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By Elizabeth M. Lynch, May 24, 2010

Only a handful of the 200 U..S. officials at today's Strategic & Economic Dialogue in Beijing

The second U.S-China Strategic & Economic Dialogue (S&ED) is off to an interesting start in Beijing.  The U.S.’ agenda for the talks – agreement on Iran sanctions, change in China’s currency policy, and greater openness of China’s procurement market for foreign companies – was largely overshadowed this morning by South Korea’s announcement that it will hold North Korea responsible for the torpedo attack on a South Korean war ship, the Cheonan, in March 2010 which resulted in the death of 46 sailors.

As the S&ED was set to open in Beijing, South Korea’s president, Lee

Chinese President Hu Jintao greets U.S. Secretary of State Hillary Clinton at Monday's opening of the S&ED

Myung-Bok, issued the strongest statement against North Korea in decades and announced that all trade between the Koreas would be suspended, investment would be stopped, and North Koreans would not be permitted to visit South Korea.  Additionally, South Korea will also reinstall megaphones at the border between the two countries and resume anti-North Korean broadcasting, a practiced it stopped in 2004 when tensions were easing between the two Koreas.  Previously, North Korea stated that any retaliation by South Korea in response to the Cheonam incident would be seen as an act of war; today it announced planned attacks on any South Korean megaphones at the border.

In her remarks during the S&ED’s opening ceremony, Secretary of State Hillary Clinton, who is accompanied by 200 U.S. officials on this trip, brought up the issue of North Korea’s increasing “belligerent” actions and the need for the U.S. and China to work together in regards to North Korea.  Chinese President Hu Jintao did not mention North Korea in his speech.

But President Hu did bring up the currency issue in his remarks, to the surprise of most.  In his speech, President Hu promised that China would continue to reform its currency policy, but noted it would be on China’s terms and such reform would be gradual.

With the delay of the Treasury Department’s report on China’s currency policy and recent op-eds in the state-controlled Chinese press regarding the need to give more flexibility to China’s currency — the yuan — it appeared that China would make some sort of concession on the currency issue.  However, the recent crisis in Greece and the European Union, which has resulted in a 20% drop in the value of the Euro against the dollar, changed that opinion.  By effectively tying the yuan to the dollar, as the dollar gets stronger against the Euro, Chinese goods become more expensive in the European Union, China’s largest export market.  So President Hu’s promise to do something about China’s currency policy was a bit of a surprise.  And the public nature of the comment was even more surprising since the revaluation of the yuan is a hot-button issue for the Chinese domestically: Beijing does not want to appear to be placating to U.S. demands.

But what remains to be seen is when: when will China adjust its currency policy.  Don’t expect that question to be answered at the S&ED which concludes Tuesday afternoon.

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By Elizabeth M. Lynch, April 14, 2010

World leaders met this week in Washington, DC to discuss the danger of nuclear war.  But as the world becomes increasingly reliant on the internet and increasingly connected through it, another threat is beginning to loom large – cyberwar.  When noted technology giant Google is susceptible to cyber-attacks, that does not bode well for the rest of us.  How safe is the U.S. from a large-scale cyber-attack?  Today Chinese hackers attack Google’s servers, but what about tomorrow?  Will the next attack be on something more critical, like a U.S. power grid?

Dr. Adam Segal, Ira A. Lipman Senior Fellow, Council on Foreign Relations

To understand the complex issues underlying the world of hacking and cyber-espionage, and how it relates to U.S.-China relations, China Law & Policy sat down with a noted expert on both China and cyber-security, Dr. Adam Segal, the Ira A. Lipman Senior Fellow at the Council on Foreign Relations.   In this exclusive interview, Dr. Segal discusses the nature of the attacks on Google, the involvement of the Chinese government in the hacking world and the danger China poses to the U.S.’ cyber-security.  But as Dr. Segal makes clear, it is not a one-sided affair; the U.S. also plays a very active role in hacking and cyber-espionage, making it difficult to challenge China when something like the Google incident arises.  Dr. Segal also explores the need for international cooperation on these issues and the role that international law can play in containing the threat.  Unfortunately, as he points out, the world community is far from reaching any sort of agreement, leaving all nations susceptible.

Click here to listen to the interview with Dr. Adam Segal (read below for transcript)

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EL:  Can you just give our listeners a little bit of background on the hacking which lead to Google’s announcement in January that it was looking to leave China?  How widespread and sophisticated was the attack and what was the theft that Google referenced in its press release if you know at all?

AS: Google announced that it was going to be shutting down its business in China.  And what they said drove them to that decision was a hacking incident which seems to have two main components.  The first was, as you said, a kind of attack on Google’s intellectual property, its corporate knowledge and corporate property.  And the second was attacks on the G-mail accounts of human rights dissents.  Google said it traced those attacks back to China; it didn’t implicate the Chinese government.  Others, like the New York Times have traced it back to Shanghai Jiaotong University and a computer training institute but the source of it still remains a bit of a mystery.

There is some debate about how sophisticated the attacks actually were.  They were referred to as the Aurora attacks.  Google has consistently said that they were extremely sophisticated but a number of other security analysts have said that in fact they were fairly basic, that much of the code used has been floating around for a long time.  What the IPR that the Chinese got or were trying to get is unclear, Google hasn’t specifically said.  Some people seem to believe that it was basically that it was the data and databases that Google collects on its own users.  So basically the kind of core knowledge that Google extracts from what Google users do, how they do it, when they do it, which would be one of the most important kind of assets that Google has.

EL:  In tracing back, or Google saying that the attacks were traced back to China, why is that difficult to ascertain?  To what degree…Can you put a percentage on how accurate you can trace back an attack?

