1 November 2022

Twitter and the War of Oligarchs

Geoff Shullenberger

Last week, the media hive mind reacted with horror to Elon Musk’s bid to purchase journalists’ primary base of operations, Twitter. The writer Jeff Jarvis captured the mood with his remark that “today on Twitter feels like the last evening in a Berlin nightclub at the twilight of Weimar Germany.” The Tesla boss, in this analogy, plays the part of Hitler, whose proposed takeover threatens to bring the blue-checks’ freewheeling fun to a shocking and brutal end.

While the rhetoric is hyperbolic, there is a real and significant power struggle underway here. At stake is the medium that facilitates an influential alliance between progressive professionals and like-minded oligarchs.

Can the US Deter China? Lessons from Putin’s Invasion of Ukraine

Rory Medcalf, Oriana Skylar Mastro, Hal Brands and Michael Mazarr

The China Institute of Contemporary International Relations (CICIR) has long come out with quality strategic analysis. Back in calmer geopolitical times, as an Australian intelligence analyst, I regularly had opportunities for dialogue with this think tank affiliated with the Chinese Ministry of State Security. The caliber of such discussions left the impression that the party-state allowed CICIR staff considerably more license for providing honest assessment than it gave the typical Chinese academic, official, or propagandist. In addition, CICIR analysts grounded their work neither in doctrine nor feigned scholarly detachment but in a clear sense of China’s national interests and the realities of a contested world. They merited attention.

Thus, Zuo Xiying’s May 2022 article, “The U.S. Deterrence Strategy and the Russia-Ukraine Conflict,” makes fascinating and useful reading. As reliable analysis, it has its share of flaws, understandable given the extreme controls on public expression in Xi Jinping’s China. There’s a predictable closing reference to the virtues of Xi’s “community of common destiny,” and American decadence gets an obligatory mention. One key conclusion is the obvious point that U.S. strategy failed to deter Vladimir Putin from commencing his aggressive war.

12,000 Russian Troops Were Supposed To Defend Kaliningrad. Then They Went To Ukraine To Die.

David Axe

Six years ago, the Russian navy formed a new army corps whose job it would be to defend Kaliningrad, Russia’s geographically separate outpost on the Baltic Sea between Poland and Lithuania.

This year, when the war in Ukraine began to go badly for Russia, the Kremlin yanked the 11th Army Corps from Kaliningrad and sent it into Ukraine. Where the Ukrainian army quickly destroyed it.

The formation, deployment and destruction of the 11th Army Corps tell a story that’s bigger than the tragic tale of Russia’s war in Ukraine. The corps, sandwiched between two NATO countries along a strategic sea, was supposed to give Russian forces an advantage in a global war.

Instead, it became cannon fodder for a Ukrainian army that, on paper, was weaker than the Russian army was. Now Kaliningrad is all but defenseless, and the threat the oblast’s troops once posed to NATO … has evaporated.

Could Iran’s regime fall?

Sitting on a podium before an assembly of sportsmen on September 11th, Ayatollah Ali Khamenei, one of the world’s longest-reigning leaders, sounded surprisingly perky. Defying reports of his death, the 83-year-old celebrated the pious female athletes who had been competing abroad, shrouded in veils. One, he enthused, had refused to shake the hand of “a foreign man”. A victorious wrestler had prostrated himself before God, reciting the names of the imams deemed holy by Shia Muslims. The athletes, he said, had scored a “tremendous victory” (irrespective of trophies) against Western efforts to “export their culture and prevail over ours”.

The supreme guide had other reasons to feel jovial. With an eye to his succession, he had purged his regime of the reformists threatening to cast doubt on the Islamic Republic. A year earlier he had replaced President Hassan Rouhani, who earned a doctorate from a Scottish university, with Ebrahim Raisi, a little-travelled, blinkered yes-man. He had fended off Western efforts to curb Iran’s nuclear plans. Despite Western economic sanctions, Iran’s state coffers were being refilled with oil cash. And he had launched a new chastity drive bent on restoring the moral fibre of the Islamic revolution.

Why Is Joe Biden Sending U.S. Soldiers So Close To Ukraine?

