influence operations are directed by a little-discussed branch of the ruling CCP known as the United Front Work Department.

They include efforts to co-opt or subvert a broad range of actors and institutions, from politicians to media outlets to universities, although they primarily target the Chinese diaspora – an estimated 60 million people worldwide.

Experts who study the United Front say the main goal of these operations is to isolate, marginalise and attack perceived threats to the CCP from overseas-based Chinese dissidents and human rights and democracy activists, Tibetan independence advocates and representatives of Taiwan.

But the objective now encompasses efforts to convince Western elites and the broader public of the legitimacy of the CCP and its right to rule China.

On the front line of this struggle is Australia, a longstanding US ally and crucial security partner in Asia, but whose commodity-based economy is dependent on demand from China.

“The party under Xi (Jinping) believes it is engaged in a huayu zhanzheng – a ‘discourse war’ – with the West, which it thinks enjoys media hegemony and must be challenged,” says Mr David Shambaugh, director of the China policy programme at George Washington University.

He estimates that China spends between US$10 billion and US$12 billion (between S$13.5 billion and S$16 billion) a year on “soft power” efforts – ranging from traditional lobbying and public relations campaigns to more clandestine forms of influence-building.

The Australian Security Intelligence Organisation (ASIO) has tracked at least A$6.7 million (S$6.9 million) in political donations to Australia’s two main political parties from just two Chinese billionaires with close ties to Beijing.

This issue burst on to the political agenda last week with the resignation of Mr Sam Dastyari, a rising star in the Labor Party who used donations from one of the billionaires to clear some of his personal debts. He later attended a press conference with Chinese media where he called publicly for Australia to respect China’s territorial claims in the South China Sea – a position contrary to that of his own party.

ASIO has also identified about 10 political candidates at the state and local government level that it believes have close ties to China’s intelligence services, according to Australian media reports.

Western intelligence agencies believe this is part of a wider orchestrated campaign by Beijing to insert agents of influence into the highest levels of democracies around the world.

The CCP “is seeking to suppress dissent among its diaspora in countries around the world”, says Mr Rory Medcalf, head of the National Security College at Australian National University. “It uses a tapestry of methods to achieve its goals: political donations, control of Chinese language media, mobilising community and student groups; and engaging in coercive activities that involve CCP proxies and even consular officials.”

Foreign journalists, politicians, business people and academics seen as “unfriendly” to China are refused visas to visit the country, attacked by state media and paid online trolls and sometimes targeted by Chinese hackers. The families of Chinese students and recent emigrants are often threatened by state security agents back in China if they are seen as stepping out of line while abroad.

One of the Chinese billionaires who allegedly provided donations to Mr Dastyari is Mr Huang Xiangmo, founder of a property development company in Shenzhen who moved to Sydney with his family in 2011. Until recently he was chairman of the Australian Council for the Peaceful Reunification of China, a United Front-backed organisation.

Mr Huang helped fund a China-focused think-tank at University of Technology Sydney, which has former Australian foreign minister Bob Carr as its director. Mr Huang eventually resigned as chairman of the Australian-China Relations Institute’s advisory board when some academics queried whether it was becoming a mouthpiece for Chinese propaganda.

Defenders of these initiatives say Beijing merely wants to “tell China’s story well” and is acting no differently from Western countries. The US government supports organisations that fund pro-democracy groups worldwide, while Washington-based think-tanks have global affiliates that promote a US world view.

But this argument ignores the fact that most United Front work is carried out covertly.

The CCP’s ” United Front work is very different from Western efforts to exert influence – there is… long-term planning and central coordination between public and nominally private enterprises that democracies can’t even imagine”, says Mr Gerry Groot, an expert on the United Front Work Department at the University of Adelaide. The efforts retain “plausible deniability” by using “seemingly independent societies and organisations whose actions are in fact determined by Beijing”.

ASIO’s investigation into Chinese political interference and the Dastyari affair prompted the Turnbull government to revamp the country’s espionage and foreign influence laws this month. The draft laws would ban foreign political donations and force lobbyists to reveal when they are working for overseas entities.


