Old Hacks Make Comeback

The U.S has charged three Chinese with stealing M&A information from law firms, then using that information to buy into the companies that were being bought.  A Wall Street Journal article puts the gains at somewhere over $4 million, a paltry sum, no doubt much smaller than they actually got.  The Journal article also points to which law firms they think were hacked, since none were named in the indictments.

The three individuals named in the indictement are not in the U.S custody and good luck with getting them back from China.  The Justice Department says the reason they made the case was to warn other law firms that they were being subjected to this type of targeting on M&As.  Really?  That must have come as a big surprise :) when they have been targets for as long as any of us can remember.

China Gouges GM

There has to be some justice in the world, but it won't be found in China.  For reasons only they can say, China kept it a secret over who was going to be charged with price fixing in the auto industry, dragging on for a week or so before announcing that it was SAIC-GM.  The Wall Street Journal article today says the fine was $29M.

How does anyone fix prices in an economy like China's?  GM had to team with SAIC in order to start a car business in that country and SAIC controls the distribution of cars to Chinese controlled dealers.    Apparently, those very dealers were setting prices for their cars - the same as they do everywhere else in the world - and that was a sin, punishable by fine.  Rediculous.

GM is the first car dealer to sell Chinese made cars in the US.  Maybe we should shut that down and go back to a system that everyone understands.  Kick your best auto partner in the nose and see what happens.  Something will, and it won't likely be what they are expecting in the new world of U,S politics.  It is outrageous and China cannot get away with treating foreign companies differently than it does it owns domestic markets.  We are still missing the key element of trade with China - reciprocity.

New China Policies

I never thought I would see Peter Navarro brought to the White House Trade Council, but it must be making all those China experts I have heard from over the years cringe.  They need to.

We live in a dream world with China, making commerce with them while they steal our intellectual property and put it back into competition with us.  We should notice that Xi has not been engaged on social media talking about what President-elect Trump has to say, but it didn't take long for Vladimir Putin to catch onto it.  Now the press thinks we have a nuclear arms race which is not even close to being true.  They are going to have a lot of trouble from this President because he is not a model for what a President is supposed to be.  We should add - get over it.

Anyway, Peter Navarro has a couple of books out that blast China for doing exactly what they were doing.  Political correctness and diplomatic niceties are probably not going to get by for them in the next few years, and those so-called experts are going to find themselves out in the cold.  China is not our friend, and they are not neutral towards us.  Either of those would be preferable but that seems not to be what they want.  The South China Sea is only one example of how that cooperation has worked out so far.

When I wrote my first book 5 years ago, the Chinese were building up islands and starting to put airfields on them.  Then came weapons and soldiers.  Now, they seem to be testing the waters for a fight.  They always back off, but they never back down.  This White House at least recognizes that diplomacy only works when the opponent knows you are prepared to take some real action.  That starts with understanding what they are up to and how to stop them.  Bringing in military leaders and Peter Navarro are part of that.

The News from Facebook Stats

News sources have produced a discussion about fake news and a lot of statistics showing nearly everyone gets their news from Facebook.  Will Oremus from Slate clarified the Pew Research Report that led to the conclusion that "nearly half of the people on Facebook get their news from that platform".  Oremus looked at the report, as should any serious researcher, and came to the conclusion that the report is often incorrectly cited.  Not that many people actually get any news from Facebook, and it looks like he is right for more reasons than he cited.

The report says "social media" is often a source for about 18% of people who use it.  The term social media means Facebook, Twitter and a whole bunch of other sources.  But, the first page of the report also says 56% never, or hardly ever, get their news from social media.  Second, social media postings are often made by news outlets themselves.  If someone subscribes to ABC news on Facebook or Twitter are those people getting their news from the social media or ABC?  ABC writes it, puts video into it and delivers it to outlets.  They are the source of the news.  If I watch ABC News on their website, it is basically the same content, but the delivery vehicle is different.  If I watch it live on TV, or do on-demand TV from FIOS, I still am getting the news from ABC, not FIOS.

Where this becomes more important is with fake news and the responsibility for content on delivery channels.  Fake news is a misnomer.  If I write a story on social media that says "I heard that my cousin went to jail for DUI." Is that fake news if he didn't go to jail?  If a staffer for Hillary Clinton writes that Donald Trump didn't pay any income taxes -ever- and ABC picks that up and writes a story that they have sources that say Donald Trump has never paid income taxes, that is news, but its it fake news?  The difference is in the source of the news.  If one person heard about his cousin going to jail when he didn't, that is an internal family problem.  The ABC story is different because they have a responsibility for the content.  We excuse this too often as news reporting, when publishing a knowingly false story carries legal penalties.  

