In this week’s episode of China Insider, Miles Yu reviews technology giant Canon’s announcement that it will close one of its major facilities in mainland China. Next, Miles covers the news of the United States Navy intercepting a Chinese cargo ship reportedly carrying dual-use goods to Iran. Finally, he analyzes the Chinese Communist Party’s efforts to spread anti-Japanese propaganda, and the political fallout from these campaigns that harm both Chinese domestic and foreign policy.
China Insider is a weekly podcast project from Hudson Institute’s China Center, hosted by China Center Director and Senior Fellow, Dr. Miles Yu, who provides weekly news that mainstream American outlets often miss, as well as in-depth commentary and analysis on the China challenge and the free world’s future.
Episode Transcript
This transcription is automatically generated and edited lightly for accuracy. Please excuse any errors.
Miles Yu:
Welcome to China Insider, a podcast from the Hudson Institute's China Center. I am Miles Yu, Senior Fellow and Director of the China Center. Join me each week for our analysis of the major events concerning China, China threats, and their implications to the US and beyond.
Colin Tessier-Kay:
It is Tuesday, December 16th, and we have three topics this week. First, we review the announcement from technology giant Canon to close one of its major printing facilities in mainland China, and the impact of the continued withdrawal of foreign companies on the Chinese economy. Next, we cover the US Navy's intercept of a cargo ship on route to Iran from China involving dual use goods in a move to prevent Iran's continued re-militarization efforts following the recent 12 day conflict with Israel. Finally, we continue our coverage of anti-Japanese propaganda from the CCP following the latest diplomatic row over comments related to Taiwan and analyze the impact these campaigns have had both on the Chinese domestic and foreign policy. Miles, great to be with you again this week.
Miles Yu:
Good to be with you again, Colin.
Colin Tessier-Kay:
So up first today, big news from the technology sector as Japanese imaging tech giant, Canon, has announced it will shut down one of its major printer production facilities in Guangdong (广东) province due to what Canon claimed was a “shrinking laser printer market” and intensifying competition. So Miles, start us off here with some background on the announcement from Canon. Was this something sudden or rather predictable given the latest economic and manufacturing trends in China?
Miles Yu:
It's very predictable [and has] been going on as a trend of foreign companies exiting China. Some of the major companies, particularly many of them from Japan, are totally out. Canon employs about 10,000 people at the Canton plant, and that's going to have a major impact on the local economy. [In the Chinese media,] what’s really interesting about this rather big withdrawal of a Japanese company out of China is not the event itself, [but] how this transpired. Number one, Canon provided a very lucrative and generous severance package for its 10,000 workers. They have this something called the “2.5 N + 1” severance package. That is the year served times 2.5 and plus one. This is way above China's legal minimum compensation standards. As a matter of fact, a video that has gone viral across Chinese cyberspace is a Japanese general manager [of the Canon plant] leaving the plant and 300 workers crossing the police line and to go to the Japanese general manager to say goodbye and give him flowers. Many of [the workers were] weeping for his generosity and for the good treatment of this company for the Chinese workers. And this is a very sharp contrast to the prevailing protest against the Chinese companies’ own severance package and protest against Chinese company's lack of any payment at all for the money owed to the workers. This is one of the very interesting moments. I think it's bittersweet definitely.
Colin Tessier-Kay:
One of the primary reasons cited by Canon for the closure was related to lack of production demand and the assessment that Chinese manufacturing has now seemingly developed to the point where local and domestic brands, such as Huawei and Deli, are now considered to be on par with foreign rivals. It's also worth noting at least that Canon still has operational facilities in other areas like Shenzhen (深圳), Dalian (大连), and Suzhou (苏州), but it's uncertain how long these may last as well given the increasing trends. So Miles, what is the current landscape within the Chinese manufacturing sector and outlook, I guess, for foreign companies that are still seeking to either maintain or even establish footholds in the country?
Miles Yu:
Well, I think the Chinese economy has reached a point where they have enough technology [that is] taken from the foreign investments in China that they can produce the same products of similar quality to these foreign products produced in China. The only difference is that they get to drive the foreign companies out of the Chinese market by cutting the price. The price war is just deadly and intense. This is the traditional Chinese method, to make the profit margin [of foreign companies] extremely thin. That's why many of the foreign companies in China have seen their profit margins shrink dramatically. That's why they said, this is not the place to do business anymore [and] they basically get out of China. Another reason is the labor cost is increasing in China and international capital always goes after cheaper labor and now you get cheaper labor in nearby countries like Vietnam, Thailand, and Indonesia.
