Foxconn: election interference or tax probe?

...and China Coast Guard rams Philippines’ ship | October 23, 2023

The editors Published October 23, 2023

Dear reader:

Here’s something you don’t read about every day:

Michael Pillsbury is a former U.S. government official and author of The Hundred-Year Marathon, which, according to its publisher, “reveals China’s secret strategy to supplant the the United States as the world’s dominant power, and to do so by 2049.”

Pillsbury is often called a “China-hawk” and is sometimes credited with shaping the China policy of the last two years of the Trump administration. Trump loves strongmen, and it looked like he might have found a way to get along with Xí Jìnpíng 习近平 when he visited Beijing in November 2017, and touched shiny gold things in the Forbidden City. The idea that Pillsbury’s thinking is responsible for the change in mood at the White House is not absurd.

So it’s quite surprising to read that today he attended a forum in Beijing run by the Center for China and Globalization (CCG), a Chinese think tank that has been accused in American media of being directed by the United Front Work Department, a propaganda, networking, and lobbying group run by the Communist Party to generate support among overseas Chinese and the general population of foreign countries.

Even more surprising, Pillsbury gave a speech in which he argued strongly in favor of the One China Policy, and criticized increased American military activities with Taiwan, and former Secretary of State Mike Pompeo’s proposal to formally recognize Taiwan. He also spoke positively of communication, and mutual visits and exchanges by American and Chinese officials.

But as for the future: he is not an optimist.

You can read a transcript of Pillsbury’s speech or listen to a recording of it here, via Pekingnology, a newsletter run by a staffer at CCG.

There’s just over a week to go to our NEXTChina conference in New York. Come meet me and our team there on November 1 and 2 and take part in the best-informed discussions on China you’ll hear in the U.S.

Our Word of the Day is: Foxconn (富士康 fùshìkāng), a.k.a. Hon Hai Precision Industry Co. Ltd (鴻海精密工業股份有限公司 hónghǎi jīngmì gōngyè gǔfèn yǒuxiàn gōngsī).

If you’re not already a subscriber, sign up for our Daily Dispatch, or our free Weekly.

Jeremy Goldkorn

Editor-in-Chief

CURRENT AFFAIRS

Apple contractor Foxconn hit with tax and land-use probe in China

Is he the target? Terry Gou, a 72-year-old billionaire and founder of iPhone maker Foxconn, campaigns for his presidential bid in Taipei, Taiwan, on October 18, 2023. Photo by Jameson Wu, EYEPRESS.

Chinese authorities have launched a probe into Taiwan-based Foxconn, the world’s largest manufacturer of iPhones.

Officials have “conducted tax inspections” at the major Apple supplier’s businesses in the provinces of Guangdong and Jiangsu, and also carried out “on-site investigations into the land use” of its operations in Henan and Hubei provinces, according to Global Times.
Apple and Foxconn’s shares slipped on Monday.

Some think this constitutes election interference. The probe comes just a few months after Foxconn’s billionaire founder Terry Gou (郭台銘 Guō Táimíng) announced he would run in Taiwan’s presidential elections, which will be held in January.

Taiwan Deputy Premier Cheng Wen-tsan (鄭文燦 Zhèng Wéncàn) said the Foxconn probe was Beijing’s attempt to “distort Taiwan’s democracy…We believe that all Taiwanese businesses’ investments in China are in compliance with the law. They should not be subject to political scrutiny or political interference.”
Gou is expected to siphon votes away from Beijing’s preferred candidate, the Kuomintang’s Hou Yu-ih (侯友宜 Hóu Yǒuyí).

The news may also shake the confidence of foreign firms in China during an already uncertain time. Click through to read more.

Anthony Tao

NEWS BRIEFING

Here’s what else you need to know about China today:

The Philippines summoned its Chinese ambassador over two South China Sea collisions, the latest escalation over disputed waters in recent weeks. Manila accused a China Coast Guard (CCG) vessel of “dangerous blocking maneuvers” after it collided with a Philippines-contracted resupply ship around the Second Thomas Shoal yesterday morning. Two hours later, Manila said that a Chinese maritime militia boat “bumped” into a Philippine coast guard ship during the same operation to deliver supplies to a nearby outpost.

The Chinese Foreign Ministry has issued a statement hitting back at the accusations, stating the CCG’s actions were “professional and restrained.” It also reiterated calls for the Philippines to tow away the “illegally grounded” warship stationed at the shoal, and to “stop stirring up trouble and making provocations at sea, stop making dangerous moves, stop groundlessly attacking and slandering China.”

