PHELIM KINE
A group of GOP lawmakers see electronic gold in making the U.S. a global cryptocurrency hub after China's recent ban of crypto transactions.
The congressional members are pushing back on the Biden administration’s moves to regulate crypto circulation in the U.S., currently valued at $2 trillion. That tussle creates a new wedge issue that GOP crypto advocates portray as a battle: the defense of financial freedom and innovation versus Democratic nanny state financial market control.
The role of cryptocurrency in the U.S. economy is already a white-hot topic on Capitol Hill. But China’s ban last week adds an ideological element to congressional anti-China sentiment that may obstruct or derail U.S. Federal Reserve plans to regulate the use of cryptocurrencies, which the Fed and financial sector experts say is essential to protect the U.S. financial system.
“China’s draconian restrictions on crypto exposes the weaknesses of their flawed economic system that routinely stifles innovation and creativity,” U.S. Rep. Andy Barr (R-Ky.), ranking member on the House Financial Services subcommittee on National Security, International Development and Monetary Policy, told China Watcher. “This decision provides an opening for the U.S. to leverage our free-market principles and unleash the American entrepreneurial spirit to capitalize on [China’s] mistake.”
Chinese regulators prohibited cryptocurrency transactions amid concerns that speculative trading was “disturbing economic and financial order [and] breeding illegal and criminal activity,” according to a People’s Bank of China statement. Beijing intends to cater to Chinese consumer appetite for now-banned crypto with the national rollout of a central bank-backed digital currency in time for the February start of the 2022 Beijing Winter Olympics.
Barr and several GOP colleagues, including Sens. Pat Toomey (R-Penn.) and Cynthia Lummis (R-Wy.) and Reps. Glenn Thompson (R-Penn.) and Patrick McHenry (R-N.C.), warn that cryptocurrency regulation will stymie its potential as a financial sector innovation engine.
Lummis, Toomey and Sen. Ron Wyden (D-Ore.) are already veterans of legislative action to fend off regulation of the U.S. crypto sector. They introduced an amendment to the Senate’s massive infrastructure bill last month designed to counter the bill’s designation of crypto-miners — individuals who verify and record cryptocurrency transactions in a public digital record — as “brokers” subject to tax. The amendment failed but has not dimmed Lummis’s crypto-evangelism: “The future is in digital assets,” she tweeted recently.
Lummis, who owned Bitcoin valued at $230,000 as of August, is opposed to “regulating digital assets out of existence.” She sees regulatory moves on cryptocurrency as the equivalent of economic kneecapping. “China is missing a huge opportunity here, and we’d be remiss if we made the same mistake [because] the United States has the potential to be the global leader in digital assets and financial innovation,” Lummis said.
But regulation of what SEC Chair Gary Gensler described last week as a “highly speculative asset class” appears imminent. The Securities and Exchange Commission chair sees risks to consumers and investors in allowing cryptocurrencies to trade without greater regulatory control. “History tells us that private forms of money don’t last long,” Gensler said. “I think there are a lot of warning signs and flashing lights … and I’d rather get ahead of it.”
Gensler’s concerns about cryptocurrency’s volatility are not overstated. Bitcoin’s value has plunged 40 percent since April due to factors including inflation fears and concerns about potential regulatory controls. Cryptocurrency has also been tainted by its reputation as the go-to anonymous asset investment of choice for white supremacists and neo-Nazis and the preferred payment medium for hackers and ransomware gangs. “Even some of the cryptocurrencies would like to see more regulation because it would give them more legitimacy in some quarters,” said Thomas Hoenig, senior fellow at Mercatus Center, an economic think tank based at George Mason University.
GOP lawmakers face the challenge in balancing legitimate regulatory protections for crypto with political positioning that distances them from Chinese authoritarian financial sector control. Thompson calls for “thoughtful laws which protect consumers while promoting innovation.” Wyden urges an acceleration in the Biden administration’s considerations of a digital greenback. “The Chinese government’s moves demonstrate the need for the U.S. to get serious about developing our own digital dollar before our rivals try to supplant U.S. currency as the standard of global trade,” Wyden said.
