Our So-Called Foreign Policy: Long Overdue Curbs on U.S. Financial Investment in China Seem at Hand

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CCP Virus, China, coronavirus, COVID 19, cybersecurity, government workers, human rights, investing, investors, MSCI, national security, Our So-Called Foreign Policy, pensions, privacy, rogue regimes, sanctions, Steven A. Schoenfeld, surveillance, Thrift Savings Plan, Trump, Wuhan virus

A major debate has just broken into the open over some crucial questions surrounding the future of U.S.-China relations. Chances are you haven’t read about it much, but it essentially involves whether Americans will keep – largely unwittingly – sending immense amounts of money to a foreign regime that was long posing major and growing threats to America’s security and prosperity even before the current CCP Virus crisis. The details, moreover, represent a case in point as to how stunningly incoherent America’s China policy has been for far too long.

The controversy attained critical mass this week when the Trump administration on Monday “directed” the board overseeing the main pension plan for U.S. government employees and retirees (including the military) to junk a plan that would have channeled these retirement savings into entities from the People’s Republic. The President can’t legally force the managers of the Thrift Savings Plan (TSP) to avoid China-related investments. But he does have the authority – in conjunction Congressional leaders – to appoint members to the board, and has just announced nominations to fill three of the five seats. 

This afternoon, the board announced that its recent China decision would be deferred. But because it’s still breathing, all Americans need to ask why on earth the U.S. government has ever allowed any investment in shares issued by entities from China (as known by RealityChek regulars, I refuse to call them “companies” or “businesses,” because unlike their supposed counterparts in mostly free market economies, they’re all ultimately agents of and most are massively subsidized by the Chinese government in one way or another). And why doesn’t the board just kill off the idea for good?    

After all, at the very least, Chinese entities often engage in the most fraudulent accounting practices imaginable, thereby preventing outsiders from knowing their real financial strengths and weaknesses. As just pointed out by Trump administration officials, many also play crucial roles in China’s human rights violations and engage in other practices (e.g., hacking U.S. targets, sending defense-related products and technologies to rogue regimes) that could subject them to national or global sanctions. Worst of all, the thick and secretive web of ties between many of these entities and the Chinese military mean that in a future conflict, U.S. servicemen and women could well get killed by weapons made by Chinese actors partly using their own savings.

Further, government workers’ savings aren’t their only potential or even actual source of U.S. financing. Any American individual or investment company or private sector pension plan is currently allowed to direct money not only toward any Chinese entity listed on American stock exchanges (even though regulators keep complaining about these entities’ lack of transparency – while generally continuing to permit their shares to trade). Such investment in Chinese entities listed on Chinese exchanges is perfectly fine, too. In addition, as documented on RealityChek, U.S.-owned corporations have long been remarkably free to buy stakes in Chinese entities whose products and activities clearly benefit the Chinese military.

Still, the idea of the federal government itself significantly bolstering the resources of China’s regimes belongs in wholly different categories of “stupid” and “reckless.” And don’t doubt that major bucks are involved. The total assets under management in the TSP amount to some $557 billion. And about $40 billion of these are currently allotted to international investments. (See the CNBC.com article linked above for these numbers.)

Could there be any legitimate arguments for permitting these monies – most of which are provided by U.S. taxpayers – to finance an increasingly dangerous Chinese rival? Defenders of the TSP China decision (prominent among whom are officials of public employee unions, who seem just fine with underwriting a Chinese government whose predatory trade practices have destroyed the jobs and ruined the lives and jobs of many of their private sector counterparts) maintain that the prime responsibility of the managers is maximizing shareholder value. And since the TSP had decided that the optimal mix of international holdings are essential for achieving this aim, it quite naturally and legitimately decided to move its overseas investments into the MSCI All Country World ex-US Investable Market index.

This tracking tool and the fund it spawned are widely considered the gold standard for good investment choices lying outside the United States, and in early 2019 decided to speed up a previous decision to triple the weighting it allots to China companies. The share is only about three percent, but who’s to say it stops there?

The TSP board unmistakably should be mindful of its fiduciary responsibilities to current and former federal workers. But as noted by the Trump administration, how can it adequately promote them when it’s transferring their savings into Chinese entities that are simply too secretive to trust and that may be crippled by U.S. sanctions?