Daniel Davis

Is America Mindlessly Drifting to War with Russia?: Let’s start with this black-and-white fundamental truth right up front: America’s national security is not threatened, in any way, by the conflict raging between Ukraine and Russia. This statement is simultaneously true: we will stay safe unless we foolishly, recklessly stumble into a direct confrontation with Russia by joining the war on Ukraine’s side.

Given the Administration’s frequent claims that the president has no intention of engaging in a war with Russia, one could be forgiven not knowing there was any chance of the U.S. getting sucked into the war with Russia. Biden reiterated in April that the United States would not “not send U.S. troops to fight Russian troops in Ukraine.” He has not publicly changed from that stance since. Yet the deployments and dispositions of U.S. military in the past week casts doubt on the president’s assurances.

Pentagon PSYOP Scandal Demands an Urgent Debate on Propaganda Ethics

Last month, the Pentagon launched a sweeping review of its clandestine psychological operations (PSYOP) after reports of pro-Western influence operations on major social media networks. Twitter and Facebook removed two sets of suspected US military accounts that the companies found were violating their policies on “platform manipulation and spam.” Working with ‘portions’ of the campaign data provided by the platforms, Stanford’s Internet Observatory and Graphika then published a report, ‘Unheard Voice: Evaluating five years of pro-Western covert influence operations’. Subsequent media coverage and mounting concern in the White House and some federal agencies has now prompted the Department of Defense (DOD) to review its tactics.

Blatant falsehoods found in the newly-released cache– such as claims that the organs of dead Afghan refugees are being harvested in Iran– are being blamed on poor ‘training’ or ‘inadequate oversight of contractors,’ in a lucrative industry in which information operations contracts can be worth up to $1Bn for a single company. When the Cambridge Analytica scandal exposed how inadequate controls over a US government contractor’s PSYOP ‘innovations’ failed to stop their unethical redeployment in politics, this called for a reckoning on the governance of privatized influence firms. The current revelations illustrate an apparent failure to strengthen oversight, making this an all the more urgent problem.

Putin speech: Russia won’t use nukes, the West started the war, and its ‘cancel culture’ is like Nazi Germany

Tom Nagorski

Russian President Vladimir Putin said at least one thing Thursday that few could take issue with.

“Ahead is probably the most dangerous, unpredictable and, at the same time, important decade since the end of the Second World War,” Putin said. The war in Ukraine, he said (though he still wouldn’t call it a “war”) is only a part of the “tectonic shifts of the entire world order.”

After that, a much-anticipated speech veered to standard tropes of Kremlin misinformation (Ukraine is not a legitimate nation; the West caused the war) and some new variants (“The West” is a geographic entity marred by “dozens of genders” and “neoliberal elites.’’). Along the way, Putin managed to both reassure the world that he did not plan to use his nuclear arsenal — and stoke new fears that he would do exactly that.

The occasion was Putin’s annual address and question-and-answer session to the Valdai Discussion Club, a group named for its proximity to a lake of the same name. The “Valdai address” has been given since 2004, and it has become a tradition and chance to hear what might, for lack of a better term, be known as “the worldview according to Vladimir Putin.” Its length often rivals stemwinders from the late Cuban leader Fidel Castro and the late Libyan leader Muammar Gaddafi, and the questions are generally understood to be prescreened and vetted by the Kremlin.

China After the Party Congress: Welcome to Xi’s People’s Republic of Control

Andrew Scobell, Ph.D.

Of course, the first and most high-profile outcome was the re-election of Xi as party general-secretary —a move that was widely anticipated following the 2018 amending of the People’s Republic of China (PRC) constitution to permit Xi to stand for an unprecedented third five-year term as head of state. Xi, like his two immediate predecessors, aspires to occupy concurrently the senior most leadership positions in all the three major constituent bureaucratic components of the party-military-state: the CCP, the PRC and the People’s Liberation Army (PLA).

Having now secured the top party post, Xi is well on track to be re-elected PRC president at the 14th National People’s Congress, scheduled to convene in March 2023. As for the PLA, last week he was reappointed chair of the CCP Central Military Commission (CMC) and in March he will be formally reappointed to lead the PRC’s CMC. (Membership of the two CMCs is identical although the fiction of two separate commissions is maintained to preserve the party-state distinction.)

What's Behind Israel's Reluctance to Share Iron Dome With Ukraine?


