Economic War

Hong Kong Protesters Attack Shops Affiliated with Communist China Enterprises

Chinese companies seen as symbols of Beijing evil

By Bruce Einhorn and Shirley Zhao

The black-clad protesters pushing back against China’s influence in Hong Kong aren’t just focusing on Carrie Lam and the police. 

They’re also targeting mainland-based brands such as Bank of China Ltd., China Mobile Ltd. and Huawei Technologies Co. with fire bombs, metal bars and spray paint.
A walk down the primary route used by Hong Kong’s anti-government marchers shows how big a chunk of the city China owns. 

Mainland-affiliated supermarkets, drugstores, hotels, Pacific Coffee stores and McDonald’s outlets -- both franchises are operated by state-owned firms -- pepper the vicinity of skyscraper-lined Hennessy Road, the downtown artery connecting the Causeway Bay shopping district with government headquarters in Admiralty. 

Some of the businesses also occupy property owned by Chinese developers.

Protesters hold placards featuring images of Carrie Lam inside a Pacific Coffee store, June 9.

These outposts of Xi Jinping’s government expanded their operations after the former British colony returned to Chinese rule in 1997, adding heft to Beijing’s political goal of integrating the semi-autonomous territory with the motherland. 

Their deepening presence implies that Hong Kong soon will become just another Chinese city, deprived of the autonomy former Chinese leader Deng Xiaoping guaranteed until 2047.
“Mainland Chinese companies are forming a group of entities which is both economically and politically influential,” said Heidi Wang-Kaeding, who’s done research on mainland investment in Hong Kong and now teaches international relations at Keele University in Staffordshire, England. “That’s why this is shaking the local interest very much.”
Hong Kong police said Monday a radio-controlled improvised explosive device was detonated near a police car on Sunday evening, the first time the use of such a device has been reported during months of unrest.
The use of explosives marks a significant escalation in pro-democracy protests that started out peacefully in June, with hundreds of thousands of residents marching in the streets in opposition to a bill that would have allowed extraditions to mainland China.
In recent weeks, protesters have set fires near police stations, hurled makeshift petrol bombs at riot police, and bashed in glass kiosks at train stations and storefronts tied to mainland Chinese businesses.
As Chinese Communist Party leaders focus on solidifying control over the rebellious city, companies taking direction from the state likely will play an even bigger role in Hong Kong’s $363 billion economy. 

The city is sinking into a recession amid the riots, and Lam, the chief executive, may propose remedies during her annual policy address on Wednesday.
In the past decade, the total amount of loans given by the Hong Kong-based unit of state-owned Bank of China in the special administrative region has more than doubled to $175 billion, and so have deposits to $257 billion.
China Mobile, the world’s largest wireless carrier by subscribers, is among the four operators in the city, having cemented its position since buying a local provider more than a decade ago to gain entry into the market.
Mainland-based developers such as Poly Property Group Co. and China Overseas Land and Investment Ltd. successfully bid for 11% of the land for sale last year in the world’s most-expensive real estate market, compared with about 5% in 2013. 

They bought almost 60% of residential land sold by the local government in the first six months of this year.

A targeted China Mobile Ltd. store in Causeway Bay on Oct. 4.

In one high-profile deal, state-owned Poly Property and China Resources Land Ltd. successfully bid HK$12.9 billion ($1.6 billion) in June for a 9,500-square-meter parcel at Kai Tak, the former airport in the Kowloon district.
Beijing-based Citic Ltd., a state-owned conglomerate, is part of a consortium that runs McDonald’s outlets in the city, and unit Dah Chong Hong Holdings operates car dealerships and Food Mart stores.
With forays into retail, telecommunications and property development, mainland-based companies are also altering the city’s traditional business landscape. 

Homegrown tycoons such as Li Ka-shing and Lee Shau Kee, who built their empires by forging close ties with authorities in Beijing, may see that influence erode. 

Li, for instance, saw the writing on the wall some time ago and has been steadily reducing exposure to his home base.
Over time, the economic balance of power will tilt more in favor of state enterprises and away from the local billionaires, said Michael Tien, a pro-Beijing member of Hong Kong’s legislature and a deputy to China’s National People’s Congress.
“It will be very difficult for Hong Kong Chinese companies to fight mainland Chinese companies,” he said. 

“They are capital-rich and powerful.”

Graffiti on a shuttered McDonald’s Corp. store on Hennessy Road in Wan Chai on Oct. 7.

But it isn’t just state-owned companies that are building a bigger presence in Hong Kong. 

In 2015, billionaire Jack Ma’s e-commerce giant Alibaba Group Holding Ltd. agreed to buy the South China Morning Post newspaper and related assets for HK$2.06 billion. 

Prominent Chinese smart-phone makers such as Huawei, Lenovo, Xiaomi and electronics retailer Suning have retail stores in the city.
Mainland-based companies with consumer-facing businesses have been particular targets in the latest phase of the four-month-long protests, which were sparked by opposition to a proposed law allowing extraditions to China.
Bank of China branches and ATMs have been firebombed, including this past weekend and on the Oct. 1 anniversary of Communist Party rule in the mainland. 

