Welcome to the 88th edition of Trade War.
Is this called decoupling? LinkedIn, the last major U.S. app operating in China, announces end to its service; U.S. law firm MayerBrown pulls out of controversial contract to help university remove Tiananmen Square memorial in Hong Kong; E&Y starts to face fire for its role auditing Evergrande; and Harvard announces its overseas summer study program is leaving Beijing for Taipei.
Meanwhile, China says ‘Common Prosperity’ can help it build global soft power, while Xi speech shows party’s resistance to expanding social welfare as wealth gap continues to grow. A “Workers Lives Matter” movement grows amongst stressed tech workers and Kyle Bass, Steve Bannon, and Guo Wengui all part of losing bet against the Hong Kong dollar.
‘More challenging’ China environment & LinkedIn pulls out
Microsoft’s LinkedIn will shut its networking site in China, the last major American social media network with operations there, report the Wall Street Journal’s Liza Lin and Stu Woo.
The company faces “a significantly more challenging operating environment and greater compliance requirements in China,” LinkedIn said in a statement. Twitter and Facebook have been blocked in China since 2009 while messenger app Signal and Clubhouse were both blocked earlier this year.
Microsoft’s decision comes as China is tightening control over its tech companies and private entrepreneurs. In March, LinkedIn announced it was temporarily halting the addition of new members in China, while around the same time, Beijing ordered the company to do a better job regulating its content. In May, Microsoft’s LinkedIn and search engine Bing were the only foreign apps amongst 105 apps that were criticized for “improper data collection” by Chinese regulators.
Meanwhile, in recent months, “LinkedIn notified several China-focused human-right activists, academics and journalists that their profiles were being blocked in China, saying they contained prohibited content,” reports the Journal.
LinkedIn China, whose revenues amount to less than 2 percent of parent company Microsoft’s global take, according Microsoft president Brad Smith, was told last year by Chinese authorities to remove content 42 times, more than in any other country; it responded in 38 of the cases.
Adhering to what Chinese government regulations?
Just days before LinkedIn’s announcement, Axios’ Bethany Allen-Ebrahimian wrote an article querying the company about its recent decision to block U.S. journalists from its platform in China.
“After blocking the profiles of several U.S. journalists, including mine, from its China-based website, LinkedIn has repeatedly avoided answering key questions about the censorship,” writes Allen-Ebrahimian.
Here are the questions she raised with the company:
“1. Were the recently affected accounts removed because of specific, individual requests by Chinese government authorities? 2. Does LinkedIn maintain an internal list of topics considered prohibited in China? 3. What specific Chinese law did the content on the profiles break? 4. If LinkedIn has blocked accounts in China due to self-censorship, will it make the number of such actions publicly known?”
A LinkedIn spokesperson did not answer the questions instead referring Axios to a statement it had made earlier:
"We’re a global platform that respects the laws that apply to us, including adhering to Chinese government regulations for our localized version of LinkedIn in China. For members whose profile visibility is limited within China, their profiles are still visible across the rest of the globe where LinkedIn is available."
Two days later LinkedIn announced the closure of its site in China.
A ‘real estate matter’ shames U.S. firm Mayer Brown
Facing criticism, U.S. law firm Mayer Brown has ended its work representing the University of Hong Kong in a controversy over the removal of a Tiananmen Square memorial, report the Washington Post’s Adam Taylor and Shibani Hahtani.
Over the last week more than two dozen nonprofit groups have pressed the law firm to stop representing Hong Kong’s oldest university in its plans to remove the 24-year-old statue called “Pillar of Shame,” which commemorates the victims of the June 4, 1989 massacre.
“We therefore expect Mayer Brown law firm to safeguard their reputation and their integrity in defending the right of freedom of expression by rescinding their agreement with the University of Hong Kong,” the groups wrote in an open letter.
“It is even worse American law firms are doing the bidding of the Communist Party to erase the memory of the brave, young Chinese students who gave their lives for freedom in Tiananmen Square,” Sen. Lindsey Graham (R-S.C.) told the Substack newsletter Common Sense.
“Going forward, Mayer Brown will not be representing its long-time client in this matter. We have no further comment,” the firm said announcing it decision to end its role in the memorial removal.
In earlier statements Mayer Brown had called the issue a “real estate matter” and the firm’s work not “commentary on current or historical events.”
