George Soros: China is using tech advances to repress its people

Artificial intelligence and machine learning are being used for authoritarian control

By Larry Elliott in Davos

George Soros delivers a speech at his dinner at the World Economic Forum in Davos, Switzerland. 

The billionaire philanthropist George Soros has delivered a stinging attack on China with a warning that Xi Jinping’s regime is using breakthroughs in machine learning and artificial intelligence to repress its people.
Soros used his annual dinner at the World Economic Forum to say Xi was the most dangerous opponent of open societies and to call on the west to crack down on Chinese tech companies that were being used as a means of authoritarian control.
“I want to call attention to the mortal danger facing open societies from the instruments of control that machine learning and artificial intelligence can put in the hands of repressive regimes. I’ll focus on China, where Xi Jinping wants a one-party state to reign supreme,” Soros said.

The former hedge fund dealer said that in China all “the rapidly expanding information available about a person is going to be consolidated in a centralised database to create a ‘social credit system’.
“Based on that data, people will be evaluated by algorithms that will determine whether they pose a threat to the one-party state. People will then be treated accordingly.”
China, he added, was not the only authoritarian regime in the world, but it was the wealthiest, strongest and most developed in machine learning and AI.
Soros said there was an undeclared struggle between the west and China over governance of the internet. 

China wanted to dictate rules and procedures that governed the digital economy by dominating the developing world with its new platforms and technologies.
“Last year I still believed that China ought to be more deeply embedded in the institutions of global governance, but since then Xi Jinping’s behaviour has changed my opinion,” he said.

“My present view is that instead of waging a trade war with practically the whole world, the US should focus on China. Instead of letting [the Chinese tech companies] ZTE and Huawei off lightly, it needs to crack down on them.
“If these companies came to dominate the 5G market, they would present an unacceptable security risk for the rest of the world.”
Soros said Trump was taking the wrong approach to China: making concessions to Beijing and declaring victory while renewing his attacks on US allies.
“This is liable to undermine the US policy objective of curbing China’s abuses and excesses. The reality is that we are in a cold war that threatens to turn into a hot one.”

Public Enemy Number One

China’s Xi Jinping most dangerous to free societies, says George Soros
By Joe Miller

The billionaire philanthropist George Soros has used his annual speech at the World Economic Forum, in Davos, to launch a scathing attack on China and its dictator Xi Jinping.
Mr Soros warned that artificial intelligence and machine learning could be used to entrench totalitarian control in the country.
He said this scenario presented an "unprecedented danger".
But he said the Chinese people were his "main source of hope".
"China is not the only authoritarian regime in the world but it is the wealthiest, strongest and technologically most advanced," he said, noting concerns too about Vladimir Putin's Russia.

Security risk
"This makes Xi Jinping the most dangerous opponent of open societies," he said.
Mr Soros, a prominent donor to the Democratic Party in the US, also criticised the Trump administration's stance towards China.
"Instead of waging a trade war with practically the whole world, the US should focus on China," he said.
He urged Washington to crack down on Chinese technology companies such as Huawei and ZTE, which he said present an "unacceptable security risk for the rest of the world".
More broadly, Mr Soros cautioned that repressive regimes could utilise technology to control their citizens, in what he called "a mortal threat to open societies".

The 88-year-old Hungarian-born Jewish businessman, who survived Nazi occupation by forging identity documents, became infamous for his involvement in the devaluation of the British pound, known as Black Wednesday.

But it is his philanthropic and political activities that have made him a divisive figure in the US, Europe and beyond.
He has spent billions of his own money funding human rights projects and liberal democratic ventures around the world, and has become a frequent target for criticism by right-wing groups due to his support for liberal causes.
Much of the criticism aimed at him has been criticised as having anti-Semitic undertones.
Last year, a suspect package was found in a post box at his home in New York.
Mr Soros used his Davos speech last year to lambast tech giants such as Facebook, and what he considered to be their corrosive effect on democratic systems.
But this year, he directed his wrath towards Beijing, and particularly its controversial "Belt and Road" investment plan, which pays for road, rail and sea links to boost trade with countries around the world.
"It was designed to promote the interests of China, not the interests of the recipient countries," he said.
"Its ambitious infrastructure projects were mainly financed by loans, not by grants, and foreign officials were bribed to accept them."

Drop the Act!