Many foreign companies move their production capabilities out of China to those areas. And they enjoy the same kind of higher profit margin. So this is another reason, and I think the third reason obviously is regulatory. The Chinese government has all kinds of ridiculous rules and regulations to make operating in China increasingly difficult and sometimes impossible so that the domestic brand will dominate the Chinese market. Of course the other reason that Canon cited officially is that the demand for the kind of product, which is the laser printers, [is shrinking]. Maybe the market is saturated or people just can spend far less money to buy something similar.
Colin Tessier-Kay:
Yeah, that's a really interesting point, especially as it concerns business practices or labor practices, especially in mainland China. To round out this topic, Miles, is this something that is rather contained mostly within the technology sector in that market, or does this kind of increasing trend impact other consumer markets as well, like EVs, renewable energy, or even textiles and clothing?
Miles Yu:
Oh, it's across the board. I mean the only EV company that has some kind of competitive edge is Tesla. The other one that has a competitive age in China is Apple's iPhone. Now there are different reasons for why their competitive edge still remains but [is] diminishing. That is not the cost per se, but the safety. Chinese customers normally trust foreign products more because of safety. For example, you can buy a Huawei phone, but the Huawei phone is hooked up with [the] Chinese security and surveillance system. So many citizens buy Huawei at a cheaper price, but they also may [want to] spend more money to buy an Apple [iPhone], which is discouraged by the Chinese government overtly or covertly. Some people in order to protect their own personal information, they're like to buy an Apple phone. It's safer. Now there is also another type of interesting phenomenon in China. You have a major concern among average households of food safety. A lot of Chinese food [supply] chains are very full of poisonous and all kinds of chemical elements.
People get sick by eating many of their products. Chinese customers normally care more about their stomach than about political correctness. That's why Sam's Club, for example, which is a wholesale section of Walmart in China, enjoyed an enormous boom recently. That's because Sam's Club is famous for its very strict and responsible acquisition processes. In other words, their food is much safer and has gone through [tougher] scrutiny for safety. The thing about companies like Sam’s Club, Sam’s Club is a membership company, so you have to pay a lot of money for its membership. Normally, Chinese customers were not really keen on that kind of stuff, except on issues like this. For food safety, you have more and more people in China paying what they consider quite a lot of money to be a member of Sam's Club to buy food there. This is something not to do with the quality and the commercial products itself, [but] with the systemic food safety issue. So in those areas, I think the foreign companies can really win. And that's basically we're not against the Chinese market, but against the Chinese government.
Colin Tessier-Kay:
Yeah, it'll be interesting to see how this progresses, especially across the varying economic sectors. But turning to our next topic today, information was released recently about a US Special Forces naval operation that occurred last month where a team of operatives boarded and seized a Chinese-based cargo ship in the Indian Ocean that was on route to Iran. The cargo reportedly consisted of dual use components that could be used for either civilian or military purposes and could potentially support re-militarization efforts in Tehran following the recent 12 day conflict between Iran and Israel. So Miles, can you walk us through the operation here? How long had US Intelligence been tracking these shipments and what exactly did they find?
Miles Yu:
I think this occurred in November. The most amazing thing about this is it was not reported by anybody except weeks later. I believe the Wall Street Journal broke the story, but the Chinese did not make any comment, nor did the United States, nor did Iran, which means something hanky panky must have been going on. A ship left China bound for Iran was intercepted and boarded by the US Special Forces in the Indian Ocean not far from the coast of Sri Lanka. The interesting thing is, when US special forces boarded the ship, they discovered dual-use parts mostly for weapons, particularly for missiles. Clearly, it was a dual-use product out of China to support Iran, which fits into the pattern of China's very covert and furtive way of fermenting conflicts and chaos across the world. The US special forces confiscated [and] destroyed those dual-use parts and then allowed the ship to continue to Iran.
This is in sharp contrast to many decades ago this incident of Yinhe (银河号事件), which was when a Chinese ship set sail for somewhere [and was] boarded by US interjecting forces and allegedly nothing was found and China protested vigorously. Everybody believed that, of course, before the US forces boarded the ship, [the Chinese sailors] already dumped [the materials] into the ocean. This time they were caught red-handed [and] it shows several things. Number one, it shows the incredible US intelligence capabilities and also interdiction capabilities in areas [that are] far away from China. Another thing, this shows the US determination to keep [Iran from re-weaponization and] restarting the [production of] weapons of mass destruction, particularly long range missiles against Israel. This means that the US has the capability to keep watchful eyes on whatever China is doing [and whatever] Iran is doing. China and Iran basically kept quiet about this because it would be embarrassing to prevent another blow up like in the case of Huawei. Remember Huawei's CFO was arrested in Canada on behalf of the United States for violating US sanctions against Iran. That created a major diplomatic spat between China on one hand and Canada and the United States on the other.