Huawei and Lenovo stores also were ransacked during the weekend at a mall in suburban Sha Tin.

Bank of China’s ATMs in Wan Chai on Oct. 5.

At least two China Mobile stores were attacked Oct. 1 and 2, and a Xiaomi outlet had anti-China graffiti spray-painted on its walls. 

The local unit of China Construction Bank, which has more than 50 locations, suspended service at two branches because of protest-related damage, including smashed glass doors.
At least one local-run business has lost its immunity. 

Maxim’s Caterers Ltd., which operates bakeries and some Starbucks outlets, is seeing stores vandalized after the founder’s daughter called the protests “riots” and supported the Hong Kong government in comments at the U.N. Human Rights Council last month.
Maxim’s tried to distance itself from the comments and a spokeswoman said the group has never taken any political stance. 

Representatives for China Resources, Citic, the local units of Bank of China and China Construction Bank didn’t respond to requests seeking comments, while a spokesperson for China Mobile said the carrier is focusing on resuming services at the damaged stores.
“Anything with a star on it is vulnerable,” Gavin Greenwood, an analyst with A2 Global Risk, a Hong Kong-based political-risk consultancy, said of mainland-affiliated businesses. 

He was referring to the Chinese flag.
“They are extremely soft targets.”

Sina Delenda Est

White House deliberates block on all US investments in China

Eamon Javers

The White House is weighing some curbs on U.S. investments in China, a source familiar with the matter told CNBC. 

This discussion includes possibly blocking all U.S. financial investments in Chinese companies, the source said.
It’s in the preliminary stages and nothing has been decided, the source said. 

There’s also no time frame for their implementation, the source added.
Restricting financial investments in Chinese entities would be meant to protect U.S. investors from excessive risk due to lack of regulatory supervision, the source said.
The deliberations come as the U.S. looks for additional levers of influence in trade talks, which resume on Oct. 10 in Washington. 

Both countries slapped tariffs on billions of dollars worth of each other’s goods. 

The discussions also come as the Chinese government is taking steps to increase foreign access to its markets.
Bloomberg News first reported earlier on Friday that Trump administration officials are considering ways to limit U.S. investors’ portfolio flows into China, including delisting Chinese companies from American stock exchanges and preventing U.S. government pension funds from investing in the Chinese market.
Shares of Alibaba, Baidu and other Chinese companies plunged following the news. 

China’s yuan weakened to 7.15 against the dollar on the report.
The White House declined to comment.

Nation of Thieves

Chinese companies stole Hitachi Metals trade secrets
By Hudson Lockett, Shawn Donnan

Hitachi Metals has filed a complaint with the US International Trade Commission against Chinese companies it alleges stole trade secrets for manufacturing ribbons made of a special alloy.
The complaint, filed by Hitachi and its US subsidiary Metglas, requests the commission investigate the companies in question, ban imports to the US of related products and issue a cease and desist order barring sale, marketing and distribution of products already in the US.
The product at the centre of the allegations is amorphous metal ribbon, or AMR – thin ribbons of a special alloy produced using trade secrets.
Amorphous metal is commonly used in electronic transformers and magnetic theft-prevention tags. The complaint to the ITC names companies including Beijing ZLJG Amorphous Technology and Qingdao Yunlu Energy Technology as having misappropriated trade secrets.
It also names two Japanese nationals and former Hitachi Metals employees as having provided said secrets to these companies. 
Hitachi argues in the complaint that substantial output growth of AMR in China from 2012 to 2015 – which it asserts occurred in the absence of any growth in production capacity – “could only have happened by receiving knowledge” of its trade secrets, which it says would have increased production efficiency.
Hitachi says one China-based company, AT&M International Trading, even filed an antidumping petition against itself and Metglas in September 2015, which alerted it to the rapid growth in China’s AMR output capacity since 2012.
Section 337 cases such as the one filed by Hitachi are often brought by US companies claiming IP violations by Chinese companies.
But cases alleging industrial espionage are relatively rare and not always successful.
US Steel last year filed an unsuccessful Section 337 case against Chinese competitors calling for a broad ban on steel imports from China because of espionage.
The steel maker claimed that government-backed Chinese hackers had stolen its formula for special high-strength steel used in automobiles.
But it struggled to prove any link between the hackers, who were charged with the theft by US prosecutors, and the product made by Chinese companies.

Axis of Evil

U.S. hits Chinese and Russian companies, individuals with sanctions for doing business with North Korea
By Carol Morello and Peter Whoriskey

A photo distributed by the North Korean government shows what was said to be the launch of a Hwasong-14 intercontinental ballistic missile at an undisclosed location in North Korea.

The Treasury Department on Tuesday placed sanctions on Chinese and Russian individuals and firms that it said had conducted business with North Korea in ways that advanced the country’s missile and nuclear weapons program, part of a broad effort by the Trump administration to further isolate the regime.
The sanctions against 10 companies and six individuals are designed to disrupt the economic ties that have allowed Pyongyang to continue funding its missile and nuclear program despite strict United Nations sanctions prohibiting it. 