Forget Xi’s ‘defense’ of globalization. China just fortified the Great Firewall.
By Emily Rauhala

Xi Jinping traveled to the World Economic Forum in Davos, Switzerland, last week to tout Chinese leadership on global trade.
In his keynote speech, he used words like “connectivity.”
Protectionism, he told the audience, is like “locking oneself in a dark room.”
With trade-skeptic Donald Trump now in charge in Washington, the Chinese president was quickly cast as his free trade-loving foil.
The Financial Times called Xi's speech a “robust defense of globalization.”
The Wall Street Journal described it as a “full-throated defense of free trade.”
But as Davos drew to a close, a timely reminder that open borders are not really Xi's thing: Over the weekend, China announced a new, year-long crackdown on “unauthorized Internet connections.” 
That means another fortification of the Great Firewall that largely keeps China's Internet users in a “room” of their own — and hurts U.S. companies along the way.
A statement published on the website of the Ministry of Industry and Information Technology on Sunday said regulators will spend the next year “cleaning up” the Internet by taking aim at companies that provide virtual private networks, or VPNs, that allow people to access blocked sites, including the likes of Twitter and Facebook.
In recent years, China has tightened control over the Internet, strengthening the Great Firewall in the name of “Internet Sovereignty” — a Xi slogan that calls for each state to exercise absolute control of its slice of the Web.
Lester Ross, a partner at Wilmer Hale's Beijing office who advises U.S. and Chinese tech companies, said the notice fits squarely with this vision.
“Broadly speaking, it is consistent with the emphasis on "cyber sovereignty" as opposed to international connectivity,” he said.
It is still unclear how, exactly, the new rules will be implemented.
Often this type of announcement is deliberately vague.
Internet companies in China are already closely regulated and VPNs providers are already subject to crackdowns — including one ahead of political meetings last March.
But experts on China's Internet said the notice seems to take aim at Chinese companies providing VPN services to individuals in China — and not, say, those helping multinational companies connect with their home office.
William Long, a Chinese tech blogger, said the new rules could bolster existing efforts to get Chinese VPN providers to gather data on users.
Although well-established Chinese tech firms are already storing this type of information, Long said, unregistered upstarts providing low-cost VPN accounts on a small scale may now be forced to register and comply — a surefire way do discourage would-be connectors.

“Don't listen to what Xi Jinping says, but look at what he does

The EU Calls on Xi Jinping to Put His Words into Action
Reuters

The European Union urged China on Wednesday to make "concrete progress" in opening its markets to global investment, after Xi Jinping decried protectionism in a speech at the recent World Economic Forum in Davos, Switzerland.

"A speech is a speech and actions are actions," said Hans Dietmar Schweisgut, EU Ambassador to China, adding that he would be "surprised" if Xi was able to translate words into action.
At Davos last week, Xi called for "inclusive globalization" and for global unity, saying "self-isolation will benefit no-one," two days before the inauguration of U.S. President Donald Trump.
During that week, China's cabinet issued measures to further open the economy to foreign investment, including easing limits on investment in banks and other financial institutions.
No further details were provided, nor a timetable for their implementation.
So far, the EU has not seen "sufficient signs that China will be willing to grant reciprocity of market access to European companies," Schweisgut told reporters in Beijing.
In June 2016, the European Chamber of Commerce in China warned that foreign companies face an increasingly hostile environment in China, with fewer than half its members saying they planned to expand operations in the world's second-largest economy.
Billionaire investor Wilbur Ross, Trump's choice for commerce secretary, has called China the "most protectionist" country in the world, and said China's officials "talk much more about free trade than they actually practice."
Trump has previously criticized China's trade practices and threatened to impose punitive tariffs on Chinese imports.
China has said it is confident it can resolve trade disputes with the new U.S. government, though some state media and government advisors have warned that U.S. aircraft manufacturers, automobile companies and agricultural products could be caught in the cross-fire of increased trade tensions.
When asked whether Europe saw any opportunities in China's warnings of punitive measures against the U.S., Schweisgut said this was "interesting speculation" but that he did not know enough about Trump's trade policy plans to comment.

The Coming Collapse of China

Can China Survive President Trump?

By Tom Orlik & Michael Pettis

This week, Xi Jinping will attend the Davos forum for the first time -- a sign of how concerned China is about a possible retreat from "globalization". 

Till now, easy access to world markets has underpinned the country's expansion. 

How badly Chinese growth could be hurt by new trade barriers may be the most pressing question facing the world economy. 

Beijing University professor Michael Pettis, one of the best-known China skeptics, is gloomy.

Orlik: President Donald Trump’s talk of tariffs and the rise of populist nationalism evident in the Brexit vote are warning signs of a coming storm. At this point, though, there’s no way of knowing how severe the storm will be. The history of U.S.-China relations shows tough talk on the campaign trail rarely translates into action in office.