Citing Russia's increasing use of Iranian-made drones to conduct attacks in Ukraine, Kyiv asked Israel last week to provide its highly-effective Iron Dome missile defense system (among other systems), which could help protect against rockets, drones, and some types of missiles. Jerusalem's reluctance to do so has invited criticism as Russia escalates its deplorable attacks on civilians in Ukraine.

But when it comes to browbeating Israel to provide Ukraine the Iron Dome system, you can count me out.

At first glance, one might dismiss such a view as the position of someone unsympathetic to Ukraine's plight, but nothing could be further from the truth.

Fundamental U.S. national security interests are at stake in helping Kyiv defeat Moscow's aggression. If Russian President Vladimir Putin is successful in Ukraine, we should expect more attempts in the future to redraw borders with force, both in Europe and elsewhere, ultimately imposing greater costs on the United States.

Musk begins his Twitter ownership with firings, declares the 'bird is freed'

Sheila Dang and Greg Roumeliotis

NEW YORK, Oct 28 (Reuters) - Elon Musk has taken ownership of Twitter Inc (TWTR.N) with brutal efficiency, firing top executives but providing little clarity over how he will achieve the ambitions he has outlined for the influential social media platform.

"The bird is freed," he tweeted after he completed his $44 billion acquisition on Thursday, referencing Twitter's bird logo in an apparent nod to his desire to see the company have fewer limits on content that can be posted.

The CEO of electric car maker Tesla Inc (TSLA.O) and self-described free speech absolutist has, however, also said he wants to prevent the platform from becoming an echo chamber for hate and division.

Other goals include wanting to "defeat" spam bots on Twitter and make the algorithms that determine how content is presented to its users publicly available.

Cracks in US support for Ukraine risk helping Putin


Cracks are forming in what has largely been a united U.S. response to Russia’s war in Ukraine, with calls rising from the right and left for President Biden to push harder for peace talks.

The push from figures ranging from former President Trump on the right to progressive leader Rep. Pramila Jayapal (D-Wash.) on the left has thrust questions about the Biden administration’s strategy toward Ukraine into the fore as Kyiv has seized momentum on the battlefield.

Supporters of current U.S. strategy say pressuring Ukraine into negotiations now would only help Russian leader Vladimir Putin.

“It helps the Russians and it hurts the Ukrainians. The Ukrainians want the Russians out of their country. And right now they’re on track to do that,” said William Taylor, a former U.S. ambassador to Ukraine now with the United States Institute of Peace.

US troops put in harm’s way by lack of White House info-sharing, report says


A Navy SEAL sniper’s killing of an ISIS fighter in Cameroon, the wounding of a Marine in battle in Tunisia and large-scale gunfights in Somalia.

Those are among the reporting failures across presidential administrations that have put U.S. troops at heightened risk because of insufficient oversight, according to a transnational think tank based in Brussels.

In a report released Wednesday, the International Crisis Group called for greater congressional oversight of ongoing American counterterrorism missions.

“The failure to report such hostilities, or quietly and retroactively sweeping them under the 2001 (Authorization for Use of Military Force) … increases the risk that the U.S. will unwittingly slide into new conflicts,” the report said.

China’s Nuclear Arsenal Will Become an Existential Threat to US, Biden Administration Declares


For seven decades, U.S. nuclear weapons policy has largely focused on one nation whose arsenal posed an existential threat: Russia. On Thursday, the Biden administration added China to that list.

The new Nuclear Posture Review reflects Bejing’s efforts to expand and improve its arsenal, a senior defense official said Thursday morning.

“China's nuclear modernization and its rapid expansion presents us with new risks and uncertainties,” the official said, speaking anonymously ahead of the review’s public release. “In the coming years…for the first time, we will have to deter two major nuclear armed competitors, both Russia and China. This presents new dilemmas for both strategic deterrence and for regional warfighting.”

Drones, Cruise Missiles Are Rising Threats to US Troops and Territory, Pentagon Says


Drones and cruise missiles increasingly threaten the United States and its allies, the Biden administration said in its new assessment of global missile threats.

Released on Thursday, the Missile Defense Review arrives as kamikaze drones are being increasingly used in the conflict in Ukraine.

Drone “usage will likely expand and continue to pose a threat to U.S. personnel overseas, Allies and partners, and potentially to the U.S. homeland,” the report states.

