Nation of Cheaters

How does China cheat on trade? Let us count the ways
By Steven W. Mosher 

Dr. Peter Navarro and Gordon Chang

Aside from President Trump himself, Peter Navarro arguably has the toughest job in the White House.
You see, Dr. Navarro directs the White House Office of Trade and Manufacturing Policy. 

He comes to work every day to be greeted by new evidence of China’s no-holds-barred economic war against the United States, from its cheating on trade to its theft of intellectual property.
His findings are summarized in a new report entitled, “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World.”
The report itself is 36 pages long, but I can summarize it in two words: China cheats.
China cheats by protecting its home market from American imports with high tariffs, tricky non-tariff barriers, and costly, constantly changing regulations.
China cheats by subsidizing the exports of government-owned “national champions” to crush its free market competitors and dominate global markets.
China cheats by preying on weak counties, locking up their natural resources with “debt traps” in an obvious effort to gain a global stranglehold on key resources like bauxite, copper, nickel, and rare earths. 

These monopolies are not only being used to fuel China’s industrial machine, but to punish those countries who would oppose its predatory policies.
China cheats by subsidizing manufacturing with cheap loans and cheap energy, and also by turning a blind eye to environment, health and safety standards. 

Because of its cheating, it already dominates industries ranging from ship production and refrigerators, to color TV sets, air conditioners, and computers.

Above all, China cheats by stealing key technologies and intellectual property from the United States and other countries. 

These activities range from cyberespionage and forced technology transfer down to massive open-source collection and plain-old physical theft.
Suffice to say, if you can imagine a way to steal intellectual property, the Chinese Party-State already has an official government program in place to do just that.
The point of all this cheating is not hard to understand. 

China wants to capture the emerging hi-tech industries of the future with one goal in mind: to replace the United States as the world’s dominant power.
This is President-for-Life Xi Jinping’s “China Dream,” and it is revealing that he no longer hesitates to admit it.
The old rule in Communist Party circles was that China should “bide its time and hide its capabilities.” 

This rule, laid down by Paramount Leader Deng Xiaoping in the 1980s, presupposed that China’s success lay in stealth.
Deng intended that China would quietly gain ground on the reigning superpower, the United States, without alarming it. 

His rule was carefully followed by successors Jiang Zemin and Hu Jintao.
But the economic malaise of the Obama years convinced many in Beijing that America’s best days were behind it. 

Believing that China’s time has come, Xi Jinping no longer bothers to bide his time or hide China’s capabilities.
Xi’s openness about his global ambitions tells us something very important: He believes China’s future dominance is virtually a foregone conclusion.
Peter Navarro’s report tells something equally important: That China is engaging in unrestricted economic warfare—violating every agreement on patents, trade, and intellectual property it has ever signed -- in order to achieve this goal.
The China threat has become so obvious that even many Democrats support Trump’s tough policies on trade. 

Even Chuck Schumer, who seemingly never opens his mouth these days except to criticize the president, supports Trump on tariffs. 

He warns that allowing China's massive stealing to continue will cause "long-term real damage to America."
Actually, as Navarro documents, China has already done an incredible amount of damage to America.
Is there still time to stop the criminal enterprise that is China, Inc., from stealing its way to the top?
Only time will tell. 

Nation of Cheaters

Yes, China Does Cheat In Trade - The Rest Of The World Needs To Wake Up
By Carson Block

A US Steel plant in Clarion, Pennsylvania. 

Based on China’s conduct in the aluminum industry, foreign capital markets, and what I’ve come to understand from many years of living and doing business there, I have no doubt China is breaking the rules across numerous industries. 

The focus on new tariffs the U.S. is levying on steel and aluminum, and our trading relationship with China misses this bigger point. 

The entire multilateral trading system – not just the U.S. – is the victim of China’s cheating. 

Government ownership of China’s banking system, and the enormity of its state-owned enterprise sector give China the tools to illegally subsidize industries in ways that are hard to detect. 

To be clear, China’s activities are not the same as a country exploiting the economic principles of comparative advantage. 

China has also allowed the engineers of literally hundreds of stock frauds to get away scot-free with tens of billions of dollars fraudulently taken from western investors. 