Michael Pettis: You may be right, Tom, but the global economy continues to be distorted by huge trade imbalances. 

The worst offender is Germany, whose record-breaking surpluses just keep growing. 

Meanwhile Japan is running large surpluses again after five years of deficits. 

These and other large surpluses are driven not by rising productivity but rather by structurally weak domestic demand, and in most cases this weak demand isn’t being addressed except by being exported. 

China is one of the few surplus countries that has actually improved domestic demand, driving its current account surplus down from 10.1 percent of GDP in 2007 to under 3 percent today. 

In absolute terms, however, China’s surplus is barely 10 percent below its previous peak.
To make matters worse, while collapsing commodity prices until recently forced commodity-exporters to absorb part of these imbalances, they no longer can do so. 

Nearly half the responsibility for absorbing foreign surpluses now falls onto U.S. consumers. 

That's why, even if Trump is bluffing, this problem isn't going away.

Orlik: Here's another way of looking at those China numbers: With the current account surplus down to 2.7 percent of GDP, trade is clearly a smaller contributor to growth than it used to be. Even if Trump did erect major trade barriers to Chinese goods, perhaps even the 45 percent tariffs he's talked about, the costs to China wouldn't be as great as many imagine.

Michael Pettis: It depends on how quickly it happens. 

To achieve last year’s GDP growth target, Chinese debt had to grow by a gut-wrenching 40 percentage points of GDP. 

Every one-point contraction in China’s trade surplus raises that amount by nearly one-third. 

As things stand, China probably has little more than two to four years in which to reverse its dependence on debt. 

Another credit-fueled stimulus would just give Beijing even less time.
Ultimately the only meaningful way to reverse China’s debt dependence is to boost consumption as a source of growth. 

Yet with household income at just over 50 percent of GDP, among the lowest in history, Beijing must raise household income even as it cuts back investment. 

This won’t be easy: It requires aggressive reforms that effectively transfer wealth from local governments to ordinary households. 

China has been trying to do this since 2007, but political opposition from so-called vested interests has been, as you know, ferocious. 

Even if this year’s Party Congress centralizes decision-making enough to allow Chinese leaders to implement the necessary reforms, it could easily take two to three years before the impact is felt.
China was always unlikely to have a financial crisis, but the more debt there is, the more downward pressure there will be on the economy, which means growth will drop substantially whether or not there is a crisis. 

A contraction in trade just makes a bad problem worse.

Orlik: All valid points, Michael. But I’d place the emphasis slightly differently. Household consumption is already doing some work to offset weak exports; it's been rising as a share of GDP since 2010. Higher wages, increased returns on savings and improved welfare coverage are all gradually adding to stronger consumption. Direct subsidies -- like the tax cuts that boosted auto spending in 2016 -- can accelerate the trend.

Michael Pettis: Growth in household consumption is certainly becoming a bigger share of GDP growth, but largely because decelerating growth in investment and net exports automatically raises the consumption share. 

This is just passive rebalancing, and at this pace it will take nearly a decade before consumption meaningfully drives the economy. 

As for shifting credit allocation to the new economy, this has always been a bit of a red herring. 

New-economy consumption has certainly grown quickly, but mainly by cannibalizing old-economy consumption. 

It is consumption growth overall that must drive the economy, and consumption is necessarily constrained by the growth in household income.
In the near term, ironically, none of this might seem relevant. 

Chinese capital is pouring into the U.S., in part because of trade worries, and the U.S. current account deficit must automatically rise with net capital inflows. 

In the next year, in other words, China’s trade surplus might actually rise along with the American deficit. 

As long as it depends on such surpluses to resolve domestic demand, the Chinese economy will remain vulnerable to trade war.

Xi Jinping At Davos, World's Most Powerful Beggar

By Gordon G. Chang

Xi Jinping will address the World Economic Forum on Tuesday in Davos, the first time a Chinese leader has done so.
Chinese state media tells us he will speak strongly in favor of globalization. 

That message will be difficult to accept, however, as his country is closing off its market, restricting outbound capital flows, and delinking from the world.
Yet there is a more important storyline about the trip to the Swiss Alps. 

Xi will be begging for foreign investment. 

His country needs cash.
Xi, according to Chinese officials in Geneva, will advocate “inclusive globalization.” 

Jiang Jianguo, the chief of the State Council Information Office, said Xi hopes for “a human community with shared destiny.” 