But that might not sway regulation-shy GOP lawmakers, such as McHenry. “The U.S. won’t defeat China by adopting its authoritarian playbook [because] our free markets, individual liberty, and limited government are a source of strength,” McHenry said. “To compete with China and maintain our economic dominance, American policy makers must embrace new technology and innovation, rather than strangle it with regulation.”
THIS WEEK IN CHINESE HOSTAGE RELEASES
The Chinese government on Friday released Michael Spavor and Michael Kovrig, two Canadians held for three years on dubious espionage charges, just hours after senior Huawei executive Meng Wanzhou returned to China after striking a deal with U.S. prosecutors in an extradition case, POLITICO’s Andy Blatchford reports.
China’s Foreign Ministry spokesperson Hua Chunying said Beijing had released the two men on bail due to unspecified health concerns. The “Two Michaels” were detained in China just days after Meng’s arrest in Vancouver in December 2018. U.S. and Canadian authorities criticized Spavor and Kovrig’s detention as “arbitrary” and “unjust.” The timing of the men’s release indicated a quid pro quo deal between China, the U.S. and Canada hinged on allowing Meng to return to China. The White House denies any such deal.
The near-simultaneous release undermined Beijing’s claim that the Two Michaels’ imprisonment was not retaliatory.
“[China’s] abandonment of its previous pretense that it was handling [Spavor and Kovrig’s] cases in accordance with law and that they were not the victims of hostage diplomacy,” Jerome A. Cohen, founder and faculty director emeritus of New York University’s U.S.-Asia Law Institute, tweeted on Saturday. Cohen described the speed of the two Canadians’ release as a reflection of Beijing’s messaging that it was “a political prisoner swap, thereby bolstering Beijing’s claim that Washington’s initiation of the case was a political act.”
Hua took the same line in a statement released Saturday that described Meng’s arrest as “an incident of political persecution against a Chinese citizen, an act designed to hobble Chinese high-tech companies.” That perspective overlooked Meng’s Friday confession “that she failed to tell the truth about Huawei’s operations in Iran … in violation of U.S. law.”
Canada and China sparred over the “Two Michaels” case at the U.N. General Assembly on Monday, with Canadian Foreign Minister Marc Garneau decrying the “heavy price” the men paid for Canada’s adherence to rule of law. China’s U.N. Mission counselor Liu Yang shot back by accusing Canada and the U.S. of “arbitrary detention” of Meng. White House press secretary Jen Psaki insisted Monday that there “is no link” between the Department of Justice’s move to drop Meng’s extradition and the release of the “Two Michaels.” “We have an independent Justice Department that makes independent decisions,” Psaki said.
Meanwhile, the liberation of foreign citizens arbitrarily detained in China continued over the weekend with the Chinese government lifting a three-year “exit ban” on U.S. citizen siblings Victor and Cynthia Liu. The Lius had been blocked from leaving China after traveling there to visit relatives in 2018 but were permitted to return to the U.S. on Sunday. Chinese authorities never implicated the siblings in any wrongdoing but instead tried to use them as bargaining chips to repatriate their fugitive fraud suspect father, Liu Changming. The siblings said that Chinese authorities had repeatedly pressed them to convince their estranged father to return to face justice in China. It’s unclear if the Liu’s liberation relates to any U.S. government deal brokered with China to free Meng. Less fortunate is the Liu’s mother and U.S. citizen, Sandra Han, who remains incommunicado under arbitrary detention in China.
Sens. Edward Markey and Elizabeth Warren, Massachusetts Democrats, welcomed the release of the Lius, who are Massachusetts residents, and credited special presidential envoy for hostage affairs, Roger Carstens, for securing their freedom. But Chinese Foreign Ministry spokesperson Hua on Tuesday dashed hopes that Meng’s release would help broker any near-term reset in toxic bilateral relations. Hua underscored that Meng’s release was but one item of many on two separate lists of demands that Vice Foreign Minister Xie Feng thrust at Deputy Secretary of State Wendy Sherman in July. Improvement in U.S.-China relations requires the U.S. “to empty the two lists,” Hua said.
— A tech update from Protocol | China. Protocol | China, backed by Robert Allbritton, publisher of Protocol and POLITICO, tracks the intersection of technology and policy in the world's largest country. Sign up for the newsletter and learn more about Protocol’s research here. This week’s coverage includes an explainer of how China’s NFT market is thriving even without crypto, Beijing’s plan to double down on blockchain, and the many creative workarounds parents and their children have devised to dodge strict video gaming and tutoring regulations.