Philippine President Ferdinand R. Marcos Jr. today called for a special security conference over the collisions and ordered the Philippine Coast Guard (PCG) to immediately conduct a maritime investigation.

An executive and two former employees of London-based WPP Plc, one of the world’s biggest advertising companies, have been arrested in China over allegedly taking bribes. The arrests are part of the raids carried out by Chinese authorities last week at the Shanghai offices of WPP-owned media agency GroupM, as Beijing steps up scrutiny of foreign businesses operating in the country.

China plans to host its twice-a-decade financial policy gathering on October 30–31, according to Bloomberg. The closed-door meeting is expected to set medium-term priorities and to address ways to resolve financial risks, including China’s beleaguered property sector and mountains of local government debt.

Chinese and Russian companies signed a raft of cooperation deals today at a regional conference in Shenyang, the capital of northeastern Liaoning Province. It’s the latest sign of deepening ties between the two counties, after Russian President Vladamir Putin and Chinese counterpart Xí Jìnpíng 习近平 spoke for three hours at the third Belt and Road Forum in Beijing last week.

Chinese state media: Xinhua News Agency’s top story today has a very long headline: “In a collective conversation with members of the new leadership team of the All-China Federation of Trade Unions, Xí Jìnpíng 习近平 emphasized that [we] should uphold the Party’s overall leadership over the trade unions and organize and mobilize hundreds of millions of workers to actively participate in the great cause of building a strong country and national rejuvenation.”

China’s trade unions are subordinate to the Communist Party, and are not allowed to organize independently.

The People’s Daily print edition focuses on women today, with one article titled “The flower of women blooms in a new era,” subtitled “A Record of the leadership of the Party Central Committee with Comrade Xi Jinping as the core in promoting the development of women’s causes,” and another titled “The story of the General Secretary’s care and concern for ‘Half the Sky,’” a long polemic about Xi Jinping’s feminist credentials, but including dubious verbiage such as, “Every year at the National Two Sessions, female representatives and committee members performing their duties for the people are a beautiful sight.”

Máo Zédōng 毛泽东 famously said that “women hold up half the sky” (妇女能顶半边天 fùnǚ néng dǐng bànbiāntiān). Under Xi’s tenure, the ruling Politburo failed to include a single woman among its 24 members selected in 2022, breaking a tradition of two decades. The current National People’s Congress, whose annual gathering is the major event of the Two Sessions, has only 790 women out of 2,977 representatives.

THE CHINA AGENDA

The China Agenda for October 22–29: Newsom to China and NPC legislative meeting

California governor Gavin Newsom. Photo by Gage Skidmore.

From our new weekly preview of upcoming events for the week October 16–22:

California governor Gavin Newsom traveled to China on October 22. He is leading a delegation that will stop in Hong Kong, Shenzhen, Guangzhou, Beijing, Shanghai, and Jiangsu Province.

Newsom’s trip is focused on climate action and partnership. He will meet with national, subnational, and business partners.

Australia’s prime minister Anthony Albanese is visiting the United States October 23–26 before he travels to China on November 4.

Beijing is reviewing its tariffs on Australian wine ahead of Albanese’s trip.

The 14th National People’s Congress (NPC) will hold its 6th legislative meeting on October 20–24.

There is a possibility that the appointment of new defense minister will be announced, after the incumbent Lǐ Shàngfú 李尚福 disappeared in late August.
There are nine bills that could be discussed, including a draft Patriotic Education Law, which is likely to pass; a draft revision to the State Council Organic Law; and a draft revision to the Law on Guarding State Secrets.

The Party Central Committee is expected to hold a quinquennial plenary session soon, too. Learn more about this and other important upcoming happenings by clicking through.

Arran Hope

HISTORY

The American dentist who influenced Sun Yat-sen and his Nationalist Party

Illustration for The China Project by Derek Zheng

When Sun Yat-sen (孙中山 Sūn Zhōngshān) rose to speak at the Kuomintang’s First National Congress in Guangzhou in 1924, many in the audience — including Chinese communists — expected a vaguely socialist speech. What they got instead was a repudiation of Marxism.

One of Sun’s sources was a dentist from Brooklyn named Maurice William, whose self-published book The Social Interpretation of History: A Refutation of the Marxian Economic, Interpretation of History proved influential to Sun.
Columbia historian James T. Shotwell wrote in 1932 that “the reading of The Social Interpretation of History by Dr. Sun Yat-sen may turn out to have been one of the most important incidents in the history of Modern Asia.”

Nobody in China had heard of William. But in the months leading up to the KMT congress, Sun became captivated by the obscure dentist’s ideas.

