CRG Weekly: Taiwan drills concluded and US CHIPS Act signed into law
News from the China Research Group
Director of Research, Julia Pamilih, was quoted in a Bloomberg article on UK-China relations in the Conservative leadership campaign.
The stories driving the week
Chinese military drills around Taiwan concluded as defence dialogues shelved
The Chinese military concluded its exercises around Taiwan on Wednesday. Analysts argued that the drills demonstrated intent to normalise a higher level of military aggression against Taiwan, as well as revealing the PLA’s ability to mobilise more quickly for military exercises.
In response, Taiwan held two drills this week to simulate defence against a Chinese invasion, but played them down as routine exercises.
Beijing’s Taiwan Affairs Office also published its first white paper on Taiwan since 2000. The latest version removed the pledges to offer a more relaxed version of ‘one country, two system’ compared to Hong Kong and Macau and not to station military and administrative personnel in Taiwan.
Beijing also cancelled three key defence dialogues with the US in retaliation to Pelosi’s visit. While there are still emergency lines of communication, US officials criticised this as a ‘shortsighted and reckless’ move.
Diplomatic tension continues in aftermath of Chinese drills around Taiwan
On Thursday, Liz Truss summoned Chinese Ambassador Zheng Zeguang over ‘aggressive and wide-ranging escalation against Taiwan’.
Later, Zheng published a readout of the meeting to condemn the UK’s remarks, in which he blamed the US and “Taiwan independence” forces for stirring up tensions.
In a return to wolf warrior diplomacy, the PRC’s ambassador to France Lu Shaye doubled down on comments that Taiwanese people will need to be “re-educated” if the island is reunified. The PRC’s ambassador to Australia warned that Beijing was ready to use ‘all necessary means to prevent Taiwan independence.
Oliver Young at the China Digital Times summarised how China is using propaganda to shape the narrative around Pelosi’s visit across the Global South.
Xi reported to visit Saudi Arabia next week as energy cooperation intensifies
The Guardian reported that President Xi Jinping is ‘expected’ to visit Saudi Arabia next week, with a grand welcome in contrast with Biden’s low-key reception in June. The Chinese foreign ministry has neither confirmed nor denied the visit.
This would be Xi’s first overseas visit since 2020, symbolising a relationship which between Riyadh and Beijing which has grown closer since 2016. In March, Saudi Arabia announced its intent to abandon US dollar transactions for some oil sales and switch to renminbi.
The potential visit comes as Saudi’s Aramco signed a memorandum of understanding with China’s Sinopec to intensify energy cooperation.
Taiwan to block Foxconn investment in China over national security concerns
Taiwanese national security officials are moving to block Apple supplier Foxconn’s $800 million investment in Chinese chip company Tsinghua Unigroup, which was announced last month.
Taipei is reported to be particularly concerned about the close links between the Chinese government and Foxconn’s investment partner in the deal, Wise Road Capital. Taiwanese officials have become nervous about China’s investment in its chip industry, and recently proposed new laws to prevent IP theft.
Foxconn, the world’s largest electronics contract manufacturer and a key supplier to Apple, has been moving in recent years to diversify its production outside of mainland China, to countries such as Vietnam and India. But 75% of its current capacity is located in mainland China, making it extremely difficult to divest.
US CHIPS Act signed into law; Tencent invests in UK start-up supplying the Army
On Tuesday, President Biden signed the landmark CHIPS Act into law, aimed at improving US competitiveness against China. This $250 billion bill provides science funding and subsidies for chipmakers.
As The Wire China notes, conditions attached to the financial assistance forbid recipient firms from simultaneously investing in new chip plants in China and other “countries of concern” for at least 10 years.
But the notoriously cyclical chip industry is showing indicators of a slump in demand. Top Chinese chipmaker SMIC described China’s chip industry as undergoing a ‘severe correction’ with a ‘sudden freeze’ on chip orders.
Chinese tech company Tencent is investing in Hadean, a British start-up building simulation software for the Army. Hadean’s CEO stated that shareholders would have no access to sensitive technology and that the deal was too financially insignificant to trigger a review under the UK’s National Security and Investment Act.
Weekend reads
Podcast: Pelosi’s swansong - The Spectator’s Chinese Whispers podcast - Cindy Yu and Brian Hioe discuss how the Taiwanese public and politicians viewed Nancy Pelosi’s trip to Taiwan.
2022, Xi Jinping’s Annus Horribilis: Or is it? - Former CIA China analyst Christopher K Johnson new ASPI piece downplays speculation that Xi is facing difficulties domestically, instead arguing he appears to achieve substantial victory at the Congress, especially on power consolidation and ideology.
Xi Builds a Security Fortress for China, and for himself - Chris Buckley and Steven Myers analyse the expansion of national security under Xi in an attempt to protect his position and the CCP’s grip on power.