More important, as managers of a government workers’ pension fund, TSP board members can’t expect to be treated like private sector fund managers. They clearly have responsibilities other than maximizing shareholder value, and undermining U.S. policies toward China (or on any other front) can’t possibly be part of their mandate.

Bringing the TSP in line with the broader emerging U.S. government approach to China wouldn’t solve the entire problem of huge flows of American resources perversely adding to Beijing’s coffers. This article by investment analyst Steven A. Schoenfeld (full disclosure: a close personal friend) details the alarming degree to which MSCI along with other major indexers have increased the China weightings in their emerging markets indices in particular to alarming levels – levels that aren’t easy to reconcile with the imperative of investment diversity, and that haven’t exactly been broadcast to the large numbers of individual investors who rely on them.

Even immediate, permanent new restrictions on TSP would do nothing to address this issue. Nor would they affect continuing private sector investment in Chinese entities that supply that country’s armed forces, and that strengthen its privacy-threatening hacking and surveillance capabilities.

But TSP curbs would be a start. And any TSP managers that don’t like them can quit and go to work on Wall Street.

(What’s Left of) Our Economy: How a U.S.-China Huawei Tech Disaster Unfolded

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5G, antitrust, AT&T, Bell Labs, China, espionage, Huawei, Lucent, national security, networking, offshoring, privacy, semiconductors, surveillance, tech transfer, technology, telecommunications, {What's Left of) Our Economy

It’s hard to think of a worse mess that Washington has gotten the country into than the loss of global leadership in advanced telecommunications knowhow to China. With the world on the cusp of a transition into the so-called 5G standard, the United States boasts exactly zero companies capable of creating complete networks based on this technology, which will increase by orders of magnitude the speed with which individuals, organizations of all kinds, and governments can send and receive digital information, and thereby bring much closer all kinds of game-changing breakthroughs. In particular, 5G can enable the creation of truly “smart” electronic networks that will greatly boost the efficiency of public transportation and energy infrastructure, healthcare, manufacturing, and so much more. (Here’s a good primer.)

Even worse, the world’s pace-setter in terms of both quality and price is Huawei, and Chinese entity with unusually close ties with China’s dictatorial and belligerent government.  Moreover, its lead over its other two 5G competitors (Finland’s Nokia and Sweden’s Ericsson) is enormous. Huawei’s dominance matters a lot because the advent of an effectively networked world also means the advent of a world in which hacking becomes much more dangerous – and the power to hack will translate into decisive strategic and economic leverage. Just think of the possibilities of national security and economic spying alone, let alone the implications for everyone’s privacy. And because of Huawei’s 5G leadership, Beijing holds entirely too many of these cards.

All is by no means lost yet. In particular, Huawei and other Chinese technology entities still rely heavily on U.S.-based companies for state-of-the-art parts and components – especially semiconductors – along with software. But thanks to 5G’s vast potential alone, Americans can’t assume that, before too long, China won’t be able to use it to cut into their lead in these information technology manufacturing and services sectors.

So how did this dangerous U.S. failure come about? When I first briefly answered this question posed by a Twitter follower, I emphasized the U.S.’ reckless pre-Trump administration China policies. These both greatly incentivized Americans businesses to offshore production and jobs to the People’s Republic even in the advanced manufacturing sectors in the public was assured the United States would always maintain matchless superiority, and turned a blind eye to China’s practice of extorting cutting edge knowhow from these U.S.-based firms in exchange for access to China’s huge and potentially huge-er market.

But as the author of an article last year focusing on the weird – and arguably perverse – relationship between recent American trade policies like these, and recent American antitrust policies, I was especially grateful to this Financial Times article for reminding me that the latter helped create this disaster as well.

Here are the key passages explaining the lack of a US telecom equipment manufacturer capable of producing the full-range of 5G kit:

“To understand how this came about, it is necessary to go back to the mid-1990s when the US passed a Telecommunications Act that weakened US champions such as Lucent Technologies by enticing a flurry of new entrants into the market. With its profit margins under pressure at home, Lucent targeted sales in a fast-growing Chinese market to prop up a flagging share price.

“But Chinese authorities insisted that all foreign equipment makers would — as the price of admission — be obliged to hand over technology and knowhow to state research labs and business partners. One by one, the chief executives of the largest telecoms equipment companies trooped through Beijing in the early 2000s pledging to localise their technologies and production bases.”