Why didn’t PWC warn about Evergrande risks?
The Evergrande implosion is raising questions about the role of auditor PWC and what it says about the larger reputation and legal risks of working with Chinese companies, reports the Financial Times’ Tabby Kinder.
Just one half year ago its longtime auditor PWC signed off on its financial statements without raising any alarm.
“If Evergrande was listed in London, rather than in Hong Kong, politicians and regulators would already be jostling into position to examine the work of its auditors,” writes Kinder.
“Evergrande’s auditors — which have earned Rmb271m ($42m) since 2009 — signed off on the figures presented to them by management for years,” reports the Financial Times.
“Are its auditors asleep?” wrote Hong Kong-based accounting research firm GMT Research in 2016, after visiting 40 Evergrande development sites. “The company is insolvent by our reckoning and its equity worth nothing.”
“Already the Big Four [auditing firms] have become caught in geopolitical tensions between the US and China over access to the audit documents of Chinese companies listed in New York,” reports the paper. “And an accounting scandal at China’s Luckin Coffee over fake sales led to questions about the quality of audit work done by EY.”
“[This] is a reminder that the public, political and regulatory risks are becoming ever more of an international problem,” writes Kinder.
Harvard Chinese program to move from Beijing to Taipei
Facing an unfriendly environment in China, Harvard’s summer Chinese study program will move from Beijing to Taipei in the summer of 2022, report the The Harvard Crimson’s Io Y. Gilman and Isabel Wu.
“The program decided to move to Taipei due to a perceived lack of friendliness from the host institution, Beijing Language and Culture University,” writes the Harvard paper, citing program director Jennifer L. Liu.
Examples of problems included difficulty arranging adequate classrooms and dorms for the students, as well as starting in 2019, not being allowed to hold a party celebrating the Fourth of July.
“We were told that our students were not allowed to sing, to celebrate,” Liu said. “Given the condition they provided, we really couldn’t run the program with the quality that we are hoping to deliver to our students.”
Harvard China studies professor and chair of the Harvard Center Shanghai William C. Kirby said other Harvard-affiliated organizations are not leaving, mentioning collaboration with Chinese academics through the Fairbank Center, the Harvard Kennedy School Asia Fellows Program, and the Harvard Center Shanghai.
“This is not a time in which this university is retreating from its engagement with China — it’s actually seeking every way possible to deepen it,” Kirby says.
Common Prosperity and Xi’s fear of ‘welfare traps’
A lengthy speech by Xi Jinping from August, reprinted in the Communist Party’s Qiushi, has the most detailed explanation to date of the Chinese leader’s views on ‘Common Prosperity,’ including his surprising caution against creating “welfare traps.”
“The Chinese Communist Party is still allergic to the idea of social protection and social welfare, believing that it leads to "laziness," writes University of Michigan China labor scholar Mary Gallagher, in a tweet thread.
“This should offer a corrective to those that believe this is a new CCP or that [Xi Jinping] is remotely interested in socialism or communism IF those terms mean real redistribution and real reform of the economy so that blue collar workers have access to deep and broader social insurance for retirement, health care, and unemployment, esp. rural hukou workers,” writes Gallagher.
“IMHO, this is a call for reforms to the system so that the Party maintains control against the wealthy and the private sector. Certainly not a call for reform that will bring redistribution and a better and more balanced livelihood for Chinese workers.”
Excessive guarantees and supporting lazy people
“Even if our level of development is higher in the future and finances are more abundant, we cannot set too high a goal and have excessive guarantees. We must resolutely guard against falling into the trap of supporting lazy people through ‘welfarism,’” Xi commented in the speech.
China to avoid political polarization and rise of populism
And here is another illuminating thread on Xi’s speech from SupChina’s Kaiser Kuo.
“[Xi] warns about the dangers of income inequality, political polarization, the tearing of the social fabric, the collapse of the middle class, and the rise of populism in "some countries." Insists China won't go that way,” writes Kuo in a tweet thread.
Crowd-pleasing attacks on tycoons don’t solve wealth gap
China has a very real and worrying wealth gap, one not yet being seriously addressed through Xi’s current campaign, writes Bloomberg Opinions’ Clara Ferreira Marques.
“Xi’s push for ‘Common Prosperity’ is targeting everything in its path, including private tutoring centers, gaming, excessive overtime and tax-dodging celebrities,” writes Ferreira Marques.