TRANSLATING WASHINGTON
— MILLEY DEFENDS CALLS TO PLA CHIEF: Gen. Mark Milley, the chair of the Joint Chiefs of Staff, told the Senate Armed Services Committee on Tuesday that his two phone calls with Chinese Gen. Li Zuocheng — one on Oct. 30 and another on Jan. 8, just two days after a pro-Trump mob stormed the Capitol — were part of his duties to “deconflict military actions, manage crisis and prevent war between great powers armed with nuclear weapons,” POLITICO’s Andrew Desiderio reported Tuesday. Milley revealed for the first time that the “specific purpose” of his phone calls to Li “was generated by concerning intelligence which caused us to believe the Chinese were worried about an attack by the U.S.”
— RAIMONDO SLAMS CHINA’S TRADE PRACTICES: U.S. Commerce Secretary Gina Raimondo slammed China on Tuesday for “anti-competitive and coercive activities” harming U.S. firms. Those activities included blocking U.S. access to the Chinese market and dumping Chinese products on the U.S. market, Raimondo said in a speech to the Washington Economic Club. Raimondo lumped China with Russia and North Korea for “misuse” of U.S. technologies and targeting U.S. firms with cyber attacks. In a post-speech question and answer session, Raimondo named Boeing as a firm that is suffering from capricious Chinese trade practices because the government is “standing in the way” of “tens of billions of dollars” of airplane sales to Chinese airlines.
— THE QUAD SAYS “CHINA WHO”? China was the elephant in the room during Friday’s meeting at the White House of the leaders of “The Quad,” an informal geopolitical grouping that includes the U.S., India, Australia, and Japan. All participants took pains to not mention China in either the official readout of the meeting nor in post-meeting statements by Indian Prime Minister Narendra Modi, Australian Prime Minister Scott Morrison and Japanese Prime Minister Yoshihide Suga. But their language — particularly references to “freedom” and “democracy” — implicitly underscored the grouping’s key goal to offset China’s increasingly aggressive posture in the Indo-Pacific. Modi praised the Quad’s “shared democratic values,” while Morrison spoke of the Quad members’ devotion “to be always free from coercion, where the sovereign rights of all nations are respected and where disputes are settled peacefully in accordance with international law.” Suga emphasized the Quad’s commitment to a “common vision of a free and open Indo-Pacific.” Chinese Foreign Ministry spokesperson Zhao Lijian blasted the Quad on Friday as a “closed, exclusive clique targeting other countries…[that] will find no support and is doomed to fail.”
— KERRY SOON CHINA-BOUND: President Joe Biden’s special presidential envoy for climate, John Kerry, announced last week that he will return to China “in the coming weeks” to resume climate negotiations with his Chinese counterpart, Xie Zhenhua. Kerry praised President Xi Jinping’s surprise announcement last week that China will stop funding the construction of coal-fired power plants outside its borders as evidence that the Chinese government is "really being serious" about positioning itself as a “positive player” in international efforts to avert potential climate catastrophe. Kerry’s upcoming China trip indicates that he and Xie are seeking to bring ambitious and actionable joint U.S.-China goals to the United Nations’ COP26 climate conference in November. But Kerry and Xie’s potential success is handicapped by a plethora of bilateral disagreements that have stalled effective engagement. Above all, Kerry wants to avoid a repeat of his China meetings earlier this month when he returned home empty-handed after Chinese Foreign Minister Wang Yi made clear that climate cooperation “cannot be divorced from the overall situation of China-U.S. relations."
— THORNTON’S EXCELLENT CHINA ADVENTURE: The U.S. reportedly has a new point person for back-channel engagement with the Chinese government: John Thornton, former Goldman Sachs president and the current executive chair of Barrick Gold Corp. During a recent six-week trip to China, Thornton met with both Chinese climate envoy Xie as well as Chinese vice premier Han Zheng “as an unofficial channel for US-China exchanges,” the South China Morning Post (SCMP) reported Monday. Thornton and Han discussed bilateral concerns including Xinjiang, climate change and how to restart bilateral talks, SCMP reported, citing “a person familiar with the details of the meeting.” Han told Thornton, co-chair of the China-U.S. Financial Roundtable, that meaningful bilateral engagement could only resume “on the prerequisite of mutual respect.” Thornton told Han that he believed that Biden’s climate envoy, John Kerry, was leading the Biden administration’s “overall US-China relations.”