Sun adopted William’s assessment of Marx himself. “Marx was a social pathologist,” William wrote in The Social Interpretation. “He studied social pathology and mistook the phenomena he observed for the laws of social biology.”
Sun said: “What Marx gained through his studies of social problems was a knowledge of diseases in the course of social progress. Therefore, Marx can only be called a social pathologist; we cannot say that he is a social physiologist.”

Those were different — and interesting — times, Harry Saunders writes: when an American dentist could speak across boundaries to China’s leading revolutionary.

Harry Saunders

FROM THE NEWSBASE

Below are links from our NewsBase to other noteworthy reports published in the last 24 hours from and about China.

BUSINESS AND TECHNOLOGY:

U.S. companies are moving out of China
Global producers in U.S. hunt for China alternatives / Reuters
“Surveys now show U.S. business leaders are eager to cut back their China exposure and are shifting investment to other, friendlier countries. This is a radical shift from the days when offshoring production to China was rewarded by Wall Street and investor calls often highlighted multi-million-dollar expansions in the world’s second-largest economy.”

Stock markets
China’s stock market drops to pre-pandemic low / FT (paywall)
“Chinese shares fell to the lowest level since before the COVID-19 pandemic, as Beijing’s latest efforts to prop up the country’s stock market failed to stem a sell-off driven by slowing economic growth, a liquidity crisis in the property sector and geopolitical tensions.”

Banking
Foreign banks’ ‘adjustments’ in China only short term, national financial regulator says / Caixin (paywall)
“Certain business adjustments made by foreign banks to their China operations in recent years are short-term responses to prevailing conditions and related strategic necessities, rather than indicators of long-term trends, according to a national financial regulator official.”
Top Chinese investment bank CICC picks new boss / Caixin (paywall)
“China International Capital Corp. Ltd., one of the country’s top investment banks, on Sunday nominated finance industry veteran Chen Liang as its new chairman, the company said in a filing to the Shanghai Stock Exchange.”

Waste management
Tracing the history of Shanghai’s waste management / Sixth Tone
“As the city has developed into a global metropolis over the past 180 years, pilot programs and policies have helped refine the way it handles and recycles household garbage.”

U.S.-China tech war
U.S. considering curbing China’s cloud access, official says / Nikkei Asia (paywall)
“Washington is considering measures to restrict China’s access to cloud computing services provided by American companies as it pushes to curb Beijing’s efforts to develop artificial intelligence for military use, a senior U.S. official said in an interview.”

Graphite
Western graphite producers’ shares soar after Beijing announces export curbs / FT (paywall)
“Shares in non-Chinese graphite producers soared on Monday on expectations of stockpiling and a rush to secure alternative supplies after Beijing announced export restrictions on the material critical to electric car batteries.”

Local government debt
China’s debt crises, from developers to local governments, prompt cabinet call to curb contagion / SCMP (paywall）
“The cabinet’s finance work report to China’s top legislature over the weekend could signal that policymakers are racing to defuse widely watched risk points such as mounting debt in the world’s second-largest economy, analysts say as the woes of ailing developers and a local-level debt debacle continue to erode investor confidence.”

AI
Amid climate goals, China zones in on AI’s growing energy needs / Sixth Tone
“In a list of scientific challenges for China in 2023, climate change and energy consumption emerge among focus areas.”

Real estate and property development
China scraps price caps in bid to revive land sales, tweaks rule to allow lower-density suburban projects / SCMP (paywall)
“Beijing is scrapping price caps and changing other rules on land sales by local governments as part of an effort to revive a stagnant property market and turn the tide against a slumping economy.”

Foxconn
Taiwan’s Foxconn faces China tax probe, seen as politically motivated / Reuters
“Foxconn, a major supplier of Apple’s iPhones, is facing a tax probe in China, two sources close to Foxconn confirmed on Monday, saying they believed it was disclosed by a state-backed paper for political reasons tied to Taiwan’s upcoming elections.”
Apple supplier Foxconn subjected to tax inspections by Chinese authorities / AP
Foxconn’s China hubs targeted in tax probes / Nikkei Asia (paywall)
China launches investigation into iPhone maker Foxconn, says state media / FT (paywall)
Foxconn cooperating with probes in China, unit says / Caixin (paywall)
Apple iPhone Maker Foxconn Under Investigation by China / WSJ (paywall)
Foxconn, Apple’s manufacturer in China, is said to be under tax audit / NYT (paywall)

Country Garden
How China’s property crisis has unfolded, from Evergrande to Country Garden / FT (paywall)
“China’s biggest private sector developer, Country Garden, appears to be heading for default after failing to make a payment on an offshore bond — another critical moment in the slow reckoning taking place in the country’s vast property sector.”

