EU & Google

Jim Stewart from the New York Times was on CNBC today talking about the EU case against Google, and his point was when the EU took on Microsoft to limit its use of its own browser over others, having Microsoft remove the browser did nothing that benefited the EU.  The inference is that the same thing will be true in the case with Google.  Users are smarter about their own needs than government officials, a class that probably outnumbers them in Europe.  They will just reinstall whatever Google is forced to remove because they use Google's apps, which are free.

This is not even very interesting to most people, because Stewart is probably right.  It won't matter in the long run - Microsoft is not even a target anymore.   In the meantime, the EU seems to want to put pressure on Google as part of a long-standing running gun battle with one woman.

I repeat a previous post to explain.  This has been going on for a long, long time:

Perhaps I lead a sheltered life, but I had never heard of Ms Vestager until last week when the EU Competition Commissioner, decided to bring antitrust charges against Google.  Lately she has been spending a lot time with the press and public forums where she can explain the actions which were several years in the making.  [ see Natasha Singer and James Kanter, Google's Steely Adversary, New York Times, 19 April 2015 ].  She tries hard to justify bringing these kind of charges against Google, but not many others doing exactly what Google does as a part of their commercial business.  A more interesting slant on the whole thing comes from The Financial Times [Richard Waters, Christian Oliver and Alex Barker, How Google ended up 'on the wrong side of history']

This article says it took a long time to bring charges because Ms Vestager's predecessor, Joaquin Almunia, slow-rolled the whole thing because he "... grew convinced the anti-Google campaign was largely  driven by arch-rival Microsoft, leading him to discount some compalints.  Collegues recall him grumbling:  if Steve Balmer of Mircrosoft has a problem, why is he sending proxies to see me?"  He also had his staff expressing doubts about the strength of the case, on the basis that the arguments were too novel.  

The FT article leads us to believe that Edward Snowden's disclosures has a lot to do with Germany turning on the heat with Google and it partly came from a belief in Europe that the U.S. was managing too much of the Internet.  This latter being something that comes up from time to time, especially when the Russians engage on the issue.  Putin expressed his opinion when he said the Internet was a "CIA project" without any explanation of what he meant.  

As to what she really is, the NY Times has more understanding of the real person.  She sharply cut Denmark's social benefits, especially unemployment.  A group of unemployed builders gave her a life-sized sculpture of a hand with the middle finger raised, and she keeps it in her office.  That must surprise a lot of visitors.  I don't know many government employees who could get away with something like that.  A reporter who covers her said she "is seen as a very tough, cold-hearted politician."  The kind who would bring charges against Google for doing what every search engine does, especially one managed by a business.  I don't find many Google products mentioned in Bing,  Microsoft's own.  Yahoo doesn't give equal prominance to Google products.  Why would they?  When the U.S. decided not to pursue anti-trust charges against Google, they were right.  While the Europeans might find it the equivalent of a crime to put their own products first, we certainly don't.  If they want to play this game, we should do the same to them.  

Chinese Web Firms Golden Share

The idea behind a golden share is that the government will hold one share in a publicly traded company and, in certain circumstances, can veto measures taken by the Board.  This little trick must leave shareholders wondering what kind of actions the state can trample, and how far a Board can go without being challenged.  Just having a person on the Board representing the government is enough to make it more difficult to do business.  Chinese web firms may find out soon enough, if the draft legislation being floated around business circles is actually enacted [Actually, China has often enforced draft legislation long before it was ever enacted, so they might not have to wait on this one.]

In yesterday's Wall Street Journal, Li Yuan [China Wants to Own Stake in Web Firms] describes the latest venture in Internet control "giving it more direct influence over company policies on content and censorship", almost as if China needed more control over its Internet.  It already has the most intrusive censorship and content controls of any country in the world.  The central government regularly issues guidance to press and media about what stories they may not comment on, what to say about things they can comment on, and can retroactively decide that something a reporter says fosters discontent.  That is enough to land a person in jail.

