China Neican: HK, monopoly regulation, ASEAN, foreign interference

16 November 2020

China Neican is a newsletter by Yun Jiang and Adam Ni from the China Policy Centre in Canberra. It is also published as a weekly column on the China Story blog. Neican 内参 or “internal reference” are limited circulation reports only for the eyes of high-ranking officials in China, dealing with topics deemed too sensitive for public consumption. Our writing, however, is open to everyone. To receive regular updates, please subscribe. You can find past issues here.

Happy Diwali!

1. Beijing ousts opposition legislators in HK

The Standing Committee of the National People’s Congress, China’s top legislative body, passed a resolution on Wednesday, mandating the immediate disqualification of Hong Kong’s Legislative Council members who:

  • advocates or supports the cause of “Hong Kong independence” (因宣扬或者支持“港独”主张);

  • refuses to recognise the PRC’s ownership and exercise of sovereignty over Hong Kong (拒绝承认国家对香港拥有并行使主权)

  • appeals for foreign governments and forces to interfere in Hong Kong’s affairs (寻求外国或者境外势力干预香港特别行政区事务); or

  • engages in other acts that endanger national security (或者具有其他危害国家安全等行为).

The resolution further states that it “shall apply to all future candidates for election [in Hong Kong] or membership in the Legislative Council.” The next Legislative Council election, has been postponed for a whole year, and now will take place in September 2021.

Immediately after the resolution, the Hong Kong Government announced the disqualification of four pro-democracy legislators. On Thursday, all of the remaining 15 legislators in the opposition camp resigned in solidarity, leaving the Legislative Council entirely in the control of pro-Beijing legislators.

This is not the first time that Beijing and its local allies have sought to use legal mechanisms to undermine their political opponents. Since 2016, six opposition member-elects of the Legislative Council have been disqualified due to legal technicalities relating to the oath-taking process, and a number of others have been barred from candidature in local elections.

The latest move by Beijing goes further. Beijing is signalling that it is no longer willing to tolerate the opposition of pro-democracy legislators in Hong Kong’s formal political process.

The grounds for disqualification and barring from future elections as candidates are both broad and ambiguous. A wide range of activities, some part and parcel to any democratic process, including opposition to government policy and communicating with foreign interlocutors, could be perceived by Beijing to endanger its control of Hong Kong, and China’s national security. Any local politician deemed by Beijing to be insufficiently “patriotic” would be at risk of getting banned from Hong Kong’s formal political process.

Like the sweeping Hong Kong national security law passed in June, the power of the latest resolution resides in its ambiguity. Some of Beijing’s red lines are clear, but then other lines are arbitrary, fuzzy, and subject to the vagaries of the powers that be. This discourages Beijing’s political opponents from engaging in political debate, mobilisation, and protest against the government.

Beijing’s policies in Hong Kong are sowing the seeds of future conflict.

2. Ant and China’s state capitalism

The Wall Street Journal reported that Xi Jinping was personally involved in the decision to halt Ant’s IPO. This is not surprising as a decision of this significance would have most likely come from the top of the Party.

In light of Ant’s plight, it is interesting to consider the fraught relationship between Beijing and the private sector. Historically in China, the private sector and the ruling regime have had much closer ties than in other countries, such as the United States. Geoffrey Gertz and Miles Evers note that:

In the United States, the government has historically kept an arms-length relationship with the private sector. After decades of deregulation and dwindling public investment in research and development (R&D), linkages between the government and firms are particularly weak today. The US government has limited means to compel firms to do its bidding and few reasons to expect that firms acting on their own initiative will seek to advance the state’s interests. In China, however, the relationship between firms and the government is much closer. The deep, extensive ties between the Chinese state and its private sector mean that the interests, knowledge, and capabilities of the Chinese government and firms are closely aligned. The Chinese government can and does rely on businesses to advance its geopolitical interests.

Of course, there is also a downside to this. Due to this closer relationship, other countries are also more cautious about Chinese companies, scrutinising their activities and investments for geopolitical implications and non-market behaviour.

Alibaba is one of the biggest companies in China. It would not have grown this big without extensive cooperation with the Chinese party-state. Jack Ma, of course, understands this point very well. He is a CCP member and has repeatedly spoken out in support of Beijing’s policies. But unlike other entrepreneurs, Jack Ma has also built a high profile for himself among the Chinese population. 