AS:  The problem is that you can continually trace back the attacks to certain computers or to certain networks or IP addresses, but often once you get there, some more poking around leads you to another computer behind that.  And the other thing is the hackers themselves can spoof the address that they are using.  I think there becomes a fairly high degree of certainty about where the attack might have come within a national network.  In some cases, even down to specific IP addresses.  But even then you don’t know who the hacker was that was involved and you don’t know the hackers relationship to any state organization or anybody else for that matter.

EL:  And in terms of China specifically, the cyber-hacking, how prevalent is cyber-hacking from China compared to other countries like Russia or even the United States?  Is China being singled out here?

AS:  I think China is being singled out in a sense.  I mean given that it was a high profile attack on a company like Google, but also given the state of U.S.-China relations right now, that it fed into a worsening tenor in the bilateral relationship.  But in raw numbers, for criminal activity, clearly Russia is very high up there and we saw the political uses of cyber-hacking in the case of the Georgian war and Estonia and some other high profile political cases.  And there is a large amount of hacking that comes from the United States and that’s actually one of the big complaints on the Chinese side – is that the Chinese are being scapegoated and they themselves are often victims of attacks and many of those attacks come from servers in the United States.  When you look at the number of bad ISP – Internet Service Providers – that are hosting botnets and other kind of zombies that are attacking, there are a large number of them that are in the United States.  So, China is also a victim.

EL:  Just focusing on just China and the hacking there, can you explain maybe a little bit more what the hacker community is like in China.  Is it an organized community?  And what motivates the hackers – do they do this just for fun or are they ever “hired” for their skills?  And also how do they determine targets – how was Google determined?  Was that just something for fun or for profit?

AS:  I think the community itself is incredibly hard to characterize.  It’s very diverse, it’s, I think, very decentralized.  The community represents kind of the similar community that there is in the United States and Russia.  There are what they called script-kiddies – people, teenagers who are doing it for fun or to show off or to see what they can actually accomplish.  There are criminals – people that are just hacking for financial gains.  There are what are called patriotic hackers – people that hack websites out of a kind of nationalistic feeling.  Then there are hackers that are probably employed by the Chinese government, probably by the military and the security agencies that are used to attack specific targets for political reasons.  And then there are hackers in the military that are thinking about how cyber would be used in an actual military conflict.

Of course, the important question is the relationship about all of these people and I don’t think we really have a very good idea.  Clearly, there is some blurring of boundaries of patriotic hackers and criminal hackers.  The system itself seems to be in many ways a kind of mirror of the system that has made China such a power in the global manufacturing which is that there are kind of contracts and subcontracts and subcontracts of what people do.  Somebody might be in charge of writing a very low-level code and that code is then packaged up and used by people above them, who may then might contract for a specific project or may sell it on the open market.  Certain things are just put out there on hacker websites and you can just download them and buy them just for your own thing.

Why Google was targeted.  If, as Google says that they were part of an attack that seems to have included at least 30 other technology companies, there does seem to be a push from Chinese intelligence community, from its espionage community, to try and get advanced technology from foreign companies.  So we have seen for at least five years, if not longer, pretty concentrated, focused attacks on defense contractors and other U.S. technology providers.  And then, once you add the attack on the dissidents as well, then that also seems to be one of the interests of the attacks.  But who was, who within the Chinese government organized it or put it in a larger strategy, I think that we really have no idea. 

EL:  I guess that raises kind of the other issue that has been floating around there with the Google incident and cyber-hacking in general, is to what degree is the Chinese government involved in some of these incidences?  I know Northrop Grumman issued a report last year to the US-China Economic and Security Commission analyzing the link between, hacking for military purposes, but this general hacking of corporations, could it be that the Chinese government is behind it?  And also, when you make this distinction of political hackers, would that be motivated by the Chinese government or is it just a by-product of the nationalism that seems very active in China right now?

AS:  I don’t think we know.  I think the most we can say is on the espionage side, it just matches, or it pushes in the same direction of a general concern we know that China has about technological dependence and wanting to gain as much technology from the West as possible.  That strategy I think has been in place for fifteen, twenty years.  That includes perfectly harmless, normal technology policy about how China is going to increase its own technological capabilities, goes from that to espionage and theft.  You would expect that that would include the normal type of espionage or bribing, stealing, theft of secrets from corporations, to now including cyber-espionage and attacks and those things.  So I would say that the government has a role in the sense that it has set this general direction of the policy and these concerns about technology and China’s desire for it.

Clearly the intelligence agencies probably have a sense of specific technology that they are concerned about and want to know more about.  So the hacking of the F-35 and the F-22 and those kind of things, those are clearly probably driven by government agencies who are looking at a potential conflict with the United States and want to know what those capabilities are.

But once you get to the level of Google – is there a government official that says, well if we hack Google, then we can give that information to Baidu [the popular Chinese search engine] and we can have a competitor, I don’t think we can know.  That clearly is a possibility but at this point, it may just be criminal.  It may be a criminal that turns around and says to Baidu – we can sell this to you.

On the dissident side, I think it is probably very similar also.  I think in some cases the security agencies may have….are targeting specific individuals who are using those capabilities.  In other cases criminal hackers go after people and then turn around and say to the intelligence agencies – we’ve got this person so either do something for us or pay us for the information.

EL:  In the press it has often been the Chinese government attached to this cyber-hacking, but does the Chinese government ever see this cyber-hacking as a threat to its own rule either from domestic hackers or from hackers in the U.S.?  Are the government agencies ever a victim of the cyber-hacking and cyber-espionage either domestically or from abroad?

AS: Yeah, I would think all of the time. I think, from the international perspective the Chinese basically assume that the United States is engaged in cyber-espionage all of the time.  And that given our capabilities, in particular the capabilities that exist in the NSA – the National Security Agency – that they are….we are probably getting more from them then they are getting from us, in the Chinese perspective, and that we are constantly hacking them.  So they point to that as well as to the discussions in the United States about creating a cyber-command in the military and discussions about controlling the commons and all these other things as kind of a representation of American hypocrisy.  We are talking about militarizing cyber-space while they are being hacked.  So I think yes, that’s clearly and issue from outside of China.

