Decoding transatlantic relations with Beijing.

By PHELIM KINE

with STUART LAU

Send tips here | Tweet @PhelimKine or @StuartKLau | Subscribe for free | View in your browser

Hi, China Watchers. Today we examine how Beijing is spooking China’s already skittish U.S. business community, spend a few minutes with U.S. Ambassador to China Nicholas Burns, and parse the pitfalls of Chinese journalism. And we profile a book that warns that the high-speed erosion in the U.S. industrial base has delivered Beijing a decisive strategic advantage. 

Let’s get to it. — Phelim

BEIJING IMPOSES NEW PERILS ON US BUSINESS

China is throttling the confidence of a longtime cheerleader: the U.S. business community.

The U.S. Chamber of Commerce is warning U.S. businesses operating in China that Beijing’s newly revised Counterespionage Law “dramatically increases the uncertainties and risks of doing business in the People’s Republic,” the chamber said in a statement on Friday.

The revised law takes effect on July 1 and allows Chinese security agencies to “inspect the electronic equipment, facilities and related programs and tools of relevant individuals and organizations… [and] may read or collect relevant documents, data, materials, or items.” It adds: “relevant individuals and organizations shall cooperate.” 

The law’s ambiguity and scope makes it “a matter of serious concern for the investor community,” the chamber said.

The Biden administration shares those concerns. The law could criminalize “the kind of mundane activities that a business would have to do to seek due diligence before you agree to a major investment deal, to have full access to economic data, to make rational economic decisions,” U.S. Ambassador to China Nicholas Burns said during a virtual briefing hosted by the Stimson Center on Tuesday. The law is the latest in a series of regulations Beijing has rolled out in recent years — including the Law on Guarding State Secrets and the Cybersecurity Law —  with ambiguous criteria for wrongdoing that impose significant risks on foreign firms. 

That warning follows a police raid last month on the Beijing office of U.S. consulting firm Bain & Company, along with Chinese authorities’ move last month to detain five local staff of the U.S. corporate due diligence firm Mintz Group and force the closure of its Beijing office. 

There’s alarm on Capitol Hill. “If your company operates in China, it does so only by the grace of the Chinese Communist Party,” said Mike Gallagher (R-Wis.), chair of the House Select Committee on China. Gallagher urged U.S. firms in China to “think long and hard about the unique risks posed by operating in the Chinese market and have clear diversification and divestment strategies mapped out well in advance of any crisis.”

Perceptions of rising risks for U.S. businesses in China could hobble China’s efforts to entice foreign investors back to the country following Beijing’s lifting of Covid-related travel restrictions earlier this year. And it suggests that one of the most resilient foundations of U.S.-China relations — buoyant business confidence for the vast Chinese market that has underpinned bilateral ties for half a century — may be crumbling.

“Beijing’s recent campaign to convince the U.S. business community that China is ‘open for business’ runs hollow in light of recent raids on American companies and detention of foreign executives,” said Wendy Cutler, former assistant trade representative for Japan, Korea and APEC Affairs in the George W. Bush administration. U.S. firms’ distrust in Beijing is “likely to  tip the scales for many U.S. firms who are already reassessing the vitality of their China operations,” Cutler said.

American Chamber of Commerce in China data supports that outlook. A total of 45 percent of respondents in AmCham China’s most recent China Business Climate Survey published last month said China’s business environment is “deteriorating” compared to 12 percent in 2020. Those fears are likely to top the agenda at the chamber’s  two-day, closed-door session focused on China next week in Washington.

The sudden chill in U.S.-China business ties dismays some longtime China watchers. “I’m surprised it’s getting so ugly,” said Jeffrey R. Shafer, President Bill Clinton’s former under secretary of the U.S. Treasury for international affairs. Shafer compared the current state of bilateral relations to a playground basketball game in which “both teams are bringing knives to the court.”

TRANSLATING WASHINGTON

— KERRY GETS CHINA MEETING INVITATION: Chinese paramount leader Xi Jinping’s climate envoy Xie Zhenhua has invited his U.S. counterpart John Kerry to resume high level climate cooperation talks. The invitation calls for a meeting between the two envoys “in the near term,” Kerry told Reuters on Wednesday. Beijing suspended climate cooperation in August as a reprisal for then-House Speaker Nancy Pelosi’s visit to Taiwan. White House efforts to reschedule Secretary of State Antony Blinken’s visit to Beijing — postponed due to the Chinese spy balloon incident in February — and to secure similar trips by Treasury Secretary Janet Yellen and Commerce Secretary Gina Raimondo remain in limbo.