Apparently, even the most intrusive controls are not enough to satisfy this government.  Now they want to get a golden share on almost every on-line media company, Tencent Holdings and Baidu as examples.  It isn't like they aren't under control now.  We have to wonder why there is so much recent emphasis on censorship and media content, that follows a crackdown on NGOs, many of which are various human rights and public policy organizations.    China doesn't like those either.

China is Big Brother on steroids.  It is difficult to believe that even more control over the Internet is required.  Can the Party be so insecure that it believes any comment that is out of sorts with their way of thinking needs to be controlled?  They must believe that Internet media is not doing enough to enforce the controls they want on content, or they would not be looking for even more.

China About to Run into the U.S.

Gordon Lubold and Jeremy Page in today's Wall Street Journal [U.S. Sees New Flashpoint in South China Sea Dispute]  point to a recent development in the Chinese expansion of control over the South China Sea.  While most countries see this as a sea lane issue, I tend to see it as part of a Crimea-like takeover of Taiwan.  The Chinese are far more patient than the Russians and do things in small increments without causing a lot of trouble with the countries of the world.  If they control the sea lanes around Taiwan, they can control it.  They started with the East China Sea, which everyone has already forgotten about, and have gradually expanded their controls to the whole area.  [ see Defense Department graphic at http://www.southchinasea.org/files/2013/03/Sovereignty-claims_in_the_south_china_sea-US-DoD-2012.png ]

Jay Batongbacal,  with the Asia Maritime Transparency Initiative [Scarborough Shoal:  A Red Line? http://amti.csis.org/scarborough-shoal-red-line/]  says the next area of concern for the U.S. is the bunch of atolls about 120 miles off the coast of the Philippines.  The Chinese have sent some survey ships to that area and may be looking to build out the another military base on land claimed by the Philippines.  China ran the Philippines out of that area in 2012, without much protest from the U.S. even though the U.S. has a mutual defense treaty that should have applied there.   The difference between this area and the Spratlys is that a treaty between the U.S. and the Philippines says the U.S. will "defend not only the Philippine metropolitan territory, but also 'island territories under its jurisdiction.' [Batongbacal].  The U.S. gave these islands away after the Philippines declared independence in 1946.

The Chinese ambition in this region is playing out because the U.S. has done little to deter them since they started their buildup.  Only in the last few years has anyone finally realized what they were up to there.  We only have to pull back to a world view of the region to see that China is not content with the control it currently has over the entire region.  It wants more than that, and it may be too late to stop them from having it.

Russians Backing Kurds

The Russians seem bent on backing the Kurds in Syria, something the U.S has been doing for many years.  But, as in all things in the Middle East, this is not straight-forward.  Thomas Grove and Ben Kesling in today's Wall Street Journal [Russia Pursues Ties With Kurds to Keep Foothold in Region  - long, but good reading] point out that the Kurds are not one group.  In this case, the U.S. And Russia may not be on the same side, even though both are supporting the Kurds.  The Kurds hold a part of Syria that is almost as big as the one held by Assad's government.  

Ever since the Turks shot down a Russian military jet when it flew over their territory, we have kind of been wondering what the Russians were going to to do about it.  It appeared like they were doing nothing.  Maybe not.  The brand of Kurd the Russians are supporting are the Afrin's, [for a description see http://thekurdishproject.org/kurdistan-map/syrian-kurdistan/afrin-syria/].  They are in the northwest part of Syria and mostly Sunni.  They are not far from the Russian base at Latakia.  When the Syrian government pulled out of that area in 2012, the area was run by the Turkish People's Protection Unit (YPG).  Turkey considers the YPG to be allied with the Kurdistan Workers' Party (PKK) which causes so much damage in Turkey.  The US does not support either the Afrin's nor the PKK, but does support the YPG.  This is no more complicated than the situation faced anywhere in that area, but does help us to understand why it is so difficult to pick friends and enemies in that part of the world.  The Russians pick the Afrins but the US does not.  Given the culture, it hardly matters.

