Tag Archives: China

Time to break free from America

The Chinese smartphone company ZTE employs 75,000 people and last year sold $17 bn of products. Yet, despite being a booming and profitable concern, this week ZTE shut down its operations. Why? Because the United States has ‘banned American companies from exporting technology’ to it. ZTE phones contain a number of US-made components, as well as US-designed software. Thanks to the ban, the phones can no longer be made. ZTE is out of business, and 75,000 people will lose their jobs – just like that.

The ZTE ban follows American complaints that the company had been circumventing US sanctions against Iran and North Korea. ZTE admitted this and paid a $890 million fine to the US government, but American regulators maintained that it was still not being honest about its dealings – thus the sanctions imposed against it.

Meanwhile, following the US withdrawal from the nuclear deal previously agreed between the USA, Iran, and several other countries, American officials have been warning European companies that they must stop doing business with Iran. The European company Airbus had signed an agreement to sell Iran billions of euros worth of passenger aircraft. More than 10% of those aircraft, however, consists of American parts. Conseqently, the US has now prohibited Airbus from selling them to Iran because of sanctions re-imposed on Iran following the US withdrawal from the nuclear deal. Airbus could, of course, sell the planes anyway, but it would then find itself being fined huge sums of money in the USA and, like ZTE, have its American supplies cut off.

Any other non-American companies who rely on US components or software, and who are considering doing trade with Iran are now going to have to seriously reconsider their position. European governments and the European Union are none too happy with this. French Foreign Minister Jean-Yves Le Drian complained that, ‘We feel that the extraterritoriality of their [American] sanction measures are unacceptable. The Europeans should not have to pay for the withdrawal from an agreement by the United States, to which they had themselves contributed.’ Meanwhile, French Finance Minister Bruno de Maire asked yesterday, ‘Do we want to be vassals who obey decisions taken by the United States while clinging to the hem of their trousers? Or do we want to say we have our economic interests?’

European politicians are now considering what measures they can take to protect themselves from American efforts to force them to comply with American sanctions policies. According to de Maire, the EU is considering various avenues. One of these, he says, involves ‘looking at Europe’s financial independence – what can we do to give Europe more financial tools allowing it to be independent from the United States?’ Connected with this is a ‘proposal is to set up a purely European finance house to oversee euro-denominated transactions with Iran’

For some time now, a number of Russians who disagree with their government’s economic policy have been complaining that by seeking to integrate Russia more and more into the world economy, the government has undermined national sovereignty and made it vulnerable to financial pressures from potential enemies, notably the United States of America. Economists such as Sergei Glazyev have for a while been urging the Kremlin to increase Russia’s financial independence by, for instance, ‘the creation of a system of exchanging information between banks, analogous to SWIFT but independent of the USA and the EU,’ the establishment of ‘our own rating agencies,’ pricing exported goods in rubles rather than dollars, and so on. For very good reasons, the Russian government has resisted going down this route. Economic autarky tends not to turn out well. Integration into the global economy has its benefits. Having said all that, it seems to me that examples like those above are going to add to the pressure not only on Russia but also on other countries around the world to go in the direction the likes of Glazyev are suggesting, albeit gradually and with caution. Looking at the fate of ZTE and Airbus, any senior manager of an international company worth his or her salt is going to have start thinking about how to reduce the company’s dependence on US suppliers. Politicians are also going to have to put more thought into how to strengthen their economic sovereignty. This is not something which is going to happen overnight, but the impulse to move in that direction must be stronger this week than last.

Some steps have already been taken. We see new financial structures outside US control beginning to emerge, such as the Asian Infrastructure Investment Bank and the petro-yuan. Already financial journalists are speculating that the US decision to renege on the Iranian nuclear deal will strengthen the latter. I tend to the view that such developments are an inevitable part of the global shift in economic power. As the US declines in relative economic terms, its grip on international institutions is bound to weaken. But decisions such as that concerning Iran can only accelerate this process. Very gradually, but nonetheless more and more perceptibly, other countries are going to want to distance themselves from the United States.

The Americans are like a man sinking in quicksand.: the more he struggles in an effort to get out, the faster he sinks. As their relative power declines, the Americans are fighting with all their might to retain their hegemony, striking out in sometimes rather peculiar directions. But the very act of struggling just sucks them down further. In the aftermath of Trump’s decision on Iran, the sound of the sand sucking America under can be heard louder and clearer than ever before.

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Evidence not needed

A report by the Public Administration and Constitutional Affairs Committee (PACAC) of the British House of Commons is causing a stir today. According to the headline in The Guardian: ‘Brexit: Foreign states may have interfered in vote, report says’. And The Independent announces: ‘Foreign hackers may have hit voter registration site days before EU referendum, say MPs’.

