Chinese SOEs and Diplomatic Immunity

There has been a lot of discussion in the news and online today about whether a Chinese state-owned enterprise can claim sovereign immunity from prosecution in the United States because they should be considered “an organ of the state.”

This is a legal question, and it is not cut and dried. Andrew Dickinson, Rae Lindsay, and Audley Sheppard of Clifford Chance in London did a superb write-up on the issue for the UN Special Representative on business and human rights, “State Immunity and State-Owned Enterprises.

The conclusion they reach will not salve the anger of anyone outraged by what appears to be a Chinese attempt to claim extraterritoriality for their largest companies. The issue is less a matter of statute than it is one of precedent, and the fact is, the matter could go either way.

For that reason, any Chinese state-owned enterprise operating in the US and facing civil or criminal prosecution in US courts would be foolish not to try to get an immunity ruling. At the same time, common sense would suggest to any businessman that caution is warranted in dealing with a Chinese SOE: the courts may not offer you the protections that you might expect.

In the long run, this will undoubtedly hurt Chinese SOEs: if they operate above the law while their US partners are subject to it, the legal imbalance in any contractual arrangement makes it foolhardy to contract with an SOE, to buy their products, or to engage their services. Careful businesspeople may wish to steer clear of Chinese state-owned enterprises for this reason alone.

Red Alert: The Growing Threat to U.S. Aircraft Carriers 

As China deploys surface-to-air missile (SAM) launchers to the Woody Islands in the South China Sea, CNAS Defense Strategies and Assessments Program Associate Fellow Kelley Sayler has written a new report, “Red Alert: The Growing Threat to U.S. Aircraft Carriers.” The report examines the short-, medium-, and long-range threats to the carrier – including SAMs and other anti-access/area denial capabilities, in which China is investing heavily – and concludes that U.S. carriers will not be able to act with impunity in the event of future conflict.

Source: Red Alert: The Growing Threat to U.S. Aircraft Carriers | Center for a New American Security

PLA Expeditionary Capabilities and Implications for United States Asia Policy 

Alongside China’s development of many capabilities necessary to conduct missions far from its borders, China’s actions to shape the international security environment are accelerating. This poses both opportunities and challenges for U.S. policymakers.

PLA Expeditionary Capabilities and Implications for United States Asia Policy | RAND

This is the text of the testimony Kristen Gunness made to the US-China Economic and Security Review Commission in January of this year. Reading between the lines, it is clear that China is determined to wield a big stick far from its home shores.

Kroeber on Soros’ hard landing

In effect, the world has already experienced a China hard landing. This helps explain why markets react in such terror at every hint the renminbi might fall in value: a weaker renminbi reduces the dollar value of the goods China can buy on international markets, at a time when demand from its traditional industrial and construction sectors is already declining.

Source: Is George Soros Right that China’s Headed for a Hard Landing? | ChinaFile

Arthur Kroeber’s eloquent take on George Soros’ prediction: China is not likely to land hard this year. But the sum total of policy changes underway are going to make it a lot rougher for the rest of the world as China’s role as global growth engine diminishes. 


Year-End Miscellany: Is Guo Meimei Real?

In thinking about the case of the notorious Guo Meimei, one cannot help but wonder about her provenance. I don’t literally mean where she came from, of course. Rather, I mean how the sequential scandals that have surrounded her seemed almost perfectly timed to incite the public outrage necessary to start cleaning up official corruption, and then the mess that is Macau.

The rapid prominence she received in the media, her un-preternatural naïveté, and the suspect coincidence of having her involved in two major criminal enterprises in a row seem all too good to be true. Given the effects of her behavior, one cannot be blamed for thinking that if Guo Meimei had never existed, the Party would have had to invent her.

Which then leads to the question: did they?

Okay, setting my tinfoil hat aside for the day.

Behind Tianjin Tragedy, a Company That Flouted Regulations and Reaped Profits – The New York Times

Now, more than two weeks after explosions at its warehouses leveled a swath of that district, killing 145 people, injuring more than 700 and leaving millions here fearful of toxic fallout, Rui Hai has become a symbol of something else for many Chinese: the high cost of rapid industrialization in a closed political system rife with corruption.

Source: Behind Tianjin Tragedy, a Company That Flouted Regulations and Reaped Profits – The New York Times

Cato Institute on the SH-HK Stock Connect

Hong Kong, as the freest economy in the world, is an ideal place for global capital to enter the mainland. With the further opening of China’s capital account, Shanghai could one day outshine Hong Kong, but only if property rights are protected under the rule of law understood as a meta-legal principle whereby all individuals are guided by what F. A Hayek called “rules of just conduct.”

In all of our excitement about what this might mean for the finance industry, let us keep in mind that there are as many good reasons for staying out of Chinese investments right now than there are for getting in. 

The New Asian Co-Prosperity Sphere

Professor Seiichiro Takagi of the Japan Institute of International Affairs (JIAA) explains how Xi Jinping’s “New Asian Security Concept,” introduced by the Chinese president in May, is designed to place China in the dominant position in Asia, not only from a security standpint, but on political and economic bases as well.