The Afrins are fighting the other factions in that area including the Al-Nusra Front, or Jabhat al-Nusra, sometimes called al-Qaeda in Syria or al-Qaeda in the Levant.  Nobody wants these folks to win, so the Russian support cannot be entirely unwelcome.  Our White House had great agony over support to the Kurds because of all of the factions within that group.  Maybe it wasn't just painfully slow decision making.  

Military Jet Evacuates Subi Reef Sick

Reuters is saying today [http://www.reuters.com/article/us-southchinasea-china-usa-idUSKCN0XG0UO] that the Chinese are being questioned by the U.S. about a military flight going into Subi Reef in the Spratley chain of islands in the South China Sea, apparently to evacuate some sick individuals.  China says these islands are theirs and they can do what they want.  A military plane was available.

It seems like this would not even be raised in any other circumstances, since it appears to be a humanitarian need and military aircraft or not would not make a difference to anyone.  But these islands are in the middle of the South China Sea dispute between several countries and China.  China continues to call their claim on the islands "indisputable" when the term is not very accurate.  It is disputed, most recently by the Philippines, but also by several other countries in the region.  The Chinese have ignored any contrary claims, and even do not participate in negotiations, inferring that the matter is not negotiable.   They must know this will not go away just by looking in another direction and pretending like this is not really a disputable issue.  The U.S has sent more ships into the area and the Chinese have gotten pressure from other countries to back off.  They ignore those too.

The Chinese seem to believe this will all blow over one day if they are persistent.  It smacks of the same logic the Russians used in Crimea, where work on a land bridge to Crimea is continuing without interruption.  Nobody is telling them to get their armed forces back to Russia and leave the Crimea to the Ukraine.  It harks back to the time when President Obama was meeting with Russian leader Dmitry Medvedev and on an open mike told him he could not talk about some issues until after the election.  Then, they could work something out.  This time, there is going to be new President and that person will not be willing to work out a land grab by another government.  China and Russia both know it and will more than likely be ready for the change.  

Chinese Citizen arrested in Carbon Fiber

Fuyi Sun, aka Frank, 52, a citizen of the People’s Republic of China, was arrested yesterday in connection with a scheme to illegally export to China, without a license, high-grade carbon fiber that is used primarily in aerospace and military applications.  This is M60 a specialized fiber which, due to its military and aerospace applications, requires an export license for export to China.  A brief look at Google images suggest it is used commonly in light-weight guns of all types, tank armor and aerospace.

“Sun allegedly attempted to procure high grade carbon fiber for a source he repeatedly identified as the Chinese military,” said Assistant Attorney General Carlin.  “The carbon fiber – which has many aerospace and defense applications – is strictly controlled, and Sun expressed a willingness to pay a premium to skirt U.S. export laws....Sun allegedly told undercover agents that the carbon fiber he sought was headed for the Chinese military, and then paid tens of thousands of dollars in cash to purchase two cases of it.  And to avoid law enforcement detection, Sun allegedly directed the undercover agents to ship the carbon fiber in unmarked boxes and to falsify the shipping documents regarding the contents of the boxes.”

International hackers End in China

In what is one of the most intriguing cases in some time, a total of 77 people, 45 Taiwanese and 32 Chinese are being transferred from Kenya to China for trial [be aware that different articles cite different numbers of people involved].   This was after they had been acquitted in a cyber case in Kenya.  Reuters says [http://www.reuters.com/article/us-china-taiwan-kenya-idUSKCN0XA05E] the individuals were sent back to China because Kenya believes Taiwan is part of China and the individuals came that way to Kenya.  This has to be the most unbelievable extradition reason ever given by a sovereign nation.

Michael Cole, writing for The Diplomat [http://thediplomat.com/2016/04/china-abducts-taiwanese-in-kenya/] says the consternation in Taiwan is felt everywhere.  He says, "Taipei has called the act “a gross violation of basic human rights.” Taiwan’s Foreign Ministry has reached out to Kenyan parliamentarians and rights activists to provide assistance in filing a lawsuit against Kenyan police."  

The same day the transfers were made, Kenya got a $600 million loan to help it with its budget deficit.  This coincidence will no doubt be explained by Kenya as something that had been pending for many months before the extradition took place.  Do you believe it?  

