Tim Cook: Retract China hacking report

Access Archive

Dear Access member,

Our next Slack chat will feature Darren Byler, an anthropologist who studies Uyghur culture and the ways that China is criminalizing it. We hope you will join us on our Slack channel on Tuesday, October 23, at 11 a.m. EST. Ahead of time, check out Darren’s website, The Art of Life in Chinese Central Asia, which features fascinating writing from him and other scholars of Xinjiang.

We’ve got eight things at the top for you today, including a plug for our next Women’s Networking event, on healthcare.

We’ll be back in your inbox on Monday.

—Jeremy Goldkorn, Editor-in-Chief


1. Apple CEO to Bloomberg: Retract China chip-hack story

Bloomberg the media company, not its founder, Michael Bloomberg. BuzzFeed reports:

Apple CEO Tim Cook, in an interview with BuzzFeed News, went on the record for the first time to deny allegations that his company was the victim of a hardware-based attack carried out by the Chinese government. And, in an unprecedented move for the company, he called for a retraction of the story that made this claim.

Earlier this month Bloomberg Businessweek published an investigation alleging Chinese spies had compromised some 30 US companies by implanting malicious chips into Silicon Valley–bound servers during their manufacture in China. The chips, Bloomberg reported, allowed the attackers to create “a stealth doorway” into any network running on a server in which they were embedded. Apple was alleged to be among the companies attacked, and a focal point of the story.

This is rather remarkable. Apple did not even issue a statement about the 2012 fabrications of Mike Daisey, a journalistic showman who created a successful live monologue show about imaginary abuses at iPhone factories.

2. An internet tsar falls

The South China Morning Post reports:

China’s former internet tsar Lǔ Wěi 鲁炜 has pleaded guilty to taking bribes of 32 million yuan (US$4.6 million), according to provincial court authorities.

He was accused of taking advantage of his positions — and the power and status that came along with them — to seek profits for others on matters such as network management and promotions, the Intermediate People’s Court of Ningbo heard. In return, Lu accepted bribes, either directly or through a third party, prosecutors said.

The investigation into Lu was announced last November. It was not surprising to people who knew Lu in his younger days as a Xinhua News Agency official. In 2013, as the new head of the newly renamed Cyberspace Administration of China, he became the public face of Xi Jinping’s concept of “internet sovereignty,” and China’s most enthusiastic defender of internet censorship. Facebook’s Mark Zuckerberg friended him. Until June 2016, when state media announced he was stepping down. Almost a year and a half later, he was finally accused of corruption in the state media.

Lu was widely rumored to have had a nice sideline in a form of blackmail common in Chinese media organizations: the fengkou fei (封口费 fēngkǒu fèi), or “shut-mouth fee” — payments to avoid negative press coverage.

3. Everything is fine, say China’s economic planners

Today, Andrew Polk, co-founder of political and economic research house Trivium, tweeted:

China’s four most important economic officials — Liú Hè 刘鹤, Guō Shùqīng 郭树清, Yì Gāng 易纲, Liú Shìyú 刘士余 — all out with statements today, projecting confidence in the economy and the stock market, on the back of GDP release.

Speaks volumes about how high the level of anxiety is right now.

Polk’s tweet reminds me of an old truism in China: You can only be sure something is actually happening when the government denies it.  

Liu He also gave an interview (in Chinese) to the Global Times in which he talks about China’s stock markets — they are becoming more mature — and he rejects criticism from business people that state-owned companies are advancing at the expense of the private sector. See also: Top China adviser tries to boost battered confidence in economy after weak stocks, financial data in the South China Morning Post.

The PR effort seems to be paying off, at least in the markets if not in the real economy. Bloomberg reports: China stocks rise most in a month as officials pledge support (porous paywall).

—Jeremy Goldkorn

4. Trade war, day 106: Are markets and money making separable from politics?

David Cowhig, a veteran former U.S. diplomat and translator, has translated a long and interesting interview with Wáng Jīsī 王缉思, the dean of the School of International Studies at Peking University. The interview was conducted by the Financial Times’s Chinese publication; Cowhig’s translation is here.

Wang discusses globalization, history, his impressions of American society — “When I first went to the United States in 1984, the political struggle in the United States was fairly rational and civilized. Now it is just cursing and nastiness wherever you turn.” — and current U.S.-China relations. Part of the interview touched directly on the ongoing trade war:

My understanding is that American entrepreneurs still do not want to withdraw from China. They think they can make a lot of money in China. After all, the Chinese market is big, and in the past 30 or 40 years, some very strong path dependencies have been created – how can such a big and complex supply chain simply move somewhere else? …I think there are still many American companies see things that way. They have a wait-and-see attitude.

