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Project Dory Monitoring 15 August 2017
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How US sanctions against North Korea could affect Chinese banks
Aug 14, 2017 | South China Morning Post
By Alun John
Hawks in Washington want to impose secondary sanctions on Chinese banks that it alleges may have dealings with north Korean companies, and analysts say the banks would have little choice but to accept them -
China’s Communist party seeks company control before reform
Aug 15, 2017 | Financial Times
By Tom Mitchell
When the head of a US multinational’s China operations recently sat down for talks with the chairman of a large state-owned enterprise, he was surprised when his old friend presented him with a new business card. The two men had met regularly over the years to review matters at a joint venture established by their companies, but on this occasion the Chinese executive was not just representing his SOE. -
Trump Signs Order Increasing Trade Pressure on China
Aug 15, 2017 | The Wall Street Journal
By Jacob M. Schlesinger
President Donald Trump Monday ramped up trade pressure on China, directing aides to explore the prospect of sanctioning Beijing for the “unfair” acquisition of American high technology. -
Seeking Greater Global Power, China Looks to Robots and Microchips
Aug 14, 2017 | The New York Times
By Javier C. Hernandez
In Chinese schools, students learn that the United States became a great nation partly by stealing technology from Britain. In the halls of government, officials speak of the need to inspire innovation by protecting inventions. In boardrooms, executives strategize about using infringement laws to fell foreign rivals. -
Following ‘Fire and Fury,’ Trump Looks to Ease Tensions in Asia
Aug 14, 2017 | The New York Times
By Mark Landler
President Trump, following days of bellicose threats toward North Korea and jitters about a looming trade war with China, moved on several fronts Monday to ease tensions in East Asia, after making the region a flash point for his administration. -
China bans North Korean iron, lead, coal imports as part of U.N. sanctions
Aug 14, 2017 | The Washington Post
By Simon Denyer
China moved to tighten economic pressure on North Korea by implementing a new package of U.N. sanctions Monday, but it simultaneously had a warning for the Trump administration: Don’t spoil our new-found unity by starting a trade war. -
Global shipping market shows signs of rebound, says broker
Aug 15, 2017 | Financial Times
By Naomi Rovnick and Mehreen Khan
The global shipping market is showing nascent signs of a rebound after spending about a decade in the doldrums, according to one of the most established businesses in the sector. -
Is the Shipping Industry on Cybersecurity Autopilot?
Aug 14, 2017 | Maritime Executive
By Michael Bahar
The summer months of 2017 have been a watershed for the maritime industry, and more is yet to come. -
Drillship Leaves Disputed Field in South China Sea
Aug 14, 2017 | Maritime Executive
Odfjell's Deepsea Metro I, a drillship contracted by Spanish oil major Repsol to drill for oil and gas in a Vietnamese exploration block in the South China Sea, has departed the area and arrived at the port of Labuan, Malaysia.
Port Mentions - There are no relevant clips to report at this time.
City/Province Mentions
Competitor Mentions
US - China Relations
Industry News
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How US sanctions against North Korea could affect Chinese banks
Aug 14, 2017 | South China Morning Post
By Alun John
Hawks in Washington want to impose secondary sanctions on Chinese banks that it alleges may have dealings with north Korean companies, and analysts say the banks would have little choice but to accept them
Chinese banks will be closely watching the ongoing slanging match between Washington Pyongyang over sanctions by the US on North Korea, as they could be hard hit should hawkish voices prevail and economic measures on the DPRK become tighter.
Some of these voices in the United States have suggested that so-called secondary sanctions should be imposed on Chinese banks that hold money for companies that do business with the DPRK.
Senator Chris Van Hollen told US cable news network MSNBC on Thursday: “We say to China, ‘You have a choice whether you do business with North Korea, or you do business with the US’, but you can’t do both.”
In July, Van Hollen sponsored a bill that would impose secondary sanctions targeting banks that did business with North Korean entities.
Sino-North Korean trade was worth US$2.6 billion in the first half of this year, according to Chinese customs figures, with trade in oil and coal being key components.
A UN report from earlier this year alleged that North Korean banks and firms have maintained access to international financial markets through a network of Chinese-based front companies.
Coal exports from North Korea have since been stopped under UN sanctions, and the UN Security Council (including China) unanimously agreed further sanctions last Saturday.
The most recent agreement seems to have protected the Chinese banks in the short term.
“The decision by the Chinese to sign up to UN sanctions on Saturday was a trade off to prevent secondary sanctions being imposed by the US on large Chinese corporates or banks,” said Andrew Gilhom, director of analysis greater China and North Asia, at Control Risks.
However, with the rhetoric coming out of the White House growing increasingly intense, the United States may return to the topic of secondary sanctions if it feels the Chinese authorities are not providing the help the US believe it needs.
“If secondary sanctions were brought in against Chinese banks, they may have little choice but to comply,” said Jessica Bartlett, a senior associate at Freshfields Bruckhaus Deringer based in Hong Kong.
“US regulators have the ultimate weapon of forbidding a bank from clearing US dollars, and since the vast amount of trade is conducted in dollars that would make it near impossible for many Chinese banks to do business,” she said.
“As such, any bank that relies on doing business in US dollars who breaches US sanctions would have no choice but to pay the penalty in fines.”
These could be vast. In 2015, BNP Paribas was fined US$8.9 billion for breaching US sanctions on Iran, and they could be even larger in any case involving North Korea.
“The areas on which the regulators choose to focus, the pace with which they move and the amount of fines they levy are affected by the US political climate,” said Bartlett.
At present, it would not be to the benefit of a Chinese bank deemed to be supportive of North Korea’s nuclear programme, even if geopolitical concerns have protected Chinese banks thus far.
“Sanctioning Chinese companies for doing business with North Korea is a tool the US has to influence Chinese policy makers – but so far they have only taken action against smaller players.
“The political ramifications of cutting off a large bank from the US financial system would be very large,” said Gilholm.
