The US is continuing to escalate with China, and as with Russia, both the logic and the pretexts are close to unhinged.
Before we proceed to discussing speeches given in London yesterday at MI5 headquarters to “London business leaders” by FBI director Christopher Wray and MI5 chief Ken McCallum, let us point out what ought to be obvious but for some bizarre reason isn’t. The US and its Western allies cannot hope to come out well in a conflict with China on top of its proxy war with Russia. The fact that the US and its allies are losing the conflict in Ukraine against Russia, where Russia has sent in a peacetime army which it is able to regularly rotate out for R&R, is deploying massive artillery barrages, day after day, with no apparent concern about supplies, has used long-range missiles to great effect, while the West is scraping the NATO supply cupboards dry and Ukraine is suffering massive troop losses in Donbass, ought to be focusing a few minds. But no! Because we are so convinced of our superiority, despite massive evidence otherwise (starting with not having won a war in decades), we’re now gonna go show China who’s boss too!
So what was the excuse for this first ever joint FBI-MI5 briefing? That China plays dirty and steals Western intellectual property! And we are supposed to believe this is news? Back when US businesses eagerly started setting up shop in China in the early 2000s after China entered the WTO, your humble blogger could not make sense of it. This was a Communist country, meaning there was no reason to thing they’d respect property rights. The Chinese have not done anything as gauche as expropriate factories. But it’s been known from the get-go that Chinese partners have insisted on technology transfer, which often means the foreign entrant soon finds its co-venturer setting up a directly competing operation.
And why is this a surprise? If you’re going to deindustrialize, um, offshore, the knowledge goes with the operations.
As for China purloining intellectual property, that’s hardly news either. Intellectual property theft was one of reasons Trump gave for imposing tariffs against China. From CNBC in 2018:
The new measures are designed to penalize China for trade practices that the Trump administration says involve stealing American companies’ intellectual property. They will primarily target certain products in the technology sector where China holds an advantage over the U.S.
Needless to say, it’s bizarre to see these agencies try to whip up a lot of upset about a long standing issue and then try to work in Taiwan. The BBC got the memo. From its story:
FBI director Christopher Wray said China was the “biggest long-term threat to our economic and national security” and had interfered in politics, including recent elections…
MI5 is now running seven times as many investigations related to activities of the Chinese Communist Party compared to 2018, he added.
The FBI’s Wray warned that if China was to forcibly take Taiwan it would “represent one of the most horrific business disruptions the world has ever seen”….
McCallum also said the challenge posed by the Chinese Communist Party was “game-changing”, while Wray called it “immense” and “breath-taking”.
Wray warned the audience – which included chief executives of businesses and senior figures from universities – that the Chinese government was “set on stealing your technology” using a range of tools.
We’ve embedded the prepared version of Wray’s speech at the end of this post. It is anything is even more disturbing than the BBC summary suggests.
The first it the heavy handed regime change signaling, that the US has no beef with the Chinese people, only their evil scheming Commie government. And following that logic, only the government and various government agents are depicted as stealing. If you read sites like China Law Blog that advise foreign entrants how to navigate in China, it quickly becomes clear that private companies are out to get Western companies’ know-how too. As one of my colleagues back at Sumitomo Bank said, “Why should you build a business? It’s so much easier to steal it.” A typical section:
We’ve seen the regional bureaus of China’s MSS — their Ministry of State Security — key in specifically on the innovation of certain Western companies it wants to ransack. And I’m talking about companies everywhere from big cities to small towns — from Fortune 100s to start-ups, folks that focus on everything from aviation, to AI, to pharma. We’ve even caught people affiliated with Chinese companies out in the U.S. heartland, sneaking into fields to dig up proprietary, genetically modified seeds, which would have cost them nearly a decade and billions in research to develop themselves.
And those efforts pale in comparison to their lavishly resourced hacking program that’s bigger than that of every other major country combined.
The Chinese Government sees cyber as the pathway to cheat and steal on a massive scale.
Lambert and I found the seed story to be overwrought. Surely the Chinese could buy them via cutouts.
Wray argues that all Chinese companies are China Inc:
To start with, a whole lot of Chinese companies are owned by the Chinese government — effectively the Chinese Communist Party. And often that ownership is indirect and not advertised. And those that aren’t owned outright are effectively beholden to the government all the same, as Chinese companies of any size are required to host a Communist Party cell to keep them in line.
So, when you deal with a Chinese company, know you’re also dealing with the Chinese government — that is, the MSS and the PLA [People’s Liberation Army] — too, almost like silent partners.
But the position that the Chinese government is in charge of everything is inconsistent with this statement just a few paragraphs later:
The Chinese government has also shut off much of the data that used to enable effective due diligence, making it much harder for a non-Chinese company to discern if the company it’s dealing with is, say, a subsidiary of a Chinese state-owned enterprise.