From Beijing’s perspective, it wants Chinese companies to both do well internationally as well as remaining under the control or influence of the CCP. This would ensure that the Party can leverage its control of Chinese companies for its domestic agenda as well as its strategic goals internationally. But like herding koalas, it's hard sometimes. The koalas may not want to go where you want them to go. They may want to eat eucalyptus leaves when you want to head home for the day.

In Ant’s case, regulators appear to be concerned about its market power and the risk of its business model for the financial system as a whole. On a related note, China’s State Administration for Market Regulation (国家市场监管总局) published a set of draft guidances against monopolistic behaviour by internet platforms 《关于平台经济领域的反垄断指南(征求意见稿)》. This guiding document outlines how the relevant authorities understand and will seek to apply the principles and rules in China’s Anti-Monopoly Law (反垄断法) with respect to internet platforms.

This signals that Beijing will further scrutinise major Chinese internet companies, especially Alibaba and Tencent (owner of WeChat). This is perhaps unsurprising given that internet platforms have become critical for the daily lives of most Chinese, and yet they are thought by policymakers to be under-regulated. Like most governments, Beijing is struggling to ensure that laws and regulations keep up with technology.

Turning to the US, despite successive Congress inquiries on Big Tech for many years, the US Government has seemingly unwilling or unable to take strong actions against these companies so far. At least part of the reason for this is the worry that if the US were to curtail the power of its big tech companies, Chinese companies would gain an edge — a point that Facebook’s Mark Zuckerberg and other tech executives have jumped on. 

So, it seems that Beijing and Washington differ on their approaches on this issue: China is more worried about the domestic influence of the big companies, whereas the US is more worried about the influence of China. The net result could well be, in the words of Gertz and Evers, that:

while Chinese firms are seeking to establish their independence from the Chinese state, the US government is likely to move in the opposite direction to increase its leverage over US companies. This leverage would allow the United States to better marshal US economic power in its geostrategic competition with China.

3. Southeast Asia: RCEP and EAS

The Regional Comprehensive Economic Partnership (RCEP), led by ASEAN, was finally signed this week, after nine long years of negotiation marred by setbacks, including losing India in the process. The parties to this trade agreement are ASEAN Plus Three (China, Japan, South Korea) and Australia and New Zealand. Seven out of the 15 countries are also parties to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

Relations with ASEAN countries are very important to China. Economically, ASEAN is now China’s largest trading partner. China also has extensive investments in ASEAN countries, including under the rubric of the Belt and Road Initiative. Indonesia, Vietnam, Cambodia, and Malaysia are significant recipients of BRI-related investments. 

Geopolitically speaking, ASEAN countries are considered by China to be neighbours. Beijing wants these countries to be in its sphere of influence, or at least not aligned with the US against China. Meanwhile, most of these countries want to maintain strategic independence, including through hedging. A number of ASEAN countries are also claimants in the South China Sea, which have caused friction with China. ASEAN and China are negotiating a Code of Conduct for the South China Sea, a difficult process to say the least.

This year’s East Asia Summit was a virtual meeting. Most countries are represented by their Heads of the Government, including China’s Premier Li Keqiang. However, for the third time in a row, the US only sent a relatively junior representative. This year, it was National Security Adviser Robert O’Brien. Regrettably, it appears the US President thinks that golfing is more important than the US relationship with Southeast Asia — a message that won’t be lost on the attendees. But it’s likely that next year under Biden, the US may revert back to previous practices and send senior representation.

4. Foreign interference: anatomy of allegations

The debate over China’s influence and interference has heated up in recent years in countries such as the US, Australia, and New Zealand. One phenomenon has become prominent: politicians, media outlets, and commentators are increasingly pointing fingers at individuals, most often members of the Chinese diaspora, accusing them of disloyalty and working as agents for Beijing.

First, let’s be clear: foreign interference is a serious issue, and relevant laws should be applied to genuine cases. China, like other great powers, often has the incentives to interfere in the affairs of other countries despite its rhetoric to the contrary. But the risk is often exaggerated, leading to an atmosphere of suspicion and harm to innocents.