Only one Chinese bank, so far, has fallen foul of US regulators when it comes to sanctions on North Korea, when in June the Trump administration announced new sanctions against the Bank of Dandong in China, which sits across the border from North Korea.
Treasury officials and FinCEN (the Financial Crimes Enforcement Network) alleged that “Bank of Dandong had acted as a conduit for illicit North Korean financial activity and was a foreign bank of primary money laundering concern”.
However, the case against Bank of Dandong, is probably unrelated, at least technically, from the latest political tensions.
“It not entirely clear to me that FinCEN’s action represents anything like a policy change or reaction to recent North Korean activities and might represent the gradual tightening of sanctions on North Korea that started under Obama,”said Bartlett.
“The targeting of Bank of Dandong probably came out of a criminal complaint and forfeiture action filed by the US Department of Justice against Dandong Hongxiang Industrial Development (DHID), and its majority owner, Ma Xiaohang and three top executives last year.”
The action filed by the DoJ alleged that “Ma Xiaohong had conspired with other senior managers working for DHID to create or acquire numerous front companies that were used to conduct financial transactions designed to evade U.S. sanctions related to certain North Korean entities…. To facilitate this conduct, Ma, DHID, and officers and employees of DHID used front companies to establish numerous bank accounts at various banks in China.”
“In these situations, it is common the authorities start with one act of wrongdoing, and then use that to explore the situation further,” said Bartlett.
The action against DHID said the company also had accounts at Agriculture Bank of China, Bank of Communications, China Construction Bank, China Merchants Bank, Guangdong Development Bank, and Industrial and Commercial Bank of China, in which it had deposited funds that were in breach of US sanctions. These funds would be forfeited, it said.
It is not known, what, if any action US regulators are taking against the other banks named in the DoJ’s action.
Of course, as Bartlett says, this case is technically separate from the current machinations between the United States and others about how best to proceed with North Korea.
However, what US regulators look into, how aggressively they do so, and how large the fines they charge are affected by political concerns.
Few things at the moment, are higher on the agenda of the White House than North Korea.
Source: South China Morning Posthttp://www.scmp.com/business/banking-finance/article/2106606/how-us-sanctions-against-north-korea-could-affect-chinese
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China’s Communist party seeks company control before reform
Aug 15, 2017 | Financial Times
By Tom Mitchell
When the head of a US multinational’s China operations recently sat down for talks with the chairman of a large state-owned enterprise, he was surprised when his old friend presented him with a new business card. The two men had met regularly over the years to review matters at a joint venture established by their companies, but on this occasion the Chinese executive was not just representing his SOE.
In addition to his chairman title, he was also now secretary of the SOE’s Communist party committee. “I thought ‘Oh, this is new’,” the foreign manager said. “He had never mentioned the party committee before.”
The ruling Chinese Communist party has maintained representative committees inside SOEs for decades, but they were often moribund bodies. That has been changing over recent years, as President Xi Jinping and the head of his anti-corruption campaign, Wang Qishan, seek to extend the ruling party’s representation in — and control over — the state-backed groups.
To most western executives and analysts, the party’s higher profile at SOEs undermines the authority of their company boards and is more bad news for state-sector reform, which they feel has been neglected by Mr Xi’s administration. In comparison with the Chinese president’s bold anti-corruption campaign and military reorganisation, SOE “reform” has largely been an exercise in party-directed mergers that create bigger — but not demonstrably better — state companies.
To Mr Xi and Mr Wang, the party’s more prominent profile in SOEs is actually a prerequisite for state-sector reform. In their view, the party had given SOEs too long a leash, leading to mismanagement at best and unchecked corruption at worst. For Mr Xi, who last year described SOEs as “the major force to boost the comprehensive strength of the country and to protect the common interests of the people”, state companies are too important not to play a more active role in supervising and, if necessary, managing.
Whether stricter party oversight will ultimately help or hinder SOEs is no mere academic debate. It could well determine the fate of Mr Xi’s larger project to end the Chinese economy’s dependence on debt-fuelled investment and establish himself as a “transformative” economic reformer in the mould of Deng Xiaoping, the architect of China’s post-Mao “reform and opening” strategy. In Communist party-speak, the proliferation of party committees at SOEs is in keeping with a larger strategy of quan fu gai, or “full coverage”. For better or worse, people who do business with or invest in SOEs are going to be seeing a lot more of the party.
In Hong Kong, where the internationally listed arms of China’s largest SOEs have traditionally downplayed their party links, they are now redrafting bylaws to formally establish party committees that previously existed only at the group level. Over the past year more than 30 Hong Kong-listed SOEs have amended their articles of association accordingly.
The State-owned Assets Supervision and Administration Committee (Sasac) says that China’s 100 largest SOEs have formally amended their articles of association to emphasise the importance of “party-building” activities. Further reflecting the party’s higher profile within SOEs, the chairmen of 74 Sasac-administered companies now also head their group’s party committee.
State-owned China Nuclear Engineering & Construction Corp, which formally designated its chairman head of its party committee late last year, said in June that “party construction” work is as important as the safety of its nuclear reactors. The group’s employees, it added, should “love the party as they love their children”.
Initially, some SOEs did not get the memo on the newfound importance of party committees. In January, enough shareholders at Tianjin Realty Development, a state-owned real estate developer in Tianjin, the port city bordering Beijing, voted against a resolution mandating the establishment of a party committee.
It took just five months for the party to recover from that setback and ensure “full coverage” at Tianjin Realty. In May the same resolution, which promised that the party committee would discuss all “major company issues” before they went to the board, passed with support from investors holding 99.9 per cent of shares voted.https://www.ft.com/content/31407684-8101-11e7-a4ce-15b2513cb3ff
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Trump Signs Order Increasing Trade Pressure on China
Aug 15, 2017 | The Wall Street Journal
By Jacob M. Schlesinger
WASHINGTON—President Donald Trump Monday ramped up trade pressure on China, directing aides to explore the prospect of sanctioning Beijing for the “unfair” acquisition of American high technology.