It was the fifth set of U.S. sanctions related to North Korea this year, and the largest.
In a related move, two legal complaints were filed Tuesday by the Justice Department seeking the forfeiture of $11 million from two of the sanctioned companies believed to have been laundering money on behalf of North Korea.
The complaints, filed in the U.S. District Court for the District of Columbia, would represent two of the largest seizures of North Korean funds.
The Trump administration has been trying to strengthen the economic vise on North Korea in an effort to persuade it to negotiate an end to its nuclear weapons development. 

Last month, the administration pushed a new round of sanctions against North Korea at the U.N. Security Council. 

In response, North Korea vowed retaliation “a thousand times over,” and Foreign Minister Ri Yong Ho declared that North Korea would never relinquish its ballistic missile and nuclear programs.
But even as two federal agencies were taking stern measures against North Korea, Secretary of State Rex Tillerson made a gesture of appreciation to Pyongyang, welcoming its apparent restraint in not conducting any new weapons tests since the latest U.N. sanctions were adopted Aug. 5.
“We hope that this is the beginning of this signal that we’ve been looking for,” Tillerson said at a news conference that otherwise focused on Afghanistan, “that they are ready to restrain their level of tensions, they’re ready to restrain their provocative acts and that, perhaps, we are seeing our pathway to sometime in the near future having some dialogue.”
Sanctions have been the main weapon of choice as the United States has grown increasingly alarmed at North Korea’s technological progress in developing weapons capable of reaching the United States and miniaturizing nuclear warheads to fit atop them.
Even though they are imposed by just one country, U.S. sanctions have an outsize influence because most international banking is conducted at least partially in U.S. dollars. 

The measures prohibit U.S. citizens and companies from doing business with the sanctioned companies, and many banks outside the United States also adhere to them so they don’t run afoul of U.S. laws and face stiff penalties.
“The sanctions send a strong message to Beijing and Moscow to stop facilitating North Korea’s sanctions evasion,” said Anthony Ruggiero, a fellow with the Foundation for Defense of Democracies, which favors tougher sanctions on Russia and China over North Korea. 

“The action is one element of a pressure campaign that also includes targeting illicit financial transactions and pressuring U.S. allies to choose between business with the United States or North Korea.”
But in a display of the Kremlin’s anger over sanctions placed on four Russian individuals and one Russian company, Russian Deputy Foreign Minister Sergei Ryabkov said the United States had again “stepped on the same rake.” 

He called the new sanctions the latest example of the United States damaging its relationship with Russia.
“In recent years, Washington ‘in theory’ should have learned that for us the language of sanctions is unacceptable,” Ryabkov said in a statement. 

“The solution of real problems is only hindered by such actions. So far, however, it does not seem that they have come to an understanding of such obvious truths.”
Ryabkov promised that Russia was “beginning to work out a response that is inevitable in this situation.”

Although U.S. military officials and President Trump have said that the United States is prepared to take some sort of military action against North Korea if provoked, Tillerson has repeatedly called for Pyongyang to negotiate and said that the United States does not seek regime change.
Despite the diplomatic push, China, in particular, has been a sore point in making existing sanctions stick. 

Beijing has largely gone along with restrictions, at least for a time, and supported an escalating series of U.N. sanctions. 

But many Chinese companies have continued to do business with the North Korean regime by supplying technology and hardware for its missiles. 

China is responsible for 90 percent of North Korea’s international trade.
The sanctions announced Tuesday by the Office of Foreign Assets Control were predominantly against Chinese companies that have dealt with North Korea by purchasing and selling coal, oil and mineral resources, or have provided banking services that made the transactions possible.
The sanctions also hit two companies that arranged for North Korean laborers to build statues in foreign countries. 

Tillerson has been urging countries that have relations with North Korea to downsize Pyongyang’s diplomatic presence and refuse to hire North Korean labor. 

Overseas labor is a source of revenue for the North Korean government, and the laborers’ income helped finance ballistic missile testing.
“Treasury will continue to increase pressure on North Korea by targeting those who support the advancement of nuclear and ballistic missile programs, and isolating them from the American financial system,” Treasury Secretary Steven Mnuchin said.
He added: “It is unacceptable for individuals and companies in China to enable North Korea to generate income used to develop weapons of mass destruction and destabilize the region.”
The sanctions hit three types of business dealings that provide a window into how North Korea uses companies in other countries to evade sanctions.
China's Dandong Rich Earth Trading Co. was sanctioned for buying vanadium ore from a company tied to North Korea’s atomic energy agency. 

The Russian firm Gefest-M, which trades in a wide range of consumer goods as well as construction and industrial equipment, procured metals for a North Korean mining company with a Moscow office. 

The Chinese company Mingzheng International Trading facilitated dollar transactions on behalf of North Korea’s proliferation network.
In addition, three Chinese coal companies were sanctioned for importing nearly $500 million of North Korean coal between 2013 and 2016. 

The Treasury Department said coal trade generates more than $1 billion a year for North Korea, the country’s biggest export and an activity that was targeted in U.N. sanctions imposed in November.
In the Justice Department complaints filed in federal court Tuesday, one seeks $4 million from Dandong Zhicheng Metallic Material Co., also known as Dandong Chengtai Trading Co., one of China’s largest importers of North Korean coal. 