The report in question is entitled Lessons Learned from the EU Referendum and contains a short section concerning the crash of the British voter registration website on the last day of registration for the Brexit referendum. In this section, the report mentions in passing Russia and China. It is this which had led to the breathless headlines seeming to blame Russia and China for interfering in the Brexit vote.

Contrary to the headlines, however, the report doesn’t actually make a positive statement that Russia and China may have been behind the voter registration website’s crash. All it actually says is ‘PACAC does not rule out the possibility that the crash may have been caused by a DDOS (distributed denial of service attack) using botnets.’ So it doesn’t actually rule it in, it just doesn’t rule it out. And, in any case, it doesn’t in fact blame the DDOS on ‘foreign states’. It doesn’t say anywhere who might have carried it out, assuming that it even was a DDOS. The only mention of Russia and China is a sentence a little later, saying

Russia and China use a cognitive approach based on understanding of mass psychology and of how to exploit individuals. The implications of this different understanding of cyber-attack, as purely technical or as reaching beyond the digital to influence public opinion, for the interference in elections and referendums are clear. PACAC is deeply concerned about these allegations about foreign interference.

This really doesn’t add up to much. Nevertheless, committee chairman Bernard Jenkin sought to stir the pot, telling The Independent that ‘it would have been “entirely in character” for “the Russians and Chinese” ’ to do such a thing.

And what is his evidence? It turns out that he doesn’t have any. The report itself comments that:

Although the Committee has no direct evidence, it considers that it is important to be aware of the potential for foreign interference in elections or referendums. The report on lessons learned from the website crash described it as ‘technical in nature, gaps in technical ownership and risk management contributed to the problem, and prevented it from being mitigated in advance.’

So, it turns out that the committee ‘has no direct evidence’ that Russia and China had anything to do with this, and it turns out also that the specialists who looked into the crash considered it ‘technical in nature’ and didn’t blame on it outside attack. As John Rentoul points out in The Independent, Jenkin’s insinuations are the ‘the purest baloney. The website crashed because lots of people left it to the last minute to register and whoever built the site failed to provide another capacity for the surge.’

Mr Jenkin, however, is unperturbed. ‘We’ve seen this happen in other countries’, he said, without saying which those countries were, and adding, ‘Our own Government has made it clear to us that they don’t think there was anything, but you don’t necessarily find any direct evidence.’

So even the British government doesn’t think the story is true. But never mind. When it comes to blaming the Russians, who needs evidence anyway? Just make something up and then say how concerned you are. Because, you know, it’s ‘entirely in character’, and what more proof do you need? Just make sure to insinuate something salacious, and you can then rely on The Guardian and The Independent to pick it up, exaggerate it even further, and spread your baseless allegation far and wide.

Pivoting to Asia

This week’s class on ‘Russia and the West’ looks at the Russian oil and gas industries. The week’s big news on the subject is the signing of another natural gas mega deal between Russia and China. Russia will deliver 30 billion cubic metres of gas annually to China via a new western route, the Altai Pipeline. This follows a previous deal in May of this year to deliver gas into eastern China through the Power of Siberia Pipeline, a deal supposedly worth about $400 billion to Russia over 40 years.

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Western commentators always view Russian gas deals through political lenses. In this case, they are cited as evidence that Russia is ‘pivoting’ towards China, seeking a closer alliance with its Asian neighbour in order to reduce its dependence upon the West. This is a process supposedly accelerated by recent tensions between Russia and the West, and especially by the imposition of economic sanctions against Russia because of its role in the war in Ukraine.

But is this explanation of Russia’s actions accurate?

Only partly, I would say. Certainly, many Russian political and economic leaders are speaking of the need to find alternative trading partners to Europe. This means not only China, but also the other BRIC countries – Brazil and India. However, I would caution against making too much of this. One cannot simply shift one’s trade from one part of the world to another overnight, let alone do so without substantial cost. Furthermore, this year’s gas deals with China are only preliminary in nature. Crucial details of the first agreement remain to be decided, and its practical implementation is far from a done thing.

More significantly, it would be wrong to see Russia’s desire to trade with China as solely, or even primarily, a reaction to tensions with the West. As Vladimir Putin said in his speech to the Valdai Club in October:

Some are saying today that Russia is supposedly turning its back on Europe – such words were probably spoken already here too during the discussions – and is looking for new business partners, above all in Asia. Let me say that this is absolutely not the case. Our active policy in the Asian-Pacific region began not just yesterday and not in response to sanctions, but is a policy that we have been following for a good many years now. Like many other countries, including Western countries, we saw that Asia is playing an ever greater role in the world, in the economy and in politics, and there is simply no way we can afford to overlook these developments.

We in the West are very prone to a common cognitive failure. We think that what other countries are doing is always somehow about us, and thus requires some response from us. But often it isn’t, and doesn’t. Russia would have sought stronger ties with China regardless of what happened in Europe, and if Russia and China both end up better off as a result, then that is all to the good.