The directive, signed in a ceremony in the White House’s Diplomatic Reception Room, was the first formal China trade action taken by a president who has long blasted the country for improperly aggressive commercial practices.
“We will stand up to any country that unlawfully forces American companies to transfer their valuable technology as a condition of market access,” Mr. Trump said, echoing a complaint made frequently by U.S. firms seeking entry to the world’s second largest economy. “The theft of intellectual property by foreign countries costs our nation millions of jobs and billions and billions of dollars each and every year,” he added.
The president also indicated, without elaborating, more such action to come, saying, as he signed the directive “this is just the beginning.”
While Mr. Trump’s tone was tough, the process he launched was measured. He specifically ordered his trade representative to begin a study into whether to launch a formal investigation about widespread complaints that Beijing forces multinationals to license valuable technology to Chinese companies as the price of entry into China’s markets. Aides said if the investigation does proceed, it could take a year before any decisions are made on imposing trade sanctions.
The move is part of a broader, complex diplomatic strategy of juggling Washington’s competing policy goals with China, balancing the desire for more cooperation in controlling North Korea against a desire to curb the $347 billion bilateral trade deficit.
Mr. Trump took the action three days after he spoke by phone with Chinese President Xi Jinping, and a few hours after China announced it would ban imports of North Korean coal, iron, and seafood, enforcing United Nations sanctions aimed at curbing Pyongyang’s nuclear-weapons program.
The Trump administration’s deliberative approach drew criticism from Democrats, still smarting from Mr. Trump’s successful inroads into their base of labor-union voters in the Rust Belt with his campaign vows to take a tougher line on trade.
“President Trump’s pattern continues: Tough talk on China, but weaker action than anyone could ever imagine,” Senate Minority Leader Chuck Schumer (D., N.Y.), said in a statement. “To make an announcement that they’re going to decide whether to have an investigation on China’s well-documented theft of our intellectual property is another signal to China that it is OK to keep stealing.”
Asked to respond to U.S. criticism of Beijing’s treatment of foreign intellectual property, Chinese Foreign Ministry spokeswoman Hua Chunying said “China has formulated and improved relevant laws and regulations … and we have raised awareness of society as a whole about intellectual property rights protection.” She added that she hoped the U.S. would recognize “China’s progress in this respect.”
In targeting Chinese intellectual-property practices, the Trump administration is picking up an issue that has becoming increasingly alarming to U.S. companies in recent years. They are worried in particular about the combination of China’s explicit industrial policy seeking self-sufficiency in a range of tech sectors like robotics and semiconductors—articulated in its “Made in China 2025” initiative—along with a range of formal and informal requirements for foreign companies to share with Chinese partners proprietary material.
“This is simply not fair,” a senior administration official said in explaining the probe. U.S. firms “should not be forced or coerced to turn over the fruits of their labor,” the official added. “The current trajectory is unsustainable.”
Mr. Trump was joined at the signing by executives from four companies that have, in different ways, complained about Chinese intellectual-property theft, includingRaytheon Co. Chief Executive Tom Kennedy, who was handed the pen by the president afterward.
“State-sponsored intellectual property theft is a problem for the U.S. defense industry and our military capability,” Mr. Kennedy said in a statement. “We applaud President Trump for taking the necessary steps to protect our industry and our country.”
But some experts were struck by how few companies attended, compared with other similar White House events, especially given the widespread complaints. That was in part because many companies are hesitant to complain for fear of retaliation from China, underscoring the difficulty of carrying out the probe.
“Companies are reluctant to provide their full experiences to the government because they don’t trust the government to take effective action,” said Dennis Blair, who served as director of national intelligence under President Barack Obama and oversaw a recent study of intellectual-property theft that has been cited by the White House in justifying its directive.
Mr. Blair, who attended Monday’s event, was measured in his assessment of Mr. Trump’s action, calling it “a good start” but saying it is too soon “to know if this administration is really more serious about the issue than its predecessors.”
The China investigation is one of several initiatives launched by the Trump administration aimed at reorienting U.S. trade policy. Mr. Trump has called for an overhaul of the North American Free Trade Agreement, which he has branded a “disaster” for U.S. workers. Talks with Mexico and Canada to rewrite that pact begin Wednesday.
“The Obstructionist Democrats have given us (or not fixed) some of the worst trade deals in World History,” Mr. Trump said in a Monday morning tweet. “I am changing that fast!”
—Te-Ping Chen in Beijing, Doug Cameron in Chicago and Peter Nicholas in Washington contributed to this article.
https://www.wsj.com/articles/trump-signs-order-increasing-trade-pressure-on-china-1502740357
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Seeking Greater Global Power, China Looks to Robots and Microchips
Aug 14, 2017 | The New York Times
By Javier C. Hernandez
BEIJING — In Chinese schools, students learn that the United States became a great nation partly by stealing technology from Britain. In the halls of government, officials speak of the need to inspire innovation by protecting inventions. In boardrooms, executives strategize about using infringement laws to fell foreign rivals.
China is often portrayed as a land of fake gadgets and pirated software, where intellectual property like patents, trademarks and copyrights are routinely ignored. The reality is more complex.
China takes conflicting positions on intellectual property, ignoring it in some cases while upholding it in others. Underlying those contradictions is a long-held view of intellectual property not as a rigid legal principle but as a tool to meet the country’s goals.
Those goals are getting more ambitious. China is now gathering know-how in industries of the future like microchips and electric cars, often by pushing foreign companies attracted by the country’s vast market into sharing their technology. It is also toughening enforcement of patents and trademarks for a day when it can become a leader in those technologies — and use intellectual property protections to defend its position against rival economies.