On the domestic front I think yes, that Chinese government agencies and corporations are being hacked.  There’s been a number of prominent cases of Chinese hackers spreading malware to try and steal identity numbers and virtual money from these multiple player games.  Very prominent hackers have been arrested and eventually imprisoned.  So I think that is part of the threat.

The other threat is of course is that, dealing with these patriotic hackers is a double-edged sword for the Chinese government.  There is a fear that while they are focusing externally, U.S. corporations or U.S. government websites, in the case of the Olympics on French websites and things like that.  But if their ire is turned inward then those people could hack Chinese government websites.   I think the Chinese government is very concerned and you can see that in discussions about their own cyber-security but also trying to develop new types of software.  The problem is that the Chinese is hyper-reliant in Microsoft, something like 90% of Chinese government offices use Windows.  A lot of that is pirated which means that it is not updated regularly for security patches.  So there is a lot of vulnerability.

EL:  You make this distinction between patriotic hacking, criminal hacking, commercial hacking, but under Chinese law itself, is hacking in general illegal?

AS:  It is.  There are laws on the books against hacking, criminal hacking, privacy laws.  Those were strengthened in

Cute & Cuddly until he infests your computer

December 2008 and then again in February of this year I think.  The Chinese announced that they were going again to try to strengthen anti-hacking laws, in particular the kind of punishment for hackers.  Also on-line privacy issues and some tort issues about privacy and defamation.  Like I said, there are prominent cases of hackers who have been arrested and fined.  This guy who wrote this malware called Panda malware I think it was, and was sentenced to I think 3 years and fined $18,000.  So there are domestic laws against it.

EL:  And do you think the domestic laws are sufficient in dealing with this?  And also how do Chinese laws compare to laws in the United States against hacking?

AS:  I think they’re comparable.  I think the issue is with all laws in China has to do with implementation.  Clearly the issue for the United States or other countries, investigating hacking requires more cooperation from the Chinese about, who’s behind the attacks and actually following up on prosecution.  But I think within China, I suspect the issue is not the law per se but expertise….all the things we have in the United States about how do you prosecute cyber-crimes – expertise at the local level, resources, enough people staffing these kinds of issues.  From the Chinese perspective also, the U.S. hasn’t been all that helpful either.  I have heard a number of cases where the Chinese have turned around to the FBI and said –we think this hacking is coming from the United States.  And the United States has not been all that responsive from what I’ve heard.

EL: I guess cyber-hacking, it’s definitely a crime more without borders.  So how do you see international law or treaties coming into play here to battle the threat of cyber-espionage?

AS:  I don’t think there’s much to be done about espionage.  There’s no international treaties against espionage.  We engage in it, they engage in it, our allies engage in it.  I think that is likely to happen.  I think espionage we have to figure out how we are going to defend ourselves against.  The problem with espionage of course though is that it is hard to differentiate espionage from what could become vandalism or an attack.  So I think what we want to kind of agree on with the Chinese is that we know espionage is going to go on, but things like probing electricity grids, that should not be occurring or other kind of critical infrastructure.  We should be working on how do we declare those off limits.

On the criminal front there is a…the Council on Europe has this convention on cyber-crime.  I can’t remember how many countries have signed it now, it’s about I think 20 or 40, I can’t remember exactly.  But part of the problem is that most of the major players haven’t signed it; the U.S. has signed it, Japan has signed it but Russia hasn’t signed it.  Which goes a long way in defining consistent standards across national borders about what a cyber-crime is, how do you punish hacking, create a deterrent.  The problem with Russia, China things that we see as freedom of speech they see as a cyber-crime so that has been a problem in the case of Russia.  But the Chinese seem to be at least studying the Council on Europe convention which often kind of the first sign that the Chinese are moving toward international standards.  So I think that is a way to move forward.  And within Asia itself, ASEAN has had a couple of discussion about creating a similar kind of convention on cyber-crime in the region.

And then the other issue is this international convention on arms control, on cyber-war.  The United States has entered into discussions with the Russians about it.  That I think is very difficult and I think unlikely to be very useful because in the kind of traditional terms of arms control verification, inspection, those are all impossible with cyber-weapons.  So, that I think is useful just for talking for talking’s sake but will not result in any kind of concrete agreements.

EL: Just to follow-up on the convention on cyber-crime, you said that one of the problems is definition of terms.  Is that the only thing that would hold back a country like China or Russia from signing on to this kind of convention?  Or are there other factors?

AS: I think that’s a big one but I do think also that right now at least China and Russia find it politically and strategically useful to kind of have this arms-length relationship with hackers.  As we talked about earlier, this ties the government’s willingness to directly use or indirectly use hackers for their own political purposes makes it….right now that’s a reason for them not to crackdown too hard on criminal hacking.  So that is I think another reason why it has been hard to create a common ground.

EL:  Do you think that there is any space for having maybe a bi-lateral agreement between U.S. and China or a tri-lateral agreement between U.S., China and Russia about issues of cyber-espionage like not probing electricity grids or things like that?  Or do you think it would have to be global?

AS:  Well I think any convention would have to be global.  But I think there is a benefit for having these bi-lateral discussions only if because this area is newly emerging and policymakers I don’t think are particularly cognizant of all the risks and problems involved in any of these issues.  So just having a discussion with the Russians and the Chinese and others about what the potential rules of the road might I think are probably pretty useful.

EL: Absent any kind of global agreement, how best should the U.S. government and U.S. corporations deal with this issue of their own?  How can they better prevent it from happening?  Or can they?

