Another crack in the China-U.S. truce
Beijing announced new countermeasures against Washington while warning that further U.S. restrictions could provoke a stronger response
Welcome back to What’s Happening in China, your weekly China brief.
The Chinese government on Wednesday announced a series of countermeasures against the U.S. in response to recent actions by Washington, including tightened controls on drone exports to the U.S., as well as key components and related technologies, on a “case-by-case basis.”
The new measures come in response to last week’s U.S. Federal Communications Commission restriction on imports of foreign-made robotic devices, including humanoids, on the grounds of cybersecurity concerns; the Department of Homeland Security’s addition of 43 companies to the Uyghur Forced Labor Prevention Act (UFLPA) Entity List; and sanctions on mainland China and Hong Kong shipping companies accused of transporting Iranian oil to China.
China’s Commerce Ministry said that the U.S. measures “seriously violate the important consensus reached by the two heads of state and severely damage China’s legitimate rights and interests.” It emphasized that “China's countermeasures have been generally restrained” and warned that if the U.S. “insists on introducing new restrictive measures against China, China will take further countermeasures.”
While Xi is scheduled to visit the United States on September 24, the two sides seem to be testing the limits of a fragile truce.
Before we dive in, I’ll be taking a short break over the next couple of weeks, so this will be the last issue for a little while.
Wishing you a wonderful rest of the summer.
Let’s jump into it.
— PC
Through the Lens
In Focus
I. Yet another tit-for-tat
China announced a series of economic measures Wednesday against the United States, including controls on exports of drones to the U.S. and a ban on dealings with six American entities, in response to recent restrictions imposed by Washington.
Tensions are simmering between the world’s two biggest economies ahead of an expected visit by Chinese President Xi Jinping to the U.S. in September, despite signs of warming ties during his meetings with U.S. President Donald Trump in Beijing in May.
The Commerce Ministry said the sanctions are in response to recent moves from the U.S., including a ban by the U.S. Federal Communications Commission on imports of Chinese drones, and the Department of Homeland Security’s decision to add 43 Chinese companies to the Uyghur Forced Labor Prevention Act entity list to prevent imports of goods made with forced labor.
The “measures seriously violate the important consensus reached by the two heads of state and severely damage China’s legitimate rights and interests. China has no choice but to take necessary countermeasures in response,” the ministry said in a statement.
It emphasized that China was acting with restraint and urged the U.S. to scrap its measures against Beijing and cease its “erroneous practices.” It also warned of further sanctions if the U.S. rolls out new restrictive measures against China.
Read: China bans trade with 6 US companies, adds controls on drone exports to US (AP)
Related: Analysis: As US and China throw up tit-for-tat sanctions, is Trump’s Xi meeting at risk? (CNN)
II. Beijing’s global tax hunt
China has launched a global hunt for hundreds of billions of dollars in unpaid taxes going back decades as Beijing seeks to fill a deepening fiscal hole by targeting the ultra-rich.
Authorities have stepped up scrutiny of overseas capital gains and investments, in some cases going back as far as 2000, in a campaign that comes as Beijing also seeks to significantly expand control of outbound capital flows.
Chinese banks and other financial institutions have been instructed to review overseas investments by wealthy Chinese to check if income has been declared to Beijing’s tax authorities, according to foreign officials as well as Chinese bankers and family office managers.
Their efforts, part of a suite of tax reforms targeting the country’s wealthy — including offshore trusts — are focusing on gains made from purchases of real estate, equities, precious metals and cryptocurrencies, among other assets.
The retroactive nature of the campaign — with reviews in some instances going back more than 25 years — has been confirmed by multiple officials, bankers and advisers.
Read: China launches global tax hunt going back decades (Financial Times)
Related: Insurance and bank stocks slide amid China tax crackdown fears (Financial Times)
III. The future, made in China?
In Robert Kagan’s book “The World America Made,” he enumerates a succession of global powers, all of which were convinced of their own durability: “There has been an Egyptian order, a Roman order, a Greek order, an Islamic order, a Mogul order, an Ottoman order, and many others.” Each was born of particular, often fragile circumstances. The American order, Kagan wrote in 2012, would endure “until some yet to be determined moment.”
That moment seems to have arrived. Mark Leonard, the director of the European Council on Foreign Relations, told me that the international system the U.S. constructed after the Second World War—and ran, often to its benefit—is “definitely dead and beyond redemption.” He said that Trump’s dismantling of the country’s alliances signalled the end of the “willingness of the American public to play the role America has played for most of the last eight decades.”
But America’s diminished stature does not necessarily clear a path for China.
Read: The Future, Made in China (Evan Osnos, The New Yorker)