It is disheartening that only the U.S. thus far seems fed up with China’s cheating.
The aluminum industry is a clear example of China’s cheating. 

We have observed the cheating first hand through research my firm and I have previously conducted on the sector. 

Research we conducted in 2015, under the name Dupré Analytics, showed that state-owned banks in China made billions of dollars in loans to shell companies to purchase aluminum from China-based aluminum giant, China Zhongwang. 

It is highly unlikely that these loans, which were made to entities that were not even remotely creditworthy, occurred without approval from the highest levels of the Chinese government. 

Late last year, the U.S. Department of Justice filed a complaint against a California company called Perfectus Aluminum, alleging that Perfectus was an affiliate of Zhongwang and leveling a different accusation—that Perfectus had evaded $1.5 billion in U.S. import duties. 

Last year, a different Chinese alumnimum giant, China Hongqiao Group, was also alleged to be cheating. 

Hongqiao, which is listed on the Hong Kong stock exchange, claims to be the world’s largest aluminum producer. 

Research firm Emerson Analytics released a report alleging Hongqiao was vastly overstating its profits and committing widespread fraud. 

One of the points Emerson Analytics raised was the company’s reported expenses on electricity, which they claimed were too low to be true. 

Hongqiao’s major outside electricity supplier is owned by a local government.
In response to the report, the stock was halted. 

Soon thereafter, its auditor took the extraordinary step of resigning and calling for an internal investigation into the fraud allegations. 

China Hongqiao ignored these calls. 

Despite the controversy, it then received fresh financing from state-owned CITIC bank. 

The stock subsequently resumed trading, and within a week was trading about 80% above its last close prior to the halt. 

Because it’s hard to believe that the report, halt, and auditor actions made the case that Hongqiao is more valuable, I believe the price spike was caused by manipulation. 

If I’m correct, this manipulation was effectively a subsidy in real-time. 

As a corollary, in true communist memory hole fashion, Hongqiao sued Emerson in Hong Kong, and received an injunction that has made it significantly harder to find the report online.
Another industry in which I have first-hand knowledge of China’s cheating is the capital markets. 

The upcoming documentary The China Hustle chronicles the wave of reverse merger frauds from the last decade in which literally hundreds of fraudulent companies from China listed in the U.S., collectively raising tens of billions of dollars from investors. 

The funds were sent to China, separated forever from those wronged by the fraud. 

Virtually nobody from China has been imprisoned for these crimes, highlighting the discrepancy between China and the West when it comes to upholding the rule of law. 

In contrast, Kun Huang, a researcher from a short-selling firm that exposed numerous U.S.-listed frauds, was imprisoned in China for two years in inhumane conditions.
More to the point, I also believe that China has a concerted strategy to degrade the economies of, and transfer wealth from western countries. 

 My view seems to be supported by the recent statements of FBI Director Christopher Wray who warned that China is a “whole of society threat.”
The Trump administration fortunately seems to understand the dangers to a greater extent than its predecessors did. 

Unfortunately, our major trading partners do not seem to be aware of the enormity and dangers of the problem. 

In my view, the multilateral trading system is not to blame – it is the right approach to raising standards of living in the U.S. and abroad, and building international security. 

The problem is that one major player thinks playing by the rules is for suckers. 

I would strongly urge that rather than unilaterally impose tariffs that make the U.S. look like the rule breakers, we should work with the rest of the G7 to compel compliance by China through coordinated forceful trade action. 

At the end of the day, China has much to lose from being isolated from the international regime, and would almost certainly respond to coordinated insistence on compliance.

Fake Science: Nation of Cheaters

Fraud Scandals Sap China’s Dream of Becoming a Science Superpower
By AMY QIN

A plastic surgery procedure at a hospital in Shanghai in August. Under Xi Jinping, China has set a goal of becoming “a global scientific and technology power” by 2049.

BEIJING — Having conquered world markets and challenged American political and military leadership, China has set its sights on becoming a global powerhouse in a different field: scientific research. 

It now has more laboratory scientists than any other country, outspends the entire European Union on research and development, and produces more scientific articles than any other nation except the United States.
But in its rush to dominance, China has stood out in another, less boastful way. 