Colin Tessier-Kay:
Yeah, and we've kind of covered China's evolving Middle East strategy, I guess, in several formats on the show before related to diplomatic, economic and even security strategies and with a lack of discretion really when it comes to China's choice of allies and partners in the region. So Miles, I'm curious, what does a shipment like this mean in relation to China's planned strategies for increased influence in the Middle East and why the efforts to enhance relations with Iran, specifically?
Miles Yu:
In March 2017, China and Iran signed a comprehensive strategic partnership deal worth $400 billion. That's a huge amount of money. One of the major provisions is for China to provide an electronic telecommunication system for Iran. China is supposed to bankroll [and] actually control Iran's, for example, health infrastructure in addition to telecommunications, banking systems, railways. This is comprehensive. China wants to basically turn Iran into a Beijing proxy, which is what they've been doing. Iranians, however, used [that] huge amount of money to finance the terrorist in Hamas and Hezbollah, which is one reason why there was the October 7th massacre against the Israelis. China is responsible for supporting some of the most hideous terrorist regimes, like Iran, like Russia, and like Venezuela. This is basically what China's grand strategy is to create as many conflicts, as much chaos in the world as possible to create strategic distractions for the United States so the US would not be able to focus on China [and] deal with China's expansion in the Indo-Pacific. This is clear and simple.
In other words, the most destabilizing regime in the world today is China because they want to have conflict in [every] area of the globe so that people will be busy sort of putting out [these] fires that China set, and then they can do their own business of aggression striking neighbors [and] fighting against Japan, South Korea, Taiwan, India, Philippines, Vietnam, all those countries in the neighborhood. This is the strategy. I think to re-arm Iran to become a meaningful adversary of the United States is China's goal. I mean, this is nothing really secret. If you read the Chinese state media, you can discern this on a daily basis. I think this shipment fits into that kind of continued pattern [and] I can guarantee you [that] this is just one [of] many, many shipments China is conducting. And of course they're regretting that this [one was] caught, but then they have many other ways to do it.
Colin Tessier-Kay:
Exactly. I'm glad you mentioned that too because to kind of round out this topic, while this shipment in particular was intended for Iran, it's, like you mentioned, clear that China has many destinations in mind for the export of these dual use goods and general export exchange. I can only imagine the impact of these exchanges on the ongoing Russian invasion of Ukraine, for example. But one of the things that you just mentioned, Miles, that I'm curious to hear more about is how China is developing these export exchanges with let's say western hemisphere countries, like I think you mentioned Venezuela and things that are more directly in the United States’ backyard. What is the priority for China in that area specifically in terms of prioritizing their dual use exports? And what are the related security concerns if these continue unchecked?
Miles Yu:
Well, in the case of Venezuela, I mean that's another trouble spot China created. Venezuela has become China's proxy, pure and simple. The Maduro regime cannot survive for half a year without China's financial lifeline and military investment. Now for Venezuela, China doesn't even have to use the cover of dual use goods. China basically exports and sends Venezuela fighter jets, all kinds of weapons. The Venezuelan regime has been listening to what China wants to do. [And what China wants Venezuela to do is] invade their neighboring countries. Venezuela has openly stated [that] they're going to annex a significant portion of neighbor Guyana. If that's the case, you can imagine that countries in the region would either side with the Maduro regime, like Columbia’s left-wing government. Or countries like Argentina, Peru, and Ecuador are likely to basically fight against the Maduro regime. What will happen is you are going to see another Middle East type of chaos in America's backyard.