China Fighting Terrorism and Social Unrest

Just when we think we know what terrorism is, the Chinese confuse it more with a new definition.   We all know about China's new anti terrorism laws which require companies to help with decryption of internal correspondence and files.  That even seems like a reasonable action for a central government to take - until we look more closely at what that really means.

In a Reuters article today [ http://www.reuters.com/article/us-china-internet-security-idUSKCN0X912A] Ben Blanchard outlines the components of this kind of terror:  "The Cyberspace Administration of China said the companies had promised to 'handle in a timely way terror-related harmful, illegal information, create a clear internet space and maintain social stability' ".  This is a long stretch from where most of us see terrorism.    

It keeps with the usual Chinese policies being applied to anyone who might pass through, that it is vague and ill-defined.  That is to allow censors to apply their trade however they see fit, and law enforcement to engage almost anywhere they choose.  In real counter terrorism operations, that is a good idea, but this is not real counter terrorism and the last two categories give us a hint of why not.  

What are a "clear internet space" and "social stability" supposed to be?  They certainly have nothing to do with counter terrorism, but they are an easy way to pry into almost any category of dissent that may threaten the government.  What they have done in this, and in other circumstances is to define terrorism as any statement or action that runs contrary to the regime policy.  Anyone who dissents from central government policy is, by that definition, a terrorist.  This is not very unique in the world since the Russians have adopted the same logic in Syria, making anyone opposing Assad a terrorist.  

What the Chinese are doing is signing up their Internet providers to this policy of terror suppression and disruption, while redefining terrorism.  It would not be hard to guess that the players, Alibaba, Tencent, et al are not having an opportunity to qualify what might be this overreach of governmental authority.  They get to shut up and color.  

A Little Dust-up in Argentina

In what many of you may have missed, there is a story of intrigue and a ship a long way from home.  The ship is the Lu Yan Yuan Yu 010, a Chinese fishing vessel in the Exclusive Economic Zone (EEZ) of Argentina, a long way from China.  What a ship was doing in the EEZ and why an Argentinian ship attacked and sunk it is a story we will probably never know completely.  Right now, all we have is the story that Argentina tells:  see http://www.prefecturanaval.gov.ar/web/es/html/noti_gacetillas.php?numero=05516  This video tells the story, repeated by CNN in more detail.  http://edition.cnn.com/2016/03/15/americas/argentina-chinese-fishing-vessel/index.html   It still has the feeling of a story with a lot more to tell.

The Argentine government maintains that the ship was warned that it was in the EEZ and was not allowed to be there.  It turned off its lights and came in the direction of the little coast guard ship that was observing it.  This unarmed vessel was obviously a threat to this combat ship and the cutter opened fire.  The ship sank and the crew was recovered, though it appears most of them were recovered by other Chinese fishing vessels in the area.  Nobody is saying if the other fishing vessels left the area after that, but it would come as no surprise if they did.

We have to imagine that Argentina did not just happen to have its ship in that area, and has warned China before about fishing in its EEZ.  The BBC says, "In 2012 Argentina captured two Chinese vessels it said had been fishing illegally for squid in its exclusive economic zone. Warning shots were fired."[http://www.bbc.com/news/world-latin-america-35815444]

Maybe the Chinese decided they didn't want to be captured this time and thought the Argentines would do nothing more than talk.  Apparently they were wrong. The Chinese have requested an investigation of the circumstances of the incident, but it is unlikely to end there.  

U.S. Not Done with ZTE

Strangely enough, the market seems to know more about the investigation of ZTE than the U.S. Government wants to say.  Juro Asawa and Joanne Chiu wrote a story for the Wall Street Journal [7 April, ZTE Shares Plunge as U.S. Investigation Stirs Concern] that says (1) ZTE shares were suspended in trading for a month and (2) that ZTE admits it might lead to criminal and civil liabilities.