Since 2015, they have passed a series of laws that eat away at the rights and security of companies operating in China. For example, a 2017 law requires that if the Chinese government designates a company as “critical infrastructure,” that company must store its data in China — where, of course, their government has easier access to it.
Perhaps I am missing something, but it would be awfully hard for a foreign company operating in the US not to store its data here, as well as sending important higher level information back to the mother ship, at a minimum for tax, financial reporting, regulatory compliance, and practical reasons (sales people need access to customer lists). And we have the NSA bulk collecting everything that happens over the Web….and if you use encryption, you are putting up your hand to have the security state take special interest in you.
Wray also cites, as proof of China’s anti-democracy bona fides, that they interfered in a Congressional election to undermine the campaign of former Tiananmen Square protestor. That is nasty business, but after the Mossadeq, Allende, and Maidan coups, plus a slough of other regime chagne operations, it’s not as if we have the moral high ground.
I do suggest you read the article in full. It’s striking how Wray manages to keep the dial turned to 11. He gets to the Taiwan part:
That’s in part because, as you all know, there’s been a lot of discussion about the potential that China may try to forcibly takeover Taiwan. Were that to happen, it would represent one of the most horrific business disruptions the world has ever seen.
Mind you, China is giving reassurances about chip supplies if things get ugly:
Translation: "Don't worry when we take over Taiwan" https://t.co/B9IZ0LyRB3
— Occupy The Fed Movement (@OccupytheFeds) July 7, 2022
Weirdly all Wray warns of is the loss of business equity, a larger-scale version of Western companies saying they took a total of $59 billion in hits for leaving Russia. Mind you, this was the result mainly of self-sanctions and certain US/EU sanctions, not Russian action. Nevertheless access to critical chips might be interrupted and that manufacturers would then suffer supply chain hiccups and production shortfalls similar to what the auto industry has experienced. And he does not contemplate China bringing the West to its knees, say by halting sales of pharmaceutical or more specific but still critical items like ascorbic acid to “unfriendly” countries.
Wray urges businessmen to work with the FBI and MI5 against Chinese threats. Frankly, I’d never let a law enforcement agency into my business. But maybe the big boys can compartmentalize what they get at.
But I want to get back to the opening question: why the escalation on yet another front? US allies have been buzzing parts of the Taiwan Straits that China insists are national waters. I’m not able to judge the merits of this claim but pushing China hard on this position is a recent development.
The US continues to send officials to Taiwan, even after Biden effectively promised to cut that out in a call to Xi early this year:
— 蔡英文 Tsai Ing-wen (@iingwen) July 7, 2022
China is also upset about yet more arms sales to Taiwan, to the degree that General Wei Fenghe had a public spat with his counterpart, Defense Secretary Lloyd Austin, at a defense summit in Singapore last month.
I’m not able to vet this theory, but one view is that the US feels pressured to pry Taiwan away from China by 2024, since public opinion is allegedly back towards alignment with the mainland:
The West did all it could to undermine Hong Kong's "one country two systems" to scare off Taiwan on its path to reunification with the Mainland pic.twitter.com/ILpOn0Khvs
— Angelo Giuliano 🇮🇹 🇨🇭/ living in 🇨🇳 (@Angelo4justice3) July 6, 2022
And make no mistake that the US is provoking China:
“China has said that if you seek to improve the military of Taiwan so they are emboldened into believing they can withstand a Chinese counterstrike then we have no choice but to pursue non-peaceful means of unifying Taiwan — a conflict we can’t win.” — Scott Ritter pic.twitter.com/oJoum5agm6
— 🅰pocalypsis 🅰pocalypseos 🇷🇺 🇨🇳 🅉 (@apocalypseos) July 5, 2022
Both Ritter and Larry Johnson believe if the US were to try to stop a Chinese intervention in China (which IMHO could take the form of a blockade rather than an invasion), China could easily and probably would sink one of the US aircraft carriers set to “defend” Taiwan. Sadly, I suspect the US would welcome such a counterattack. Most Americans don’t care enough about Taiwan, let alone US intellectual property, to go to war. But the loss of 6,000 American lives?
The wee problem is that Ritter thinks the US response would be a tactical nuclear strike on a secondary Chinese city, which would lead China to light up the US. Bye bye world.
But maybe the Chinese will think twice:
When the U.S. comes calling to 'Save' Taiwan, I hope they take a look at Libya, Iraq, Afghanistan, and Ukraine before they pick up the phone.
— Black in the Empire (@blackintheempir) July 3, 2022
00 Wray at MI5 July 5 2022