October 23, 2020 – Stealth War Newsletter 13

By: Jamestown Foundation

Fri October, 2020, Age: 3 years



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October 23, 2020

Strategic Indicator
This issue’s number to watch


The number of companies in China’s overstuffed domestic semiconductor industry as of July 20. After several high-profile projects have failed this year, the National Development and Reform Commission (NDRC) is seeking to implement financial curbs on the industry (see story below).

Stealth War Flyover


In the third episode of Stealth War Flyover, Jamestown President Glen Howard and former Senior Director for Strategy to the President Robert Spalding discuss China’s threat to arrest U.S. citizens in China in reciprocity for recent arrests of PLA-affiliated people in the United States; the State Department mulling a ban on American businesses working with the Chinese fintech firm, the Ant Group; what the trial release in Shenzhen of a new Chinese digital currency mean for American interests; Peter Navarro’s recent comments at the Hudson Institute; and Hillary Clinton’s recent article in Foreign Affairs on China and US national security strategy.

Stealth War Flyover is a periodic series featuring Brigadier General (ret.) Robert Spalding and Jamestown Foundation President Glen Howard discussing and dissecting the latest news in the ongoing competition between China and the United States.

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Top Stories

On Wednesday, U.S. national security advisor Robert O’Brien accused China of trying to steal COVID-19 vaccine research from the West, telling top UK and U.S. military and intelligence officials that China was a predatory power that sought to coerce both its neighbors and Western powers. “The CCP is seeking dominance in all domains and sectors…[and] plans to monopolize every industry that matters to the 21st century,” O’Brien said. O’Brien also criticized China’s flagship foreign policy program, the Belt and Road Initiative, for offering developing countries “unsustainable loans” which caused them to become dependent on Chinese debt and eroded their sovereignty. O’Brien’s speech is the latest in a series of increasingly blunt declarations from the U.S. government, which cast China as the country’s chief rival. Two days later, Deputy National Security Advisor Matthew Pottinger attacked Xi Jinping’s “totalitarianism” in a speech in Mandarin at the Policy Exchange think tank in London, marking the second time that the high-ranking U.S. official has sought to address Chinese-speaking people directly this year. A Bloomberg analyst has characterized Pottinger’s speech as marking a high point in U.S.-China tensions over the last decade.

Speaking on Friday at an event commemorating China’s entry into the Korean War 70 years ago, Xi Jinping highlighted People’s Liberation Army’s (PLA) victory against “legendary” American forces in the war, which leaders in Beijing refer to as “the War to Resist U.S. Aggression and Aid Korea.” Xi’s speech marked the culmination of a weeklong propaganda blitz surrounding the war’s anniversary, and he ended his speech with a warning to unnamed countries that “blackmailing, blocking and extreme pressure” will lead “nowhere but a dead end,” and that Beijing would not back down from a fight if pushed.

In somewhat related news, the National People’s Congress has released draft text for a new amendment to the Law on National Defense. The draft amendment states that when China’s sovereignty, unity, territorial integrity, security and development interests are under threats, the country can conduct nationwide or local defense mobilization. The “development interests” language is a new addition to the current law. Minister of National Defense General Wei Fenghe explained that the proposed amendment would update the 1997 law, which “cannot fully adapt to the new missions and requirements for the development for [sic] national defense and the Chinese military.” Wei also noted that China is in a “key period of strategic opportunity for development” and is facing complicated security threats and challenges in the modern era. These changes come as China has moved more aggressively to defend its interests on issues ranging from Taiwanese sovereignty, territorial disputes in the South China Seas, and Hong Kong’s independence, as well as border disputes with India. Xi Jinping has increasingly called for the PLA to support China’s expanding global interests as part of its efforts to become a “world class military” by 2050.

Over the past few months, the United States and China have repeatedly clashed over the semiconductor industry, which is increasingly seen as a national security concern. Analysts predict that the U.S.-China conflict over semiconductors is only likely to increase in the near future, particularly as semiconductors are likely to be a key focus of China’s next five year economic plan (2021-2025), which is expected to be set at the Fifth Plenum that begins on Monday.

Sustaining steady growth amid the COVID-19 pandemic is likely to be the priority, with experts expecting that leaders could announce fresh reforms to spur domestic demand, innovation, and economic self-reliance under Xi Jinping’s new “dual circulation” strategy. China has stressed the importance of developing its indigenous semiconductor industry for nearly 40 years, and its chipmaking capabilities will be key for driving future high-tech innovation. But while China has become a global leader in the areas of assembly, testing, and electronics packaging, its design and manufacturing capabilities lag behind more sophisticated countries such as the U.S., Taiwan, and South Korea, and Chinese chipmakers have found it difficult to recruit and maintain talent.

As U.S. policies have disrupted the supply chains of two of China’s largest chipmakers, Huawei and SMIC, the Chinese government is simultaneously investing billions of dollars in the industry while also seeking to strike back at the U.S. China passed an export control law last week that could impact rare earths exports, potentially affecting the U.S. semiconductor industry’s supply chain. And a government report issued in September has laid out broad guidelines for the indigenous development of so-called third-generation semiconductors through 2025. However, the rapid influx of state-backed capital in the industry has raised concerns about economic distortions and waste: new guidelines issued this week by the National Development and Reform Commission (NDRC), the nation’s top economic planner, have warned against industry hopefuls against “blindly entering into projects” and sought to curb “chaos” in the semiconductor sector following the high-profile collapse of a number of chipmaking enterprises over the past few years.

And finally, this week has seen a resurgence in “wolf warrior” diplomacy, with Fijian media outlets reporting that Chinese diplomats gate-crashed annual Taiwanese National Day celebrations, resulting in a scuffle that left one Taiwanese official hospitalized. The Chinese foreign ministry was also quick to slam Canada after a parliamentary committee this week concluded that the Chinese government’s policies in Xinjiang amounted to “genocide.” The committee’s decision represents the strongest international criticism of China’s oppressive tactics against its Uighur minority so far, and a spokesperson for the foreign ministry rejected the allegations as “groundless” the next day and accused Canada of trying to interfere in China’s internal affairs. The recent aggressive behaviors of Chinese diplomats underscores the political pressure inside the bureaucracy to defend China’s position on unpopular global issues and present a more muscular face to the outside world. Some analysts have observed that China’s diplomatic corps are echoing a surge of increasingly toxic nationalism within China itself.

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