This certainly sounds like something more than the "normal turnover of leadership" that ZTE has led inquirers to understand.  The stock dropped 10% before trading ended, but is still recommended as a "buy".  That's because the market always figures these things will be worked out and the stock will go back up.  The article says ZTE is cooperating with the U.S. Government, but that likelihood is not very great given the nature of the charges that were made.  Anyone who reads the documents posted previously knows how deep this action goes.  ZTE was not just bypassing sanctions in a few instances to keep a customer happy.  They were systematically setting up front companies, similar to those described in the recent Panama Papers case, knowing what sanctions they were violating on Iran's behalf.  And, other Chinese companies were doing it too.  The actions had to be known to the central government.  Even the markets cannot ignore the Chinese government involvement with its companies which runs deep and factors in whether they are successful.  They do what they are told.  

Another Chinese General

Guo Boxiong, 73, served as China’s foremost military officer for a decade until his retirement in 2012.  He “candidly confessed” that he took bribes in exchange for helping other officers win promotions or transfers. [see Michael Forsythe, Former Top Military Official in China Took ‘Huge’ Bribes, Inquiry Finds, New York times, 5 April ] In the latest slash at corruption in the military, this ranks higher in credibility as out-and-out graft.  This is a lot like the highest ranking General in the U.S. Army taking bribes so a friend could transfer from Texas to Hawaii.  

That is indeed graft, but graft normally not carried out by so high ranking a person.  Yes, it sounds like very credible, but the believability is not there.  Guo Boxiong was the highest ranking military member of the Central military Commission of the Central Committee.  He was one of the 25 senior leaders who run China.  This is a little more like a Cabinet member of the Obama Administration selling transfers from Texas to Hawaii.  That would certainly be big news.  

A BBC story from July 2015 [http://www.bbc.com/news/world-asia-china-33725125]  indicates that this whole thing started over a year ago, and "The other two generals that Gen Guo served with, Xu Caihou and Gu Junshan, were accused of corruption on a huge scale.  State media reported that it took a week to catalogue all the cash, jewels and antiques amassed in Gen Xu's Beijing residence and that 12 trucks were required to remove them all.  He died of cancer in March."  Maybe corruption in the military of China is bad, but this kind of corruption sounds petty and certainly not enough to get 12 truck loads of goodies to save up.  There is more to this story than the facts as the Chinese publish them.

Wider Net Catches more Chinese leaders

An article today by Chun Han Wong and Joah Chin [http://www.wsj.com/articles/chinese-link-to-panama-papers-widens-1459965602] brings out a couple of new names in the Chinese side of the Panama Papers.  This will probably go on for awhile but it is not likely to spawn investigations of the upper crust, since it is a little to close the ruling class of China.  "A report by the International Consortium of Investigative Journalists on Wednesday linked relatives of two current members of the Communist Party leadership—Vice Premier Zhang Gaoli and Liu Yunshan, who oversees propaganda and ideology—to offshore commercial activities conducted through law firm Mossack Fonseca & Co. The report didn’t accuse any individual or organization of wrongdoing."  Neither are investigations, should they occur, likely to lead to any charges.  The Chinese have been using these loose arrangements from everything from spying to facilitating contracts with governments.  

I used an example in my first book.  The US-China Economic and Security Review Commission has an interesting place, 88 Queensway, in Hong Kong identified in one of its reports that had 34 companies working out of the same physical address.  Most of them were owned by wives and other family members of some high ranking officials and one was a cover operation for spying.  This type of business arrangement has many uses, but the main one is to hide the beneficial owner of whatever it is the company is doing.  The Chinese government would say those uses are legitimate, but some analysts in financial circles might disagree.  

Shell Companies and US Debt

Last week, I looked at a chart done by the Congress Research Service that showed a decline of 3 %  in mainland China's holding of our debt between 2011 and 2015.  I have said a number of times that China listens to things people say about them and they try to make themselves look better.  They don't necessary change their position, but they do change tactics to counter criticism.

But, I was looking at this Panama Papers fiasco in light of how leaders could potentially abuse shell companies to make things look better for them too.  As it turns out, the percentage of debt held outside the U.S went up in the categories of debt held by Caribbean Banking Centers and Hong Kong by almost the same amounts it declined in China.  Maybe we should be looking at debt held by them and the beneficial owners of that Treasury debt to see if China really did reduce its holding of US debt.  Maybe they just shift it to some shell companies.