As People’s Daily said Saturday, he “will present a confident, open, responsible, and positive Chinese voice to the world.”
Xi may be “confident,” “responsible,” and “positive,” but “open” he most certainly is not. 

He has, after all, been closing off the Chinese economy with enhanced state subsidies, unnecessarily restrictive national security rules like last November’s cyber security law, and highly discriminatory prosecutions of multinationals. 

His tenure has been marked by the increased favoritism toward state enterprises.
Xi’s general approach is embodied in his signature phrase, “Chinese dream.” 

That dream, unfortunately, contemplates a state-dominated society, and a state-dominated society does not sit easy with the notions of an open economy. 

Call it China for Chinese competitors only.
Moreover, since the fall of 2015 he has informally restricted outbound transfers of cash. 

Last fall, Xi began applying those restrictions in earnest to foreign companies. 

For instance, multinationals can no longer “sweep” $50 million worth of currency out of the country using expedited procedures. 

The limit for this popular procedure is now only $5 million.
The concern in the foreign business community is that Beijing will further restrict cash transfers, and this, of course, discourages not only inbound money transfers but also additional foreign investment.
This is a particularly bad time for Xi to do that. 

Last year, foreign direct investment, which for decades has powered the Chinese economy, increased only 4.1% in yuan terms. 

When measured in dollars—what really counts—FDI fell. 

The renminbi in the onshore market last year plunged 6.95% against the greenback.
Continued depreciation of the “redback” is another significant disincentive to invest in China, of course.
And while China’s leader talks about globalization in Davos, his economy is in fact de-globalizing. 

In 2015, China’s two-way trade fell 8.0%. 

Last year, exports tumbled 7.7% and imports fell 5.5%.
The decline in imports could have been even more severe last year because the Chinese have been using fake import documentation to smuggle cash out of the country. 

Net capital outflow might have increased in 2016 from the year before.
For 2015, the highest estimate of outflow was Bloomberg’s $1 trillion. 

So far, the biggest number for last year comes from Christopher Balding of Peking University’s HSBC Business School. 

He has gone on record saying there may have been $1.1 trillion of outflow in 2016.
The only significant sign of China’s increasing integration with the world is outbound investment, but acquisitions of foreign assets, it appears, are primarily driven by a desire to minimize in-country risk. Many of the deals suggest money is permanently leaving China.
So outflows are increasing while inflows are decreasing. 

No wonder Xi Jinping is going to Davos. 

Like all Chinese leaders, he wants others to come to him, a sign of strength. 

So he surely thinks that his going to the foreign gathering is a humiliation, especially because he is on the hunt for cash.
The good news about Beijing’s new mindset is that the central government is being forced to grant market access, unilaterally. 

At the end of December, the powerful National Development and Reform Commission promised to liberalize rules for foreign participation in the financial, gas, and infrastructure sectors. 

The pledge followed a State Council announcement on increased access to certain types of manufacturing.
Yet it is not clear who would want to invest even if Beijing makes good on its market-opening pledges. 

For one thing, there is the slowing economy. 

The National Bureau of Statistics on the 20th of this month will report something like 6.7% growth for 2016, but in reality China was expanding in the low single digits. 

Slow growth poses the risk of a systemic financial crisis because China is now accumulating debt at least five times faster than GDP.
Moreover, China investments carry far higher political risk these days. 

For one thing, Xi Jinping’s Beijing is generally threatening to use its economic might to achieve expanding geopolitical ambitions. 

That jeopardizes China’s hard-won reputation for being a reliable member of global supply chains.
And then there is Donald J. Trump. 

The president-elect has announced the appointment of trade hawks—most notably Peter Navarro as the chief of the newly formed National Trade Council, Wilbur Ross to head the Commerce Department, and Robert Lighthizer as U.S. Trade Representative—signaling a far tougher line on China’s mercantilist practices. 

Beijing is bound to react poorly, and it has, according to a Bloomberg report this month, already threatened to scrutinize the business dealings of American multinationals, looking especially for tax and anti-trust violations.
Yet China is already doing that. 

On December 23, the Shanghai Municipal Development and Reform Commission announced it had imposed a fine of 201 million yuan ($28.9 million) on SAIC General Motors Corp., the joint venture of General Motors and Shanghai Automotive Industries Corp. 

The alleged sin? 

Setting minimum prices for dealer sales of Cadillacs, Chevrolets, and Buicks.
So someone at Davos should ask Xi, once he utters his last generalization on globalization, to explain why anyone should invest in his country.
Xi may look powerful, but he is going to Davos as a beggar—and he’s got a lot of ‘splainin to do.