— CHINA COMMITTEE TARGETS FORCED LABOR VIOLATIONS: The House Select Committee on China has contacted retailers including Shein, Nike, Adidas and Temu demanding that they prove that their supply chains don’t include materials produced by forced labor in Xinjiang. The Uyghur Forced Labor Prevention Act bars the importation of any products tainted by Xinjiang forced labor abuses. “Too many companies look the other way hoping they don’t get caught, rather than cleaning up their supply chains. This is unacceptable,” committee chair Mike Gallagher said in a statement published on Wednesday. “SHEIN has no suppliers in the Xinjiang region…we have zero tolerance for forced labor,” a SHEIN spokesperson said in a statement. The other three firms didn’t respond to requests for comment.

— TAIWAN APPLAUDS BIDEN-MARCOS ‘STABILITY’ PLEDGE:  Taiwan has hailed Philippine President Ferdinand “Bongbong” Romualdez Marcos and President Joe Biden’s declaration of support for “maintaining peace and stability across the Taiwan Strait. That statement underscores “the high degree of consensus among countries in the region” on preventing conflict across the Taiwan Strait, the island’s Foreign Affairs Ministry said in a statement on Tuesday.

“The Philippines can’t ignore the fact that it lives next door to China and just across the street from Taiwan … but if they throw their lot in with another country, it’s the United States, not China,” said Brian Harding, former country director for Asian and Pacific security affairs in the Office of the Secretary of Defense. Ongoing Chinese harassment and intimidation of Philippine coast guard craft in Manila’s territorial waters complicate Marcos’ efforts to balance ties between Beijing and Washington. 

Marcos “wants  good relations with China … but the Philippines don’t want to be seen as allowing themselves to be bullied by any major power,” said Scot Marciel, a former principal deputy assistant secretary for East Asia and the Pacific at the State Department.

— CHINA TARIFF REVIEW DRAGS ON: The Biden administration’s review of whether to remove or modify any of the tariffs that former President Donald Trump imposed on more than $300 billion worth of Chinese goods hit the 1-year mark yesterday unchanged, POLITICO’s Doug Palmer reported on Wednesday. USTR announced last year it was initiating what turned out to be just the first stage of the review to find out whether any beneficiary industry wanted the tariffs extended. It took USTR four months to determine that some industries did want that and another month to open up a new comment period on whether they should be modified in some form. That comment period ended on Jan. 17, more than four months ago. Any change in those tariffs “is a decision that only the president can make,” Burns, the U.S. ambassador to China, said in a virtual briefing at the Stimson Center on Tuesday.

TRANSLATING EUROPE

CZECHS SEE ‘NO FUTURE’ IN BEIJING INITIATIVE: The Czech Republic sees “no future” in China’s “14+1” initiative — China’s exclusive club for engaging with Central and Eastern European countries — Czech foreign minister Jan Lipavský told POLITICO in Washington on Tuesday.

Speaking after a meeting with U.S. Secretary of State Antony Blinken, Lipavský said: “I thanked the U.S. on their strategic leadership on China. I assured Secretary Blinken that we are ready to work with them within the European framework. The 14+1 has neither substance nor future.”

Beijing started in 2012 the initiative that was known as its apex as “17+1” with mainly former Soviet countries in Europe. Lithuania, Estonia and Latvia have dropped out in recent years.

In the U.S. State Department’s readout, the two “discussed shared concerns about the People’s Republic of China, as well as the importance of maintaining peace, stability and prosperity in the Indo-Pacific and beyond.”

TAIWAN SEEKS EU FAIRNESS ON CHIPS: Taiwan’s Deputy Foreign Minister Roy Chun Lee asked the EU to treat Taiwan equally with other microchip heavyweights, such as Japan and South Korea, with which the EU has free-trade agreements. Speaking at an event with the German Marshall Fund, Lee said ensuring peace and stability in the Taiwan Strait “is not just a political decision to make; it’s actually strategically important, economically important for Taiwan and for the EU.” H/t Laurens Cerulus, POLITICO’s cybersecurity editor  in Brussels.

Alpine mini-storm: Meanwhile the Swiss parliament passed a motion to strengthen official ties with Taiwan’s Legislative Yuan. “I was told that China interprets this decision as a termination of the official Swiss one-China policy,” a Swiss lawmaker opposed to the move told the Tages-Anzeiger newspaper.