Missile defense assessments conducted by the Trump administration in 2019 and the Obama administration in 2010 did not single out drones, also called uncrewed aircraft systems.

Drones “are an inexpensive, accessible, flexible, expendable, and plausibly deniable way to carry out armed attacks and project outsized power over a variety of domains,” the report states. “Accelerating technology trends continue to transform applications of UAS, making them increasingly capable platforms in the hands of both state and non-state actors.”

Army’s New Training Center Keeps Forces Available in Indo-Pacific


The U.S. Army’s first new regional training complex in a half century is intended to better replicate the Pacific region’s potential battlefields and to reduce the time needed to send troops and gear for training in the continental United States.

The Joint Pacific Multinational Readiness Center will have two physical campuses, in Hawaii and Alaska, and a third mobile campus to be an “exportable capability that can deploy throughout the Indo-Pacific.” The exportable campus has already operated in Indonesia and is heading to Australia next.

“This allows us to keep trained and ready forces available and forward in the region,” U.S. Army Pacific Commanding General Charles Flynn told reporters Thursday. “It allows us to generate readiness in environments and in conditions that we're most likely to operate in.”

Competition and Cooperation in the Maritime Domain

Competition over the world’s maritime resources and territorial disputes over maritime borders are becoming increasingly prominent in international affairs. At the same time, depleted fish stocks and polluted waters make the question of how countries can collectively manage maritime resources a central one, particularly in discussions over climate change.

Against the backdrop of heightened competition in the maritime domain, China has been rapidly modernizing and expanding its naval capabilities thanks to an unprecedented shipbuilding effort. By contrast, the U.S. Navy is struggling to meet its ambitious goals toward expanding its fleet while nevertheless maintaining a demanding operational tempo.

Meanwhile, the resources that lie beneath the ocean’s surface are increasingly at risk of overexploitation. Illegal fishing is devastating already diminished global stocks and may soon present a severe crisis to countries whose populations depend on seafood for their diets. In the South China Sea, competition over fishing rights as well as offshore oil and gas reserves has been a major driver of tensions and conflict.

JADC2: How the Army Is Making Data a Weapon of War

Kris Osborn

For decades, the U.S. military has been experimenting with technologies designed to network the joint force in real-time across multiple domains, using satellites, software-programmable radios, datalinks, and wireless computer interfaces. While there have been varying degrees of success over a period of many years, the Pentagon and the military services are now arguably at a breakthrough point with the Joint All Domain Command and Control (JADC2) program.

The initiative calls upon all of the military services to develop and integrate service-wide and multi-service networking and technical interfaces to enable the secure yet seamless sharing of information across multiple combat nodes in real-time. The idea, for instance, is to allow a Navy surface warship to share targeting specifics and intelligence information with Air Force fighter jets, unmanned systems, and ground combat nodes through a common set of interoperable standards, all while maintaining critical security and information assurance. The Army’s contribution is through a series of breakthrough experiments called Project Convergence, which uses artificial intelligence (AI) enabled computer algorithms to match sensors to shooters and massively reduce the time needed to find and destroy an enemy target. The Navy effort, called Project Overmatch, is similar in concept and has been evolving for years through programs such as Ghost Fleet, in which groups of unmanned systems operate in close coordination with one another with growing levels of autonomy.

Musk's SpaceX Is Becoming NASA's Favorite Contractor

Stephen Silver

In big news for Space X, Elon Musk’s aerospace company has now moved into the second spot for NASA vendors, as first reported on Twitter by Aviation Week and Space Technology’s Irene Klotz.

In the Fiscal Year 2022, more than $2 billion was obligated to SpaceX, which placed it second behind the California Institute of Technology, with $2.68 billion, due to Cal Tech housing the NASA Jet Propulsion Laboratory. The former number two, Boeing, moved down to the third spot, with $1.7 billion obligated, while Lockheed Martin was fourth, with $1.335 billion. SpaceX becomes NASA's largest for-profit, non-academic vendor.

Jacobs Technology, Orbital Systems, KBRWhyle Technology Solutions, Science Applications International, Aerojet Rocketdyne, and Johns Hopkins University took the rest of the top ten.

