Last week’s US decision to close China’s consulate in Houston on the grounds of economic espionage has significantly escalated tensions between the two countries. Beijing retaliated by closing the US consulate in Chengdu, and any closure of the remaining consulates, such as Guangzhou or Shanghai, would deepen tensions even further.
While we had previously focused on potential investment and financial restrictions, more recent tensions have concentrated on military and diplomatic areas. The recent US military exercises in the South China Sea and the quartet of hawkish China speeches by key US officials highlight this shift. We include key snippets of these speeches below. We also update our table published in mid-June on the main measures the two sides have imposed or are threatening. In addition, we include a table on some of the Chinese companies and individuals facing US sanctions.
As US-China tension has increasingly shifted to non-tariff/non-trade aspects, the Q2 update on world trade uncertainty released last week showed a dramatic drop back through April-June. The broader World Uncertainty Index better captures the ongoing spat; this dropped back in Q2 but not by nearly as much.
Recent China Speeches – Key Quotes
Robert O’Brien, National Security Advisor
26 June 2020: The Chinese Communist Party’s Ideology and Global Ambitions
‘The Party [CCP] is collecting your most intimate data—your words, your actions, your purchases, your whereabouts, your health records, your social media posts, your texts, and mapping your network of friends, family, and acquaintances’.
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Last week’s US decision to close China’s consulate in Houston on the grounds of economic espionage has significantly escalated tensions between the two countries. Beijing retaliated by closing the US consulate in Chengdu, and any closure of the remaining consulates, such as Guangzhou or Shanghai, would deepen tensions even further.
While we had previously focused on potential investment and financial restrictions, more recent tensions have concentrated on military and diplomatic areas. The recent US military exercises in the South China Sea and the quartet of hawkish China speeches by key US officials highlight this shift. We include key snippets of these speeches below. We also update our table published in mid-June on the main measures the two sides have imposed or are threatening. In addition, we include a table on some of the Chinese companies and individuals facing US sanctions.
As US-China tension has increasingly shifted to non-tariff/non-trade aspects, the Q2 update on world trade uncertainty released last week showed a dramatic drop back through April-June. The broader World Uncertainty Index better captures the ongoing spat; this dropped back in Q2 but not by nearly as much.
Recent China Speeches – Key Quotes
Robert O’Brien, National Security Advisor
26 June 2020: The Chinese Communist Party’s Ideology and Global Ambitions
‘The Party [CCP] is collecting your most intimate data—your words, your actions, your purchases, your whereabouts, your health records, your social media posts, your texts, and mapping your network of friends, family, and acquaintances’.
‘When the Chinese Communist Party cannot buy your data, it steals it’.
‘Together with our allies and partners, we will resist the Chinese Communist Party’s efforts to manipulate our people and our governments, damage our economies, and undermine our sovereignty. The days of American passivity and naivety regarding the People’s Republic of China are over’.
Christopher Wray, FBI Director
‘The greatest long-term threat to our nation’s information and intellectual property, and to our economic vitality, is the counterintelligence and economic espionage threat from China’.
‘It’s the people of the United States who are the victims of what amounts to Chinese theft on a scale so massive that it represents one of the largest transfers of wealth in human history’.
‘China, as led by the Chinese Communist Party, is going to continue to try to misappropriate our ideas, influence our policymakers, manipulate our public opinion, and steal our data’.
William Barr, Attorney General
16 July 2020: Remarks on China Policy
‘It [China] seeks to leverage the immense power, productivity, and ingenuity of the Chinese people to overthrow the rules-based international system and to make the world safe for dictatorship.
‘To tilt the playing field to its advantage, China’s communist government has perfected a wide array of predatory and often unlawful tactics: currency manipulation, tariffs, quotas, state-led strategic investment and acquisitions, theft and forced transfer of intellectual property, state subsidies, dumping, cyberattacks, and espionage’.
‘The ultimate ambition of China’s rulers isn’t to trade with the United States. It is to raid the United States’.
‘The CCP has launched an orchestrated campaign, across all of its many tentacles in Chinese government and society, to exploit the openness of our institutions in order to destroy them’.
Michael Pompeo, Secretary of State
25 July 2020: Communist China and the Free World’s Future
‘If we want to have a free 21st century, and not the Chinese century of which Xi Jinping dreams, the old paradigm of blind engagement with China simply won’t get it done. We must not continue it and we must not return to it’.
‘When it comes to the CCP, I say we must distrust and verify’.
‘If we don’t act now, ultimately the CCP will erode our freedoms and subvert the rules-based order that our societies have worked so hard to build. If we bend the knee now, our children’s children may be at the mercy of the Chinese Communist Party, whose actions are the primary challenge today in the free world’.
Chart 1: USS Ronald Reagan and USS Nimitz Sent to South China Sea in Early July
Source: USNI News Fleet and Marine Tracker (6 July 2020)
Caroline Grady is a Senior Researcher at Macro Hive. Formerly, she was a Senior EM Economist at Deutsche Bank and a Leader Writer at the Financial Times.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)