According to the complaint, it and related companies imported North Korean coal and then sent a wide array of products — cellphones, luxury items, rubber and sugar — to North Korea.
The other complaint seeks $7 million associated with Velmur Management Pte., a Singapore-based company that was accepting money from front companies for North Korean banks. 

Velmur sent money to a Russian petroleum company alleged to have sent fuel oil to North Korea.
“These complaints show our determination to stop North Korean sanctioned banks and their foreign financial facilitators from aiding North Korea in illegally accessing the United States financial system to obtain goods and services in the global market place,” U.S. Attorney Channing Phillips said in a statement.
The United States also is targeting North Korea’s revenue from overseas labor. 

Among the new sanctions, Mansudae Overseas Projects was accused of helping North Korean laborers work abroad, usually in countries with authoritarian rulers, to build statues that immortalize the dictators.
According to Treasury, Kim Tong Chol, Mansudae’s managing director, arranged for Qingdao Construction, a Namibia-based subsidiary of a Chinese company, to take over four Namibian government-sponsored construction projects as well as the employees and materials associated with the work.

Axis of Evil

Kim Jong Un’s rockets are getting an important boost — from China
By Joby Warrick

Participants practice Wednesday for a parade on the main Kim Il Sung square in central Pyongyang. 

When North Korea launched its Kwangmyongsong-4 satellite into space last February, officials heralded the event as a birthday gift for dead leader Kim Jong Il. 

But the day also brought an unexpected prize for the country’s adversaries: priceless intelligence in the form of rocket parts that fell into the Yellow Sea.
Entire sections of booster rocket were snagged by South Korea’s navy and then scrutinized by international weapons experts for clues about the state of North Korea’s missile program. 

Along with motor parts and wiring, investigators discerned a pattern. 

Many key components were foreign-made, acquired from businesses based in China.
The trove “demonstrates the continuing critical importance of high-end, foreign-sourced components” in building the missiles North Korea uses to threaten its neighbors, a U.N. expert team concluded in a report released last month. 

When U.N. officials contacted the implicated Chinese firms to ask about the parts, the report said, they received only silence.
China’s complex relationship with North Korea was a key topic during last week’s U.S. visit by Xi Jinping, as Trump administration officials urged Chinese counterparts to apply more pressure on Pyongyang to halt its work on nuclear weapons and long-range delivery systems. 

Yet, despite China’s public efforts to rein in North Korea’s provocative behavior, Chinese companies continue to act as enablers, supplying the isolated communist regime with technology and hardware that allow its missiles to take flight, according to current and former U.S. and U.N. officials and independent weapons experts.
The private assistance has included sensitive software and other items specifically banned for export to North Korea under U.N. Security Council sanctions, the officials and experts said.
China has officially denied that such illegal exports exist, but investigations show restricted products were shipped privately to North Korea as recently as 18 months ago. 

Still unclear, analysts said, is whether the Chinese government approved of the exports, or is simply unwilling to police the thousands of Chinese companies that account for more than 80 percent of all foreign goods imported by North Korea each year.
“There’s all kinds of slack in the system,” said Joshua Pollack, a former consultant to U.S. government agencies on arms control and a senior research associate with the James Martin Center for Nonproliferation Studies. 

“It could be that the Chinese don’t care enough to do much about it. A second possibility it that they don’t have the systems — such as strong export controls — in place. Or that it’s just corruption.”
Whatever the reason, experts say, the flow of products through China has allowed North Korea’s missiles engineers to achieve progress that would otherwise be difficult for an impoverished regime that is cut off from the West and lacks a sophisticated microelectronics industry.
When confronted privately about such exports, Chinese officials have typically demanded high levels of proof — specific names and dates that can be difficult to derive from water-damaged rocket parts pulled from the ocean, said an Obama administration nonproliferation official involved in sensitive negotiations with China over its relations with North Korea.
“They’d say, ‘give us details,’ but in most cases we could never say it was ‘this precise person on this precise day,’” said the official, who insisted on anonymity in describing diplomatic negotiations. “With them, it was never a team sport. It was always just the bare minimum of what they had to do in order to avoid having to take serious action.”

North Korea's Unha-3 rocket lifts off from the Sohae launchpad in Tongchang-ri, North Korea, in 2012.

The Unha-3, the rocket that launched North Korea’s Kwangmyongsong-4 satellite into orbit on Feb. 7, 2016, was among the most powerful ever built by Kim Jong Un’s government. 

It is also the most worrisome. 

U.S. and South Korean intelligence officials have long believed that the three-stage, 100-foot-tall rocket was designed as a forerunner for a future nuclear-tipped space vehicle that could allow North Korea to threaten cities as far away as Washington.
Mindful that spy agencies would seek to recover spent parts after the launch, North Korean engineers laced the rocket with explosives so that each stage would self-destruct while hurtling back to Earth. 

Still, South Korean navy ships were waiting to scoop up any parts that survived, eventually harvesting enough components to allow a crude reconstruction of the entire rocket.
Investigators determined that the Unha-3’s frame was indigenously made. 