The Long Reach of the Law

A recent case that will come before a US court involves a native of Singapore, detained by authorities in Indonesia, and brought to the US for trial because he was exporting goods used by the Iranians to make bombs in Iraq.  This complicated international case talks to several things that are not always obvious.  [https://www.justice.gov/opa/pr/singapore-man-extradited-united-states-connection-plot-involving-exports-iran-us-components

1.  U.S. Goods purchased by almost anyone can be used against us and our allies if that person lies about how and where the goods are being exported.  These are a lot like dual use technologies that pretend to be useful for one purpose but are sold with the understanding that they will be used in ways they were not designed for.  Some of the best law enforcement tools in information systems can be used by governments to spy on their own people, and they regularly are.

2.  Iran really does make the IEDs that are packed into holes in the ground in Iraq and used to kill combatants and innocent civilians alike.  This is not a trustworthy government. Maybe they will help us arrest some of the people who are exporting this bomb-making material.

3.  Law enforcement, with the help of the Intelligence Community, can identify components of bombs and find out where they came from, then locate the exact company that did the export.  It is amazing if you think about it.  Bomb fragments are tiny and burned, yet can be recovered and turned into a traceable thing.  The manufacturer can tell where those things came from and who bought them.   Even if it takes forever, that is something we should applaud.

XI Jinping's Family in Panama Papers

Emily Rauhala wrote a piece in the Washington Post today that is reflective of some others I saw this afternoon (see also the Straits Times, Panama Papers:  Family of China's President Xi implicated) .  The Rauhala says this:  "It also names the family members of eight current or former members of China’s politburo, according to the Guardian’s tally.

One of the people mentioned in the report is Deng Jiagui, the brother-in-law of China’s current president, Xi Jinping. Another is Li Xiaolin, the tycoon daughter of China’s former premier, Li Peng.  It lists Hong Kong as a source of key “active intermediaries” in the secretive work."  

Now, of course, we have the champion of rooting out corruption with his family members having overseas shell companies hiding their wealth.  This is nothing new since the first big investigation of China by the group doing this report showed 22,000 offshore clients from the mainland and Hong Kong, but is sure to sound hypocritical by other Party officials who are criticized for doing the same thing.  https://panamapapers.icij.org/the_power_players/

Sourcing the Panama Papers

If you want to go to the source of stories about the Panama Papers from Panamanian law firm Mossack Fonseca, visit this site https://www.icij.org/

Several news outlets are carrying the stories but this group is apparently where the original documents were sent.  Given the rapid dissemination of the materials, there are probably others but this is a good place to start.

Their article says "These are among the findings of a yearlong investigation by the International Consortium of Investigative Journalists, German newspaper Süddeutsche Zeitung and more than 100 other news organizations." Amazing that anyone with a story like this could sit on it for a year while they investigated all the various aspects of it.

The Miami Herald, one of the participants, credits a German firm with the documents:" Confidential sources leaked the MF files to German newspaper Süddeutsche Zeitung, which shared the records with the International Consortium of Investigative Journalists, a Washington, D.C.-based nonprofit. The leaked records have been dubbed the “Panama Papers.”
http://www.miamiherald.com/news/business/real-estate-news/article69251607.html#storylink=cpy

In the MF response to their story is the following: " Mossack Fonseca concluded by threatening to sue the news organizations that worked on the project: 'It appears that you have had unauthorized access to proprietary documents and information taken from our company and have presented and interpreted them out of context. We trust that you are fully aware that using information/documentation unlawfully obtained is a crime, and we will not hesitate to pursue all available criminal and civil remedies.' "

Read more here: http://www.miamiherald.com/news/local/community/miami-dade/article69252767.html#storylink=cpy

New ZTE Disclosures

We finally get a view into the quick withdrawal of sanctions against ZTE, and the way ZTE seeks to resolve the issue with the US government.