In FY 2021, the top six were the same, except Boeing, placed second and SpaceX third. But SpaceX received an additional $400 million in contracts in the most recent fiscal year than it did in the previous one. SpaceX, founded in 2002, eclipsed several much older traditional contractors with historical ties to NASA in only twenty years.

It's Coming: Economists Say U.S. Is Still Headed for a Recession

Ethen Kim Lieser

In what could keep alive the hope that a deep recession might be avoided, the Bureau of Economic Analysis reported on Thursday that U.S. economic growth rebounded in the third quarter, according to CNBC.

Gross domestic product (GDP) trekked higher at a 2.6 percent annualized pace between July and September, following consecutive negative quarters to start the year. Much of the growth came from narrowing trade deficits, consumer spending, nonresidential fixed investments, and government spending.

According to consensus estimates, economists had forecast GDP to rise at an annualized rate of 2.3 percent.

“Overall, while the 2.6 percent rebound in the third quarter more than reversed the decline in the first half of the year, we don’t expect this strength to be sustained,” wrote Paul Ashworth, chief North America economist at Capital Economics, per CNBC.

Press Briefing: Analyzing the 2022 National Defense Strategy

Paige Montfort: Thank you, and welcome, everyone. My name is Paige Montfort. I am the media relations manager here at the Center for Strategic and International Studies in Washington, and today we have a great briefing lined up for you analyzing the newly released ’22 National Defense Strategy. You will hear today from six senior experts across the Center, and then we’ll have some time for Q&A.

So first we’ll have Seth G. Jones. He’s senior vice president, Harold Brown Chair, and director of our International Security Program.

And then we’ll have Mark Cancian, senior adviser in the International Security Program.

Next, we’ll have Kathleen McInnis. She’s a senior fellow in our International Security Program and also director of Smart Women, Smart Power Initiative.

And following that we’ll have Emily Harding. She’s deputy director of our International Security Program and also senior fellow.

And then we’ll have Max Bergmann. He directs our Europe Program and the Stuart Center here.

2022 National Defense Strategy: Implications for China and the Indo-Pacific

Seth G. Jones: Welcome, and thank you for joining us. We’re here to discuss the recently released National Defense Strategy by the U.S. Department of Defense, in particular focusing on the implications for the Indo-Pacific, including countries like China and North Korea.

My name is Seth Jones. I’m the senior vice president and director of the International Security Program. I have with me an all-star cast. I have to my right, Dr. Victor Cha, who is senior vice president for Asia and Korea Chair and a prolific author and former U.S. government official. I have Kari Bingen to my left, who is the director of the Aerospace Security Project and senior fellow in the International Security Program at the Center for Strategic and International Studies. And then I have Christopher Johnstone, who’s senior adviser and Japan Chair and recently left the National Security Council of the Biden administration. Thanks to all of you for joining us here today.

Well, Chris, let me start with you. For any American that is wondering about the focus of the National Defense Strategy, it’s pretty straightforward. The most significant threat, the pacing challenge, as the document calls it, is China.

The New U.S. National Defense Strategy for 2022

Anthony H. Cordesman

The U.S. Department of Defense has just issued an unclassified National Defense Strategy for 2022. A copy of the full text is attached as a download at the end of this commentary. In general, it highlights the past U.S. emphasis on the Russian and Chinese threats and lesser threats from states like Iran and North Korea, and it does provide more details about future plans than most of the Quadrennial Defense Reviews and other National Defense Strategy documents the United States has issued over the last two decades. It also includes some broad sections on future priorities and force planning that provide a broad perspective on how the United States is seeking to shape and improve its military capabilities, although they again only discuss very general goals.

Like its predecessors, it does not describe anything approaching a full U.S. strategy. The is no meaningful content describing future goals for defense spending, no clear definition of how it will actually develop an integrated strategy, little discussion of any major new programs, and no discussion of future force plans. Equally important, there are no meaningful net assessments of key threats like Russia and China and no specific plans to improve U.S. strategic partnerships.

At the same time, many of the broad policy statements in the new strategy are positive, making it clear that the United States intends to work closely with its strategic partners and allies, and are specific enough to reassure our partners and friendly states. There is no focus on shifting the burden to allied states, the weakening of existing U.S. commitments, or focus on Asia to the exclusion of other regions. It is also clear that the United States will keep making major advances in military technology and in joint warfare.