Howard Schmidt - Cyber Czar

AS: That’s what we are struggling with now.  The United States finally has the cyber-czar in place, Harry Schmidt.  I think one of the big things that is still occurring in the United States is kind of a debate about what the best metaphor for this is, how do you think about this cyber-issue.  You have those like, the op-ed in the Washington Post several weeks ago by the former head of NSA, McConnell, about basically cyber-war and we’re losing it and his response was very much a militarization of cyber-space.  In fact he calls for something like the re-engineering of the internet so we can basically see where any attack is coming from.

And then you have Schmidt at a conference a couple of weeks ago saying – I don’t believe in cyber-war, I don’t think cyber-war is the right metaphor.  And you have those people talking about resilience and more of a public health model for how you respond to these things – you have to defend, you have to respond, you have to quarantine.

So I think we have this broad outline, we have this debate to settle in the States.  But the way we are moving is probably closer to the public health, well actually probably both tracks at the same time.  From the defense side I think you are beginning to see more traction on private-public cooperation, about definitions of standards – what does secure actually mean and how should it be implemented, more spending on R&D for cyber-security, more training of people and that’s a major issue is about getting people trained, more public awareness.  These are all domestic issues.

EL: And just a final question.  Since President Hu Jintao is in the United States, in Washington today, do you think in his side talks with President Obama, the issue of cyber-hacking and cyber-espionage will be coming up?  How important do you think the Administration views this issues especially in light of the fact that Secretary of State Clinton has openly talked about it?

AS:  I suspect it wasn’t brought up in these meetings if only because over the last two and a half weeks it has been a clear effort on both sides to try to get the relationship back on track.  Clearly the Administration’s major strategic concern right now is Iran and then with the currency being the second concern.  So those are the two issues, from what I’ve heard, were discussed in the meeting.  I suspect there were no reasons to bring up the cyber-issues because there are no solutions or discussion that is helpful to both sides at this point.  So other than just poking them in the eye with it, I don’t see why they would bring it up.  So I suspect it was not discussed.

EL: Thank you very much.  This was very interesting and I appreciate your time.

AS:  Thank you.

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By Elizabeth M. Lynch, April 2, 2010

In just a day, it appears that the bad blood that seemed to be spill between the U.S. and China is behind us.  Yesterday morning, China announced that it will participate in talks about sanctions against Iran, by late afternoon, President Hu Jintao of China announced that he will be visiting Wasnhington DC at the end of April, and this evening, the White House just issue a press release summarizing President Obama’s call with President Hu (text below).  Interesting turn events.  Does this signal a changed attitude between the two countries or perhaps just the natural ups and downs in a relationship between two powerful countries?

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By Elizabeth M. Lynch, March 31, 2010

Almost three months ago, the world witnessed an agonizing tragedy in Haiti: an earthquake killing hundreds of thousands and displacing millions in one of the world’s poorest countries.  Other countries were quick to respond, offering aid and assistance.  But how did the world’s emerging superpower respond?  In this informative essay, Marcy Nicks Moody examines China’s response to the Haiti earthquake, arguably China’s first chance to show the world that it is a responsible global leader.

In the Aftermath of Haiti’s Earthquake: Where is China?

By Marcy Nicks Moody

Though Haiti’s plight no longer appears above the fold of our daily newspapers, it remains one of the world’s most dire. At least 230,000 lives were lost in the earthquake of January 12. More than 300,000 people were injured, and at least 1.3 million were left homeless. This would be a catastrophe anywhere, but for a country of some 10 million, the proportion is gargantuan. More than two months following the magnitude 7.0 quake, shelter, security, and sanitation remain inadequate, and people live in camps of tents and tarpaulins, unlikely to move to more permanent dwellings any time soon.

The international community has responded to the tragedy in Haiti with laudable humanitarian assistance as well as more extended commitments to help “build [Haiti] back better,” and just today, the United Nations and United States co-hosted an International Donors Conference to mobilize support as Haiti lays the foundation for its long-term reconstruction and development. The financial resources necessary for this undertaking are huge: $11.5 billion now, $34.4 billion over the next decade, or five years to Haiti’s current GDP.

Chinese Aid Workers in Haiti

For China watchers, this conference—and, more importantly, the commitments made at it—may provide further insight into the status of China’s global influence. There has been much ado about China’s arrival on the world stage since its apparent and early exit from the nadir of the economic crisis. And over the last several months, Beijing has increasingly comported itself in such a way as to suggest that it believes in the veracity and longevity of this arrival. Largely, this has taken the form of vitriolic verbiage on issues ranging from Copenhagen to Tibet to its exchange rate. But there are better metrics for global influence than causticity. One of these is a country’s response to other countries in times of need.

Haiti is a particularly interesting case in that it is one of fewer than twenty-five countries left in the world that maintains diplomatic relations with Taiwan in lieu of the People’s Republic. Beijing’s traditional response to such countries—often poor ones in Africa and the Caribbean—has generally been a deep-pocketed charm offensive, with preferential loans and big investments. Cynical though it may sound, Haiti’s crisis could be seen as China’s opportunity to curry favor with—or extract a quid pro quo from—a country with which it would like to have diplomatic relations.

Indeed, China has already taken a number of steps to wean countries in the Caribbean and Latin America from Taiwan.

Sichuan Earthquake

China is a non-borrowing member of both the Caribbean Development Bank as well as the much larger Inter-American Development Bank (IADB), meaning it provides capital but takes no money in return. Though in the latter case, IADB procurement contracts for Chinese firms was also an important motivation for joining, it was not the only one. Moreover, Chinese—in Beijing and elsewhere—understand the tragedy an earthquake can wreak better than many, or perhaps most. On May 12, 2008, a magnitude 7.5 earthquake struck Sichuan Province, killing almost 90,000, injuring 360,000, and leaving 5 million homeless. Like Haiti, poor building construction contributed to the scale of human loss. The outpouring of emotion and assistance was immense. With such a horrible tragedy in China’s recent past, one might think that China might sympathize with Haiti’s plight.