Reading between the lines (Japanese scholars are not always as blunt as they could be), Takagi is suggesting that the NASC is little more than a Chinese version of the Warsaw Pact, brought to Asia. It suggests, therefore, that China is attempting to stake out a share of the world over which it exercises dominance, if not control.

As a Japanese scholar, Takagi is hardly a disinterested third party: Japan and China have been squaring off with increasing regularity, and Tokyo is seen by many in Beijing as America’s running dog. At the same time, Takagi’s point is worth noting, and it invites closer scrutiny of exactly what Xi Jinping is trying to accmplish with his NASC.



China Won’t Cut off the Kim Family Regime

Re-Think Chinese Policy Toward DPRK
Bonnie S. Glaser
Freeman Report
Issue 7, February 2013

In this short paper, Bonnie Glaser at the CSIS presents a cogent, well-framed case for China to cut its assistance to North Korea as a means of getting the DPRK to stop its rogue behavior. As much sense as the paper will make on Capitol Hill, it is unlikely to change China’s stance. This is because the paper does not consider the internal logic that drives Beijing’s calculus on North Korea.

While Beijing’s “dog” on the Korean peninsula enjoys biting the hand that feeds it, the dog still guards China’s back door. It remains a buffer designed to ensure that neither the US nor South Korea have forces crouched on the Yalu frontier. Its rogue behavior diverts the heat of international opprobrium as China begins to assert its own strategic posture and build its military. The loyalty Beijing continues to extend to the DPRK is a demonstration to all other allies and prospective allies that Beijing is a reliable friend, even when the going gets tough. Finally, Beijing would hate to have somebody else – Russia, for example – step in and become Pyongyang’s patron.

So Beijing cutting off Pyongyang is probably not in the cards. What is likely to be in the cards, however, is a careful effort by China to prove the the mercurial Kim Family Regime that there are wiser courses of action to pursue, and that China continues to be its best possible benefactor. Whether that will yield any worthwhile results is anyone’s guess.

Whither China’s Nukes

China’s Strategic Capabilities and Intent,” Rebeccah Heinrichs, Issue Brief, No. 4111, The Heritage Foundation, December 18, 2013. Heinrichs summarizes the changes taking place in China’s nuclear defense posture, noting that rather than engage in bursts of effort and spending, China has been slowly and steadily improving its offensive nuclear capabilities for years now. She also lays out a policy program that responds to these developments and reminds us that the US has ignored its own strategic forces for far too long.

A Cybersecurity Moment

Toward a Safer and More Secure Cyberspace
Seymour E. Goodman and Herbert S. Lin, Editors, 
Committee on Improving Cybersecurity Research in the United States
National Research Council

On a day during which many of us are rushing about trying to secure our servers and our identities from the ravages of Heartbleed, we cannot help but wonder how the issue of cybersecurity can be addressed at a macro level.

The National Academies Press has just sent out a reminder that in 2007 it published Seymour Goodman, Herbert Lin’s and the National Research Council’s superb Toward a Safer and More Secure Cyberspace. The book, available free to download if you register, seems only a little dated: most of the fundamental concerns it identifies and addresses are more relevant now than they were seven years ago.

All of this is a bleak reminder that there are a lot of folks out there who are in a position to say “I told you so.” No doubt a few of them are probably having the busiest week of their lives.

The NSA, Snowden, and the Elephant in the Room

Recent revelations from the Snowden-Industrial Complex (SIC) appear to offer evidence that the U.S. National Security Agency hacked into one or more corporate computer systems at Chinese telephone giant Huawei. This was done, ostensibly, to search for evidence to support the suspicion that Huawei was operating in cahoots with the Chinese government to the detriment of US interests.

All of these revelations are fascinating, but there is an elephant in the room that we’re missing amid the outrage. What, if anything, did the NSA find in Huawei’s computers? Was the US, in retrospect, looking for a chimera, or did they find evidence of the complicity for which they were searching?

The fact that the latter has not been addressed suggests that the SIC is being selective about its disclosures, either because of an implicit agenda, or, perhaps, because Snowden has new masters.

On Chen Guangbiao

While we all make merry at the antics of Chinese scrap metal merchant Chen Guangbiao, who has come to America to buy a major national newspaper, we would do well to remember that of such characters history is made. Georges Danton, the great French revolutionary, once said, “il nous faut de l’audace, et encore de l’audace, et toujours de l’audace” (“we need audacity, and yet more audacity, and always audacity.”) Or, as my grandmother said, “you gotta have chutzpah.” He is the harbinger of more such Chinese personalities who will seek to own the great media outlets of the west, and many of them are likely to be better funded and more subtle in approach.

SSQ: Can We Get Along?

Strategic Studies Quarterly, volume 7, number 4. The Air Force is, unsurprisingly, increasingly fascinated with China, and we reap the benefits again in the Winter 2013 installment of the journal. The lead article asks whether China and the US are looking at an inevitable conflict, or greater cooperation. An op/ed by a retired Air Force lieutenant general delves into whether and how China can join the world’s nuclear arms control regime. Finally, the University of Michigan’s Philip Potter delves into the roots of terrorism in China, and how it is changing China’s approach to security.