Since 2012, the country has retracted more scientific papers because of faked peer reviews than all other countries and territories put together, according to Retraction Watch, a blog that tracks and seeks to publicize retractions of research papers.
Now, a recent string of high-profile scandals over questionable or discredited research has driven home the point in China that to become a scientific superpower, it must first overcome a festering problem of systemic fraud.
“China wants to become a global leader in science,” said Zhang Lei, a professor of applied physics at Xi’an Jiaotong University. 

“But how do you achieve that and still preserve the quality of science? We still haven’t figured out how to do that yet.”
In April, a scientific journal retracted 107 biology research papers, the vast majority of them written by Chinese authors, after evidence emerged that they had faked glowing reviews of their articles. 

Then, this summer, a Chinese gene scientist who had won celebrity status for breakthroughs once trumpeted as Nobel Prize-worthy was forced to retract his research when other scientists failed to replicate his results.
At the same time, a government investigation highlighted the existence of a thriving online black market that sells everything from positive peer reviews to entire research articles.
Xi Jinping, whose leadership is expected to be reaffirmed at a Communist Party congress that begins next week, has stated his goal of turning China into “a global scientific and technology power” by 2049. 

But the revelations have been a setback to this effort.

Worried that its economy is still too dependent on low-end manufacturing, the government is investing hundreds of billions of dollars in developing high-tech industries like semiconductors, solar panels, artificial intelligence, medical technologies and electric cars.
China has built extensive infrastructure across the country, with roads, railroads, ports and bridges that exhibit enviable engineering prowess. 

But it has also endured problems of piracy and poor quality that have plagued its economic rise, blemishing what has been an otherwise dramatic entry into the ranks of the world’s leading scientific nations.
China has made inroads partly because of its willingness to invest in new research at a time when such spending has stagnated in countries like the United States and Japan. 

The government in Beijing has poured the equivalent of billions of dollars into new projects in order to catch up with the West in producing original research, and also reverse decades of scientific brain drain by luring home top Western-trained Chinese researchers.

Many Chinese universities offer generous research grants and salary bonuses to faculty who get published in prestigious scientific journals. 

“The state needs the strategic support of science and technology more urgently than any other time in the past,” Xi said last year in announcing the 2049 goal. 

“The situation that our country is under others’ control in core technologies of key fields has not changed.”
Now there are worries that persistent problems of academic fraud and lax standards exposed by the recent scandals could slow China’s ascent.

Fraud is especially widespread in Chinese academic institutions, as seen in the large number of retracted articles and faked peer reviews.
In part, these numbers may simply reflect the enormous scale of the world’s most populous nation. But Chinese scientists also blame what they call the skewed incentives they say are embedded within their nation’s academic system.
Career advancement is often based more on the quantity of research papers published rather than the quality. 

In China, this obsession with numerical goal posts can reach extremes. 

Compounding the problem is the fact that Chinese universities and research institutes suffer from a lack of oversight, and mete out weak punishments for those who are caught cheating.
Put these together and the result is an academic system that is willing to wink at ethical lapses.
“In America, if you purposely falsify data, then your career in academia is over,” Professor Zhang said. 

“But in China, the cost of cheating is very low. They won’t fire you. You might not get promoted immediately, but once people forget, then you might have a chance to move up.”
Some scientists say China’s overemphasis on numerical measures of success can be seen in its almost single-minded focus on the Science Citation Index, or S.C.I. 

This index is used to assign an “impact factor” score to scientific journals, which ranks their importance in part by counting how many times their articles are cited in other papers.
Getting an article published in a high-ranking journal can lead to career promotions and monetary rewards. 

Many Chinese universities offer hefty research grants and salary bonuses to faculty members who get published in journals with high impact factors. 

In June, Sichuan Agricultural University in Ya’an awarded a group of researchers about $2 million in funding after members got a paper published in the academic journal Cell.
“Everything revolves around the S.C.I.,” said Chen Li, a professor in the medical school at Fudan University in Shanghai. 

He and other scientists compared Chinese academia’s obsession with this numerical index to the government’s fixation on gross domestic product as a measure of economic success.
“Sometimes we joke that to evaluate faculty in China, all you need is a primary school kid who can do addition,” Professor Chen said. 

“Just add up the impact factors of the different journals.”