SPAIN MULLS HUAWEI BLOCK: Spain’s economy ministry has reportedly included a new requirement on European “digital sovereignty and strategic autonomy” as it’s preparing for more public spending on extending telecom operators’ networks to the rural areas — wordings that are widely seen as a warning not to use Chinese suppliers Huawei and ZTE. Spanish business newspaper Expansión has more details.

HOT FROM THE CHINA WATCHERSPHERE

— ZELENSKYY HONORS SLAIN TAIWANESE VOLUNTEER: Ukrainian President Volodymyr Zelenskyy has honored slain Taiwanese military volunteer Tseng Sheng-kuang with Kiev’s “Order of Courage.” The award praises Tseng — killed in action against Russian forces in November — for his “selfless performance,” Taiwan’s Central News Agency reported on Monday.

NATO’S NEW OUTPOST: NATO is planning to open a liaison office in Tokyo, the first of its kind in Asia, Nikkei Asia reported on Wednesday. That will bolster Chinese Foreign Minister Qin Gang’s rhetoric that the Biden administration’s Indo-Pacific Strategy is a plot to create an “Asia-Pacific version of NATO.” 

THREE MINUTES WITH …

U.S. Ambassador to China Nicholas Burns spoke to China Watcher recently about his short list of key objectives as President Biden’s point man in Beijing. You can read my longer Q&A with Burns here.

Here are a few additional tidbits (edited for length and clarity).

Better bilateral communications

Burns: Can we arrive at a point that the two governments agree to keep channels open to each other and to use those channels to stabilize a relationship that is vital to both of us, and to the rest of the world? That’s a primary objective.

Climate and health cooperation

Burns: Can we come together as the two largest carbon emitters? We have an obligation to each other and the world to make progress on that issue. Can we work together to predict or anticipate the next pandemic and to work together to arrest the next pandemic?

Halting the fentanyl flow

Burns: Can we work on the fentanyl problem? The government here in Beijing is not contributing to that problem. But black-market Chinese firms are and they’re shipping illicit precursor chemicals to the drug cartels in Mexico and Central America that make the fentanyl that poisons and often kills Americans. And so we would like the government here in Beijing to use its power to shut down the flow of precursor chemicals from these black-market Chinese firms to the drug cartels’ [fentanyl] production sites. That has been a difficult dialogue. But we’ve got to continue it.

Freedom for unjustly jailed Americans

Burns: We have, unfortunately, a great number of Americans in prison here. We believe some of those prisoners have been wrongfully detained. We’d like to see them released. I have visited three of those prisoners …to commit to them that we’ll do everything we can to get them released.

TRANSLATING CHINA

— MEDIA FREEDOM (WITH CHINESE SOCIALIST CHARACTERISTICS): There are 101 reporters behind bars in China, making it “the world’s largest jailer of journalists,” the nonprofit advocacy group Reporters Without Borders said in a report published on Wednesday. Article 35 of China’s constitution guarantees press freedom, but Chinese media is hostage to government diktat. News content in China “is painstakingly filtered through outright censorship of material deemed objectionable by the Communist Party and a web of rules and regulations that strictly limit the reporting scope of journalists,” said a Human Rights Watch report on media freedom in China. Those restrictions are a growing irritant in U.S.-China relations. Press freedom in China is “necessary for exposing atrocities, stopping forced labor, thwarting global pandemics, publishing trusted economic data, and creating a deeper, more honest understanding between the American and Chinese people,“ Rep. Chris Smith (R-N.J.) and Sen. Jeff Merkley (D-Ore.), co-chairs of the Congressional Executive Commission on China, said in a statement on Wednesday.

Tightening chokehold on Hong Kong: Beijing’s growing influence in Hong Kong has reversed the territory’s tradition of media freedom. Hong Kong authorities have shuttered news outlets, arrested journalists who covered the territory’s pro-democracy protests for “sedition” and are prosecuting pro-democracy former Apple Daily newspaper publisher Jimmy Lai on charges of “colluding with foreign forces.”