One of the most thoughtful posts I have yet read on politics in China.

Patrick Chovanec

A surprising number of people in China have been writing and talking about “revolution”.  First came word, in November, that China’s new leaders have been advising their colleagues to read Alexis de Tocqueville’s classic book on the French Revolution, L’Ancien Régime et la Révolution (The Old Regime and the Revolution), which subsequently has shot to the top of China’s best seller lists.  Just this past week, Chinese scholar Zhao Dinxing, a sociology professor at the University of Chicago, felt the need to publish an article (in Chinese) laying out the reasons China won’t have a revolution (you can read an English summary here).  Minxin Pei, on the other hand, thinks it will.

In the midst of this debate, I happened across an interesting set of passages in retired Harvard professor Richard Pipes’ slender volume Three “Whys” of the Russian Revolution.  The first “why” he…

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Standing Committee Splits?

“Splits in the Politburo Leadership?”
Alice L. Miller

China Leadership Monitor
2011, No. 34
Hoover Institution


As a part of our Eighteenth Party Congress series, we will be offering some of the more thoughtful examinations of China’s changing leadership. In this first article, The Hoover Institution’s Alice Miller explains why splits among the Politburo Standing Committee‘s leaders are likely to remain manageable and behind closed doors.

I am inclined to agree with her analysis, simply because the interests that hold the nation’s leaders together are – with the exception of cases like that of Bo Xilai – far stronger than the disagreements which might sunder them. The real fault lines in the Chinese polity lay elsewhere.

The Democracy Dream, Justified

“Why China Will Democratize”
Yu Liu and Dingding Chen
The Washington Quarterly
Winter 2012

Liu and Chen make a strong argument that China’s government and institutions will have little choice but to become increasingly participatory over time. At the same time, they warn that “democracy with Chinese characteristics” may not be recognizable to, or necessarily satisfy, those in the west who harbor the dream that the world’s largest nation will become its largest participatory state.

China is on the cusp of change, and the two scholars suggest that the Party is losing the support of a the “middle class.” Once the moneyed, educated urban elite goes sour on the CCP, the authors imply, the Party will have no choice but to reform. And sour they will go, the authors note, because the government lacks the wherewithal to continue delivering the economic performance that the people have come to believe are its entitlement. They echo an argument that is becoming increasingly common: the Chinese social contract is broken, and the Party will have to produce reform to establish a new one.

None of the arguments are particularly novel, but the reason it is worth reading is the provenance of the authors. Liu is a professor at Tsinghua University in Beijing, and Chen teaches  at the University of Macau. For two Chinese scholars to put forth these arguments would have been unlikely if not unthinkable a decade ago. Clearly something interesting is happening in Chinese academia, an indicator that support on the mainland for major change may run deeper than many of us suspect.

Why China Smokes

The Political Mapping of China’s Tobacco Industry and Anti-Smoking Campaign
Cheng Li
Brookings Institution
October 25, 2012

Arguably the most important policy direction laid out in China’s Twelfth Five-Year Plan is health care. Given China’s rising standards of living and the challenges that rising medical costs present even to the developed economies of the west, this came as no surprise.

What gives this focus an edge of urgency are a cluster of looming public health crises that threaten to dwarf anything China’s medical establishment has faced in decades, perhaps ever. Atop that list of impending challenges is China’s smoking problem. Over 300 million Chinese smoke cigarettes every day (versus under 60 million Americans) and the average Chinese daily smoker has a two-pack-a-day habit. Experts estimate that tobacco-related diseases kill 1.2 million people a year in China, and that will increase to 2 million by 2020.

One of the few upsides of oligarchy is the relative ease with which you can legislate such problems away, and Beijing has done so often enough in the past that when a problem arises (like air pollution,) Chinese and foreigners alike wonder why the government isn’t doing anything. So it is with smoking. Here is a problem that the government could fix easily, following a path well-trodden in the west: why doesn’t it?

In his highly-readable but awkwardly-titled monography, Cheng Li lays out the institutional framework that feeds this national habit. The critical importance of tobacco to China’s tax revenues, potential resentment from poor smokers, and an intricate web of shared interests that tie China’s leadership with the industry all stand in the way of far-reaching anti-smoking campaigns.

All of this would make stimulating reading at any time, but given the report’s release on the verge of a major change in leadership in Beijing, the tale is particularly juicy. Among the report’s revelations are ties between Vice-Premier Li Keqiang, who holds the State Council‘s public health portfolio, and the State Tobacco Monopoly Administration. The revelations here are startling, yet one can only wonder about what Li knows but cannot put to paper.

China’s Oil Politics

“China and the Politics of Oil”
Jacqueline N. Deal

Foreign Policy Research Institute
May 2012

An essay based on a speech by FPRI Senior Fellow Deal, this paper explains the basis of China’s mild paranoia about access to energy supplies. A superb primer to the problem.