Beijing has reacted angrily to the new laws and public reporting of its extensive United Front work in the country.

These media reports “were made up out of thin air and filled with Cold War mentality and ideological bias, reflecting a typical anti-China hysteria and paranoid (sic)”, read a statement from a spokesman for the Chinese Embassy in Australia. The reports “unscrupulously vilified… the Chinese community in Australia with racial prejudice, which in turn has tarnished Australia’s reputation as a multicultural society”.

Others in Australia, which has a long and difficult history with race relations, have accused the government of stoking xenophobia for political advantage.

Many of the 1.2 million people in Australia who identify as Chinese have been there for several generations and a large proportion came from South-east Asia, democratic Taiwan or left Hong Kong and mainland China to escape repression. Some of them are deeply disturbed by Beijing’s attempts to infiltrate their community organisations and they blame it for creating the conditions for public suspicion of their communities.

“Many in the Chinese community welcome this new legislation, which is very clearly targeting the actions of foreign governments rather than any individuals or communities,” says Associate Professor Feng Chongyi at University of Technology Sydney who was detained in China by state security agents for 10 days in April because of his research into Chinese politics. “If the Chinese government is not interfering in Australian politics, then why is it so concerned and so desperate to portray this as anti-China propaganda?”


A version of this article appeared in the print edition of The Straits Times on December 21, 2017, with the headline ‘West grows wary of China’s influence game’.
See also:


China, Russia slam US and Donald Trump’s ‘imperialist’ and ‘Cold War mentality’

December 19, 2017


© AFP / by Ryan MCMORROW with Maria PANINA in MOSCOW | US President Donald Trump’s first National Security Strategy says China and Russia are ‘attempting to erode American security and prosperity’


China and Russia on Tuesday decried President Donald Trump’s first National Security Strategy — which pilloried both nations as challengers to US power — as a “Cold War mentality” with an “imperialist character”.

The two global powerhouses hit back hours after the Trump administration unveiled its approach to the world with biting language framing Beijing and Moscow as global competitors.

“We urge the United States to stop intentionally distorting China’s strategic intentions and to abandon outdated notions such as the Cold War mentality and zero-sum game, otherwise it will only harm itself or others,” Chinese foreign ministry spokeswoman Hua Chunying said.

Moscow issued its own denunciation moments later.

“The imperialist character of this document is obvious, as is the refusal to renounce a unipolar world, an insistent refusal,” Kremlin spokesman Dmitry Peskov told reporters.

The report’s tough tone contrasts sharply with Trump’s friendlier face-to-face encounters with Chinese President Xi Jinping and Russian leader Vladimir Putin.

“China and Russia challenge American power, influence, and interests, attempting to erode American security and prosperity,” the document says.

– ‘Malicious slander’ –

Accusing China of seeking “to displace the United States” in Asia, the 68-page strategy is a litany of US grievances, from the Chinese stealing data to spreading “features of its authoritarian system.”

“Contrary to our hopes, China expanded its power at the expense of the sovereignty of others,” it says.

Beijing launched a vigorous defence of its “peaceful development”, saying any report “which distorts the facts, or maliciously slanders will only do so in vain”.

“China will never pursue its own development at the expense of other countries’ interests,” Hua told a regular news briefing.

“At the same time we will never give up our legitimate rights and interests.”

Trump received a lavish welcome during his first state visit to Beijing in November and was full of praise for Xi.

But the two countries have been locked in an increasingly acrimonious battle over trade issues, with Washington taking unprecedented steps to investigate and add tariffs to Chinese-made goods.

There are also lingering US concerns over China’s military activities in the disputed South China Sea, while Washington has angered Beijing with its arms sales to self-ruled Taiwan.

– Softer on Russia –

Speaking on Monday after the report’s release, Trump took a strikingly softer tone on Russia, lauding the benefits of counterterror cooperation with Moscow.