A hospital staff member taking materials to a laboratory. Recent academic scandals have blemished what has been an otherwise dramatic entry by China into the ranks of the world’s leading scientific nations.

One result has been increasingly elaborate schemes for getting papers into prestigious journals. 

These include the use of faked peer reviews, a practice that came under strict scrutiny following the retraction of 107 biology papers last spring — the largest such mass retraction by a single journal in history. 

Many of those authors were clinical doctors, who in China face intense pressure to publish.
They took advantage of the fact that many scholarly journals rely on evaluations by other scientists in the same field in deciding whether to publish a paper. 

Some journals — including Tumor Biology, which retracted the 107 articles — go so far as to ask the authors themselves to suggest peers to write these reviews, a fact that critics say opened the door to fraud.
In Tumor Biology’s case, government investigators found that many of the authors had submitted the names of real researchers, but with fabricated email addresses. 

This apparently allowed the authors, or more often writers hired by the authors, to pose as academic peers, and write positive reviews that would help get their own papers published.
According to an investigation led by the country’s Ministry of Science and Technology, Chinese researchers used such methods to manipulate the peer-review process in 101 out of the 107 retracted articles. 

In many cases, government investigators said authors had gone online to hire people to write professional-sounding reviews.
A recent search revealed a teeming, illicit trade in faked peer reviews. 

A search for the term “help publishing papers” on Taobao, a popular Chinese e-commerce site, yielded a long list of sellers who offered services ranging from faked peer reviews to entire scientific papers already written and ready to submit. 

Depending on the service, they charge from a few hundred dollars up to $10,000.
“We have helped professors of all backgrounds,” one seller wrote through Taobao’s chat function. “Don’t worry, we’ll keep it a secret.”
Fang Shimin, a prominent muckraking blogger, said: “The fraud techniques have become more sophisticated. They’re not as easy to uncover.”
Over all, experts say, there are signs that the academic environment in China is improving. 

Plagiarism appears to be in decline thanks to new detection tools, and Chinese-born researchers returning from universities overseas have brought back best practices, helping to raise ethical standards.
But the pressure to produce original, groundbreaking research remains. 

Many say that appears to have been the case with Han Chunyu, a scientist at Hebei University of Science and Technology who made a big splash last year by claiming that he had found a new way to edit human genes — a technique that could one day make it possible to eliminate hereditary diseases, or allow parents to tailor their unborn children’s height or I.Q.
The claim, contained in a paper published in the journal Nature Biotechnology, made Han an overnight celebrity. 

The local government even offered to build a $32 million gene-editing research center at his university, which he would run.
Then, late last year, other scientists began reporting failures replicating Mr. Han’s results. 

Facing mounting pressure, he and his co-authors finally retracted the paper, though they have since vowed to clear their names.
“When it comes to research culture and academic integrity, it all depends on self-discipline,” said Zhang Yuehong, editor of the Journal of Zhejiang University, who has studied the problem of plagiarism in research articles. 

“We need to work harder to develop a culture of integrity.”

Nation of Cheaters

Smog and mirrors: China’s steel capacity cuts were fake, report says.
By Simon Denyer

Smoke billows from a large steel plant 6 in Inner Mongolia, China. 

When it comes to steel, China is faking it.
Faced with global condemnation for flooding world markets with cheap steel, China announced last year it had implemented ambitious cuts in steel capacity.
But a new report by Greenpeace East Asia and Chinese consultancy Custeel says that number was largely smoke and mirrors. 

Plants China says it closed down were already idle, while production was restarted elsewhere and brand new plants opened.
In fact, China’s steel industry actually saw a net increase in operating capacity equivalent to twice Britain’s total capacity, the report concludes.
That’s bad news for the air in Beijing, but it could also inflame China’s trade relations with the United States and the European Union, which have repeatedly accused China of dumping cheap steel abroad and damaging their own steel industries.
Tens of thousands of European steelworkers demonstrated last year in Brussels and in Germany against cheap Chinese steel.
“Impressive as they seem, China’s current steel capacity reduction targets won’t suffice to limit oversupply, as local governments maneuver to shield zombie steel mills and minimize the impact of the policies,” said Lauri Myllyvirta, Greenpeace global coal campaigner.
“Global markets are awash with steel and the people of northern China continue to choke on the industry’s major byproduct, smog. Increasing steel capacity makes neither economic nor environmental sense.”
China, which accounts for half the world's steel production, has a total capacity of 1.1 billion metric tons (1.2 billion U.S. tons): It has announced plans to eliminate 100-150 million metric tons (110-165 million U.S. tons) of annual production over the next five years, but cutting capacity has so far done little to rein in output and exports.
Last year, it said it had far exceeded its initial target to cut capacity by 45 million metric tons (50 million U.S. tons), recording cuts of around 85 million metric tons (94 million U.S. tons).
But the report says that 73 percent of the announced cuts in capacity were already idle — in other words the plants were not operating. 

