How China Views the Arrest of Huawei’s Meng Wanzhou

Few people around the world today are likely to recognize the name of Lin Weixi, a Chinese villager whose death helped launch the First Opium War, the conflict that came to define China’s relationship with the West in the modern era. In early July of 1839, as tensions between Britain and China were heightening over a trade imbalance, a couple of British merchant sailors in Kowloon got drunk on rice liqueur and beat Lin, who subsequently died. The British superintendent of trade, Charles Elliot, arrested the sailors, but refused to turn them over to the Chinese authorities, an act that China regarded as a violation of its sovereignty and an offense to justice.

.. Huawei is the largest telecom-equipment manufacturer in the world, and it recently overtook Apple as the second largest manufacturer of smartphones, after Samsung. Huawei has also emerged an increasingly powerful player in the tech industry. This year, it announced that it would increase its annual expenditure on research and development to as much as twenty billion dollars, which would place it among the world’s top R. & D. spenders, with Amazon and Alphabet.

.. Huawei’s investment in innovation has been persistent and purposeful. According to the head of geotechnology at Eurasia Group, Huawei is the only company that can currently produce “at scale and cost” all the elements of a 5G network, heralded as the next frontier of wireless communications. As such, it is positioned to take the lead in what’s been called the fourth industrial revolution.

.. Washington has long been worried that Chinese telecommunications equipment can be used for intelligence purposes. Huawei was founded, in 1987, by Ren, who was formerly an engineer in the People’s Liberation Army. Last week, the Times reportedthat “Counterintelligence agents and federal prosecutors began exploring possible cases against Huawei’s leadership in 2010” and that “as they investigated Huawei, F.B.I. agents grew concerned that company officers were working on behalf of the Chinese government.” In 2012, a U.S. House Intelligence Committee report concluded that Huawei “was unwilling to explain its relationship with the Chinese government or Chinese Communist Party,” and that the United States “should view with suspicion the continued penetration of the U.S. telecommunications market by Chinese telecommunications companies.” The Times also reported that “the top United States intelligence agencies told senators this year that Americans should not buy Huawei products.”

.. All this is viewed very differently in China, partly for reasons that date back to the nation’s devastating defeat in the First Opium War. In the eighteenth century, the British wanted tea much more than the Chinese wanted anything from the West, resulting in a chronic trade imbalance and a huge outflow of silver and gold from West to East. To staunch that flow, British traders decided to flood the Chinese market with opium from India, violating Chinese laws that forbade trafficking of the narcotic. As efforts to enforce the ban broke down, the British handily captured the city of Canton, before marching up the Chinese coastline. Within two years, Great Britain had made significant headway into the Chinese market, pried open a series of ports, and extracted concessions that the Qing dynasty was helpless to deny.

.. The war taught China two lessons it has never forgot.

  1. The first was that it had failed to recognize the threat of Western technological prowess. While Britain was energetically cultivating the use of steam in the first industrial revolution—and the steam-powered ships that propelled its victory in the war—China had sequestered itself, falling behind in mastering the technology that became the modern world’s instrument of power. President Xi Jinping’s push for technological supremacy in the twenty-first century can be seen as a continued revision of Chinese tactics.
  2. The second was that principle matters little in an international war of wills. In 1840, a Chinese official named Lin Zexu was tasked with stamping out the opium trade. He sent a letter to Queen Victoria, signed by the Emperor, in which he made an appeal to her conscience. “The purpose of your ships in coming to China is to realize a large profit,” Lin wrote. “You do not wish opium to harm your own country, but you choose to bring that harm to other countries such as China. Why?

Lin’s letter, however, reportedly never reached the Queen, and, in Parliament, the political and economic justification given for war elided ethical concerns. Aggression against the Chinese, it was argued, was entirely about defending Britain’s honor. Many agreed with the sentiments of Samuel Warren, a novelist and later a Member of Parliament who, in a widely distributed pamphlet titled “The Opium Question,” wrote, “In the name of the dear glory and honour of old England, where are the councils which will hesitate for a moment in cleansing them, even if it be in blood, from the stains which barbarian insolence has so deeply tarnished them? . . . Why are not there seen and heard there, by those incredulous and vaunting barbarians, the glare and thunder of our artillery?”

.. Even if people in the West have heard of Lin Weixi, it’s doubtful that they would see any connection between the case of a villager killed by a couple of drunken British sailors and that of Meng Wanzhou, a top executive accused of fraud who is able to post a multimillion-dollar bail and live under a sort of house arrest in one of two opulent homes that she and her husband own in Canada. They would certainly see a sharp distinction between China’s Party-managed judiciary and Canada’s independent courts. But a Western court’s attitude toward a Chinese citizen will be understood in China as an echo of a time when Western politicians exploited an asymmetric international order. How the nations involved choose to proceed at this juncture, two hundred years later, may come to define the terms of Sino-American engagement for many years to come.