President Xi Jinping is in the midst of an effort to strengthen laws on patents, copyrights and trademarks, giving fledgling firms in China new sources of revenue and prestige. The country is also pursuing an ambitious plan, called Made in China 2025, to become a global leader in areas like robotics and medical technology and kick off the next phase of China’s development. The efforts reflect the view of Chinese officials that controlling global technologies and standards is on par with building military muscle.
Zhang Ping, a scholar of trade law at Peking University in Beijing, said the West had long used intellectual property laws as a “spear and shield” against Chinese companies, hurting their profits at home and blocking access to foreign markets. Now, she said, it is time for China to fight back.
“If you want to enter our market to cooperate, it’s fine,” Ms. Zhang said, “but you can’t grab us by the neck and not let us grow.”
Trademarks and patents protect companies and inventors, compensating them for their time, ideas and investment. While poorer countries have throughout history worked to obtain inventions from wealthier nations, sometimes running afoul of intellectual property laws, China has rewritten the playbook for acquiring advanced technology.
Since Deng Xiaoping, as leader, opened the Chinese economy to the outside world nearly four decades ago, the country has made it a priority to obtain ideas and inspiration from overseas.
Sometimes it has reverse-engineered what it wants. United States officials say that Chinese companies have also carried out extensive economic espionage through cyberattacks and other means. (Chinese officials have denied those charges.) More recently, China has used its growing wealth to buy into cutting-edge technologies, like genetically modified crops and the latest innovations from American start-ups, and to attract promising talent.
But since those early days, China has relied heavily on one tried-and-true method: forming joint ventures with foreign partners. Big-name companies like I.B.M. and Qualcomm are required to share advanced technology and research with domestic firms in order to set up shop in China. And to entice partners, the country offers access to its enormous market and hundreds of millions of consumers.
Joint ventures helped China build whole industries from scratch. After using them to explore high-speed rail technology, Chinese firms now dominate the global industry.
Chinese experts say those moves are simply smart deal-making, not violations of intellectual property laws, allowing the country to harness its leverage as the world’s second largest economy to win practical knowledge.
But now China’s efforts are moving beyond routine manufacturing into cutting-edge technologies — and the Trump administration has denounced the arrangements as coercive.
In April, the Office of the United States Trade Representative accused China of “widespread infringing activity,” including stealing trade secrets, tolerating rampant online piracy and exporting counterfeit goods. On Monday, President Trump signed a memo that authorized an investigation into theft and the forced transfer of technology by China from American firms. But he mentioned China by name only once.
The Chinese Ministry of Commerce said Tuesday that it would defend China’s interests if they appeared to be threatened by the investigation.
“China will absolutely not sit by and watch, will inevitably adopt all appropriate measures, and resolutely safeguard China’s lawful rights,” the ministry said in a statement.
Chinese commentators see hypocrisy in American criticism, noting that the United States was once one of the world’s leading pirates, when it worked to challenge British industrial dominance after the American Revolution by obtaining designs for inventions like steam-powered looms. The state-run news media has highlighted the case of Samuel Slater, often called the father of the American industrial revolution, who brought British textile designs to the United States in the late 1700s.
Still, as China comes up with its own innovations, the country’s leaders are embracing stricter laws on patents, copyrights and trademarks.
The government has created specialized courts to handle intellectual property disputes and awarded subsidies to entrepreneurs who file patent applications. In 2015, more than a million were filed, a record amount.
Li Jian, a vice president of Beijing East IP, a Chinese law firm, said mainland companies increasingly saw strong intellectual property protections as a tool to help protect inventions and earn royalties overseas.
“Many Chinese companies have realized that through patent protection they can gain an advantage in the market,” Mr. Li said. “They have more faith now in the Chinese government to protect their intellectual property.”
The rules have also benefited some foreign firms. New Balance won a landmark case this year against a Chinese company that used its signature slanting “N” logo. China’s highest court last year gave Michael Jordan the rights to Chinese characters of his name.
Enforcement is still inconsistent, experts say. Local officials are often reluctant to aid foreign companies, worried about jeopardizing tax revenues from homegrown companies.
The Made in China 2025 initiative is a key reason the country is improving intellectual property rights. The plan focuses on sectors like electric cars, robotics, semiconductors and artificial intelligence.
By forcing foreign companies to hand over more technology and encouraging local companies to make new products based on that technology, Chinese leaders hope to cement the country’s dominance in critical fields. They also see an opportunity to dictate the terms of the future development of technology and extract licensing fees from foreign firms that use Chinese-made technology.
Several trade organizations and governments have said the plan is protectionist. Some have called for reciprocity, arguing that the United States should impose on Chinese companies the same restrictions China places on foreign companies.
“There is an unmistakable national policy to boost the position of Chinese companies in cutting-edge areas,” said William P. Alford, a Harvard law professor and an expert on Chinese intellectual property laws.
Chinese experts have defended the strategy.
“To become an adult, you have to accumulate knowledge,” said Professor Zhang, of Peking University. “It’s the same for a country.”
As China’s power has grown, Chinese companies have started using intellectual property laws to fend off foreign rivals.
When the United States International Trade Commission last year began investigating Chic Intelligent Technology Company, a manufacturer of self-balancing scooters based in the eastern city of Hangzhou, the company’s executives fought back. The commission was looking into claims that Chic had copied product designs of a California-based competitor, Razor USA.
Chic filed retaliatory lawsuits against American competitors, adopting many of the tactics that American companies have used for years to hobble Chinese competitors. The trade commission has since declined to banimports of the Chic scooters. The lawsuit against Razor USA remains unresolved, according to Chic.
Chic made clear that it saw the investigation as an effort by the United States to use intellectual property laws to bully Chinese companies. In a statement, the company’s leaders compared American regulators to Japanese invaders during World War II.