But China’s response to the Haitian earthquake has not been as generous as either of these arguments would suggest. Beijing has donated $1 million to the emergency aid efforts, and does not yet appear to have made longer term commitments. It is not among the ranks of the largest donors, which include the United States, Brazil, Canada, and the European Union. The United States, for example, immediately pledged $100 million for the relief effort, and Congress is considering an additional aid package of $2.8 billion. That said, a 125 member search-and-rescue team, medics, and aid supplies coming from China were the first to reach Haiti. The tragedy has not gone unnoticed in China.

So why has China done so little? To be sure, Beijing does not tend to view its assistance activities as ‘foreign aid,’ but rather frames them as offering help to brother or sister countries in times of need. With a quasi-colonial history of its own, China tends to avoid activities that may smack of imperialism or appear to encroach upon a country’s sovereignty. This may be why China avoids national-level coordination efforts and refrains from coordinating donor activities. However, avoiding international coordination now, which may be part of China’s reasons for remaining relatively inactive, will do Haiti no good.

Moreover, Haiti’s relatively small size and vast humanitarian tragedy, coupled with China’s phenomenal ability to execute construction and public works projects in minimal time, present an extraordinary opportunity to showcase China’s arrival and its ‘harmonious’ foreign policy, not just in Haiti or Latin America, but to the world. As Beijing continues to be roiled by the public relations disaster that is its dispute with Google, Haiti is a place in which China could do well. It might actually do some good, too.

Marcy writes about China. In 2007-08, she was a Fulbright Scholar in China, where she was also a Research Fellow with the U.S.-Asia Law Institute. She received an M.A. in East Asian Studies from Columbia University and graduated from Brown University.

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By Elizabeth M. Lynch, February 2, 2010

In yesterday’s New York Times, Helene Cooper argued that the Obama Administration’s recent announcement of over $6 billion in arms sales to Taiwan shows a “new toughness” toward Beijing and perhaps even a “fundamentally new direction” in the Administration’s China policy.  But, by focusing on the arms sales, Ms. Cooper overemphasizes the event.  U.S. arms sales to Taiwan are far from novel or tough, and some may argue, periodically required under U.S. law.

Similarly, Beijing’s angry reaction was predictable.  In fact, for each prior Administration’s arms sales to Taiwan, the Chinese government has responded in much the same way: postponement of military-to-military meetings, issue formal protests with U.S. officials, and saber-rattling for the domestic consumption.  However, Beijing’s recent threat of sanctions against U.S. companies involved with the arms sales is new and serious.  But this is more a reflection of China’s growing confidence and less a reflection of a changed or “tough” U.S. policy toward China.

Why Does China Care so Much about Taiwan?  Isn’t it a Separate Country?

Nope, scrap that vision from your mind.  Taiwan is not a separate country, at least not in the eyes of the Chinese, Taiwanese or U.S. governments.   The People’s Republic of China (a.k.a. the mainland) views Taiwan (a.k.a. “The Republic of China”) as a renegade province and any relations between Taiwan and other countries is viewed as interference in the mainland’s domestic affairs.  While Taiwan has largely developed as an independent society, it agrees with the mainland’s assessment that there is only “one China.”  The Taiwanese government has never called for independence and the Kuo Min Tang party (pronounced Gwo min-dang and a.k.a. “the Nationalists” or KMT), which has ruled Taiwan for most of Taiwan’s separate existence, also espouses the view of “one China” and that eventually, the mainland and Taiwan will reunite.  The difference is who rules this reunited China.  For Taiwan, it’s the KMT; for the mainland, the Chinese Communist Party (CCP).

All of this stems from World War II.  After the War ended in 1945, the KMT and the CCP resumed their civil war, a civil war that was put on hold to fight the Japanese invasion from 1937 to 1945.  By 1949, the CCP’s victory was certain and the KMT government fled to the province of Taiwan to continue the Republic of China.

Thus began the baffling existence of two Chinas – the communist People’s Republic of China on the mainland and the KMT’s Republic of China on Taiwan.  Each China claimed that it was the “official” and “rightful” China and the other a mere province; each forced the international community to recognize only one China – either China on the mainland or China on Taiwan – hence the birth of the “one China” policy.

The U.S. continued to ally itself with the KMT and the Republic of China, recognizing Taiwan as the official China and all but denying the existence of the mainland.  But starting in 1972, with President Richard Nixon’s historic visit to the mainland, relations between the U.S. and the PRC began to improve and in 1979, the U.S. switched recognition of China from Taiwan to the mainland.

Obama’s Arms Sales to Taiwan Is Par for the Course in U.S.-China Relations

The Obama Administration’s recent announcement of arms sales to Taiwan follows a long line of arms sales by the U.S.  Almost every president since 1978 has sold arms to Taiwan.  In fact, the U.S., under the 1979 Taiwan Relations Act (TRA), is required to sell defensive arms to Taiwan.  In 1979, after changing recognition to mainland China, the U.S. did not want to leave its former ally completely open to attack or takeover.  As a result, Congress passed the TRA.

The TRA authorizes quasi-diplomatic relations between the U.S. and Taiwan.  For example, instead of having an official embassy on Taiwan, the TRA allows for the “American Institute in Taiwan.”  Additionally, and more importantly, the TRA established the U.S.’ responsibility toward Taiwan if it is threatened.  At issue here is the TRA’s requirement that the U.S. periodically sell defensive arms to Taiwan.

In announcing arms sales to Taiwan, the Obama Administration is merely following its obligations under the TRA.  Additionally, the Obama Administration has not acquiesced to Taiwan’s request for F-16s.  During the George W. Bush Administration, Taiwan repeatedly requested the purchase of F-16s.  Similarly, Taiwan put out feelers with the Obama Administration to see if there was a possibility that they could purchase F-16s.  Again, Taiwan was told not to put in a formal request for F-16s.