— CHINA’S D.C. AMBASSADOR TALKS DEMOCRACY: China’s new ambassador in D.C. isn’t buying Biden’s warning to the United Nations General Assembly about rising authoritarianism, your host reported last week. Qin Gang issued an implicit rebuke to Biden’s U.N. speech, telling a crowd of China wonks that the country’s seven decades of one-party rule is actually a misunderstood form of democracy. Qin warned that “misjudgment” about the differences in the U.S. and Chinese political systems had harmed the bilateral relationship. In his first in-person public address since arriving in the U.S. in July, Qin told representatives of the Carter Center and the George H.W. Bush Foundation for U.S.-China Relations that China boasts a “whole-process democracy” hinged to “whether the people are satisfied.” That rhetoric underscores the Chinese government’s shift in recent years from blanket denials of international criticism of its political system to an Orwellian style semantic redefinition of democracy and human rights.
— NEW CONGRESSIONAL CHINA-TARGETED LEGISLATION: The stream of legislation explicitly targeting perceived security, economic and technological threats from China continue. On Thursday, Rep. Andy Barr (R-Ky.) unveiled the Chinese Military and Surveillance Company Sanction Act of 2021, which aims to impose sanctions on firms that are “clearly identified as Chinese Communist Party (CCP) military or surveillance companies.” The bill seeks to sever funding to any Chinese corporate entity fitting the description, restricting their access to investment and capital from U.S. sources. Meanwhile, Rep. Scott Perry (R-Penn.) last week introduced the Protecting Americans from Corporate Human Rights Abusers Act, which targets Chinese companies that contribute to human rights abuses within China. The bill will require the State Department to compile a list of Chinese firms implicated in “serious human rights abuses” or whose operations pose an “extraordinary threat to the U.S. economy, foreign policy or national security.” If passed, the bill will prohibit U.S citizens and permanent residents from purchasing financial securities linked to those firms.
HOT FROM THE CHINA WATCHERSPHERE
— XI CALLS TAIWAN SITUATION “GRIM”: President Xi described relations across the Taiwan Strait as “complex and grim” in a congratulatory letter to the island’s new political opposition leader, Eric Chu. Chu responded by declaring that the people of Taiwan and China shared Han Chinese ancestry and thus made them "all the children of the Yellow Emperor." The exchange underscores China’s long-term alliance with Chu’s political party, the Kuomintang, hinged to their mutual antipathy to perceived pro-independence intentions of the ruling Democratic People’s Party of President Tsai Ing-wen. Chu’s cross-Strait air-kiss to Xi is likely bad politics at a time when there is deepening domestic distrust of China worsened by a recent surge in aggressive Chinese air force incursions into Taiwan’s airspace.
— MYSTERY POWER CUTS HIT TESLA, APPLE: Power cuts in the past week have hit China-based suppliers of U.S. companies, including Tesla and Apple. But there is disagreement about the cause of the electrical power suspensions. The Taiwan Institute of Economic Research attributes the power cuts to temporary shutdowns of coal-fired electrical power plants to comply with Xi’s goals of reaching peak carbon emissions by 2030 and carbon neutrality by 2060. Nonsense, said Li Shou, Beijing-based senior global policy adviser at Greenpeace East Asia. In a Twitter thread on Monday, Li said that blaming central government climate policies for the power cuts was just “spin” from heavy industries hostile to Xi’s climate commitments. Instead, the temporary power plant shutdowns reflected management struggles with a current high price of coal, Li said. Meanwhile, Goldman Sachs on Tuesday reduced its projection of China’s year-on-year economic growth in 2021 to 7.8 percent from an earlier estimate of 8.2 percent, due in part to “regulatory pressure to meet environmental targets for energy consumption and energy intensity.”