“The crazier the enemy,” the statement said, “the more we need to prove the necessity of our siege.”
https://www.nytimes.com/2017/08/14/world/asia/china-trump-us-trade-intellectual-property-technology.html?_r=0
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Following ‘Fire and Fury,’ Trump Looks to Ease Tensions in Asia
Aug 14, 2017 | The New York Times
By Mark Landler
WASHINGTON — President Trump, following days of bellicose threats toward North Korea and jitters about a looming trade war with China, moved on several fronts Monday to ease tensions in East Asia, after making the region a flash point for his administration.
As he opened a long-awaited trade action against China, Mr. Trump used uncharacteristically restrained language and a multistep bureaucratic process that will likely put off punitive steps against Beijing for months, if not forever. On North Korea, several of the president’s top advisers tried to tamp down fears of a clash after his threat to rain “fire and fury” on the regime there.
In Seoul, Gen. Joseph F. Dunford Jr., the chairman of the Joint Chiefs of Staff, assured President Moon Jae-in of South Korea that military options against North Korea were a last resort. His message was the latest effort to reinforce a sense of calm that was earlier telegraphed by Defense Secretary Jim Mattis and Secretary of State Rex W. Tillerson.
Taken together, the administration’s tempered words underscored the complex reality that Mr. Trump faces in Asia: Having explicitly linked China’s cooperation on North Korea with his trade policy toward Beijing, the president is now softening his tough trade rhetoric to enlist China’s support in combating a nuclear threat from Pyongyang.
Mr. Trump campaigned against China as a relentless thief of American jobs, and promised to stand up to Beijing. But on Monday, as he signed a memo authorizing an investigation of China’s theft and forced transfer of technology from American companies, the president mentioned China by name only once, and framed the issue as a broader problem.
“The theft of intellectual property by foreign countries costs our nation millions of jobs, and billions and billions of dollars,” Mr. Trump said, flanked by corporate executives. “For too long, this wealth has been drained from our country while Washington has done nothing.”
“They have never done anything about it,” he declared. “But Washington will turn a blind eye no longer.”
Mr. Trump pledged to defend American companies from counterfeiting and piracy. But the document he signed in the Oval Office only authorizes the United States Trade Representative to consider whether to begin an investigation.
That all but guarantees that the United States will not take any action against China, at least until after Mr. Trump meets President Xi Jinping in Beijing this fall. Mr. Trump, a senior official said, warned Mr. Xi of the impending trade action in a phone call late on Friday that was largely devoted to cooperating on the North Korea threat.
On Tuesday, China’s Ministry of Commerce warned that if the investigation were too aggressive, it would “harm both sides’ trade relations and companies.”
“If the U.S. side ignores the facts, and disrespects multilateral trade principles in taking action that harms both sides’ trade interests, China will absolutely not sit by and watch, will inevitably adopt all appropriate measures and resolutely safeguard China’s lawful rights,” the ministry said in a statement.
So far, Mr. Xi has fallen short of Mr. Trump’s hopes as a partner in pressuring the North Korean regime to curb its nuclear and missile programs. But senior officials said the White House still views China as the key player in curbing Kim Jong-un, the North Korean dictator.
The White House had deferred the announcement of the trade investigation until this week to secure China’s support for additional sanctions against North Korea at the United Nations Security Council earlier this month. It was only the latest example of Mr. Trump pulling back on the trade front to encourage a more constructive Chinese role on North Korea.
Chinese officials have historically tried to link disparate issues, like North Korea and American arms sales to Taiwan. On Monday, before Mr. Trump’s announcement, the official China Daily newspaper warned that his investigation would poison relations between the two countries.
“Given Trump’s transactional approach to foreign affairs,” the paper said, “it is impossible to look at the matter without taking into account his increasing disappointment at what he deems as China’s failure to bring into line the Democratic People’s Republic of Korea.”
Far from giving him leverage, however, experts said Mr. Trump’s linkage of trade and security was binding his hands.
“It implies that China’s action on North Korea is a gift to the United States, and not that these actions are in China’s own interests,” said Evan S. Medeiros, a former top China adviser to President Barack Obama. “It is a wrong assumption, and it plays into China’s own strategy.”
On the diplomatic front, administration officials fanned out in an attempt to lower the temperature following Mr. Trump’s remarks last week.
“The United States military’s priority is to support our government’s efforts to achieve the denuclearization of the Korean Peninsula through diplomatic and economic pressure,” General Dunford was quoted as saying in a statement released by Mr. Moon’s office.
He was echoing a point made by Mr. Mattis and Mr. Tillerson in an opinion column posted Sunday by The Wall Street Journal. “The U.S. has no interest in regime change or accelerated reunification of Korea,” they wrote. “We have no desire to inflict harm on the long-suffering North Korean people, who are distinct from the hostile regime in Pyongyang.”
On Monday, Mr. Mattis sent a message of deterrence. When asked about North Korea’s threat to fire ballistic missiles into the waters off Guam, an American territory in the Pacific, he said, “If they fire at the United States, it could escalate into war very quickly.”
Mr. Kim has been told that his military is ready to launch ballistic missiles toward Guam, but he said he would wait before telling them to proceed, the North’s state-run news media reported on Tuesday.
General Dunford’s visit to South Korea was the first of three stops in his trip to the region, which has been roiled by the exchange of threats between Mr. Trump and Mr. Kim. General Dunford arrived in China on Monday night, and will travel to Japan later in the week.
For months, White House officials have debated how harshly to strike China on trade issues. After threatening during the campaign to label China a currency manipulator, Mr. Trump decided to forego that step as he cultivated a personal relationship with Mr. Xi.
In April, the president ordered an investigation into the world steel market. White House officials said that inquiry was aimed squarely at China, which they accused of dumping excess steel in other countries that finds its way into the United States, and undercuts domestic producers.
But that effort has bogged down amid resistance from allies, who ship far more steel to the United States than China; domestic manufacturers, who worry about their supplies of steel; and the Defense Department, which objected to the White House’s decision to invoke national security as a criteria for propping up the domestic steel industry.