Trump claimed that a recent CIA tip-off about a terror attack on a cathedral in Putin’s home town of Saint Petersburg had prevented deaths “in the thousands”.

“They were able to apprehend these terrorists before the event with no loss of life and that’s a great thing, and the way it’s supposed to work,” Trump said, offering the prospect of better ties.

Trump’s presidential campaign is being investigated for possible collusion with Russia in the run-up to his shock 2016 election win — allegations the 45th president has dubbed “fake news”.

His security strategy warns that Russian nuclear weapons are “the most significant existential threat to the United States”.

It also describes the Kremlin as a power that “seeks to restore its great power status and establish spheres of influence near its borders”.

“Russia aims to weaken US influence in the world and divide us from our allies and partners,” it warns.

The Kremlin’s Peskov responded that Russia “cannot accept” being described as a threat to US security.

But Peskov praised “modest” positive features in the report, pointing to what he said was Washington’s readiness to cooperate with Russia in areas such as an exchange of security information.

– ‘Two administrations’ –

The national security document — 11 months in the making — is required by law and is designed to form a framework for how America approaches the world.

Previous national security strategies have been released without much fanfare and served as guideposts, rather than doctrinal commandments.

But in this unorthodox administration, the document had taken on extra significance.

Foreign officials in Washington often complain that there are effectively “two administrations” — one that they hear from day-to-day in contacts with the State Department and Pentagon and another coming from Trump, often via Twitter in 280 characters or fewer.

Trump and his advisors often publicly differ starkly on fundamental security issues from the Middle East to talks with North Korea.

But allies looking for clarity about the intentions of the world’s pre-eminent economic and military power are likely to be confused by Trump’s mixed messages.

Where the strategy warns Russia is using “subversive measures” to undermine “transatlantic unity,” Trump again claimed that European allies were “delinquent” in paying for security “while we guarantee their safety and are willing to fight wars for them”.

Where the strategy warned of Moscow’s “destabilizing cyber capabilities” and interference in domestic political affairs, Trump made no such reference.

by Ryan MCMORROW with Maria PANINA in MOSCOW

A Tax Reform for Growth

December 16, 2017

The GOP bill will spur investment and make the U.S. more competitive.

Sen. Marco Rubio speaks during a news conference on Capitol Hill in Washington, Sept. 26.
Sen. Marco Rubio speaks during a news conference on Capitol Hill in Washington, Sept. 26. PHOTO: PABLO MARTINEZ MONSIVAIS/ASSOCIATED PRESS

House and Senate conferees signed their tax agreement on Friday, and the bill that seems headed for passage next week is—Minor Miracle Dept.—better than what either body first passed. The bill’s corporate reform is far superior to its muddled rewrite of the individual code, but on balance this is the most pro-growth tax policy in decades.

The bill’s biggest achievement is reforming at long last the self-destructive U.S. corporate tax code. The top U.S. rate of 35%—highest in the developed world—will fall to 21% on Jan. 1. Cash currently held overseas will be taxed at a 15.5% one-time “deemed” repatriation rate, and America will move to a territorial system that allows money to be taxed where it is earned. The bill includes rules to prevent companies from concealing taxable income, especially on intangible assets such as intellectual property. And it sweeps away billions of dollars worth of industry-specific loopholes that misallocate capital.

All of this will go a long way to restoring American competitiveness that has eroded over several administrations. Even Barack Obama acknowledged this problem, though he declined to do anything lest some large business end up with a tax cut.

The same economists who presided over the weakest recovery since World War II now say none of this is needed with the economy finally growing at 3%. But the faster growth never materialized when they were in power, and this expansion has been notable for slow business investment and weak productivity growth.

This GOP tax reform—including five years of 100% immediate business expensing—is aimed directly at that weakness to keep the expansion going even as the Federal Reserve raises interest rates. This isn’t a demand-side “sugar high.” These business tax changes are supply-side reforms that will increase the economy’s productive capacity.