Neither American Presidents nor Congresses displayed any serious interest in the consequences. Yet submitting to China’s blackmail failed even to save Lucent. In 2006, it found itself in desperate straits, “and was sold to a French rival, leaving North America without a heavyweight telecoms equipment player. The company that was once the technology champion behind Bell Labs is now part of Finland’s Nokia.”

My trade/antitrust article focused on the bizarre situation that had prevailed in the pre-Trump decades, during which the U.S. leaders from both major parties seemed hell-bent on maximizing the competition faced by U.S.-based businesses from foreign economies (via offshoring-friendly and similar one-way trade deals and policies) even as they seemed equally determined to reduce the domestic competition faced by U.S.-based businesses by greatly weakening antitrust enforcement.

The Financial Times article shows that exceptions periodically appeared to this indulgent antitrust policy. But more troubling, it indicates that no national security or even global economic competitiveness considerations (and of course the two are closely related) ever significantly affected antitrust policy. That’s an indictment just as serious as simple neglect or actual encouragement of ever greater levels of corporate concentration.

It’s important to point out, moreover, that this telecommunications disaster’s roots run much deeper. Specifically, the federal government began back in 1949 to pressure AT&T’s ancestor Bell Telephone, which had dominated American telecommunications from its 19th century beginnings, to divest it manufacturing and research and development activities on the one hand from its services activities. And this even though that research arm, Bell Labs, invented the world’s first semiconductor device – the transistor.

First AT&T and then Lucent made plenty of their own mistakes, too. It’s a really complicated story, though, and two good short accounts can be found here and here. Nonetheless, clearly the voices in Washington during these decades that might have been encouraging a more comprehensive strategy to preserve U.S. dominance – or even competitiveness – in this crucial technology were way too weak. And now, for the near-term future in any event, the nation is dependent for this knowhow on a distant regime whose benign intentions can by no means be assumed.

Making News: On National Radio Tonight on the Threat (to Americans) of China’s Social Ratings

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business, China, Gordon G. Chang, human rights, Making News, privacy, social ratings, The John Batchelor Show

I’m pleased to announce that I’m scheduled to return to John Batchelor’s nationally syndicated radio show tonight.  Our likely topic:  China’s totalitarian practice of “social rating” – and how it can turn American businesses into agents of China’s dictators.  The segment is slated to begin at 9:15 PM EST and you can listen live on-line at this link.

As usual, if you can’t tune in this evening to what’s sure to be an important discussion among John, me, and co-host Gordon G. Chang, I’ll be posting a link to the podcast as soon as one’s available.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

 

Im-Politic: Biden’s Real Problem(s) with Women

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feminism, First Amendment, free expression, gender, hate speech, Im-Politic, Joe Biden, Me Too, New Puritans, personal space, privacy, sexism, sexual assault

As long as Joe Biden remains in the potential or actual 2020 presidential election game, Americans will be debating the propriety of his longstanding touchy-feely style of dealing with women in particular, and how best to respond to these and similar situations and charges. As usual, opinion (at least as expressed in the often hysteria-prone national media) seems polarized between extremes, and as usual, genuine wisdom resides somewhere in the middle.

The best way to arrive at sensible conclusions – i.e., those that permit us to continue functioning as human beings with legitimately differing personalities while respecting the equally legitimate sensitivities and indeed fears of others – seems to be to unpack the several overlapping issues involved, at least in part (because there are good reasons for much of the overlap).

Even the women who have complained about Biden state that his behavior wasn’t sexually motivated, which is definitely a big point in the former Vice President’s favor. Even so, he deserves reprimands on many grounds. First, Biden’s claim, in his first extensive (video) response, that in the wake of the Me Too revelations and movement, the rules regarding personal space have changed, is simply too convenient. So are defenses of Biden claiming that his critics seek to criminalize even normal, often desirable displays of affection, or endorsing his insistence that he’s simply been slow to adjust to changing times.

The “Biden-ists” have a point when the individuals involved who are well acquainted, either as friends or as relatives. In such instances, spontaneous, light physical contact can be perfectly fine – and indeed a necessary form of human bonding. But in these Biden cases, these kinds of relationships didn’t exist. And when that’s the case, the default position should rule out touching unless it’s expressly welcomed.