The administration’s decision to pivot from steel to intellectual property puts it on firmer legal ground. Few experts dispute that China has stolen or forced American companies to turn over technology at an estimated cost of $600 billion.
Yet Mr. Trump’s modulated tone seemed calculated to open a negotiation with China rather than ignite a trade war.
“The big issue is, what does Trump do? After you find that China has acted unreasonably, what is the remedy?” said Gary Clyde Hufbauer, a trade expert at the Peterson Institute for International Economics.
If the United States pursued China through the World Trade Organization, the case could stretch out through the remainder of the Trump administration. Mr. Trump could impose tariffs, but Mr. Hufbauer said, “You can be sure that the Chinese will retaliate.”
Another question is whether the White House will seek allies. Japanese and European companies are both victims of theft, and trade experts said a united front would strengthen Mr. Trump’s case.
Some senior officials said Mr. Trump’s decision to lead with an intellectual property case after weeks of talking about steel amounted to a “head fake” on the Chinese. But while Mr. Trump is delivering on one of his core campaign promises, the protection of intellectual property is not an issue that particularly animates his political base.
Still, said Daniel M. Price, a trade adviser to President George W. Bush who is now at Rock Creek Global Advisors, “The administration has sensed correctly that the mood in the U.S. business community has changed. Frustration with Chinese practices has risen to the point that they are willing to support strong enforcement action.”
https://www.nytimes.com/2017/08/14/us/politics/trump-north-korea-china-trade.html
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China bans North Korean iron, lead, coal imports as part of U.N. sanctions
Aug 14, 2017 | The Washington Post
By Simon Denyer
BEIJING — China moved to tighten economic pressure on North Korea by implementing a new package of U.N. sanctions Monday, but it simultaneously had a warning for the Trump administration: Don’t spoil our new-found unity by starting a trade war.
The Commerce Ministry announced a ban on imports of iron ore, iron, lead and coal from North Korea effective Tuesday — although China will continue to clear goods that have already arrived in port until Sept. 5.
At the same time, Beijing warned President Trump not to split the international coalition over North Korea by provoking a trade war between China and the United States.
Trump signed an executive memorandum Monday afternoon instructing his top trade negotiator to launch an investigation into Chinese intellectual property violations, a move that could eventually result in severe trade penalties.
In China, these proposed measures were seen both as an attempt to pressure Beijing to act more strongly against North Korea and as an effort to shift the blame for the world’s failure to rein in Pyongyang’s nuclear and missile programs onto China alone.
“It is obviously improper to use one thing as a tool to impose pressure on another thing,” Foreign Ministry spokeswoman Hua Chunying said Monday at a routine news conference.
With the commercial relationship between the two countries becoming more intertwined by the day, she said, a trade war is not a good idea. “There will be no winner,” she said. “It will be lose-lose.”
In an editorial, the state-owned China Daily newspaper said Trump was asking too much of China regarding North Korea, also known as the Democratic People’s Republic of Korea, or DPRK.
Trump’s “transactional approach to foreign affairs” is unhelpful, it said, while “politicizing trade will only exacerbate [the United States’] economic woes, and poison the overall China-U.S. relationship.”
That won’t bring results when it comes to North Korea, either, the editorial argued.
“By trying to incriminate Beijing as an accomplice in the DPRK’s nuclear adventure and blame it for a failure that is essentially a failure of all stakeholders, Trump risks making the serious mistake of splitting up the international coalition that is the means to resolve the issue peacefully,” it said.
“Hopefully Trump will find another path. Things will become even more difficult if Beijing and Washington are pitted against each other.”
China accounts for roughly 90 percent of North Korean trade but moved in February to suspend North Korea’s coal imports until the end of the year. Coal normally accounts for about half of North Korea’s exports, but despite the coal ban, overall trade between the two countries has remained healthy.
Last month, China announced that imports from North Korea fell to $880 million in the six months that ended in June, down 13 percent from a year earlier. Notably, China’s coal imports from North Korea dropped precipitously, with only 2.7 million tons being shipped in the first half of 2017, down 75 percent from 2016.
But iron ore imports grew sharply, reaching 1.34 million tons, worth an estimated $68 million, a 60 percent jump in the first half of the year.
A 29 percent spike in Chinese exports to North Korea — North Korea bought $1.67 billion worth of Chinese products in the first six months of the year — also helped push total trade between the two countries up 10 percent between January and June, compared with the same period last year.
The latest move to stem imports of iron, iron ore, lead and lead ore, as well as seafood products, will put significantly more pressure on Pyongyang. But it is unlikely to be enough to persuade North Korea to abandon its nuclear program, which it sees as essential to its own survival, experts say.
China is very reluctant to do anything that might destabilize the regime, which is a long-standing ally. It blames American hostility toward Pyongyang for forcing the regime to develop its nuclear program, and is urging dialogue to reduce tensions.
The move against China over trade was also seen here as an attempt to distract attention from Trump’s domestic problems.
“Bashing China cannot solve U.S. economic problems, experts say,” the state-run Xinhua news agency proclaimed.
The nationalist Global Times newspaper said a trade war with China could “boomerang” on Trump, because U.S. society and opinion could not withstand the losses that would result.
“If a China-US trade war starts, many of those who now support a hardline stance toward China would turn against the Trump administration,” it wrote in an editorial.
It even tried to link developments to violence and “racial hatred” that broke out in Charlottesville, Va., over the weekend.
“The source of global instability may not be North Korea’s nuclear ambitions nor Europe’s refugee crisis, but the chaos in the US,” it wrote in a separate opinion piece. “The public is also concerned that Trump is using international disputes to divert public attention away from the domestic turmoil.”