But inside the rocket’s shell was an array of electronics, including specialized pressure sensors, transmitters and circuitry. 

An extensive probe by U.S. and South Korean officials revealed that many of the components had been manufactured in Western countries and shipped to North Korea by Chinese distributors — a finding that was echoed in the United Nations Panel of Experts report made public on March 9.
The report, which received scant attention outside the world body, described elaborate systems for disguising technology exports intended for North Korea. 

Some schemes involved Chinese front-companies created by North Korean intelligence agencies; others were run through banks created as joint ventures by Pyongyang and foreign partners, including Chinese financial institutions. 

As sanctions grew tougher, the sanction-busters simply learned new tricks for getting around the rules, the panel’s investigators found.
“The Democratic People’s Republic of Korea is flouting sanctions through trade in prohibited goods, with evasion techniques that are increasing in scale, scope and sophistication,” the eight-member panel concluded. 

International resolve for approving new sanctions had “not yet been matched,” the report said, “by the requisite political will, prioritization and resource allocation to ensure effective implementation.”

North Korean leader Kim Jong Un watched the ground jet test of a Korean-style high-thrust engine newly developed by the Academy of the National Defence Science in this undated photograph. 

Some of the banned components exported to North Korea can’t be found inside a missile frame. 

A separate report by U.S. weapons experts reveals how Pyongyang used Chinese middlemen to obtain access to European-made software essential for making parts that go inside advanced rockets.
The report recounts a 2015 business deal in which a European manufacturer agreed to sell sensitive software and industrial-control systems to a Chinese company based in the northeastern Chinese city of Shenyang, about 150 miles from the North Korean border. 

The deal that came with an important condition: None of the items were to be resold to North Korea.
The agreement was quickly broken, according to the report by the Institute for Science and International Security, a Washington nonprofit that focuses on nuclear-weapons proliferation. 

The purchaser, a manufacturing giant in northeastern China known as the Shenyang Machine Tool Co. Ltd., integrated the European technology in its own line of industrial milling machines used to make metal parts. 

Two of those machines were then sold to North Korea, the report said. 

While North Korea’s eventual use of the machines is not known, the controllers and software are used elsewhere to manufacture parts for missiles as well as centrifuges used to make enriched uranium.
“These goods were supplied to Shenyang Machine Tools under the condition that they would not be retransferred to North Korea or other sanctioned states,” said the report, set to be released this week. European officials “decided to investigate the responsible individuals in the Shenyang company but this effort failed,” the document said. 

Shenyang officials would later claim that the transfer of sensitive technology had been "inadvertent", the report said.
David Albright, author of the report and a former U.N. weapons inspector, declined to identify the European manufacturer or the government that conducted the investigation, citing confidentiality agreements. 

The Shenyang firm did not respond to emailed requests from The Washington Post seeking comment.
Albright, the author of dozens of technical studies on North Korea’s weapons programs, noted that China has made a show of prosecuting other businesses that violate sanctions on trading with North Korea. 

But he said the Shenyang case illustrates that illicit trade continues, often under complex schemes that are difficult even for Chinese authorities to spot.
But he argued that the Chinese could do much more.
“It’s a question of priorities,” said Albright, who has discussed such cases with Chinese officials. “China is an export economy and money is never a dirty word, ever. There are good people in the system who would like to do more, but as you work your way down through the bureaucracy, the interest goes way down.”

There are signs that Beijing is beginning to tighten the screws. 

In September, Chinese authorities arrested at least 11 business executives in the border city of Dandong for allegedly selling banned goods to North Korea. 

Among those arrested was Ma Xiaohong, the 44-year-old founder and chairwoman of Hongxiang Group, a company accused by U.S. officials of supplying Pyongyang with rare metals and chemicals used in nuclear-weapons production. 

China also recently curtailed coal imports from North Korea and imposed unilateral sanctions intended to pressure Kim Jong Un into halting further nuclear tests.
In public comments after the Ma arrest, Chinese Foreign Ministry spokesman Lu Kang said his country would be “relentless” in enforcing sanctions aimed at ridding the Korean Peninsula of nuclear weapons.
“These efforts are there for all to see,” Lu said.
During last week’s presidential visit, Trump administration officials urged Xi to do still more. 

At a news conference on Thursday, Secretary of State Rex Tillerson called on China to join in a “new strategy to end North Korea’s reckless behavior.”
The same message has been delivered privately as part of a pressure campaign that dates at least to the early years of the Obama administration. 

In meetings, U.S. officials have warned that a failure to halt the illicit trade could speed up Kim Jong Un’s nuclear timetable and increase the risk of a regional war — one that could devastate regional economies and send waves of refugees streaming across China’s border — an outcome Chinese leaders are particularly anxious to avoid, according to a recently retired U.S. diplomat and veteran of numerous rounds of such talks.

Chinese Aggressions

The curious timing of US senator Marco Rubio’s South China Sea sanctions bill
By Steve Mollman

South China Sea watcher.