Moreover, what’s the evidence that intense physical contact among strangers has been the norm in American history before the so-called New Puritans of the Left emerged? For what it’s worth, as long as I can remember, public schools have taught even their youngest students to refrain from touching their peers without some clear sign of permission or encouragement, or aside from contact sports and games. And I’ve never met a parent who has told his or her child that physical contact outside of boisterous play is just fine once the other child protests.

At the same time, the incidence of sexual abuse among relatives makes clear that the mere existence of a relationship can’t seen as license to caress away. Which brings up a second problem with Biden’s actions and his subsequent defenses – and a second reason for entering any social situation with a hands-off mindset. When it comes to physical contact, the object individual’s feelings must be paramount. And mature adults in particular should be actively trying to anticipate them before plunging in. That’s why the idea of personal spheres or zones of privacy have always been so valued, especially in cultures and societies that prioritize protecting individual rights. The very idea of privacy logically assumes that the “contact-ee” is entitled to absolute control over entry into that zone, and that the “contact-er” needs to recognize this form of sovereignty and avoid taking genuine initiative.

As a result, Biden’s suggestion that he should be absolved because his intentions were innocent (which, to be fair, was followed by an admission of the importance of getting up to date) is thoroughly inadequate. He should have been continually aware that, in cases of women he didn’t know, or didn’t know well, it never should have been “all about him.” The women’s potential feelings should have ranked much higher on his scale of concerns – and the more so since Biden’s strongly feminist policy record, including an active role in pushing zero-tolerance-type policies on college campuses, indicate that he’s thought a great deal about such matters.

Even weirder is Biden’s apparent cluelessness about the power issues raised by his actions. After all, the Me Too Era has rightly and finally shone a blazing light on how common it’s been for men to exploit their professional and other business positions for sexual ends. It should be equally clear, therefore that women have long lived with justifiable fears about such exploitation. So even if he was unaware of such context in the episode involving New Mexico politician Lucy Flores, it should be plain as day to him now how uncomfortable and even afraid his (unsolicited) kissing and nuzzling, however gentle and innocently aimed, would likely make her given his role near the top of a political party in which she obviously hoped to succeed. At the very least, in this context, his behavior can’t help but convey a sense of entitlement.   

Moreover, the long-time and often continuing subordination of women in America, and the fact that such invasions of privacy are so common and therefore until recently have attracted so little attention means that “Believe women” is a justifiable guideline. As I wrote in connection with the battle over confirming Brett Kavanaugh to the Supreme Court, that’s why the law recognizes that numerous similar considerations warrant exceptions to the presumption of innocence in criminal sexual abuse cases.

Finally, Biden deserves some shots on the Me Too et al score both for never having apologized for his behavior (as opposed to saying he “felt badly” for any discomfort he caused) and then for making light of his accusers and their allegations.

At the same time, let’s not suppose that the object’s feelings also necessarily override all else when the offenses are verbal. Constitutionally, of course, laws and even norms against abusive speech run into strong First Amendment protections. No unwanted physical contact of any kind enjoys such status. Moreover, it’s easy to identify unwanted contact. It either has or hasn’t taken place. (Yes, “in your face-type” approaches are less clearcut.) Bright lines separating acceptable from allegedly unacceptable speech are much harder to find (though not impossible, since free expression is not an absolute right under long prevailing interpretations of the Constitution). Consequently, it’s much easier to abuse even the best-intentioned efforts to curb or ban hurtful speech.

This latter complication, in turn, influences the so-called “snowflake” factor. Specifically, the centuries-long determination of American society to permit even the most hateful speech in most circumstances seems to reflect a belief that in a free society, a high degree of verbal rough-and-tumble is necessary and even often desirable. In addition, psychologically, it’s reasonable to assume that leading a healthy, well-adjusted life entails some ability to roll with most such verbal punches as well. I’m aware of no comparable conviction that a free society requires a high degree – or any degree – or unwanted physical rough-and-tumble, much less that such behavior produces any positive results. And show me the mental health professional who believes that emotional well-being and normality entail sloughing off lots of groping.

The bottom line? There’s no valid reason to stamp Biden as a sexual predator or even a sexist. There’s every reason to view him as an exemplar of terrible judgment and (stubbornly) gross insensitivity on this cluster of gender issues. As a result, Democrats and others who keep seeking better from him are anything but New Puritans. They’re folks who’d like to to see their political leaders display some genuine ability to learn.