China: 5 Questions


China is taking measures to support its property market, so declines are likely to ease—and even if they don’t, we’re not looking at a subprime crisis.

A proactive Chinese invasion of Taiwan is a low-probability event in our view, at least over the near to medium term. But should it happen, the impact would be high.

From China’s perspective, the costs of invading Taiwan could be economically catastrophic, with potential global sanctions and isolation setting China back a couple of decades.

China’s future growth is uncertain amid risks stemming from domestic issues (structural, economic, and societal), increased tensions with the United States, and deglobalization. And that has investors wondering about the outlook for Chinese equities. Here are the top five questions investors ask us—and how we respond.

How does China’s COVID response affect your investment thesis?

In the near term, China’s COVID response is negative for our investment thesis because it has adversely affected consumer and business sentiment as well as economic activity across segments (including retail, property, manufacturing, and supply chain). I estimate that nearly 70% of China’s recent slowdown is attributable to its COVID management.

The unemployment rate—particularly among younger people—has increased. This is partly due to the impact of COVID lockdowns on the overall economy (in particular the service industry) and partly due to reduced employment opportunities in the internet industry amid recently increased regulations.

The lockdowns obviously limit consumers’ physical ability to get to stores and restaurants and to travel, but the psychological impact from uncertainty around lockdowns is even more severe and likely to be long-lasting. No one knows which city will be locked down next and for how long, and when people have no confidence around the near future, they tend to hunker down and wait. It’s therefore not surprising that the household savings rate in China surged to as high as 40% this year from an average of 25% to 30% in prior years (which is high to start with).

China’s gross domestic product (GDP) growth will probably be down around 3% this year, and in China, that’s the equivalent of a recession. To address the material slowdown of the economy, the Chinese government may have to seek a more effective balance between its COVID policies and economic growth.

We expect China to continue pursuing its “dynamic zero-COVID” policy in the near term, with increased focus on targeted and shorter lockdowns, if needed to reduce the adverse impact on the economy. We may get a clearer understanding of the COVID policy outlook now that the 20th National Congress of the Chinese Communist Party (CCP) has ended. Before an event like this, the CCP tends to take a very conservative approach to managing society; after, there could be more likelihood of change.

China has also gradually relaxed the quarantine requirements for international entries to the mainland to 7+3, which refers to seven days of mandatory quarantine in designated hotels plus three days of self-quarantine at home (previously, it was 14+7).

Hong Kong, meanwhile, has recently removed mandatory hotel quarantine requirements completely (previously seven days), and now only requires three days of at-home self-quarantine. The success of Hong Kong’s new quarantine policy could pave the way for China’s further relaxation of entry requirement for the mainland.

My conclusion: China’s COVID situation and related policies have negatively impacted the Chinese economy and equities, but we expect a marginally and gradually improved policy going forward. This could help Chinese equities, in my opinion.

Is China experiencing a real-estate crisis?

The Chinese property market has been going through a structural deceleration-to-decline phase since the mid-2010s, and in 2022, it experienced an even larger-than-expected decline, exacerbated by COVID lockdowns.

China’s property market bubble became acutely evident nearly 10 years ago, reflecting inflated property prices, excessive investments, and low affordability. The Chinese government has since taken measures to address the problem by constraining both supply and demand. For example, land sales by local governments and new home developments have been limited. First-time homebuyers must generally make a 40% down payment, and other homebuyers are not allowed mortgage financing. These measures have effectively cooled China’s property market in recent years, resulting in an overall flat to slightly down market.

COVID lockdowns exacerbated the property market decline this year, halting purchase and construction activities and materially reducing confidence among homebuyers. As a result, new home sales in many major cities were down 40% to 50% year-over-year in recent years. This is concerning, as it led to a material slowdown of the overall economy (because the property market directly and indirectly impacts 20% to 25% of the Chinese economy.)

As dire as that sounds, this may not lead to a credit crisis like the one that occurred in the United States in 2007 and 2008, because the Chinese housing market is mostly cash-based. Among first-time homeowners, the only eligible mortgage applicants, mortgage penetration is also quite low, at less than 30% (and an average 40% down payment).