Shirley Feng, Yang Liu and Luna Lin contributed to this report.
https://www.washingtonpost.com/world/china-bans-north-korea-iron-lead-coal-imports-as-part-of-un-sanctions/2017/08/14/a0ce4cb0-80ca-11e7-82a4-920da1aeb507_story.html?utm_term=.35b1103aa6be
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Global shipping market shows signs of rebound, says broker
Aug 15, 2017 | Financial Times
By Naomi Rovnick and Mehreen Khan
The global shipping market is showing nascent signs of a rebound after spending about a decade in the doldrums, according to one of the most established businesses in the sector.
Clarkson, the world’s largest shipbroker, said on Monday it was seeing “very early signs” of the long hoped-for revival in the industry, which has been dogged by over-capacity and sputtering global trade since the global financial crisis.
As the group posted a 25 per cent increase in first-half profits, Clarkson chief executive Andi Case said: “This is a fundamental turnround and not just a short-term spike in the market.”
He said a major pullback in shipbuilding in the past four years meant companies were now paying more to transport their goods on ships.The Baltic Dry index — which measures the price of moving major raw materials by sea — has risen 54 per cent in the past six months.
Having warned last year of “materially” lower profits, Clarkson rebounded with a 25 per cent rise in pre-tax profits to £21.9m in the six months to June, on revenues of £157m.
The building of new ships has fallen to such low levels, Mr Case said, that supply and demand were starting to balance out. “We had market saturation of tonnage but that is changing,” he said. “Existing capacity is starting to absorb extra demand.”
Mr Case pointed out that while global shipyards produced 2,047 vessels in 2013, this fell to 217 last year. So far in 2017, according to Clarkson’s data, while 267 new vessels have been ordered, 266 have also been destroyed.Mr Case added that while there were 305 active shipyards in 2009, “I believe there are around 50 now that are truly active”.
This is not the first sign of a turnround in the shipping industry. The Financial Times reported in June that South Korean shipbuilders were emerging from a prolonged slump that has forced them to post billions of dollars of losses over the past two years.
Chinese shipbuilders have also increased their share of global vessel output since 2009, although this is partly because of a state subsidy that encourages shipowners to demolish old vessels and order new ones.
Some analysts poured cold water on the idea of an imminent shipping rebound, however. Stockbroker Liberum said that while “shipping markets continue to move in the right direction . . . the main shipping market segments remain broadly depressed”.Broking fees at Clarkson inched up from £115.5m to £118m in the first half.
Clarkson’s financial arm reported a 38 per cent rise in revenues to £16.7m as investors’ appetite for the sector strengthened.
The London-based shipbroker, which dates back to 1852, also hiked its interim dividend to 23p a share from 22p.
https://www.ft.com/content/524823a4-80bb-11e7-94e2-c5b903247afd
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Is the Shipping Industry on Cybersecurity Autopilot?
Aug 14, 2017 | Maritime Executive
By Michael Bahar
The summer months of 2017 have been a watershed for the maritime industry, and more is yet to come.
On the one hand, reports indicate that ships in Norway are closing in on becoming the very first in the world to operate completely without a crew. On the other hand, the recent Petya ransomware attacks struck the shipping industry hard.
The promise of economic and safety advances with increased digitalization and automation within the maritime industry is nothing short of revolutionary; but so too are the attendant risks, particularly from a cybersecurity perspective. Only recently, however, has attention been paid to cybersecurity concerns, particularly on the water.
In fact, even before fully autonomous ships plie the oceans, the cybersecurity vulnerabilities lurk beneath the surface, steadily growing as ships, ports, global navigation and supply chains get “smarter.” The implications of any cyberattack against global shipping are also increasingly extending far beyond the ship itself. Consider a cyber attack on an oil tanker, for example, which causes it to run aground and spill its contents. That alone would be a disaster. Now consider what would happen if that same attack occurred in the narrowest point of the Straits of Malacca, the approximately 1.7 mile-wide stretch through which over 15 million barrels of oil are otherwise transited per day, not to mention an estimated 25 percent of all global shipping. That would be a global catastrophe.
And yet, the shipping industry has remained relatively unprepared.
Recognizing this fact, the U.S. House Intelligence Committee included a provision in the Fiscal Year 2017 Intelligence Authorization Act that required the Under Secretary of Homeland Security for Intelligence and Analysis to look carefully at cybersecurity vulnerabilities and threats to ports and maritime shipping, as well as to the status of US Coast Guard efforts to address these concerns, and to report back within six months. This provision became law in May of this year.
In late July, the U.S. House also passed the Homeland Security Authorization Act of 2017, which also included provisions designed to better ensure port operators have a thorough plan for cybersecurity, and that would create a mechanism for port operators to share current cyber threat information and best practices.
In mid-July, the Coast Guard took its own action. Following its December 2016 addition of cybersecurity to the list of “security” items that are covered by the 2002 Maritime Transportation Security Act (MTSA), the Coast Guard, on July 15, announced a request for public comment its Navigation and Vessel Inspection Circular (NVIC) 05-17: Guidelines for Addressing Cyber Risks at MTSA Regulated Facilities. If promulgated, this NVIC would “begin to lay out a series of policies and procedures” to mitigate the growing cybersecurity risks while ensuring the continued operational capability of the Maritime Transportation System. Essentially, the NVIC would clarify the existing requirements under the 2002 MTSA to incorporate the analysis of computer and cyber risks, and it would set forth guidance for addressing those risks. Additionally, this NVIC would provide guidance on incorporating cybersecurity risks into an effective Facility Security Assessment (FSA), as well as provide additional best practices for policies and procedures that could reduce cyber risk to operators of maritime facilities.
This Coast Guard initiative would bring maritime facility security more in line with cyber best practices across other industries. For example, the draft guidance relies heavily on the National Institute of Standards and Technology’s (NIST) Cybersecurity Framework (CSF). First published in 2014, the NIST CSF assists organizations in assessing their unique cyber risks and vulnerabilities so that they can systematically mitigate them. The Framework, like the Coast Guard’s proposed NVIC, favors a holistic, proactive, and tailored process, not a standardized, one-and-done approach. Both also propose certain recommendations, such as reviewing the security of third parties and “air gapping” certain networks to keep them free from internet-borne viruses.