US senator Marco Rubio, a Florida Republican, floated a bill that’s sure to stoke anger in Beijing. The measure would, among other things, sanction Chinese companies that engage in “illegitimate activities” in the South China Sea, such as dredging to expand the militarized islands China has built.
The timing is curious.
This also happens to be the week when Rex Tillerson, US president Donald Trump’s secretary of state, makes his first big trip to Asia on behalf of the government. 

Arguably his most important stop will be in Beijing, where he hopes to persuade Chinese leaders to take a tougher stance against North Korea. 

North Korea, which relies heavily on trade with the big rogue nation for cash, has been rattling the region with its testing of ballistic missiles and nuclear weapons. 

The US state department is reportedly considering deeper sanctions against Chinese companies that continue to do business with North Korea.
Tillerson also will have to deal with Beijing’s anger over the THAAD antimissile defense system the US is beginning to set up in South Korea. 

The idea behind the system is to stop sudden North Korean missile attacks, but Beijing fears THAAD’s advanced radar capabilities will also make its weaponry—or at least the threat of it—less potent, and thereby upset the balance of power in the region. (South Korean companies already are facing an economic backlash in China over the system.)
There’s also the issue of trade tensions between the US and China. 

During his campaign, Trump said he would declare China a currency manipulator on the first day of his administration. 

He has yet to do so, but Beijing is nervous enough that Li Keqiang emphasized this week that China does “not want to see any trade war breaking out between the two countries.”
Amid all this, Rubio chose now to introduce his bill, called the “South China Sea and East China Sea Sanctions Act.” 

He was joined by Democratic senator Ben Cardin, showing bipartisan support for the measure.

The timing seems especially curious given that the bill is a revision of an earlier one submitted last December. 

Why is it being resurfaced just as Tillerson prepared to visit Beijing on March 18 and 19? 

Quartz reached out to Rubio’s office about the timing but did not received an immediate reply.

Busy in the South China Sea
China claims as its own nearly the entire South China Sea, despite an international tribunal ruling last July that its sweeping claim had neither a legal nor historical basis. 

Beijing dismissed the ruling and continues to fortify its position, expanding upon artificial militarized islands it’s built atop reefs in recent years.
The bill specifically mentions (pdf, p. 21) a few dozen Chinese companies that should be watched for their involvement in such activities, and sanctioned if necessary. 

Among them are China’s biggest state-owned oil companies, including China National Offshore Oil Corporation (CNOOC).
Tillerson has bumped heads with CNOOC in the past, during his reign as the CEO and chairman of ExxonMobil. 

In 2014, CNOOC moved a giant rig into an offshore block near the coast of Vietnam. 

ExxonMobil had received exploration rights for the block from Hanoi, but part of it falls within China’s nine-dash line, which it uses to justify its vast claims to most of the sea. 

Deadly riots against ethnic Chinese and Chinese businesses ensued in Vietnam, and after a military standoff China backed down.
Despite the uneasiness over China’s claims—which has generally scared off exploration by foreign energy giants in the resource-rich South China Sea—Tillerson helped lay the groundwork for a $10 billion natural gas project called Blue Whale off Vietnam’s central coast. 

It’s possible Tillerson might have to confront China over that or similar projects involving US energy companies in the area during his term—somewhat awkward given his Big Oil background.
Tillerson barely got the chance to have his cabinet appointment confirmed by the full US Senate. 

In mid-January, the Senate’s foreign affairs committee was in a 10-10 deadlock, along party lines. 

One Republican lawmaker was still mulling things over and held the tie-breaking committee vote to decide whether the nomination would be put up for a vote in the full Senate, where a victory was assured because of Republican dominance. 

That lawmaker was Rubio, who, despite reservations on Tillerson’s commitment to human rights, eventually cleared the way for the former CEO.
Tough questions on the way.

Critics contended that Rubio’s public skepticism of Tillerson was essentially a form of grandstanding. They might decide that, with the timing of this week’s bill introduction, he is once again seeking attention. 

Perhaps. 

But if so, the move seems less about personal posturing and more about bringing attention to the issue at hand.
Rubio’s resistance to China’s growing assertiveness at sea and authoritarianism at home is genuine. 

Last month he helped reintroduce the “Hong Kong Human Rights and Democracy Act,” which would “renew the United States’ historical commitment to freedom and democracy in Hong Kong at a time when its autonomy is increasingly under assault.” 

Once again, his criticism (expressed through legislation) was essentially directed at Beijing.

The introduction of the act this week will create an additional awkward moment or two for Tillerson on an already awkward trip. 

Rubio, who received considerable flack for clearing Tillerson for Senate confirmation to his new role after expressing strong reservations about him, probably doesn’t mind that too much.
But more important, it conveys a message that the US hasn’t lost track of Beijing’s overreaching claims in the South China Sea, and is prepared to take action. 

Each year, $5.3 trillion of global trade passes through the vital waterway, including $1.2 trillion of US commerce. 

Last year the Center for Strategic and International Studies warned the sea could become “virtually a Chinese lake” by 2030.

Expert: Trump must be firm, strong in China dealings

Chinese companies can own companies outright in the United States, but that's not the case for U.S. companies in China
By Eric D. Lawrence

An expert on China's impact on the U.S. auto industry might agree with President Donald Trump's strong stance on dealing with China, at least when it comes to trade.
Michael Dunne, author of "American Wheels, Chinese Roads," offers some advice for Trump:
"Be very strong and very firm," Dunne said today during an Automotive Press Association luncheon at the Detroit Athletic Club. 