The F-16s are a big issue since they are not “defensive” arms; Beijing would very much view a sale of F-16s to Taiwan as going a bit too far.  But Obama’s package to Taiwan merely includes the usual: Patriot missiles, Black Hawk helicopters, mine-hunting ships and information technology.

If the Obama Administration wanted to use the Taiwan arms sales requirement to “toughen” its stance to Beijing as the New York Times claims it has, the Administration would have acquiesced to Taiwan’s request for F-16s.  Instead, it merely sold similar arms to Taiwan that President George W. Bush sold in 2008.

This is not to say that the Obama Administration does not have a strong China policy.  Secretary of State Hillary Clinton’s recent policy speech on internet freedom was a robust critique of countries like China that censor their internet and partake in cyberhacking.  This follows President Obama’s strong and public criticism of internet censorship while in China this past November.  The New York Times would have done better to focus its argument on the Administration’s novel and forceful rhetoric on internet freedom vis-à-vis China.

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By Elizabeth M. Lynch, January 31, 2010

China Law & Policy went live on the West Coast today, making our radio debut on Ian Masters‘ “Background Briefing” on KPFK 90.7.   A show that goes behind the headlines, we discussed the implications of the Supreme Court’s Citizens United decision and the ability for foreign money to potentially influence U.S. elections.  Feeding off of our recent article in the Huffington Post, we paid special attention to Chinese corporations.

Click here to Listen to “Background Briefing” on China & Citizens United
Length: 19 minutes

Mr. Masters, a trained BBC-trained broadcast journalist, puts on a very engaging and informative show.  Those of you in the L.A. area can listen every Sunday from 11 AM – 1 PM PST on 90.7.  The rest of us can live stream through the KPFK website.

Thank you to Susan T for her superb audio splicing talents!

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By Elizabeth M. Lynch, January 30, 2010

On Sunday (1/31), China Law & Policy will make its radio debut.   I will be on Ian Masters show, “Background Briefing,” at 3:30 PM EST/12:30 PM PST discussing the international implications of Citizens United.

You can listen live over the web at: http://www.kpfk.org/listen-live.html

For those of you on in southern California (L.A. area), tune your dial to KPFK 90.7

Thanks!

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By Elizabeth M. Lynch, January 29, 2010

Originally Posted on the Huffington Post

In 1966, because of the fear of foreign influence in U.S. elections, Congress passed the Foreign Agents Registration Act.  Eventually incorporated in the 1974 Federal Election Campaign Act, the law prohibits foreign governments, foreign political parties, foreign corporations and individuals with foreign citizenship from contributing, donating or spending funds, either directly or indirectly, in any U.S. election.

What started it all - Hillary the Movie

While this law has been important to the functioning of our democracy, the Supreme Court, in the case of Citizens United v. Federal Election Committee, has moved perilously close to abolishing it and opening the U.S. political process to foreign money, influence and—given the structure of some multinational corporations—direct pressure from foreign governments.

This change stems from the majority opinion’s unprecedented elevation of corporations to equal status with individual citizens in the sphere of political speech.  For convenience’s sake, the law does periodically describe corporations as “legal persons” and “citizens” of the state in which they are incorporated.  But in Citizens United, the majority has taken this legal short-hand literally.  In the majority’s opinion, courts are no longer permitted to take into consideration elements such as limited liability, perpetual life and preferential tax treatment that distinguish a corporation from an individual citizen when analyzing a corporation’s rights, nor are courts allowed to treat corporations differently from actual persons (as they have been  doing since the country’s founding.)  After Citizens United, the law can no longer look behind the curtain of the corporate form: Citizens United commands that the law pertaining to political speech treat corporations exactly as individual citizens.  Simply put, distinctions between corporations and human beings are no longer permissible and limitations on corporations’ political speech are unconstitutional.

In treating corporations the same as individuals, Citizens United leaves the door wide open for foreign influence in our politics.  In the case of Chinese corporations, this also means foreign government involvement.  Most multinational Chinese corporations, like Haier, China Telcom, and China State Construction Engineering Corporation (CSCE), have U.S. subsidiaries.  These are companies incorporated in the United States: Haier’s U.S. subsidiary, Haier American Holding Corporation, China Telecom’s subsidiary, China Telecom Americas, and CSCE’s subsidiary, China Construction America, are all incorporated in Delaware.

Under Citizens United, all three of these subsidiaries are citizens of Delaware and enjoy the same political speech rights as any other citizen of the United States.  Citizens United does not permit us to look behind their corporate veil to see their relationship to foreign corporations.  But make no mistake: these subsidiaries are heavily influenced—if not outright controlled—by their Chinese parent corporations.  This is not unique to Chinese corporations.  In a parent-subsidiary relationship, especially for foreign corporations, there is a lot of overlap between the parent and its U.S. subsidiary; the parent usually owns a majority, if not all of the shares of the subsidiary; capital is often infused to the subsidiary from the parent; and directors from the parent’s board usually sit on the subsidiary’s board of directors.  This is the relationship that Haier, China Telcom, and CSCE all have with their U.S. subsidiaries.

What is unique to Chinese corporations is the scope of their government ties—indeed, some are controlled outright by the Beijing government.  Unlike in, say, Western Europe, places like China, Russia and Vietnam still have a fair share of government-run corporations.  Haier, China Telecom and CSCE are all officially government-run.  While the Chinese government does not meddle in the corporation’s daily affairs, it will exert its influence if it suits the government’s self-interest. For example, in 1994, Haier, a manufacturer of washing machines and refrigerators, was pressured by the Chinese government into acquiring a pharmaceutical company, a venture that ended badly.