What complicates this further is state-sponsored news.  The China News outlet says their Navy picked up a drone out in the South China Sea because they thought it might be a navigation hazard for shipping there.  News outlets in the U.S say this drone was seized in international waters in an act that amounts to piracy.  Which story is fake news?  They both are.  State-sponsored news agencies deliver supporting material for narratives, story lines they want us to believe.  Big chunks of our news come from bending news to fit the narrative.  Is that fake news?  You bet it is.

The Presidential election reminds me that news outlets used to be better at detecting and reporting the real story and not the narrative bending news.  They have lost that ability and the trust of their readers because they just do what Facebook does, conveying what they hear about my cousin and Donald Trumps taxes, without checking on the real story.  Now the Russians come along and hack the Democratic National Committee, releasing that information to the public. Are those emails fake news?  No, they aren't.  A good investigative report might have discovered the inconsistencies of what both parties said in public and what they said in private.  As it is, we have only ourselves to blame for only having one side of that story.  

Suspending Belief

In today's Wall Street Journal, Andrew Browne, says China has thrown out the rule book on the South China Sea by seizing a drone controlled by a U.S ship.  But, he went further by saying  the explanation offered, i.e that it was a navigation hazard that was picked up to make sure it did not interfere with sea traffic "beggars belief", a term that is apt even if not intended.  Even the Chinese people cannot believe that China goes around picking up underwater vehicles to insure safety of the seas around them.

This is the kind of in-your-face explanation that is more prone to be from the Russian press which manufactures scenarios to explain their country's actions.  Truth is a secondary consideration in this kind of narrative.  Something that sounds good, and has the feel of being right, is OK even if it bears no resemblance to what actually happened.

This is similar to the Iranians taking U.S personnel off a disabled ship in the Straits of Hormuz.  They offered the same kind of explanation but video taped the whole incident to belittle US forces.  There was no good story that could explain that.  "Rescue" sounded hollow after the tape was shown.

At times, we choose to suspend belief to avoid confrontation.  We accept these stupid explanations without pointing out that they are not only untrue, but manufactured by a political apparatus that has to know they are false.  We accept them anyway.  Well, some do.  The ability to describe the truth and discredit the lies is not just a political choice.  The free press in the parts of the world that have one, should be fact checking these kinds of ridiculous claims instead of one political candidate said in 1985.  Where are the New York Times and Washington Post of old that could dig out the true things and expose the lies.  Now they are no different than the Russian and Chinese press, telling us a story they want us to believe instead of trying to find the truth.  

Anti-aircraft Weapons on Chinese Islands

I have used the Asia Maritime Transparancy Initiative as a source since they started.  They watch those little islands in the South China Sea and report on what they see.  This time, they say, the Chinese have raised the prospect of "defending their territory" with large anti-aircraft guns  and close-support weapons.  They have nice pictures from DigiGlobe to prove their point.  It is hard to get away from satellite photos.

The Chinese are applying escalation to their work on the islands, steadily making them into military bases that promise to challenge any aircraft that fly into those areas.  As I have said before, it is one thing to get the verbal warnings that the BBC got flying a small plane through those air spaces, and quite another to see the radars from ground units painting a target.  Only military aircraft with air defenses can see those radars at work.  If we don't start laying the ground work for some retaliation before we have our aircraft challenged, we are going to have U.S aircraft painted on radar of Chinese weapons from territory that we do not recognize as theirs.  This is like a ship in the middle of the ocean targeting an aircraft flying over it.  We can't have it.  But, we are going to have it, anyway.  Let's hope our military is prepared to counter the kind of engagements that are coming.  The Chinese are not going to stop what they are doing and seem prepared to go to war over territory they claim, even though the rest of the world does not agree with them.

Trade Squabbles Grow with China

In what turns out to be another way of keeping U.S goods out of China, the implementation of trade rules has been challenged by the Obama Administration - in what will be one of its final acts.  The Chinese have been putting tariffs on rice, wheat and corn that favor things grown in their own country, and keep the U.S out.  The Obama Administation filed its 15th - and last- complaint with the World Trade Organization.  China then finds other ways to work around the complaints, sometimes by making cosmetic changes to their policies that promise more than they deliver;  other times, doing nothing until right before the matter comes up for review, then getting voluntary compliance from its own state-owned businesses.  In either case, their response is not going to make the new administration very happy about trade rules.  There are going to be some pretty savy traders in key positions in the new government who have seen all of this from the inside.  It will not take quite so long for these new folks to see what is going on and take action to stop it.