In response to the situation, the Chinese government is engaged in a balancing act. The property market is at the epicenter of many industries in China, from construction to infrastructure to consumer spending (because there’s a wealth effect). As a result, the Chinese government recently announced measures to support property markets, though it does not want to boost the market too much and risk exacerbating the structural issues.

For example, local governments of more than 20 cities recently enacted a stimulus policy that allows mortgages for all homebuyers (and 20% down payments for first-time homebuyers). The People’s Bank of China (PBoC) has also lowered the five-year prime loan rate (which drives mortgage rates) three times in the last 12 months—by 5 basis points (bps), then 15 bps, then 15 bps again.

My conclusion: China is taking measures to support its property market, so declines are likely to ease—and even if they don’t, we’re not looking at a subprime crisis.

What geopolitical concerns should investors consider regarding China (including Taiwan)?

In my opinion, the No. 1 geopolitical concern regarding China is U.S-China relations, which are entering a new phase—one in which the nations are strategic competitors. Everything else stems from that.

As background, there is the People’s Republic of China (PRC), which we all know as China, and the Republic of China (ROC), which we all know as Taiwan. The two separate China regimes, and the current China-Taiwan issue, were a legacy issue resulting from the Chinese civil war, which ended in 1949. At that time, the ROC lost control of mainland China to the PRC, but Taiwan remained under the ROC’s governance. However, in China’s view, there is only one China, and the PRC is the legitimate representative of China.

However, there has been significant ambiguity when it comes to U.S. relations with both China and Taiwan over the decades. For example, in 1979, the United States established diplomatic relations with the PRC, recognizing it as the sole legitimate government of China. At the same time, U.S. Congress passed the Taiwan Relations Act, which does not guarantee that the United States will intervene militarily if the PRC attacks or invades Taiwan. However, the United States has continued selling weapons to Taiwan.

For China, Taiwan remains the biggest unresolved sovereignty issue. Its official stance toward Taiwan has been that Taiwan is a part of China; China will pursue peaceful reunification and “one country, two systems” with Taiwan; but China does not commit to abandoning the military option if Taiwan declares independence or foreign forces meddle with the situation.

China, Taiwan, and the United States have maintained the status quo over the past few decades, but it gets challenged from time to time, particularly when U.S.-China relations get tense (as they did when Nancy Pelosi visited Taiwan recently). China usually responds with military drills in public waters around Taiwan (because going into Taiwanese waters would be an invasion).

Further supporting the status quo is the enormous cost of a potential military conflict to all parties involved.

From China’s perspective, the costs of invading Taiwan could be economically catastrophic, with potential global sanctions and isolation setting China back a couple of decades. Such an invasion could also be devastating to China’s image and stance in the global community (China places considerable cultural importance on “face” and aspires to leadership in the global community). Lastly, an invasion could also threaten China’s own societal stability, because a potentially unsuccessful military campaign combined with global sanctions and isolation could easily lead to social unrest.

In summary, I believe the probability of China proactively invading Taiwan is low, especially in the near to medium term, given the high costs mentioned above. However, China could react to provocations that threaten and disrupt the status quo.

From the United States’ and Taiwan’s perspective, the costs of upsetting the status quo could have a material impact on Taiwanese and related global semiconductor supply chain. It could also lead to potential instability across the Asia-Pacific region.

My conclusion: A proactive Chinese invasion of Taiwan is a low-probability event in our view, at least in the near to medium term. But should it happen, the impact would be high, so we need to closely monitor the development.

You mentioned supply chains earlier. How is the move toward deglobalization affecting China? And how do you see it playing out?

Some supply chains left China before the current deglobalization trend began. China used to be the global textile manufacturing center, with major retailers such as Walmart and Target sourcing from the country. But that supply chain started moving to Vietnam and Bangladesh nearly 10 years ago—partly because China was no longer the cheapest producer, partly because China’s currency strengthened, and partly because China began focusing on higher-tech industries with less environmental impact.

However, in response to increased deglobalization trends, rising geopolitical risks, and recent COVID disruptions, global companies have started to diversify their supply chains and reduce their dependence on one country (such as China). Even Chinese companies have started to expand their capacity and supply outside of the mainland—in Indonesia, Vietnam, Mexico, and Eastern Europe—in order to better serve overseas demand.