The NVIC also reflects the larger regulatory convergence around this approach to cybersecurity. Whether the SEC, FDA, New York State DFS or European GDPR, regulators are coalescing their approaches around requiring a holistic, proactive, risk-based and well-practiced cyber strategy.
Additionally—and importantly—regulators are increasingly signaling that they will be enforcing cybersecurity. In the maritime context, the inclusion of cyber within the MTSA could mean penalties of up to $25,000 per cyber preparedness violation. The prospect of greater regulatory enforcement could also translate into the need among the industry to plan ahead to prepare for the costs of responding to government investigations.Despite all this attention and increasing potential for regulation, more needs to be done, particularly when it comes to the ships themselves. The summer’s ransomware attacks that have hit a major shipping company make that point abundantly clear. It is also hard to avoid the particularly apt cliché that this ransomware attack is only the “tip of the iceberg” when it comes to the cyber threat to the shipping industry. Even cruise ships carrying thousands of passengers miles from land are vulnerable to debilitating cyber attacks, particularly as their bridges and engineering systems become increasingly high-tech and connected to satellites and the internet.
But, it is also not just about things, but about people. People are often the weakest link when it comes to cyber attacks, and yet, according to a 2015 FutureNautics survey, fewer than one in eight crew members on maritime vessels have received any cybersecurity training and fewer than half of crew members were even aware of cyber policies. Even a crew member who works in the kitchens can pose a cybersecurity threat if they connect their laptop to the ship’s network.
Not surprisingly then, over 40 percent of crew members report sailing on a vessel that had become infected with a virus or malware.
To be certain, there are those besides DHS and the Coast Guard who have been sounding the cyber alarm bells. The International Maritime Organization (IMO), for example, a specialized United Nations agency, has recently started incorporating cyber risk management into their regulations. By 2021, some of these regulations will require full compliance. In the interim, also in July of this year, the Baltic and International Maritime Council (BIMCO), a Denmark-based international shipping organization, in cooperation with other major maritime organizations, has produced its version 2.0 of “The Guidelines on Cyber Security Onboard Ships,” which are “aligned with the IMO guidelines and provide practical recommendations on maritime cyber risk management covering both cyber security and cyber safety.”
While the IMO regulations are not yet compulsory, and the BIMCO guidelines are “not intended to provide a basis for and should not be interpreted as calling for auditing or vetting the individual approach to cyber security taken by companies and ships,” the pace of digitalization, and the explosion of cyber malicious activity, indicates that any company not in compliance will be decidedly more vulnerable than its competitors, and may lose lucrative business contracts for those companies not willing to risk shipping their product on cyber insecure vessels.The industries that rely on shipping or provide services to the maritime industry must also take note, as successful attacks to shipping can have a vast ripple effect. Lloyds of London recently estimated that the true cost of a serious cyber attack could exceed $120 billion dollars. Underwriters therefore need to ensure that premium calculations keep apace with the changing cyber threat. At the same time, as part of its cyber strategy, the shipping industry needs to systematically review existing insurance to determine what is covered when it comes to cyber—and what is not.
Ultimately, for the maritime industry and for those industries reliant on the maritime industry, the time is now to generate and implement a sound cyber strategy, especially with the move to greater connectivity and greater automation. Cybersecurity is not just about IT, and it cannot be left to IT departments alone. Rather, cybersecurity requires a holistic, proactive, risk-based and well-practiced approach that starts at the very top of the companies and organizations.
In other words, cybersecurity is one feature of the shipping industry that cannot be left to auto-pilot.Michael Bahar is the former Minority Staff Director and General Counsel of the U.S. House of Representatives Permanent Select Committee on Intelligence. Bahar currently serves as a partner at Eversheds Sutherland (US) where he leads the Cybersecurity and Privacy team.
https://maritime-executive.com/editorials/is-the-shipping-industry-on-cybersecurity-autopilot
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Drillship Leaves Disputed Field in South China Sea
Aug 14, 2017 | Maritime Executive
Odfjell's Deepsea Metro I, a drillship contracted by Spanish oil major Repsol to drill for oil and gas in a Vietnamese exploration block in the South China Sea, has departed the area and arrived at the port of Labuan, Malaysia.
China had strongly protested the rig's presence at offshore block 136-03, which lies near Vietnamese-claimed Vanguard Bank. Vanguard is within China's sweeping "nine-dash-line" claim to the waters of the South China Sea (and within Vietnam's 200-nm exclusive economic zone). Despite Vietnam's insistence that it has a right to exploit natural resources in the disputed region, it bowed to sustained Chinese pressure last month and asked Odfjell to halt drilling.
Analysts speaking to the Times noted that Vietnam is not a treaty ally of the United States – unlike the Philippines – and faces uncertainty about whether the U.S. would help it to defend its interests if China should resort to the use of force. Additionally, Vietnam has few allies within Southeast Asia in its attempts to resist Chinese territorial claims.
Repsol said that the abruptly terminated campaign had cost nearly $30 million, and it may have been a missed opportunity: reports suggest that the Deepsea Metro I may have uncovered a major gas reserve near Vanguard shortly before Repsol was asked to halt work. The block is also part-owned by UAE-based Mubadala Development Co. and by Vietnam's state oil firm.
China and Vietnam have a history of tension over E&P activity in the South China Sea. In 2014, they faced off over a Chinese attempt to drill in Vietnamese waters near the Paracel Islands. China deployed over 100 civilian, coast guard and Navy vessels to defend the rig, and a Chinese fishing vessel allegedly rammed and sank a Vietnamese boat during the standoff. Chinese rigs deployed to other areas near the Paracels in 2015 and 2016, raising concerns of further confrontations.
https://maritime-executive.com/article/drillship-leaves-disputed-field-in-south-china-sea
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