TikTok
Amazon confronts a new rival: TikTok / Caixin (paywall)
“TikTok made a name for itself in the U.S. as a viral video-sharing sensation. Now it’s trying to get its 150 million U.S. users to think of it as a shopping destination.”

SCIENCE, HEALTH, AND ENVIRONMENT:

Climate change
California Gov. Gavin Newsom is traveling to China to talk climate change / AP
“California Gov. Gavin Newsom will try to reinforce his state’s role as a global leader on climate change as he begins a weeklong visit to China on Monday, a trip that presents both political risk and opportunity for crucial international collaboration.”

Endangered animals
Three listed Chinese firms used endangered animal parts as ingredients, report says / Reuters
“Three publicly traded Chinese drugmakers which count global banks such as UBS and HSBC as investors have used parts of endangered animals as ingredients in their products, an environmental group said.”

POLITICS AND FOREIGN AFFAIRS:

Corruption
Former chief tobacco regulator targeted in graft probe / Caixin (paywall)
“Líng Chéngxìng 凌成兴, the former head of China’s State Tobacco Monopoly Administration (STMA) is being investigated for ‘serious violations of discipline and law’ by the country’s top anti-graft agencies, authorities said Monday.”
Former provincial legislature vice chairman probed for alleged corruption / Caixin (paywall)
“A former vice chairman of the standing committee of the regional people’s congress of Guangxi Zhuang autonomous region has been placed under graft probe by the country’s top anti-corruption watchdogs.”

Espionage
China says it uncovered another spying case in U.S. / Reuters
“China’s top spy agency said on Sunday a Chinese citizen who worked for a defense institute had been accused of spying for the United States and his case had been transferred to a court in the southwestern city of Chengdu for trial.”

BRI
China’s belt and road pivots to ‘small yet smart’ projects with ‘modest’ $107 billion financing pledge / SCMP (paywall)
“China has pledged 780 billion yuan ($106.6 billion) in new financing for its Belt and Road Initiative — a modest figure compared to previous years, according to observers, but with the potential to deliver more bang for the buck as Beijing pivots its signature global infrastructure strategy towards ‘small yet smart’ projects.”
Ten years of China’s Belt and Road: what has $1tn achieved? / FT (paywall)

ASEAN
China snaps up ASEAN’s green, digital investment opportunities / Nikkei Asia (paywall)
“China is making fresh investments in key business projects in ASEAN nations, leading the world’s economic powers that seek more involvement in the emerging region, Indonesian Deputy Foreign Minister Pahala Mansury told Nikkei Asia.”

Taiwan
Taiwan’s military must objectively assess PLA then ‘strengthen ourselves’, defense chief says / SCMP (paywall)
“Taiwan will not rely on the People’s Liberation Army having ‘certain shortcomings’ in preparing for a potential cross-strait conflict, the island’s defense minister said on Monday.”
U.S. tours help firm impressions of Taiwan presidential contenders / SCMP (paywall)
“Three months before Taiwan’s presidential election, the main contenders have mostly wrapped up efforts to garner support in Washington, and, analysts say, managed to convince policymakers that they do not seek to cross any red lines set by the U.S. or Chinese governments.”

California governor visit to China
Bay areas of San Francisco and China will come together in Hong Kong for landmark climate change forum in move seen as bridge-building effort / SCMP (paywall)
“The technology-driven bay areas of San Francisco and China will come together for a landmark climate change forum next year hosted by Hong Kong in a move seen as a bridge-building effort amid tense geopolitical relations.”

Japan
China wants to ‘work with Japan to relive spirit’ of 1978 peace and friendship treaty / SCMP (paywall)
“China called on Japan for joint efforts to ‘relive’ the spirit of peaceful coexistence and opposition to hegemonism enshrined in their peace and friendship treaty, as the two countries exchanged delayed greetings on its 45th anniversary amid frosty ties.”
China detains local staffer handling rare metals at Japan trader / Nikkei Asia (paywall)
“A Japanese trading company’s Chinese employee overseeing rare metals in China was taken into custody by Chinese authorities earlier this year, according to sources familiar with bilateral relations.”