Only 23 million metric tons (25 million U.S. tons) of cut capacity involved shutting down production plants that were operating.
At the same time, some 54 million metric tons (59.5 million U.S. tons) of capacity were restarted, and 12 million metric tons (13 million U.S. tons) of new operating capacity came online.
That left China showing a net increase in operating capacity of 36.5 million metric tons (40 million U.S. tons) last year, a figure that is consistent with a 3 percent increase in steel production in the second half of last year.
It is also consistent with evidence of a deterioration in the air quality in Beijing in the second half of last year — the steel industry is a heavy consumer of coal and contributor to air pollution, and most of the restarted capacity came in the industrial provinces near the capital, Shanxi, Hebei and Tianjin.
Here's a link to an interactive map showing the increases in steel production around China in more detail.
“Cutting already idle capacity is not enough to win the battle to tame the steel industry and the central government’s much-touted ‘war on air pollution,’” Myllyvirta said.

Sources of sulfur dioxide, nitrogen oxides and particulate matter.

With the economy slowing, national and provincial leaders have been under pressure to bolster employment and maintain social stability. 

A new round of debt-fueled spending on infrastructure, combined with measures by local leaders to protect local industries and continued bank lending to so-called zombie companies, pushed up steel prices and output.
The Obama administration imposed heavy anti-dumping duties on certain types of Chinese steel and aluminum, and experts say the Trump administration could take even stronger measures, with the president campaigning on a promise to rebuild the country with American steel — even though he was reported to have used Chinese steel for his own construction projects.
At his nomination hearing to become commerce secretary, Wilbur Ross, who has a background in the U.S. steel industry, also said the United States need to look more closely at anti-dumping tariffs on Chinese steel and aluminum.
Finally, this chart shows how Beijing's air quality (the red line) deteriorated in the second half of last year as steel, iron and coke production rebounded.

According to a document seen by Reuters news agency, the Chinese Ministry of Environmental Protection does have a plan to further cut steel and aluminum output as well as banning coal from some ports to combat the growing smog problem. 

The report published Monday includes cutting steel capacity in half across five regions during the winter. 

But the policy is still in the planning stages, and it is far from clear if it will be implemented.

Nation of Cheaters

Europe proposed a way to assess whether Chinese manufacturers are exporting at unfairly low prices.
by Reuters

China is disappointed that the European Union hasn’t completely recognized its market economy status, commerce ministry spokesman Shen Danyang said on Thursday in a sign that Beijing will continue to press the EU to relax its anti-dumping rules.
The EU and many of China’s other trading partners have been debating whether to grant China “market economy status” (MES) from mid-December, which Beijing says is its right 15 years after it joined the World Trade Organization. 

The United States has said China has not done enough to qualify.
The European Commission proposed on Wednesday a new way to assess whether Chinese manufacturers are exporting products, such as steel, at unfairly low prices.
China said it interpreted the proposal as canceling China’s “non-market economy status” but was disappointed the European Commission had introduced the “significant distortions” clause, Shen told a regular press briefing.
The proposal in general sets the normal reference value in dumping cases involving WTO members to domestic prices.
However, in the event of “significant distortions” affecting domestic prices, investigators can instead use international benchmark prices, the EU proposed.
The proposal “doesn’t completely nullify (China’s) ‘surrogate country’ status, it merely allows the status quo to covertly continue,” Shen said.
The new standard should be “fair, reasonable, transparent and should not just be a new form of discrimination,” he added.
EU trade ministers are expected to discuss the new anti-dumping measures at a meeting on Friday along with other plans to modernize the EU’s trade defense arsenal.