 

 

Why China Won’t Yield to Trump

China may give Donald Trump some face-saving way out from the trade war he has started, but it won’t offer any substantive concessions. In other words, Trump’s tariffs will do nothing to improve America’s external balance, output, employment, or real wages.

.. some defend Trump’s actions as a  to impel China to adjust its trade policies, such as the requirement that foreign companies share their intellectual property (IP) to gain access to the Chinese market.

.. Trump does not understand the basics of such a negotiation: he thinks that a country with a trade deficit necessarily has the stronger negotiating position. In reality, the surplus country is often in the stronger position, because it has accumulated financial claims against its “opponent.”

.. China does not necessarily even have to sell to wield influence. With US debt expanding and interest rates on the rise, even rumors that the Chinese might stop buying Treasury securities could be enough to drive down US bond prices and accelerate the increase in US interest rates.

.. While industries and consumers in China would also be hurt by a trade war, that country’s leaders can overrule interest groups and stifle protests.

In any case, public opinion will largely back retaliation against the US.

.. The Chinese remember well the Opium Wars of the nineteenth century, when the Middle Kingdom tried and failed to resist the British campaign to force it to open its economy to opium and other imports.

.. Add to that Trump’s reputation for flip-flopping, and the odds that Chinese leaders would bother making a deal with Trump to change their country’s trade policies seem small.

.. Even if China did decide to concede something to Trump, it would not be meaningful.

.. China could export less merchandise to the US directly, instead routing products through Taiwan and other countries, where some final assembly could take place.

.. The result would be economically meaningless; but so is the concept of the bilateral deficit itself, as Chinese exports to the US contain a high proportion of intermediate inputs produced in South Korea, the US, and elsewhere.

.. What really matters is that China’s current-account has been falling since 2008, and now stands at a relatively small 1% of GDP.

.. America’s external deficit is growing, but that is the result not of trade policy; it stems from Republicans’ , which is blowing up the budget deficit and reducing national saving.

.. As for Trump’s complaints about China’s IP “theft,” there are some valid grievances on this front. But addressing this issue requires technical expertise and negotiating skill, not blunt threats based on inadequate knowledge.

Crucially, it would also require cooperation with other partners who have similar grievances with China, ideally including pressure applied through rules-based institutions like the World Trade Organization.

Trump is pursuing the opposite strategy, arguing that neither multilateralism nor bilateral negotiations work with China. Yet such tactics have helped to compel China to allow a 37% appreciation of the renminbi in 2004-2014 and to crack down on counterfeiting of US merchandise and theft of US software.

.. Trump may also want to avoid the WTO because the US doesn’t win all of the cases it brings there. But it does have a 90% success rate. And it is not as if the US has never violated international rules

 

British-Chinese Opium War

Lin questioned how Britain could declare itself moral while its merchants profited from the legal sale in China of a drug that was banned in Britain. He wrote: “Your Majesty has not before been thus officially notified, and you may plead ignorance of the severity of our laws, but I now give my assurance that we mean to cut this harmful drug forever.”[56] The letter never reached the Queen, with one source suggesting that it was lost in transit.[57] Lin pledged that nothing would divert him from his mission, “If the traffic in opium were not stopped a few decades from now we shall not only be without soldiers to resist the enemy, but also in want of silver to provide an army.”[58]

 

.. The British Superintendent of Trade in China, Charles Elliot, protested the decision to forcibly seize the opium stockpiles. He ordered all ships carrying opium to flee and prepare for battle. Lin responded by quarantining the foreign dealers in their warehouses, and kept them from communicating with their ships in port.[58] To defuse the situation, Elliot convinced the British traders to cooperate with Chinese authorities and hand over their opium stockpiles with the promise of eventual compensation for their losses by the British government.[32] While this amounted to a tacit acknowledgment that the British government did not disapprove of the trade, it also placed a huge liability on the exchequer. This promise, and the inability of the British government to pay it without causing a political storm, was an important casus belli for the subsequent British offensive.[61] During April and May 1839, British and American dealers surrendered 20,283 chests and 200 sacks of opium. The stockpile was publicly destroyed on the beach outside of Guangzhou.[58]

..  Under this system, an incoming foreign captain and the Cohong merchant whom had purchased the goods off of his ship swore that the vessel carried no illegal goods. Upon examining the records of the port, Lin was infuriated to find that in the 20 years since opium had been declared illegal, not a single infraction had been reported.[62] As a consequence, Lin demanded that all foreign merchants and Qing officials sign a new bond promising not to deal in opium under penalty of death.[63]
.. Following the Chinese crackdown on the opium trade, discussion arose as to how Britain would respond, as the public in the United States and Britain had previously expressed outrage that Britain was supporting the opium trade.[84] Many British citizens sympathized with the Chinese and wanted to halt the sale of opium, while others want to contain or regulate the international narcotics trade. However, a great deal of anger was expressed over the treatment of British diplomats and towards the protectionist trading policies of Qing China. The Whig controlled government in particular advocated for war with China, and the pro-Whig press printed stories about Chinese “despotism and cruelty.”[85]