Citizens United allows for the very real possibility of the Chinese government’s direct influence in our elections through a Chinese corporation’s U.S. subsidiary.  While no official number exists about the number of Chinese companies with a U.S. subsidiary corporation, Dan Harris, a partner at the international law firm Harris & Moure and editor of the China Law Blog, believes that the number is substantial.  “My small firm represents a number of U.S. companies that are wholly-owned by Chinese companies or by Chinese citizens and that convinces me there must be thousands of such companies in the U.S.”  While certainly not all of these Chinese companies with a U.S. presence are directly owned by the Chinese government, there are likely many more than just Haier, China Telecom and CSCE.  And given China’s vast currency reserves ($2.4 trillion, the world’s largest), the Chinese government certainly has the money to spend on U.S. elections should it choose to do so.  Corporations in other countries, particularly oil-rich ones like Saudi Arabia and Russia, also own U.S. subsidiaries.  The threat of foreign involvement in our elections has been noted by the White House, as seen in the Obama’s critique of the decision during his State of the Union, and by Congress as it explores ways to nullify Citizens Untied.

This issue wasn’t completely lost on the majority in Citizens United—they simply chose not to deal with it.  While the majority hinted that there could be a compelling interest in preventing foreign nationals, foreign corporations or foreign governments from influencing the political process, the logic underlying Citizens United’s literal definition of the corporation as citizen prevents this.  After Citizens United, courts are no longer allowed to look behind the curtain of the corporate form to the realities of the situation or to distinguish between corporate citizens and individual ones; the majority opinion allows no leeway to examine the foreign origins of the shareholders.  For the purposes of political speech, one person’s U.S. citizenship, be it from a passport or from the documents of incorporation, is just as good as another’s; to draw distinctions would be discriminatory.

Given that the majority in Citizens United so easily overturned it previous rulings with regard to limitations on

Justice Samuel Alito

corporate participation in elections, one ought not expect the Court to maintain any consistency when a case involving political donations from a U.S. subsidiary of a foreign corporation comes before it.  The Justices will want to reach the result that American subsidiaries controlled by foreign entities cannot provide support to political activities; Justice Alito, with his mouthing of the word “not true” during Obama’s State of the Union address, certainly signaled this.  Such a result, however, will require the Court to overturn the logic of the corporate citizen as equal to an individual citizen. A majority will likely call this an “exception.” In reality, it is more of an excuse.  In either case, such a ruling will likely prove difficult to enforce.

Many Chinese corporations have American subsidiaries that are private, i.e., are not subject to the same reporting requirements as publicly-traded ones.  In some states, such private corporations have no reporting requirements at all.  With a private corporation, it is difficult to determine share ownership, identity of officers or even names of the directors.  This difficult detective work will become the responsibility of the Federal Election Commission (FEC).  Ironically, the majority in Citizens United found that the campaign finance law’s requirement that corporations work through their Political Action Committees (PACs) during the law’s 30-60 day quiet period was too burdensome since it required copious amounts of paperwork.  Imagine the time, effort and money the FEC will be required to put into determining the ownership of any number of private corporations.

In equating corporate citizenship with individual citizenship, the Court does more than just disregard its own rules of precedent and stare decisis.  It also provides an image of a corporation completely disconnected from reality, does a grave disservice to our political process and jeopardizes our democracy.  And that, Justice Alito, is the truth.

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By Elizabeth M. Lynch, January 28, 2010

State of the Union addresses are mandated by the Constitution, and like most requirements in life, are often dull.

Barach Obama's first State of the Union

The speech usually turns into a laundry list of the President’s priorities with little rhetorical flair.  Often the most exciting part is when the TV cameras pan the audience and catch Senators and Congress members misbehaving.  This year it seems as if everyone Congress member was “tweeting” on their blackberry.

So to spice it up a bit, we at China Law & Policy decided to analyze President Obama’s first State of the Union address in terms of China.

Not surprisingly, President Obama’s speech focused mostly on the domestic agenda.  But China was mentioned twice, although both times only briefly.   China was first mentioned in regards to the technology behind its fast trains.  Similarly, when President Obama brought up China a second time, it was in regards to its technological advancement and that the U.S. must not fall behind.  In both instances, China was used more as a foil than anything else.

More compelling were the points when China wasn’t named but perhaps should have been.  In terms of trade partners, President Obama stated that he wanted closer ties with Panama, South Korea and Colombia.  But this is likely less of a snub to China than the fact that the Obama Administration is waiting on Democrats in Congress to approve free trade agreements with these three nations.

China was also absent when President Obama discussed the nuclear threat from both North Korea and Iran.  In fact, no other nation was mentioned and while President Obama was very forceful in threatening the two countries with increased sanctions, his actions appeared rather unilateral.  This is in contrast to his predecessor; in George W. Bush’s 2003 State of the Union address, the President specifically mentioned China as necessary to reach a peaceful solution on the Korean peninsula.

Does this mean that the U.S. is not receiving China’s support on this front?  It’s hard to tell.  Given the American public’s focus on the economy, health care and the corruption culture of Washington, it’s not surprising that President Obama’s speech had very little focus on foreign policy.  To draw any conclusions from the little he did say is speculative, but at the same time is something to be aware of and to watch.

Click Here for a Transcript of the State of the Union Address

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By Elizabeth M. Lynch, November 23, 2009

Originally Posted on the Huffington Post.

 Beijing, China – The U.S. press has not been kind to President Barack Obama and his recent visit to China.  Claiming that the U.S.’ tone has become conciliatory toward China, that the trip “yielded precious little” and even oddly comparing the Obama Administration’s behavior on the visit to a one-party, authoritarian regime, the U.S. press has all but designated the trip a failure.

But the trip was most certainly not a failure and in many ways fulfilled the U.S. press’ predictions – an event filled with a huge agenda covering a multitude of global issues, likely offering few deliverables, and probably playing down, at least publically, human rights.

So if the trip confirmed the press’ earlier predictions, then what’s got their panties all in a bunch?  Perhaps the one thing that upsets the press more than anything is a lack of access, and on this trip, the press certainly played second fiddle.  Questions were not taken from the press during last Tuesday’s press conference and very little other access was offered to the President.  But with only a day and a half in Beijing, this trip was not really about the press.