“Yet for all the propaganda and crowd-pleasing attacks on tycoons, the world’s second-largest economy faces a very real problem: A persistent gulf between the country’s affluent and the rest of the population is at risk of becoming unbridgeable, as Xi himself said earlier this year.”
Even with official figures showing a slight decline since 2008, “China’s Gini coefficient, a ratio that measures inequality in which zero is perfect equality, is now near 0.47 — closer to Latin America or parts of Africa than to the group of high-income nations that China wants to join,” writes the Bloomberg columnist.
“Official statistics also tend to undercount the rich. Work done by economists Thomas Piketty, Li Yang and Gabriel Zucman, which includes tax and other sources, finds that the share of income earned by the top 10% rose from 27% in 1978 to 41% in 2015, while the share of the bottom 50% decreased to 15% from 27%. Soaring property prices, meanwhile, have widened the wealth gap even further.”
Boosting Beijing in its ideological contest with the West
Xi’s ‘Common Prosperity’ includes the soft power goal of boosting the popularity of the China model globally, write Eurasia Group’s Neil Thomas and Michael Hirson in Asia Financial, citing a recent People’s Daily article.
Thomas and Hirson write that the article’s author, Xie Fuzhan, president and party secretary of the Chinese Academy of Social Sciences, has as his “most novel contribution” the idea that the policy will help Beijing in its “ideological contest with the West.”
“A focus on closing the gap between the rich and the poor would align with Xi’s efforts to rally the developing world to oppose US efforts to decouple from China, to support Chinese positions in multilateral institutions, and to learn from ‘Chinese solutions’ on their paths to development,” Thomas and Hirson write.
“Xie’s article on common prosperity also seems to be the first of many by senior officials and academics ahead of the Sixth Plenum in November and the 20th Party Congress next fall, each of which could provide further details and more signals regarding Beijing’s policy planning.”
Workers Lives Matter
White collars workers have begun an online campaign to protest long working hours, report Bloomberg News’ Shiyin Chen and Yuan Gao.
“The so-called Worker Lives Matter campaign is asking employees in various industries like technology and finance to share what time they start and end their workday as well as how many days they work per week,” reports Bloomberg.
“We workers also need to live!” says the campaign’s GitHub page.
“The latest campaign echoes an earlier effort by tech employees to protest long working hours. In 2019, a group of Chinese programmers took to GitHub to banish startups accused of mistreating employees from using their open-source code,” reports the financial news service.
Unify the people, bolster the Party
"The Communist Party cannot just sit there and enforce the laws and deliver public services (if it were to do so, it would not be a Leninist party anymore)," writes Andrew Batson in an interesting blog which considers how mobilization drives much of Xi’s policy including ‘Common Prosperity.’
Xi worries about the future of “China’s Leninist system” explain both “his rather surprising support for conservative monetary and fiscal policies oriented at reducing future risks, and his focus on the quality-of-life issues that are of increasing concern to the middle classes, like pollution and education,” writes Batson.
“But Xi is doing more than just maintenance to keep the current mobilization campaign running a while longer (that was more [previous leader] Hu Jintao’s strategy). He is proposing a new national project, whose pursuit is intended to unify the people and bolster the continued legitimacy of the Communist Party.”
Notable/In Depth
“China tested a nuclear-capable hypersonic missile in August that circled the globe” catching US intelligence by surprise, write the Financial Times’ Demetri Sevastopulo and Kathrin Hille.
Kyle Bass, Steve Bannon, and Guo Wengui are linked in a hedge fund’s massive loss from shorting the Hong Kong dollar, reports Bloomberg News.
“Mr. Xi’s pledge to reduce inequality by cutting down billionaires such as Evergrande’s Xu Jiayin is a smoke screen,” writes Hudson Institute senior fellow John Lee in the Wall Street Journal. “The primary cause of inequality in China is entrenched privileges for state-owned enterprises and the well-connected at the expense of the truly private economy.”
“Until discrimination against the latter is reduced, wealth won’t be better distributed, and household income won’t increase enough to drive and sustain the domestic consumption-led growth promised by Chinese leaders.”
Montana picture
And a recent morning view reminds why Montana is called Big Sky country.
Dexter or David?
Also how come I didn't know you had a blog.
I haven't read anything yet, but I want to go on record as saying you are wrong about whatever it is you write about. as a matter of principle.