China’s media model export. Xi Jinping has overseen a dramatic expansion of Chinese state media outlets — including the Xinhua news agency, CGTN state television and the China Daily newspaper — in overseas markets over the past decade. Xi has tasked those media to “tell China’s story well.” In practice that has meant “mass distribution of Beijing-backed content via mainstream media, harassment and intimidation of outlets that publish news or opinions disfavored by the Chinese government, and the use of cyberbullying, fake social media accounts, and targeted disinformation campaigns,” the nonprofit advocacy organization Freedom House reported in its Beijing’s Global Media Influence 2022 report.

Foreign correspondents beware. China expelled reporters for the Washington Post, The New York Times and The Wall Street Journal en masse in 2020 in an apparent reprisal for a Trump administration move to slash the number of U.S.-based staff of Chinese state media organizations. Efforts to broker a bilateral deal to increase visa issuance for foreign journalists to work in China are in limbo, slashing its foreign reporter population.

It’s likely to get worse. Shanghai police are creating “a sweeping surveillance system which notifies authorities whenever foreign journalists book flights or train tickets to Xinjiang,” the physical security technology firm IVPM reported on Tuesday.

HEADLINES

The Hill: Federal anti-China sentiment is increasingly seeping into state laws

The Wire China: Small business wants a bigger voice on China

The Diplomat: American prisoner in China appeals to basketball star Brittney Griner for help

HEADS UP

— SENATE EYES CHINA-FOCUSED BUDGET REQUESTS: The Senate Appropriations Committee will convene a full committee hearing on May 16 to scrutinize the Biden administration’s fiscal year 2024 China-related budget allocations. The hearing, “A Review of the President’s Fiscal Year 2024 Budget Request: Investing in U.S. Security and Competitiveness, and the Path Ahead for the U.S.-China Relationship,” will include testimony from Secretary of State Antony Blinken, Defense Secretary Lloyd Austin and Commerce Secretary Gina Raimondo. Senate Majority Leader Chuck Schumer set the tone for the hearing by declaring on Wednesday that the U.S. shouldn’t “rest on our laurels” while Beijing seeks to “dominate the 21st century,” and promised to roll out  a legislative package dubbed the China Competition Bill 2.0 in the coming weeks. Tune in live at 2:00 p.m. ET here. 

ONE BOOK, THREE QUESTIONS

Next Major War | Cambria Press

The Book: The Next Major War: Can the US and Its Allies Win Against China?

The Author: Ross Babbage is non-resident senior fellow at the Center for Strategic and Budgetary Assessments.

Responses have been edited for length and clarity.

What is the most important takeaway from your book?

China is planning to fight a quite different type of war to that expected by the United States. So the U.S. and its allies need to be ready to fight in more domains than we generally expect. Superiority in key military operations would be essential. But in the kind of drawn-out, draining war the Chinese plan to wage, economic warfare, industrial strength, information security and the maintenance of domestic political will could be even more important.

What was the most surprising thing you learned while researching and writing this book?

The extent to which U.S. and allied industrial strength has been effectively exported to China during the last two decades. In 2004 U.S. manufacturing output was well over twice the scale of China’s. However, by 2019, China’s industrial output was twice that of the U.S. The implications for allied deterrence, war-fighting and strategic resilience are profound. The American industrial dominance that was so central to the allied victories in both world wars is no more.

What does your book tell us about the trajectory and future of U.S.-China relations?

In the short term the trajectory is problematic and in the medium term it may be catastrophic. Many issues are in dispute, some involve fundamental values and interests and a few could easily spark a war. The most serious disagreement is over the future of democratic Taiwan. Xi Jinping has repeatedly promised his public that “China can and must” unite with Taiwan. But President Biden has stated four times that the U.S. will fight any Chinese military assault. And so war is a very serious possibility and all of the allies need to accelerate their preparations.

Got a book to recommend? Tell me about it at pkine@politico.com. 

Thanks to: Heidi Vogt, Stuart Lau, Ari Hawkins, Laurens Cerulus, Christian Oliver, Matt Kaminski, Jamil Anderlini, and digital producers Tara Gnewikow and Fiona Lally. Do you have tips? Chinese-language stories we might have missed? Would you like to contribute to China Watcher or comment on this week’s items? Email us at Email us at pkine@politico.com and slau@politico.com 

SUBSCRIBE to the POLITICO newsletter family: Brussels Playbook | London Playbook | London Playbook PM | Playbook Paris | POLITICO Confidential | Sunday Crunch | EU Influence | London Influence | Digital Bridge | China Watcher | Berlin Bulletin | D.C. Playbook | D.C. Influence | Global Insider | All our POLITICO Pro policy morning newsletters