— CHINA SLAMS U.S. ‘INTERFERENCE’ IN HONG KONG: Things are never too busy at China’s Ministry of Foreign Affairs to not have time to accuse the U.S. of wrongdoing related to Hong Kong. The ministry published a “Fact Sheet” Friday detailing alleged “U.S. Interference in Hong Kong Affairs and Support for Anti-China, Destabilizing Forces.” The 6,237-word document, which reads like a make-work project for an unsupervised summer intern, provides a chronological account of 102 perceived U.S. misdeeds related to Hong Kong between November 2019 and July 2021. That time period spans the intensification of mass pro-democracy protests in November, Beijing’s imposition of a draconian National Security Law on the territory in July 2020 and the government’s zero-tolerance approach to perceived dissent throughout 2021. The document lists “interference” including the November 2019 passage of the Congressional Hong Kong Human Rights and Democracy Act, Secretary of State Antony Blinken’s criticism of anti-democratic policies in the territory, and a tweet by House Speaker Nancy Pelosi in April supporting persecuted pro-democracy activists. Foreign Ministry spokesperson Zhao Lijian described the document as Chinese pushback against U.S. efforts “to play the ‘Hong Kong card’ to undermine Hong Kong’s prosperity and stability and contain China's development.”
— SURVEY: U.S. BUSINESS BULLISH ON CHINA: Despite increasingly frosty U.S.-China relationship, U.S. businesses in China remain defiantly upbeat about prospects of their China operations and investments. That’s the key takeaway from the results of a survey of business sentiment released on Sept. 23 by the American Chamber of Commerce in Shanghai (Amcham Shanghai) of 338 member companies. That poll revealed that 78 percent of those firms are “optimistic or slightly optimistic” about the prospects for their China business over the next five years. And 82 percent of respondents expect record higher revenues in 2021 compared to 2020 despite the ongoing bilateral trade war.
— CHINESE FIRMS HEED XI’S COAL CALL: Bank of China and steel giant Tsingshan Holding Group announced last week that they would phase out all financing of overseas coal mining and coal-powered power plants and cease construction of new overseas coal-powered projects. Those moves signal compliance with Xi’s pledge last week to the United Nations General Assembly that China would no longer underwrite heavily polluting coal-fired power projects in order to help meet carbon emission reduction targets. Bank of China committed to end all such financing by the end of September. Tsingshan didn’t specify a target date for ending construction of coal-fired projects. The Bank of China financing freeze on dirty coal projects overseas will likely be followed by similar initiatives by rival state banks. Doing so will cut Chinese state bank financing of up to $50 billion budgeted for the construction of 44 overseas coal power plants, according to Global Energy Monitor. A report released Wednesday by Columbia University’s Center on Global Energy Policy indicated that China’s three major state-owned oil companies are also taking substantive steps to reduce their carbon emissions and reach carbon neutral status in the next three decades.
— NATO TELLS CHINA IT’S NO “ADVERSARY”: NATO Secretary General Jens Stoltenberg sought to assure Chinese Minister of Foreign Affairs Wang Yi on Monday that “NATO does not see China as an adversary.” A NATO statement of the virtual meeting didn’t mention whether either Stoltenberg or Wang raised the issue of recent NATO member state naval maneuvers in the Indo-Pacific. Instead, Stoltenberg urged the Chinese government “to uphold its international commitments and act responsibly in the international system.” Stoltenberg also expressed concern about “China’s coercive policies, expanding nuclear arsenal and lack of transparency on its military modernization.” In an apparent implicit reference to China’s recent drive to expand its nuclear missile arsenal, Stoltenberg called for “reciprocal transparency and dialogue on arms control” between NATO and China. Chinese Foreign Ministry spokesperson Hua Chunying responded Tuesday that China “is gravely concerned about and firmly opposes the ‘China nuclear threat theory’ that NATO has been hyping up lately.”
TRANSLATING CHINA
— WEIBO’S MENG WANZHOU-PALOOZA: Chinese authorities literally rolled out the red carpet for Huawei chief financial officer, Meng Wanzhou, upon her return to China on Friday. The Chinese Internet also clicked into gear in a well-choreographed response that suggested intensive planning by state propaganda authorities. Weibo primed the pump with the early hashtag “Meng Wanzhou is about to return to the motherland,” which by Tuesday had been shared 2.8 billion times. That hashtag evoked some strident criticism of Meng’s detention, with one “Red V” verified user accusing the U.S. and its “running dog” Canada of kidnapping Meng in order to “combat China’s high-tech development.” Another commentator used the hashtag platform to rail against perceived U.S. efforts to “brutally suppress our technology” and in an implicit shout-out to Huawei, called for a boycott of Apple products. The hashtag “Meng Wanzhou returns to Shenzhen” marked her arrival in the city where Huawei is headquartered and by Tuesday had racked up 1.3 billion shares.