Retaliation or Deterrence?

The U.S President does not seem to see any difference between deterrence and retaliation in cyber events.  It would be nice if he had a deterrence strategy that would prevent things like the hacking of the Democratic National Committee during an election.  Deterrence puts markers out on the ground to indicate what will happen given certain types of events - you want to try a certain category of event, then you can expect a response of some type.  It does not mean that it is a response of the same kind, but a response with a similar affect on the country doing whatever was done to us.  Credible deterrence prevents others from taking the step to begin with because others know what will happen to them .  It does not have to be public knowledge, but it does have to be communicated to those who are most likely to be involved.

When deterrence fails (here I do not mean when we have no deterrence strategy) there is retaliation where it is clear why we are responding to the event, and to what country.  In personal terms, retaliation is like revenge.  It has a way of escalating from one revenge event to another on both sides, and can become something like the Hatfields and the McCoys shooting each other every week or so.  Israel and the Palestinians come to mind.  

Deterrence always comes first, except with this President.  Perhaps the next one will do better.    

Just a Little Bit of War

So, the Chinese take an underwater survey vehicle right off the cables attaching it to a U.S. Ship and ignore the protests of the Navy.  This is seizure of a naval vessel on the high seas, an act of war.  The reaction to it is a little short of war.  As John Bolton said today, a fitting end to the Obama Administration.

The Chinese have promised to return the undersea "drone" which was captured by them.  They will give it a good look over as they did the US aircraft which collided with a Chinese fighter in 2001.  The Chinese gave the crew back and blamed the whole incident on the U.S, not the pilot of the Chinese fighter that hit the slower moving surveillance aircraft.  We are going to continue to have these kinds of incidents which should be routine to the military unites carrying them out.  I described an incident similar to this one in my first book.  The Chinese tried to grab hold of a towed array with a hooked pole and got the cable up on the desk.  Why somebody doesn't shoot at them says a lot for the restraint of our seamen.  Even a water cannon would have stopped the boat from taking that drone.  

Keeping Secrets II

As I said in my second book, this White House seems unable to keep any important secret for very long, and they prove it over and over with the discussions yesterday of the Russian hacking of aspects of the U.S. Presidential election.  It is not something that should be talked about in public although the White House seems to do it anyway.

We heard yesterday from, of all people, the White House Press Secretary that Vladimir Putin was "directly involved" in the operation to hack the Presidential campaign.  That is an amazing revelation and one that certainly is known to only a few individuals in Russia.  No doubt the Russians will be looking around for who that might be, and will not be treating the individual with the due process so famous in US courts.  Should anything happen to that person, our Intelligence Community should make that public too - if the Russians don't.  Then we can have a few of the departed Obama Administration officials apologize to the living relatives of that person.

Have we ever seen such a bunch of idiots as these folks appear to be?  You don't have to be a favorite of either political party to recognize ineptness when it bongs you on the head as many times as we have seen it done with this group.  At least the end is near.  Let's hope that the incoming people know when to talk and when to keep quiet about state secrets.  The Russians certainly do.

Intelligence Makes Decisions Better

I got a kick out of all the buzz in Washington over Donald Trump's reaction to statements about what was said behind closed doors related to Russia hacking the Democrats to help Trump get elected.  I doubt that that ever happened the way it has been portrayed, but the President-elect may be pointing fingers at the wrong people.  Intelligence reports are abused a lot inside the Beltway around Washington D.C.

Intelligence reports usually express the facts as they are known and include how they knew these facts to be true, e.g. A reliable source who provided accurate information in the past, and is highly placed in government said this:  We saw this:  We assess that:  There are always a lot of "ifs" in any statement or report, but it is the best information they have at the time, and is subject to change.
Slamming the Intelligence Community for making a report is a little like shooting the messenger because you don't like the message.

But first, I doubt that anyone in the Intelligence community said Russia did this to help elect Trump President.  It doesn't sound like something an Intelligence report would say.  They might say that it was the Russians and they have reliable information to indicate who in Russia and why, but the inference that it was the Russian government and not just somebody in Russia is a little harder to come by.  It sounds like speculation that the reason for the hacking was to help elect Trump, and speculation is not in those reports.  That can be said by Congressmen without pointing to any report or facts presented to the committtes of Congress and nobody in the Intelligence Community can reply to the statements being made.

