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China’s defense industry is huge


Dear Access member,

We had a fun and informative SupChina Direct conference call with TechBuzz China podcaster Rui Ma earlier today: We’ll make the recording available to members in the next few days. 

Watch this space for news about our next call. 

—Jeremy Goldkorn, Editor-in-Chief


1. China’s defense industry is huge

“The burgeoning Chinese defense industry has blown past the majority of its U.S. counterparts while leaving virtually all of Europe in the dust,” reports Breaking Defense, based on an annual list of the 100 biggest defense companies in the world, published by Defense News

A whopping six Chinese companies have stormed into the top 15 global defense firms world…The top Chinese company on the list, Aviation Industry Corporation of China, boasts an estimated revenue from defense sales of $24 billion, pushing past traditional US defense giants General Dynamics and BAE Systems…

Pentagon officials have long bemoaned the Chinese government’s ability to order industry to respond quickly — and completely — to its demands. The new report shines a spotlight on the gravity of those complaints while shining a spotlight on secretive Chinese defense industry. 

Here are the top 15 companies according to Defense News, although I wonder about the reliability of the revenue numbers. 

2. Li Peng, 90, dies in Beijing

The BBC reports:

Former Chinese Premier Lǐ Péng 李鹏, who ordered martial law during the 1989 Tiananmen protests, has died at the age of 90, state media have announced.

Li died on Monday evening in Beijing of an unspecified illness.

He served in several top positions in China in the 1980s and 1990s.

But he was best known as the “Butcher of Beijing” for his role in the Tiananmen Square crackdown on pro-democracy protesters in 1989. Soldiers killed hundreds of unarmed civilians.

Li later defended his actions as a “necessary” step.

Here is the short English obituary from Xinhua and here is a longer one in Chinese, which praises Li’s actions in 1989. Here is the New York Times’ obituary.

For a more colorful memory of Li, read Supping with a long spoon — dinner with Premier Li, November 1988 by scholar Geremie Barmé. 

3. Shanghai’s falling STAR

STAR, the new Nasdaq-style stock market launched in Shanghai yesterday, got off to a booming start in its opening hours. But that did not last long. 

  • “More than 20 of the 25 companies among the first batch to be listed on Shanghai’s new STAR Market tech board saw steep declines on Tuesday, with some dropping more than 15 percent,” reports CNBC.

  • “The biggest shareholders in China’s new Nasdaq-style STAR Market lost a combined $1 billion in the second day of trade on Tuesday, a day after the board’s roaring debut created three new billionaires,” according to Reuters. “All but four companies of the 25 stocks listed on the market fell as investors took profits from opening day gains, erasing about 9 percent of the total market capitalization.”

  • “After semiconductor shares posted massive gains on the new Nasdaq-style high-tech board’s first day of trading, the sector’s stocks edged down on the second day,” reports Caixin (paywall). “The board’s six semiconductor companies saw their combined market capitalization shrink 4.7 billion yuan ($680 million) on Tuesday.”

  • “The frenzy that greeted China’s new Nasdaq-style stock board is already fading,” says Bloomberg (porous paywall). 

For more on STAR, see:

4. A reprieve for Huawei, and farm goods purchases 

CNBC suggests that the trade war is coming down “to the U.S. easing up on Huawei and China buying agricultural products”: 

“Olive branches were extended from both China and the U.S. as the two nations are set to restart face-to-face trade negotiations after a monthlong truce,” says CNBC

President Donald Trump on Monday agreed to give “timely licensing decisions” to allow a slew of tech companies including Google and Broadcom to sell to Chinese telecom giant Huawei. The administration blacklisted Huawei in May at the height of the trade war, effectively halting its ability to buy U.S.-made chips.

On China’s side, President Xi Jinping seems to be following through on his promise made at the G-20 summit to continue buying U.S. agricultural products. 

See also: Trump agrees to timely decisions on Huawei as China talks near, from Bloomberg via Yahoo. Here are other developments from various fronts of the U.S.-China techno-trade war, day 383 by our count, and news of Huawei around the globe:

Iranian oil: “For the first time, the Trump administration is imposing economic penalties on [Zhuhai Zhenrong, and its chief executive] for importing Iranian oil, a decision certain to add to tensions between Washington and Beijing,” reports the New York Times (porous paywall). China today called the sanctions “illegal,” according to AFP.

U.S. farmers still hope to sell pork to China as it copes with the African swine fever epizootic, according to Reuters. As the serious nature of the swine fever threat became known “during the second half of 2018, expectations for demand started to pick up — even though duties on U.S. pork going to China were raised to 62 percent from 12 percent last year as part of tit-for-tat trade sanctions.”

“Hikvision Digital Technology, China’s top surveillance camera provider, has sharply increased its stockpile of components and finished products amid concerns that the US may bar it from doing business with American suppliers like it did with Chinese telecommunications giant Huawei Technologies,” reports the South China Morning Post

“Huawei has cut more than 600 jobs at its U.S. research unit Futurewei after Washington put the Chinese firm on a trade blacklist,” according to the BBC

Huawei’s ambitions in Canada appear to be unaffected: “The embattled Chinese telecom giant Huawei has unveiled plans to deploy high-speed wireless internet to dozens of underserved communities in Canada’s remote northern regions,” reports the Guardian

However, Huawei has a hostage problem. The company’s “Canadian unit sought to distance itself from the actions of the Chinese government on Monday, with a top local executive saying the company is worried about two Canadian men being held by Beijing,” says Reuters. A lot of Canadians are worried, too — the Christian Science Monitor reports on businesspeople canceling trips to China in fear of being detained or subject to an exit ban. 