Their feelings about China are complex. On the one hand, they are very dissatisfied with various restrictive policies. On the other hand, they also realize that China is not the only country with these restrictions. Many many developing countries have similar restrictions. If you move your company to Egypt, don’t you think that the Egyptian government will regulate you? When they think about it, China is still good a good place to be. They can make money here. Therefore, they think that they should exert pressure on the Chinese government to continue with reform and open up some more industrial sectors to foreign investment.

Therefore, the reason the United States launched a trade war against China was not to pull out of China or to completely “decouple” from China, but to change China’s behavior so that it can make more money.

The economist Andy Rothman, we noted earlier this week, similarly observed that Donald Trump has not personally affirmed his more hawkish advisors’ desire to significantly decouple the two countries’ economies. Therefore, it does seem plausible that Trump could end up cutting a deal with Xi Jinping for more market access, and different rules around how foreign companies and their intellectual property are treated in China, and that would ease at least trade tensions for a while — though political tensions seem likely to continue increasing.

There is also an increasing sense in the media, however, that trade tensions and political tensions are deeply intertwined — for example, CNBC writes today that “Trade war hostility may keep US-China in state of military friction,” after U.S. Defense Secretary James Mattis apparently unsuccessfully tried to calm tensions in meeting with his Chinese counterpart this week.

Here’s what else was in the news about U.S.-China relations and the trade war since yesterday:

  • Trump administration moves
    Mike Pompeo warns Panama against doing business with China / NYT (porous paywall)
    “Secretary of State Mike Pompeo said Thursday that he had warned President Juan Carlos Varela of Panama about doing business with China, criticizing Chinese state-owned enterprises that engage in ‘predatory economic activity.’”

  • Chinese economy
    Exports keep China’s economy warm, but winter is coming / WSJ (paywall)
    “For months, China’s economy has been trending down, with a variety of measures including fixed assets, car sales and retail sales slackening. Meanwhile, firms have been gearing up for U.S. tariffs on Chinese products to hit their bottom lines. That doesn’t appear to have happened yet, as U.S. firms have piled up purchases ahead of the tariffs. The usual burst in orders ahead of the American holiday season has also helped.”

  • Japan takes a balance approach
    Shinzo Abe’s China visit will push infrastructure and sea ties to counter US tensions / SCMP
    “China and Japan are set to boost their cooperation on infrastructure projects and Tokyo is pushing to resume talks on joint exploration in the disputed East China Sea when Japanese Prime Minister Shinzo Abe visits Beijing next week, sources have said.”
    Evan Feigenbaum on Twitter: “Shinzo Abe shows how it’s done: explores joint projects with China while ALSO bolstering Japan’s own infrastructure initiatives…explores areas of trade overlap with Beijing while ALSO pushing ahead TPP-11…doesn’t join AIIB but ALSO explores coordination with it…”

  • Lens Technology Co. battered by trade war
    China’s one-time richest woman becomes biggest loser in wealth rout / Bloomberg (porous paywall)

Zhou Qunfei, the chairman of consumer electronics supplier Lens Technology Co., has lost 66 percent of her fortune, or $6.6 billion, this year — the biggest drop in percentage terms among China’s wealthy — based on the top 1,000 profiles in the Bloomberg Billionaires Index.

Lens Technology shares have slumped 62 percent this year, driven by a selloff of Apple Inc. suppliers as U.S. President Donald Trump stepped up trade tariffs on China, and as Elon Musk agreed to resign as Tesla Inc. chairman following a Securities and Exchange Commission probe.

A Chinese airline that’s been an exclusive operator of Boeing Co. jets for more than 30 years is in talks with Airbus SE on a potential plane purchase, amid growing trade tensions between Beijing and the U.S., according to people familiar with the matter.

Executives at Xiamen Airlines, which is majority owned by the state-run China Southern Airlines Co., met with a high-powered Airbus delegation visiting China from Europe last month to advance the negotiations, said the people, who asked not to be identified because the process isn’t public. Xiamen is predominantly interested in the longer-range version of Airbus’ A321 narrow-body planes, they said, though the talks are still at an early stage and the size of a potential order hasn’t been set.

—Lucas Niewenhuis

5. Chinese Corner: China’s housing problems are just history repeating itself

In today’s installment of our weekly review of interesting nonfiction on the Chinese internet, we look at housing problems, virtual reality drug addiction treatments, masculinity training, and China’s embrace of the idea of “pain management.”

—Jiayun Feng

6. State media today

Xinhua News Agency leads with A new chapter on the road to a strong country — a review of the theory of governing the country after the 19th National Congress of the Communist Party, which is as interesting as it sounds.

Xinhua’s English website runs with Xi meets with Russian defense minister, a story that the People’s Daily uses at the top of its Chinese website today.