The "Chinese respect when you are strong and firm."
Dunne said reciprocity should be the rule in negotiating trade deals.
"We should have equal access in each market. Today that's not the case," Dunne said, describing the differences U.S. and Chinese companies face in the other country's markets.

Chinese companies can own companies outright in the U.S., but that's not the case for U.S. companies in China. 

Among the hurdles for American companies in China is the requirement that they form a joint venture with a Chinese company, and the U.S. companies are not allowed to own more than 50% of the new entity.
Such requirements along with extra costs associated with exporting to China are unique and should not be accepted, Dunne said, noting that if China doesn't open its market to the U.S., then the U.S. should impose similar joint-venture requirements on Chinese companies.
“India doesn’t have it, Russia doesn’t have it, no other country has it," he said. 
“We should be able to control our own destiny in China with our business."
Not all differences, however, relate to trade deals.
Dunne said Chinese businesspeople like to ease into business discussions because they want to feel comfortable with potential partners.
He said he had once been given advice to take Chinese business people to a nice dinner on the first day of a multiday business trip here. 

By the second day, business could be discussed, but plowing immediately into business discussions was not advised.
Dunne described how China's dealings with foreign companies had changed over the years, from one in which foreign companies had advantages early on to today, in which the Chinese have the advantages at home.
The goal of the country's political leadership had been to build a huge home market and protect it.
As China's annual vehicle sales have grown from 2 million in 2000 to 27.5 million in 2016, imports represent less than 4% of that total.
By 2020, Dunne said, there would be more cars in China than in the U.S.
"What's sold in China is built in China," Dunne said.
As these changes have occurred, China's investments in the U.S. have grown dramatically as well. Dunne said that from 2010-16, Chinese entities had invested $5 billion in the Midwest supplier base. He noted that the Chinese already have a presence here, referencing Beijing West Industries, which, according to Crain's Detroit Business, acquired Delphi's global brake and suspension business in 2009.
The company is currently involved in vehicle testing in Milford.
In California, where Dunne lives, six companies with Chinese connections have located, with ambitions to build high-end, electric and autonomous vehicles.
He noted that Faraday Future, which is based in Gardena, is connected to a Chinese billionaire who runs the "Netflix of China."
The company says it has created the world's quickest electric car.
And further disruption is coming through the production of cars being built in China for shipment back to the U.S.
The Free Press had previously reported on plans to sell Buick's Chinese-made Envision crossover in the U.S.
Nothing about that vehicle suggests it was built in China, Dunne noted.

China's Dirty Money

Nose to the Window for China
By Nisha Gopalan

No matter who becomes the next occupant of the White House, it's already clear that it will be tougher for Chinese companies to make acquisitions in the U.S. and elsewhere in the West.
Chinese companies have ramped up outside purchases amid a slowing economy at home, but they are finding a bigger push-back from politicians in their target markets. 

U.S. lawmakers have expressed strong concern about Chinese acquisitions in Hollywood and urged the Treasury Department to reject the $1.1 billion takeover of Aleris Corp., a Cleveland-based aluminum firm, by China Zhongwang Holdings Ltd. 

That came a week after once-welcoming Germany withdrew its support for the 670 million euro ($743 million) purchase of chipmaker Aixtron SE by a unit of Fujian Grand Chip Investment Fund LP.
Even as Chinese companies hone their sophistication in global dealmaking, it's looking as if there's not much left beyond Switzerland and Mediterranean markets like Italy and Portugal.
Scrapped Chinese overseas acquisitions are hitting levels not seen since 2009, when the world was reeling from the global financial crisis and mainland buying of overseas commodities and related companies was on a tear. 

On the Scrap Heap
The value of rejected Chinese acquisitions overseas is approaching the record level it hit in 2009, when China was on a commodities buying spree

Note: Several big China commodity deals were scrapped in 2009, including the Aluminum Corp. of China's $4.1 billion bid for a majority of Rio Tinto and Sinochem's $3.7 billion bid for Australia's Nufarm. Cnooc's $19 billion Unocal bid was rejected in 2005.

The U.S. has always been a tough market for China, which was made clear when regulators spurned oil giant Cnooc's almost $19 billion bid for Unocal more than a decade ago. 

But that hasn't stopped companies from trying, even as the list of spurned deals this year grows. 

For example, Anbang Insurance Group Co.'s $14 billion offer for Starwood Hotels & Resorts Worldwide Inc. earlier this year, scuttled in large part by opposition in Washington, is the second-biggest terminated Chinese transaction in the U.S.
As that deal indicates, opposition is moving beyond military-related, energy and infrastructure purchases. 

Technology options are also increasingly out, led by Tsinghua Unigroup’s $23 billion rebuffed attempt to acquire Micron, which would have been the largest Chinese overseas takeover at the time. The company also backed out of a $3.78 billion deal to invest in disk-drive maker Western Digital Corp. 