Reducing the cost of capital should raise business investment and invite a capital inflow to the U.S. More investment means more hiring and more productive workers, which is what increases wages. Especially with a tight labor market, the share of income that goes to workers should increase. After eight years of trying to redistribute income through higher taxes and more subsidies, why not try a return to growth economics?


The individual tax reform isn’t nearly as ambitious. The GOP has rearranged some furniture to try to give everyone a tax cut while trying not to change the distribution tables of who pays taxes. The one bow toward simplification is nearly doubling the standard deduction to $24,000 for married couples, which means most taxpayers will elect not to itemize.

Far more confusing is the reform for business owners who declare income on personal returns, known as “pass-throughs,” which won a 20% deduction for some business income. Smaller businesses deserve tax relief but the deduction contains considerable risk of gaming.

For instance: A salaried manager at a corporation would pay a top marginal rate of 37%, yet a store owner gets a lower rate. This favors some industries over others, and the better route would have been cutting the top rate to the 1986 reform rate of 28%. Some lawyers, accountants and other professional services can claim some income against the deduction. And you bet they will: Look out for the college basketball coach who tries to become an LLC.

Yet Republicans deserve credit for at least trimming the top rate on individuals to 37% from 39.6%. The conferees dumped the House’s bubble bracket that slammed some folks with a 45.6% top rate. The 2.6-point top rate cut won’t increase the incentives to work by all that much, though the move is significant as a matter of principle that tax reform means lower rates for everyone. And lowering the top rate took political courage amid tendentious attacks from left and right.

A lower top rate also offers relief to productive earners in high-tax states who will lose most of the state-and-local tax deduction. That subsidy for progressive politicians in Sacramento and Albany will be capped at a $10,000 write-off for property, income and sales tax. A full repeal would have been better policy, but the accommodation brings along Republican Members in New York and California.

The worst individual tax policy is the doubling of the tax credit for children to $2,000 from $1,000. This costs half-a-trillion dollars and contributes nothing to growth because it doesn’t change incentives. Up to $1,400 of the credit will also be refundable after Florida Senator Marco Rubio staged a hostage crisis on Thursday, and this means checks in the mail to households with no income tax liability. Mr. Rubio demanded this change as the price of his vote even after his child-credit amendment lost on the Senate floor, 29-71.

The long-term politics of the credit are worse. Mr. Rubio concedes such households don’t owe income taxes but says they need relief from payroll taxes, which fund Social Security and Medicare. But the way to do that is to propose cutting payroll tax rates. Mr. Rubio’s backdoor raid means the payroll tax will be the new pot of cash to redistribute income, and entitlement reform could become that much harder.

The House and Senate compromised on the mortgage-interest deduction, which will now be capped at $750,000, down from $1 million under current law. This is a small victory over the housing lobby, but Republicans couldn’t even eliminate the deduction for second homes. Republicans also won’t repeal the death tax, though the exemption will be doubled to about $11 million. A menu of energy subsidies survives, and so does the loathsome alternative minimum tax that requires families to calculate two sets of tax assumptions.

Some of these survive due to political support and others are ways to pay for cuts elsewhere and comply with the Senate’s budget rules. One asterisk is that the cuts for individuals expire after 2025, though the political pressure to extend them will be immense, especially for middle-income families.

In better news, the bill will repeal the Affordable Care Act’s individual mandate that punishes Americans for declining to buy health insurance that they can’t afford or don’t want. This chips away at ObamaCare’s command-and-control model, and may open the door for larger reform.


Republicans have been promising to reform the tax code for decades, and Speaker Paul Ryan deserves particular notice for years of intellectual and political spadework. The House campaigned on tax reform with its Better Way agenda, and Donald Trump made it a 2016 theme. This bill fulfills that promise.

For eight years the Democrats put income equality over growth and ended up with less of both. Now Republicans are poised to enact a tax bill that on the whole makes broad prosperity the priority. Next week the House and Senate will call the roll and we’ll see which politicians in Washington still think America is one of the world’s great underdeveloped countries.

Appeared in the December 16, 2017, print edition.