The Global Times English website prominently features this opinion piece today: Who is concocting the ‘US rebuilt China’ fantasy? In Chinese, the most prominent story is the Liu He interview mentioned above.

7. ’80s overload — China at 1982 World’s Fair in Tennessee

Thanks to Dr. Shellen X. Wu for sending me this link: a TV commercial for the 1982 World’s Fair in Knoxville, Tennessee. It was the first time China attended a World’s Fair. The country’s pavilion included real bricks from the Great Wall.

8. SupChina Women’s Networking series: Healthcare

On November 13, SupChina’s second monthly women’s networking event takes place in New York with guest speaker Ingrid Yin, Ph.D., cofounder of MayTech Global Investments, talking about the developments that are changing medicine in China.

—–

Our whole team really appreciates your support as Access members. Please chat with us on our Slack channel or contact me anytime at jeremy@supchina.com.

—Jeremy Goldkorn, Editor-in-Chief


Here are the stories that caught our eye this week:

  • China defended its concentration camps for Muslims with a concerted PR campaign. A CCTV primetime program showed happy Uyghurs attending classes in a facility in Hotan, where they are learning Mandarin and vocational skills. (An incisive recap of that piece of propaganda can be found in this Twitter thread by Shelley Zhang.) State media, especially the Global Times and its editor Hú Xījìn 胡锡进, enthusiastically joined in the campaign — Hu tweeted many, many times about Xinjiang throughout the week, as did Zhào Lìjiān 赵立坚, the deputy chief of mission at the Chinese Embassy in Pakistan. Zhao even went out of his way to impress his bosses back in Beijing, and retweeted an article that branded his public diplomacy efforts as a “rampage.”

  • Cuī Tiānkǎi 崔天凯, China’s ambassador in Washington, expressed confusion about who is deciding China policy in the Trump administration. Regardless of who in particular is making the decisions on relations with China, the overall mood in the Trump administration is clearly pessimistic: National security adviser John Bolton appeared to endorse a strategy of containing Chinese power, while Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross played down expectations for a possible Trump-Xi meeting at the G20 at the end of November. Defense Secretary James Mattis met with his Chinese counterpart and tried to ease tensions. The Economist, meanwhile, declared that we have reached the “end of engagement” between the U.S. and China.

  • The China Import and Export Fair, also known as the Canton Fair, also displayed a pessimistic mood this week: Reuters’ poll of export companies this time showed that “more than 60 percent expected the trade war to last at least another year.”

  • Washington announced it would withdraw from a 144-year-old treaty establishing the Universal Postal Union, which had given favorable shipping rates to China and other developing countries. Meanwhile, Vietnam and the Philippines are reportedly in the sights of the Trump administration for long-promised bilateral trade deals to replace the Trans-Pacific Partnership.

  • ExxonMobil is in talks with Zhoushan, an island city about 90 miles (145 kilometers) south of Shanghai, to build a $7 billion ethylene plant, and also signed an agreement to export liquefied natural gas to China, despite the trade war. The Texas oil giant also signed a framework agreement for a liquefied natural gas (LNG) supply deal with Zhejiang Provincial Energy Group.

  • Electric scooter startup Niu filed for a $150 million IPO on Nasdaq.


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BUSINESS AND TECHNOLOGY:

POLITICS AND CURRENT AFFAIRS:

The so-called 16+1 framework was established by China as a means to deepen its footprint in eastern Europe. Its members — 11 European Union countries, from Poland to Hungary and Estonia, plus five Balkan states — saw the annual forum as a means to attract Chinese investment in infrastructure like roads and rail networks to boost their economies.

But many of those states are disenchanted with the lack of investment from China, according to people with direct knowledge of the forum. Members are also unhappy at Beijing’s preference to provide loans rather than cash, and now recognize that better deals are available within the EU framework, such as via the European Bank for Reconstruction and Development, the bloc’s development bank.

BBC: “Do you trust France to keep you safe?”

Meng: “Good question.”

SOCIETY AND CULTURE:


VIDEO ON SUPCHINA

This week, we published the following videos:


FEATURED ON SUPCHINA

5 classic movies to remember Xie Jin, the master of Chinese melodrama

Xie Jin remains relatively obscure outside of his home country, which is a shame. He directed such canonical films as “The Red Detachment of Women” 红色娘子军 and “Hibiscus Town” 芙蓉镇 (not only one of the best movies made about the Cultural Revolution, but one of the best Chinese movies ever), and is regarded as a pioneer whose trademark style became known as the “Xie Jin model.” Let’s revisit some of his work.

ChinaEconTalk: Tencent’s History and Future with Matthew Brennan

Matt Brennan, professional speaker and co-host of China Tech Talk, comes on the show to discuss the history and evolution of China’s most popular app, WeChat, as well as threats on the horizon for the company that created it, Tencent.