Philippines
China, Philippines trade accusations over South China Sea clash / Reuters
“China and the Philippines traded accusations over a collision in disputed waters of the South China Sea as Chinese vessels blocked Philippine boats supplying forces there on Sunday in the latest of a series of maritime confrontations.”
China says U.S. statement on collision with Philippine boat disregards facts / Reuters
“China’s foreign ministry on Monday said a U.S. statement in which Washington sided with the Philippines regarding a collision between vessels in the South China Sea ‘disregarded the facts.’”
U.S. renews warning it will defend Philippines after incidents with Chinese vessels in South China Sea / AP
Philippines decries Beijing’s acts after South China Sea collision / Nikkei Asia (paywall)
China and Philippines trade accusations after collisions in South China Sea / FT (paywall)

Australia
Australia PM to visit China, with progress on wine, wind tower disputes / Reuters
“Australian Prime Minister Anthony Albanese said on Sunday he will travel to China from Nov. 4 to 7 to meet with President Xí Jìnpíng 习近平 and Premier Lǐ Qiáng 李强 in a bid to stabilize relations with the country’s biggest trading partner.”
Australian prime minister announces China visit hours before leaving for U.S. to meet Biden / AP
Australia PM says deal reached with China to resolve WTO wine spat / Nikkei Asia (paywall)
Australia says China is poised to lift punishing wine tariffs / NYT (paywall)

Israel-Hamas war
China will ‘do anything’ to restore peace, but ‘prospects are worrying’, envoy Gsays / SCMP (paywall)
“China is ready to ‘do anything’ to promote dialogue and restore peace as the fighting in Israel and Gaza intensifies, its Middle East special envoy said, as he outlined plans to visit the United Arab Emirates, Saudi Arabia and Jordan on the next leg of his mediation trip.”

Pakistan
Pakistan puts ‘blind trust’ in China as Belt and Road enters new phase / Nikkei Asia (paywall)
“A visit to China’s Belt and Road Forum last week by Pakistan’s caretaker prime minister, Anwaar-ul-Haq Kakar, netted a slew of agreements as he lavished praise on the hosts, but experts warn that financial constraints and security threats could still hinder the projects.”

Serbia
Serbia highlights importance of Chinese defense equipment / Reuters
“Chinese military equipment has strengthened the Serbian armed forces significantly, its deputy prime minister told Chinese state media, in particular an air-defense system and drones.”

Estonia
Estonia asks China for cooperation over severed Baltic Sea telecom cables / Reuters
“Estonia has contacted Chinese authorities in the investigation into the cause of how two Baltic Sea telecom cables were severed, the Estonian foreign ministry said on Monday.”

Russia
In northeast China, Russian and Chinese firms ink deals from manufacturing to agriculture / Reuters
“Chinese and Russian companies attending a regional conference in northeastern China signed a raft of cooperation deals on Monday in sectors ranging from manufacturing and logistics to ecommerce and agriculture, Chinese state media reported.”

Finland
China calls for ‘fair’ gas pipeline damage probe by Finland / Reuters
“China called on Monday for an ‘objective, fair and professional’ investigation into damage to a subsea gas pipeline between Finland and Estonia, saying a Chinese vessel in the area at the time was sailing normally.”

Cyberscams in Southeast Asia
China crackdown on cyber scams in Southeast Asia nets thousands but leaves networks intact / AP
“Regional and Chinese authorities have netted thousands of people in a crackdown, but experts say they are failing to root out the local elites and criminal networks that are bound to keep running the schemes.”

SOCIETY AND CULTURE:

Anti-consumerism attitudes spread in China
Anti-consumerism advocate encourages rethinking life’s pleasures in China / Sixth Tone
“Through talks, workshops, and a magazine, a group of like-minded friends in Shanghai are encouraging people to reject consumerist culture and make better use of their cities’ public spaces. Their message is falling on receptive ears.”

Film
In China, chest-thumping nationalistic films lose momentum / WSJ (paywall)
“Disappointing performance of ‘The Volunteers: To the War’ offers hint of moviegoer fatigue regarding patriotic themes.”

Books
Book critical of Ming emperor recalled after prompting online comparisons with Xi / Reuters
“A reprint of a book attributing the end of the Ming dynasty 400 years ago to the ineptitude of a Chinese emperor was pulled from shelves last week, in an apparent purge of a title that had drawn now censored online comparisons with President Xí Jìnpíng 习近平.”
Tale of emperor whose ineptitude ended his dynasty unnerves Chinese censors / FT (paywall)
The books I helped rescue from China’s repression / WSJ (paywall)
“When a Hong Kong publisher’s politically sensitive books were threatened with pulping, journalist Ian Johnson agreed to find them new homes in the West.”

Senior living
China’s sporty seniors / Caixin (paywall)
“In recent years, governments across China have promoted fitness programs, and encouraged communities and organizations running parks and other public spaces to provide facilities for the elderly.”

Sports
Can China rediscover its love of baseball? / Sixth Tone
“The country used to be crazy for baseball. Can a shocking upset rekindle that passion?”

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Foxconn: election interference or tax probe?