Meng’s return to Chinese soil brought out the patriot in many Weibo users, with one declaring that her return demonstrated that “Whenever compatriots are in trouble, the motherland will always take timely action.” Another commentator waxed poetic and opined that “If the faith has color, it must be China Red. ” In short order the hashtag “Meng Wanzhou recalls 1028 days” started trending with posts of quotes and video clips of Meng’s speech upon landing in Shenzhen. Popular excerpts of that speech among Weibo users included, “After more than 1,000 days of suffering, I finally return to the embrace of the motherland.” But the real online crowd pleaser was the hashtag “Meng Wanzhou's husband shouted that I love you” which featured video clips of Meng’s husband doing precisely that as she arrived in Shenzhen. That hashtag fueled more than 600 million shares by Tuesday and generated comments worthy of a Hallmark Valentine’s Day card. “Meng Wanzhou’s love is the most romantic drama,” one netizen swooned. Another expressed the desire to shield Meng from the “bitterness” of any future entanglements with foreign law enforcement, writing “I hope that Canada and the United States can take me if they need hostages.”
— CHINA’S “SISSY BOY” CENSORSHIP SPREE: Internet censors quickly scrubbed online criticism of the country’s broadcasting regulator’s ban earlier this month of “effeminate” styles from the nation’s television programming. That’s the conclusion of an analysis of Weibo postings about the “sissy boy ban” by Joseph Brouwer last week at the Chinese Digital Times (CDT), a bilingual news website that specializes in deconstructing Chinese internet censorship efforts. The analysis revealed that of 6,000 Weibo user’s opinion postings about the regulator’s directive, only 10 made the censor’s cut and were displayed. Those comments were uniformly in support of the discriminatory directive, with comments including “absolutely” and “good job.” But CDT’s parsing of comments in response to that censorship move hints at the real tenor of popular opinion. Those comments reflected “sarcasm, disgust, and rage” about the censorship and the regulatory directive it was defending. “Pretty awesome—they managed to scrounge up 10 messages of “support” out of 6,000 comments,” one disgruntled Weibo user commented. The regulator’s targeting of assumed LGBTQ identity — and censors’ zero-tolerance for criticism of that move — reflects how a quiet flourishing of that identity and community in China in recent years is now being squelched by Chinese authorities. Under Xi, the Chinese government is making traditional stereotypes of masculinity an official standard. Those moves include a Ministry of Education edict in January aimed to “cultivate masculinity” in boys from kindergarten through high school.
— CORPORATE CRIME CRACKDOWN CONTINUES: HNA Group’s two top executives, Chen Feng and Tan Xiangdong, were arrested Thursday for unspecified “suspected crimes.” HNA, a troubled logistics and transportation conglomerate that declared bankruptcy in January, had lost billions of dollars through shareholder embezzlement. Given the Chinese judiciary’s 99.9 percent conviction rate, expect Chen and Tan to join China’s jailed booze baron Yuan Renguo behind bars in short order.
— KILL-JOY CENSORS’ CARTOON CRACKDOWN: First, Chinese regulators implemented restrictions on kids’ video game usage to three hours a week due to “gambling addiction” concerns. Now, the government is poised to apply a stern regulatory scrub brush to the final bastion of screen-based childhood enjoyment: television cartoons. The official National Radio and Television Administration announced Saturday that cartoons with pornographic, vulgar or violent content are unacceptable and must make way for “healthy” content. The regulator posted notice that cartoons must now meet an unspecified Chinese Communist Party metric of “truth, goodness and beauty" in order to receive broadcast approval. This is the latest in President Xi Jinping’s initiatives to impose more austere cultural and social mores that began with the issuance in 2019 of the “Outline for Implementing the Moral Construction of Citizens in the New Era” that included prescriptions on how Chinese should eat and travel.
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