Why ‘Crazy Rich Asians’ might flop in mainland China

Crazy Rich Asians took Hollywood by storm this summer, winning critical praise and inspiring essays about the power of representation. But moviegoers are decidedly less enthused in China, where the film scores a tepid 6.8 out of 10 on the review site Douban. What can we expect from the movie’s scheduled release in China on November 30?

Beijing Ren: The Russian District

Just outside Second Ring Road in east-central Beijing is the area of Yabaolu 雅宝路, popularly known to locals as the Russian district. Here, rickshaw drivers speak fluent Russian, and Russian signs dominate shops and malls with no trace of a Chinese translation. Here’s where to go for fur tours, eat pierogi and vareniki, watch Russian dance, and shop for traditional Russian items. Let’s take a look!

The future of affirmative action and Chinese-American applications to elite universities

Are more Chinese Americans about to gain admission to elite universities in the U.S.? Here’s what you need to know about SFFA (Students for Fair Admissions) v. Harvard, the lawsuit that alleges bias against Asians Americans at Harvard. If the case — which recently began — reaches the Supreme Court, where Trump has just solidified a conservative majority, it’s likely that affirmative action, as Americans have known it, will be over.

China’s alleged supply chain hack: Explaining the controversy around Bloomberg’s ‘big hack’ reporting

Since October 4, Bloomberg has published three stories about Chinese attempts to compromise hardware sold to major U.S. companies. Those reports have been widely criticized in the cybersecurity community, though Bloomberg stands by its reporting. The smoking gun may be out there, or Bloomberg may be chasing ghosts. Either way, the damage is already done.

Your hair spray is ruining Beijing’s air, experts warn. Beijingers are not amused.

A new research study by the Beijing Municipal Research Institute of Environmental Protection on sources of the particulate pollutant PM2.5 in Beijing has concluded that everyday household products, such as hair spray and perfume, are causing nearly as much air pollution as industry, reports the Science and Technology Daily.

Parents reach agreement with school after bullied girl commits suicide

The family of a 14-year-old Yunnan girl, who took her own life after long-term bullying by classmates, decided not to hold the bullies accountable after the school provided financial assistance of 80,000 yuan for memorial services.

Couple find spy camera hidden in apartment rented online

A couple in Beijing claims to have discovered a secret camera hidden in the bedroom of an apartment they rented through Ziroom, one of China’s largest long-term apartment rental companies.

Insurance fraud and suicide: A Shakespearean tragedy in Hunan

A woman in Hunan Province, China killed her two children and then committed suicide after her husband faked his own death. The man was over 100,000 yuan in debt and in early September had purchased a life insurance plan worth one million yuan without informing his wife, who was named as the beneficiary. On September 19, He used a borrowed vehicle to fake a road accident and then vanished.

Sinica Podcast: Kai-Fu Lee and the U.S.-China AI rivalry

Kai-Fu Lee 李开复 (Lǐ Kāifù), the CEO of Sinovation Ventures, returns to the Sinica Podcast to discuss his new book, AI Superpowers: China, Silicon Valley, and the New World Order.

TechBuzz China: The Local Services War

Podcast co-hosts Ying-Ying Lu (吕颖颖 Lǚ Yǐngyǐng) and Rui Ma (马睿 Mǎ Ruì) discuss Alibaba’s recent moves to firm up its strategy around local services, putting pressure on Meituan-Dianping to defend itself. This war of “O2O,” or online-to-offline, is shaping up to be intense, with the latest battle round seeing the merger between food delivery rival ele.me (which Alibaba acquired for $9.5 billion in April) and Alibaba’s new retail subsidiary, Koubei.

Kuora: Considering the Republican-era thinkers Kang Youwei and Liang Qichao (for president)

What would have happened to China if a political reformer like Kāng Yǒuwéi 康有为 or Liáng Qǐchāo 梁啟超 had been elected president of the Republic of China? Kang and Liang fled the country (for good reason), ceding power to the likes of Yuan Shikai.

The Caixin-Sinica Business Brief, episode 65

This week on the Caixin-Sinica Business Brief: Chinese stocks, the richest man in China, Hong Kong’s ban on electronic cigarettes, the sentence of veteran regulator Yáo Gāng 姚刚, Brilliance Auto and its partnership with BMW, and more.


PHOTO FROM MICHAEL YAMASHITA

Moving steel on the Grand Canal

Barges on the ancient Grand Canal are loaded with steel rods for shipment at Huaigang Special Steel, a Chinese steel manufacturer based in Huai’an, Jiangsu Province. The old canal still serves as an important waterway to transport coal, bricks, and other cargo between Hangzhou and Jining.

Jia Guo