Meanwhile, in the U.K., “a decision on whether controversial Chinese firm Huawei should be excluded from the rollout of 5G mobile phone networks…has been postponed,” says the BBC.  

In Italy, Huawei announced plans to invest $3.1 billion and directly create 1,000 new jobs from 2019 to 2021, reports the China Daily.  

5. How to treat foreigners?

In the wake of recent debates about preferential policies enjoyed by foreign university students in China, the country’s Ministry of Education last week said that it would make further efforts to make sure management and services for Chinese students and overseas students studying in China are “nearly the same” but not “totally identical.” (See SupChina for details.)

The mixed feelings about how to treat foreigners are widespread. What’s on Weibo reports on an online controversy that started when an elementary school teacher in Zhuhai told students to take a photo with five foreigners this summer holiday as homework. “In the eyes of many netizens, the assignment is inappropriate, as it supposedly teaches pupils to look up to (or ‘worship’) foreigners.”

Meanwhile, Sixth Tone reports that online education provider “51Talk says it will comply with a national guideline that requires foreign teachers’ information to be made public,” following negative media reports about its lack of disclosure. 

6. Sinophobia update

Two updates related to the trends described in our Sinophobia Tracker

In a new essay, Peter Mattis and Matt Schrader call for an informed approach to U.S. national security worries about China: America can’t beat Beijing’s tech theft with racial profiling

University of California “campuses from San Diego to Berkeley are reporting that Chinese students and scholars are encountering visa delays, federal scrutiny over their research activities, and new restrictions on collaboration with China and Chinese companies,” reports the Los Angeles Times (porous paywall).

—–

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


BUSINESS AND TECHNOLOGY:

China’s state-owned BAIC has taken a 5 per cent stake in Daimler, whose top shareholder for the past year has been rival Chinese carmaker Geely, the luxury German automaker said Tuesday (Jul 23).

Daimler, which produces the luxury brand Mercedes-Benz, has long worked with BAIC in China and has previously said it was possible that BAIC could purchase a stake in its capital.

  • Tough times in the movie business
    China’s cinema business faces a bad scene / Caixin (paywall)
    Huayi Brothers Media Corp., which earlier this month posted net losses along with most other cinemas in China, is now saying it will sell its cinema equipment on lease-back terms as a result of financial pressure and greater competition. Caixin reports:

The 25-year-old company, one of China’s largest private film studios, is selling projection gear from four cinemas to Hebei Financial Leasing Co. Ltd., which has agreed to lease it back to Huayi for 24 months.

[Luckin Coffee] announced on Monday that it has signed a memorandum of understanding with Kuwaiti food company Americana Group for a joint venture to expand its coffee chain business in the Middle East and India… This is the first time the Chinese coffee chain has announced plans to expand its operations overseas.

China is planning to regulate e-cigarettes in an attempt to stave off a new gateway addiction in what is already the world’s largest smoking population.

“The supervision of electronic cigarettes must be severely strengthened,” said Máo Qún’ān 毛群安, head of the National Health Commission’s (NHC) planning department, at a press conference on Monday (July 22).

Two of the largest private sector companies in the eastern city of Nanjing have become the latest to join the wave of corporate debt defaults in China, as the country forges ahead with its crackdown on financial risks and its campaign to deleverage the economy.

Thirty private businesses missed their repayment obligations on 89 issues valued at a combined 60 billion yuan (US$8.7 billion) so far this year, an increase of 150 percent from the same period in 2018, according to data by Shanghai Wind Information. That’s more than the state-owned enterprises that missed eight bonds valued at 10 billion yuan, and topping last year’s 126 defaults worth 11.4 billion yuan.

SCIENCE, HEALTH, AND THE ENVIRONMENT: 

The world’s deepest underground lab designed to detect dark matter in Langzhong, Southwest China’s Sichuan Province will receive new equipment, which is one of the most important science and technology infrastructure projects of the country.

POLITICS AND CURRENT AFFAIRS:

Muslims who escaped China’s crackdown in Xinjiang still live in fear, saying new homes abroad and even Western passports afford them no protection against a state-driven global campaign of intimidation.

With menacing text and voice messages, and explicit threats to relatives still living in Xinjiang, China’s powerful state security apparatus has extended its reach to Uighurs living in liberal democracies as far away as New Zealand and the United States, in a bid to silence activists and recruit informants.

The United States Coast Guard will intensify its activities in the Pacific in response to China’s growing influence across the region, according to the force’s commandant Admiral Karl Schultz, who said there were “clear indicators” of Beijing’s increased presence even in the U.S.’ Pacific territories.

The Philippines is considering inviting tourists to its biggest and most strategically important outpost in the South China Sea, part of efforts to assert its claim to sovereignty over some of the world’s most contested islands. Thitu island [中业岛 zhōngyè dǎo] in the Spratly archipelago is in the midst of major upgrades to its dilapidated facilities, playing catch-up with China and Vietnam, which have been developing facilities on islands they either occupy or have built from scratch on top of submerged reefs.

China’s foreign ministry said on Monday that South Korea’s air space identification zone is not a territorial airspace and all countries enjoy freedom of movement there.

Foreign ministry spokeswoman Huà Chūnyíng 华春莹 made the remarks after South Korea said two Chinese bombers and two Russian bombers entered the Korea Air Defence Identification Zone (KADIZ) together early on Tuesday.

SOCIETY AND CULTURE:


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Jeremy Goldkorn

Jeremy Goldkorn worked in China for 20 years as an editor and entrepreneur. He is editor-in-chief of SupChina, and co-founder of the Sinica Podcast.