Several news outlets pointed to the lack of detail about how the hacked material was given to Wikileaks and published.  That would indicate that a lot about the operation is not known.  Some of those things are important to an assessment of why it was done and whether the Russian government was really behind it and not some bunch of hackers who got caught by the Obama Administration and will spend time in jail.  They had good reason to seek revenge.

As I noted in my third book, the Russians have meddled in our elections before and have tried to favor one person over another.  In each case, they were trying to keep strong Republicans from getting elected.  In each case, they failed.

A New Aixtron

In today's Wall Street Journal, there is an article about the demise of the deal between Aixtron and a Chinese conglomerate that tried to buy it.  Now is appears the Chinese have changed the names of the players and will try again.  this time, it is Lattice Semiconductor, and the new Chinese entity is Canyon Bridge Capital Partners.  In case this set-up sounds familiar, the Chinese created a new company to buy Aixtron, then manipulated orders to lower the share price.  The New York Times reported the details, much to their credit.  This time, they created a new company to set out to buy up certain technologies they want.  If they keep these companies names moving around, they are harder for the U.S government to keep track of and less likely to find interference.  If they successfully buy through any one of them, the government then owns the asset.   It is a shell game they can play forever, since they are state-owned enterprises.

The evidence suggests that somebody is keeping track of these deals and letting Congress known.  Twenty-two Congressmen sent a letter to Jack Lee to let him know that they wanted this investigated, and it is not often that you can find 22 people to put their name on something on the Hill unless there is something going on.

Shoe on the Other Foot

A Reuters exclusive story today is showing a reef that Vietnam has decided to dredge.  The goal, of course is to make it bigger and put people and equipment on it.  There is a nice picture with the article that shows a spot that is probably not habitable unless you bring your own food, water and portable toilets.  It is sparse.

The other problem for them is China which claims almost everything in that part of the world, having made the world's largest land grab in the South China Sea.  They don't actually own this property anymore than Vietnam does - they just claim it.  So, now we come down to which state is going to be able to enforce their claim.  The excitement is already building.

Vietnam has clashed with China several times and my bet is on them.  It one thing to claim the sea for fishing and have boats clash with each other over that, but quite another to have a real stake in the ground and put substance to it.  The Chinese have a fear that kind of idea might catch on and will try to put an end to it.  It is going to make for some real drama at a time when the news chains are pretty slow.

A Historical Reminder

Today is the 75th anniversary of Japan's attack on Pearl Harbor.  We don't want to diminish the impact of that event since it was a surprise attack that killed 2400 people, most the victims of bombs or drowning when their ships sank.  It was a terrible day.

But, I was reminded of another sunny day, in 2001, when over 3000 people died in a sneak attack on buildings in New York and Washington D.C.  I hope we continue to remember 9/11 the same way we remember Pearl Harbor.  

Obama Nixes Aixtron, SE Deal

The Wall Street Journal reported today that the deal for Aixtron, SE a maker of chip making technologies, by Fujian Grand Chip Investment Fund, was forbidden by the U.S. President.  This was only his second intervention in such a deal.  I have a couple of previous posts on this, so this is really the end to a continuing story of the purchase of sensitive technology companies by Chinese-owned state businesses.  This is a tricky area because it is not the same as a commercial business buying into those same technologies.  This is China buying them, and in this case, using some pretty clever manipulation of market dynamics to make it appear to be a good purchase.  The New York Times exposed the story behind that, to their credit.  Now the Chinese are playing dumb about all of that and  thrashing around threatening the U.S over this kind of action.  Considering the restrictions China has on US buying of the same technologies in China, that is barking up the wrong tree.  The tree they should be looking for is the reciprocity tree.  There is none between us and China and it is about time to start some.

New. CitizenLab Report on WeChat

Citizenlab, the part of Toronto University that looks into various aspects of the Internet has been into Chinese censorship for several months now.  They have reports on various browsers that are being used too extract user data that goes way beyond anything we could forgive as part of a normal business operation.  This is spying by any standard.  The latest report looks at WeChat, the Chinese equivalent of Messenger looks to focus more on just censorship.

Let's be clear that WeChat is censored.  What the report documents is how it is censored, the kinds of words that result in automatic censorship and the extent of censorship outside China - which, for a change, is somewhat different than inside.  The types of censorship for this registered to telephone numbers outside of China does vary from that with telephone numbers inside.  This seems odd since it would be easy to register with a number that was not really yours.

Anyway, you will find this an interesting read with lots of detail and thoroughness of reporting, typical of Citizenlab.