But in measuring President Obama’s trip based solely on their access, or lack of, the U.S. press has failed to report on some pretty substantial results of President Obama’s trip to China.  In what you likely will not find in other media outlets that are still licking their wounds from an alleged snub, below are some of the surprising deliverables from the visit.    

1.  Increased Military-to-Military Contact and High Level Military Exchanges

If the lack of communication between the U.S. and Chinese militaries does not keep you up at night, well it should.  The U.S. has a better relationship with Russia’s military than it does with China’s, but has more potential to cross paths with China’s because of the U.S.’ military presence in Asia.  Without proper channels of communication between the two militaries, a small skirmish can easily become a major crisis, as President Obama knows from his first months in office when Chinese navy ships circled and threatened a U.S. navy vessel in the South China Sea. 

Adding to the lack of communication is China’s broad interpretation of its “exclusive economic zone” (EEZ). A country’s EEZ extends 200 miles from the coast and gives the country sovereign rights over economic activities in those waters (usually the country uses its economic zone to search for natural resources).  By China’s broad definition, its sovereign rights in the EEZ expand outside of the economic realm, permitting it to interfere with other countries’ ships that enter its EEZ.  The U.S., as well as most other countries, perceives the EEZ as providing solely economic sovereignty for the coastal state, allowing other countries’ ships free access.  For the U.S., this also includes ships that are conducting military surveillance on the coastal state (for an excellent assessment of these different interpretations, see Margaret K. Lewis’ “An Analysis of State Responsibility for the Chinese-American Airplane Collision Incident”).  Needless to say, these different interpretations only add to the tensions between the two militaries. 

In the U.S.-China Joint Statement issued last week, much needed progress was made on the military front, especially in terms of communication.  High level exchanges between the U.S. and Chinese militaries will continue, with the Chief of the General Staff of the China’s People’s Liberation Army, General Chen Bingde, visiting the U.S. and both Secretary of Defense Robert Gates and Chairman of the Joint Chiefs of Staff Admiral Michael Mullen making a trip to China.

In regards to differing definitions of the EEZ, the Joint Statement alludes to this issue, showing that the two sides likely discussed and acknowledged the problem (From the Joint Statement: “The United States and China agreed to handle through existing channels…maritime issues in keeping with norms of international law and on the basis of respecting each other’s jurisdictions and interests”).  Granted they failed to reach a compromise, but this is not an issue that will be easily solved.  Just discussing this sensitive topic is progress. 

2.  Both Public and Private Discussion of Human Rights

Interestingly, a press that largely ignored this issue prior to President Obama’s trip is making a big deal of his “silence” on human rights violations in China.  Last I checked though, freedom of speech is usually regarded as one such right and President Obama discussed this issue rather bluntly and passionately at the Shanghai town hall.  While it is debatable as to whether focusing on freedom of expression on the internet is sufficient to assist China with a development of a civil society and a rule of law, it is difficult to argue that President Obama did not publically bring up the subject of human rights. 

Furthermore, in his letter written to China’s Southern Weekend newspaper, President Obama stressed the importance of a free press.  True, this letter was not permitted to be circulated to a wider audience, but it portrays the President’s continued emphasis, both publically and privately on human rights.

The Joint Statement also discusses human rights in general and calls for the next official human rights dialogue between the U.S. and China to be held by the end of February 2010 in Washington, D.C.  The Joint Statement also stressed the importance of rule of law in China and agreed to reconvene the U.S.-China Legal Experts Dialogue (see the Dui Hua Foundation website for further background).  With the increasing push back by the Chinese government in the area of rule of law, especially as it pertains to civil rights and civil liberties, deepening cooperation is an important deliverable.

It is true that the Obama Administration has opted more for a strategy of quiet engagement on this issue.  Whether the approach is effective remains to be seen.  This past summer, the Administration was able to secure the release of public interest attorney Xu Zhiyong through behind the scenes pressure on the Chinese government.  However, almost immediately after President Obama left China, the Beijing police apprehended and beat public interest lawyer Jiang Tianyong (pronounce Geeang Tian-young) as he was walking his 7 year old daughter to school.  While Mr. Jiang has since been released, he is under very tight surveillance.  Perhaps if President Obama had mentioned the plight and importance of public interest attorneys in China, the arrest of Mr. Jiang might not have happened.  Or maybe it would have.

Either way, the U.S. press’ conclusion that President Obama “soft-peddled” human rights on his trip does not appear to ring true.  Human rights was certainly discussed, both publically and privately, it just appears that perhaps China was not listening. 

3.  Clean Energy and Climate Change

As expected, the U.S. and China entered into a series of cooperative agreements pertaining to clean energy and climate change technology.  While neither side agreed to emission targets, the level of detail provided for in the issued agreements was more than anticipated.  Most interestingly, the U.S.’ Environmental Protection Agency and China’s National Development Reform Commission signed a memorandum of cooperation to help China develop its capacity to measure its greenhouse gas inventories.  This is no small feat.  China’s does not currently have the capacity to accurately measure its greenhouse gas emissions and thus, if it was to agree to emission targets, would be unable to provide verifiable data.  China’s lack of capacity on this front has rightly been a sticking point for many in the U.S. Congress, preventing the passage of domestic climate change legislation that would be used to bind the U.S. internationally.

This memorandum of cooperation is the first step to enable China to agree to emission targets and for the rest of the world to believe them. 

President Obama’s visit to China was certainly not overly exciting but it was far from the failure that the U.S. press has made it out to be.  It also does not signify the U.S.’ decline as some alarmist media outlets have claimed.  Instead, the visit was a series of tough negotiations between two global powers.  Both had winning issues and losing ones.  And in the end, President Obama likely walked out with a little more than expected.  For me, that’s an accomplishment.