The media has been front and centre in this. Instead of nuanced and fair reporting, some media outlets have gone down the sensationalist route. Here are some facts that are presented as “evidence” for accusations of foreign interference.

Meeting with CCP or PRC officials: this used to be routine for the work of some, including diplomats, researchers, and business leaders. But in numerous cases, these meetings have been presented as if they are inherently problematic. If we are not worried about the loyalty of our Prime Ministers and diplomats for meeting with Chinese leaders, why should we question the loyalty of local politicians when they are reported publicly to have met with low-level united front cadres?  

Collaborating with Chinese counterparts, including researchers: there are genuine issues with collaborating with Chinese officials, companies, and researchers. But the assumption that any collaboration is bad or compromising is wrongheaded. This presumes that every Chinese interlocutor and institution is driven by the same agenda and that China is monolithic. Every collaborative project needs to be assessed on a case-by-case basis instead of some overarching generalisations.

Present at the same event as Chinese diplomats: needless to say, context matters. But context is often missing when the media presents this as evidence of co-optation, as if going to an event organised by the local Chinese consulate is suspicious in and of itself.

Making statements in support of China’s policies: in a democracy, each of us has the right to express our political views. These statements have been used against those accused. Again, it would depend on context, but in general, speaking out in support of China is not evidence of wrongdoing in and of itself.

Chinese state media says xyz: these outlets are often driven by incentives to report stories in a certain way. This is especially so with respect to united front efforts to create an impression of impact and importance. Chinese state media may characterise foreign interlocutors in any number of ways, and we should be critically-minded when assessing this material.

We can go on, but we’ll stop here. The point is that foreign interference is a serious and complex issue. Overblowing its risks and prevalence, and doing so by making accusations based on guilt by association is counterproductive.

For those of us living in democracies, safeguarding public interest requires that we do so in a way true to the democratic values that some of us profess to defend. We should weigh carefully the imperatives of national security with the possibility of harm to innocent individuals or groups. 

Quote of the week

三十年河東,三十年河西

The river flows eastward for thirty years then westward for thirty years or Thirty years on the east of the river and thirty years on the west of the river (because the course of river has changed)

From Unofficial History of the Confucian Scholars (Rulin Waishi 儒林外史), a Qing Dynasty satirical novel by 吳敬梓 Wu Jingzi.

This quote refers to how people’s fortunes and circumstances can change. For 30 years, you can be the richest person in the country, while spending the next 30 years in jail. Or for 30 years, you can be seen as a hero, while spending the next 30 years in disgrace. The quote can also be used to refer to changes in political sentiment. For example, until recent years, engagement with China was fashionable (river flowing eastward). But now, the decoupling or countering China is in vogue (river flowing west). So those who previously argued for one political stance (on the east of the river) now find themselves on the west of the river.

This quote usually refers to long-term trends (hence thirty years). If you want to talk about short-term unpredictability (for example, unexpected deaths, promotion etc.), consider use 世事无常 (affairs of the world is fickle or impermanent) instead.

This week on China Story:

  • Jabin T. Jacob, India-China Relations: A New Normal of Competition and Conflict: Since May this year, India and China have been involved in a serious confrontation along their disputed boundary known as the Line of Actual Control (LAC). China has pushed its version of the LAC further westwards at multiple locations in the Western Sector of the dispute in eastern Ladakh/Aksai Chin. This is in clear violation of existing bilateral agreements. Chinese troops now occupy vast swathes of territory previously falling within Indian control. While a full-fledged India-China conflict is unlikely, peace and tranquillity along the LAC are well and truly things of the past.

  • Wen-ti Sung and Jade Guan, Taiwan: Rising stakes for Australia: The Taiwan Strait is a key hotspot in the intensifying US-China rivalry, where the two superpowers’ spheres of influence overlap. Beijing claims the area as an uncompromisable “core interest” of sovereignty and territorial integrity, while the US seeks to maintain its close economic, political and security relationship with Taiwan. Whether it likes it or not, Australia is a major stakeholder in any future conflict arising around Taiwan. As an ANZUS treaty ally, Australia is at risk of being dragged into events. Yet as a middle power, Australia has the potential wherewithal to mediate and prevent the fighting.