For example, Apple (including its suppliers in China) started to develop new supply chain and manufacturing capacity outside of its key supply country, China, by building capacity in Vietnam and India. However, China remains Apple’s largest supplier, with 60% to 90% of Apple components and final products manufactured in China.

China’s large and skilled labor force; competitive cost structure; large-scale, advanced infrastructure and technology capabilities; and supportive business environment remain attractive to global companies from a fundamental perspective. Therefore, I believe deglobalization’s impact on the supply chain shift could be moderate in the near term, and the long-term evolution could be gradual.

My conclusion: China’s role in supply chains is changing, in part because of a natural evolution and in part because of geopolitical considerations. This will affect China, because 20% of its GDP comes from gross exports. This will also affect global supply chains and related global industries that still heavily rely on China. However, I think the trend and effect will both evolve gradually over time. And I don’t believe China’s goal of further opening up to the world and moving up the value chain changes.

Should investors be concerned that Chinese companies’ U.S.-listed shares will be delisted from exchanges?

At the end of 2020, with U.S.-China relations worsening, the United States passed a law stating that any company listed in the United States must be auditable by the Public Company Accounting Oversight Board (PCAOB).

China was one of a few countries with large American depository receipts (ADR) listings that could not do so (because of different jurisdictions and laws). Many market participants thought China wouldn’t yield, but I had a different view, and was right—China decided to let the PCAOB come and audit those companies.

Following a series of negotiations between regulators and delays driven by COVID travel restrictions, there is a prospective solution currently being tested by U.S. auditors in Hong Kong. Thus far, China has complied with requests for sample data including some of its largest U.S.-listed companies. A determination from the PCAOB is expected by the end of the year, and China has three years from the passing of the 2020 law to be fully compliant.

My conclusion: China has demonstrated its pragmatic stance to the ADR issue, with the goal of keeping those companies listed globally. I therefore expect it will allow PCAOB auditing to move forward—and with that will come less risk of delisting.

Five Takeaways

Despite China’s uncertain future growth, I think there is reason to be cautiously optimistic. To recap, here are the five key takeaways.China’s zero-COVID policy has been bad for Chinese equities but could marginally improve.

China is taking measures to support its property market, so declines are likely to ease—and even if they don’t, we’re not looking at a subprime crisis.

A Chinese invasion of Taiwan is a low-probability, high-impact event.

China’s role in global supply chains is changing, and this may hurt in the near term, but China’s goal of further opening up to the world and moving up the value chain likely doesn’t change.

China wants its companies listed globally, so will allow auditing to move forward, and with that should come less risk of delisting.

Asia would be the biggest loser if the global economy splits up, IMF warns

Su-Lin Tan
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Asia-Pacific has more to lose than any other region if the global trade system splits up in the wake of geopolitical tensions, the International Monetary Fund warned.

Asia and Pacific countries could lose over 3% in gross domestic product if trade is cut off in sectors hit by recent U.S. chip sanctions on China and if non-tariff barriers in other areas are raised to “Cold War-era levels,” the IMF said in research released on Friday.

That’s twice the amount of projected global annual losses.

Sectors in Asian countries forced to contract because of reduced trade could suffer average employment losses of as high as 7%, the IMF added.

“When we talk about progression from rising trade uncertainty and more restrictive measures, [it] will eventually escalate into fragmentation where the world is divided,” Krishna Srinivasan, director of the Asia and Pacific Department at the IMF, said at a press conference in Singapore on Friday.

How an Army-funded ‘bioengineered blood vessel’ is saving lives in Ukraine


New, cutting-edge medical technology funded by the U.S. Army may not have been approved for full use in America, but it’s already saving lives in Ukraine. Top Storiesby Task & PurposeREAD MOREThat time they made a parody of 'AllQuiet on theWestern Front'starring dogs

The human acellular vessel (HAV) is a “bioengineered blood vessel” used to treat patients in Ukraine suffering from gunshot and shrapnel wounds, mine blast injuries, and more, according to a recent Army release. A press release in September from Humacyte Inc., which developed the product, called the HAV an “infection resistant vascular conduit,” which will help quickly restore a patient’s blood flow.

The development of the HAV was supported by the U.S. Army Medical Research and Development Command (USAMRDC) and its partners, including Humacyte Inc., the release said. It has since become “a key player on the global medical stage.”