Juro Asawa, in Saturday's Wall Street Journal, writes about what ZTE is announcing it will do in order to mitigate the actions taken by members of its Board of Directors to sell embargoed items to Iran. [China's ZTE to Replace Three Senior Executives, 2 April 2016]   In the US these kinds of actions would be severe and impact the Board in ways that would resonate for a long time.  We tend to see China's actions in the same light, when the government systems are not the same.

Chinese company executives are given jobs because of their positions in the Party, as much as their business acumen.  There are several executive replacements that have taken place over the years, mentioned in my first book on Chinese Information War.  Most of them had to do with a business leader taking a track that was not in line with the central government leadership.  So, we might think that this action by ZTE would represent a set of "rogue executives" doing something the government did not condone or sanction.  Usually, that kind of action results in a business leader disappearing and not coming back while he is questioned by the government.

Clare Baldwin, writing for Reuters, says the ZTE representative on a call yesterday claims these management realignments take place every three years and this is just one of those events.  However, he also said, "ZTE spokesman Dai said he could not confirm which executives would be involved in the management changes to be announced on Tuesday, and could not comment on whether the upcoming changes were related to the alleged Iran sanctions breach in any way. 'I cannot speculate on this type of discussion,' he said. 'I am not in a position to comment.' " Treating the move as a normal action indicates the Board members were not involved in the kind of activity that the government objected to.  An Asian Age story [http://dailyasianage.com/news/15162/chinas-zte-executives-to-step-down] on the same thing treats this like a spat that has nothing to do with ZTE.  The US sanctions caused the individuals to be removed.  The article does not mention that the ZTE internal documents cite the setting up of dummy corporations and defined export rules that would be violated in doing so. They also clearly show that other Chinese companies were doing the same thing.  No company in China is going to sell anything to Iran without the central government knowing about it and sanctioning it.

So, at least we now know what was agreed to settle the clear violations of US Export laws by ZTE.  What we don't know is why that kind of action was acceptable to the U.S. government.  Treating this as a rogue couple of executives ignores the role of the central government in controlling Chinese companies.  This almost sounds like the State Department view of the world.

 

Japan Edges Up in South China Sea

Peter Blaza reports for Reuters today that a Japanese submarine has docked in the former US military base at Subic Bay, the first visit for Japan in 15 years.  It seems that more than the US will be putting ships and planes into the area claimed by China.  Sooner or later, there will be an incident.  China is going to keep ratcheting up on the controls in this area, tightening and loosening as pressure dictates. They would like to keep a lid on any violent exahanges, but may find that more difficult to do.  China argues that it is their territory, and other countries in the region say it isn't.   China still wants control and is not going to take no for an answer.  The perfect mix for a confrontation.

Getting Personal

Ever since the Chinese took the personal data of 23 million people from the US government security clearance files, things have been getting personal.  An ABC News report today says we are about to go through the the same thing with the US Visa database;  this one has half a billion records in it.  It will make the OPM database seem small.

Sony was the first round and was done by North Korea, undoubtedly with China's active help.  A tit-for-tat exchange will get ugly pretty fast.  In my testimony before the US China Economic and Security Review Commission I said Sony was a warning to the US about what happens in an exchange of personal attacks - from email, or other data.  The Chinese have all that data on personnel security clearance forms that tell a lot about the White House staff and Congress.  It is pretty hard to start a tit-for-tat exchange unless you know what you are getting into. We have no idea what was hidden away in all of that data, but drug use, loans in default, financial disclosure statements, run-ins with law enforcement (even if innocent) are all documented in those reports.

I think the ZTE documents were the first in a new round of disclosures about what China has been doing to us, using their own documents as evidence. We were going to try a little tit-for-tat exchange of data.  As you remember from one of my previous posts [see David Sanger's article in the New York Times at http://www.nytimes.com/2015/08/01/world/asia/us-decides-to-retaliate-against-chinas-hacking.html?_r=0]  this was discussed as an option for retaliation against China for what North Korea did, a clear indication our government thought they two countries were collaborating on it.  China hides behind a proxy whenever it can.

Now, just a short time after those sanctions against ZTE were announced, they went away.  We clearly don't know how to play this game.