Other abandoned deals include a lighting unit put on the block by Royal Philips NV and Silicon Valley stalwart Fairchild Semiconductor International Inc.
The U.S. push-back has even expanded into so-called soft power like media. 

Tycoon Wang Jianlin, who has set his sights on Carmike Cinemas and finalized his acquisition of Golden Globes producer Dick Clark Productions, faces political accusations of being the vehicle for China's takeover of American cultural trophies.
Opposition isn't limited to the U.S., either. 

Until the approach for Aixtron, Germany, while increasingly sensitive to Chinese purchases, seemed ready for China's business despite rumblings about the sale of robot maker Kuka AG. 

That openness is going to be increasingly rare.
Australia, long a source of cheap commodities and utilities and highly dependent on trade with China, joined the chorus this year, blocking a bid last month from mainland Chinese buyers for Ausgrid, the country's largest electricity network, as public opposition to the sale of everything from farmland to Sydney real estate heats up.
Even Britain, one of the most popular destinations for Chinese investing, is partly cooling to Chinese money after its vote to leave the European Union. 

After a brief delay, Britain approved the controversial 18 billion pound ($22.4 billion) Hinkley Point nuclear power project funded by Chinese money in September but attached new conditions on foreign investing in U.K. infrastructure. 

That leaves just three relatively wide open big markets: Switzerland, home to agricultural giant Syngenta AG, which China National Chemical Corp. is looking to buy for $46 billion in its hunt for seed technology; Italy, where the Chinese chemicals giant acquired tiremaker Pirelli last year; and Portugal, whose largest insurer is now in Chinese hands.
But narrowing the potential Western geographies that are open for business means that access to the kind of technology knowledge or global brands the Chinese covet is becoming much more difficult. While strapped Greece or emerging markets like Pakistan open their smaller ports and utilities to Chinese money, the really big Western targets could be off the table. 

Shopaholic
Of the top 10 bids for overseas assets made by Chinese acquirers on record, five were this year, and all but Spanish firm Repsol's sale of its Brazilian assets were of Western companies

Chinese bidders are going to have to either narrow their focus to targets in other parts of the world or focus on minority stake purchases if they want to keep buying overseas. 

Though unlikely to fizzle, China's M&A boom is definitely beginning to sputter. 

US Reserves Right to Punish China Firms Working With North Korea

By MATTHEW PENNINGTON, WASHINGTON
In this Feb. 26, 2016 photo, Assistant Secretary of State for East Asian and Pacific Affairs Daniel Russel meets with reporters after the meeting with South Korean senior officials at the Foreign Ministry in Seoul, South Korea. Russel said that Washington reserves the right to punish Chinese companies that violate U.N. sanctions on North Korea if Chinese authorities don’t take action.

The United States reserves the right to punish Chinese companies that violate U.N. sanctions on North Korea if Chinese authorities don't take action, a senior U.S. official said Wednesday.
Top U.S. diplomat for East Asia, Daniel Russel, said that since most of North Korea's illegal activities are conducted through neighboring China, companies are "going to have to tighten up and shut down operations." 

The U.S. is looking to cooperate with international partners in cutting revenue sources for the North's nuclear and missile programs.
North Korea has conducted two nuclear test explosions and more than 20 missile launches this year, intensifying concern that it is closer to having a nuclear-tipped missile that could reach America.
The Justice Department last month unsealed criminal charges against a China-based company, Dandong Hongxiang Industrial Development Co., and four of its executives for conspiring to evade sanctions, and the Treasury Department barred them from business dealings with the U.S. Chinese authorities have also said they were investigating Hongxiang on suspicion of unspecified "serious economic crimes."
"To the extent that the Chinese authorities themselves take action against North Korea malefactors or Chinese companies that are collaborating with North Korea then there's no cause for action by the United States or others," Russel told reporters.
"Where they don't take action, the United States reserves the right under U.N. Security Council resolution 2270 or under our own national authorities to take action," he said, referring to the most recent sanctions resolution against North Korea, adopted in March.
Russel said while there's "frustration and differences of view" between Washington and Beijing, they do cooperate on North Korea. 

The U.S. is constantly "scanning the horizon" for evidence of sanctions violations and makes a point of sharing with China first any information they have about "bad actors" there, he said.
China is the North's traditional ally and main trading partner. 

The U.S. is currently pushing for tighter U.N. sanctions that would impose additional restrictions on North Korea's exports of coal that account for about one-third of its export income and mostly go to China.
A succession of U.N. sanctions resolutions and U.S. sanctions have failed to stop North Korea's weapons development and to force it to return to negotiations on giving up its nuclear program in exchange for aid. 

The North argues that it needs nuclear weapons to deter a U.S. invasion. 

Russel called that "absurd."
He argued that the nuclear program has only diminished the security of North Korea and its dictatorial leader Kim Jong Un and hurt its diplomatic and economic standing.
"Put yourself in Kim Jong Un's place. That is not a good place to be. Perhaps he's got an enhanced capacity to conduct a nuclear attack and then immediately die. But that can't be plan A," Russel said.
The U.S. retains 28,000 troops in South Korea, a legacy of the 1950-53 Korean War which ended without a formal peace treaty.