So the United States will be drug down into another quagmire for the foreseeable future. This is China's plan. That's why it is essential to stop Madura from continuing being the most destabilizing country in the region. This is not just for the sake of the United States, but also for the regional peace in [the] Western hemisphere. Which is also why President Trump's overwhelming emphasis on making peace [and] ending all conflict in the world is in a very sort of philosophical way, a counter-China method. If China wants to prolong the war in Ukraine, which China has done, or the chaos in the Middle East, or create new [chaos] in Venezuela, then it is all in the interest of global peace and in the interest of the United States to make [the] world peaceful for democracy. President Trump may not really articulate [this in these] terms, but I think this could be a very important part of that kind of approach. Now, the war in Ukraine has been going on for more than three years. Without China's material, financial, military, and political [support], the war in Ukraine would've ended a long time ago. I think by the State Department's own report, [that is] reemphasized by the NATO General Secretary Rutte just a few days ago, China supplies about 80% of the military operational equipment and critical parts that Russia is using in the war in Ukraine. This is pretty substantial. In a sense, the war in Ukraine is as much a Russia's war as China's war. So basically in a real sense, Russia is China's proxy in Ukraine.
Colin Tessier-Kay:
Turning to our final topic for today, we follow up on the continued CCP efforts conducting information campaigns and propaganda against Japan, including tactics aimed to increase anti-Japanese sentiment across the domestic population. Much of these latest efforts have been tied to comments made by Japanese Prime Minister Takaichi regarding Taiwan, to which the CCP has responded with rather extreme levels of discontent. Last week on the show we covered issues related to canceled performances by Japanese artists at a Shanghai music festival. But beyond individual events, we wanted to see what impact these efforts have had kind of across the board on Chinese policy. So Miles, two levels of analysis here in terms of both China's domestic population, let's say for one at the societal level, and also their international diplomacy regarding foreign relations. What impact have these recent campaigns really had?
Miles Yu:
China's recent anti-Japanese hysteria has nearly completely backfired. Domestically, people don't care what the Chinese government is saying. I mean they released a highly anti-Japanese film across the country just last weekend. The ticket sales were abysmal, almost zero. I mean the theater attendance rate for that anti-Japanese movie was about 1%. People in China want to go to theaters. And in the meantime, as we mentioned last week, there was a Japanese movie, I believe it was a cartoon movie. It's become a blockbuster. I don't think many people really care about the stuff, but they went there to send an oblique message. This is not really that effective. Internationally, I think China's methods of trying to put a lot of pressure on the new Japanese prime minister and her young cabinet have also backfired. They tried to isolate her, tried to sort of prop up [the] Japanese opposition.
On the contrary, Takaichi’s popularity soared to close to 80%. And that's for a government that didn't even win an outright majority. And that's phenomenal because Japanese public sentiment has hardened in support of Taiwan as well. What PM Takaichi said about Taiwan is very mild. It was very factual. All she said was, if the Chinese military takes over Taiwan, that will create a situation that might threaten Japan's southern flank. So Japan may have to provide for its own self-defense. That's very natural as if saying if Russia or China invaded [and took over] Mexico and the United States should really be careful and strengthen its own self-defense against China. This is just totally, totally appropriate. I mean, before Prime Minister Takaichi [took] office, China's negative polling in Japan had been over 80%. That's extremely negative. Nowadays, I don't know if you can find anybody in Japan that is sort of in favor of China as a peaceful country. This is just absolutely self-defeating after a part of the Chinese government. I think this not only affects the Chinese domestic front, it also has dramatically increased international sympathy for Japan. China behaved like a bully using all kinds of undiplomatic [and] uncivilized threats.
It is a typical hooligan regime. This is why Japan has gotten overwhelming international support. There is no government that, in my view, has criticized Japan except [for] some sort of critical [statements] from Russia. That's even kind of muffled [and] not a big deal. China's tactics, the misinterpretation of a historical Japan and contemporary Japan [has] completely undermined China's credibility in my view. And Taiwan of course is kind of happy that finally is not necessarily shouting [by itself], but I think Taiwan is happy that one of its closest allies, Japan, finally toughened up against Chinese bullying. I think across the region, Southeast Asian countries also worry about Chinese behavior. Singapore’s Prime Minister openly said that Japan is the most trusted country in Southeast Asia [and that] China should not really portray Japan the way that it has. Singapore’s Prime Minister also said World War II is [in the past and] Japan has regained its international trust and Japan is the most respected country in the region, he said. So this was basically a slap in the face of the Chinese governments and who's basically maligning Japan [and] confusing the international community with Japan of the past. So the United States, of course, has shown strong support for Japan. When China resorts to military intimidation by flying its aircraft near the Japanese air defense identification zone, the United States flew with Japanese bomber patrols near Japan. So it's very symbolic, but a strategic message to cover China's pressure.
Colin Tessier-Kay:
That's a great point. And I think to bring us home today, I'd love to ask, Miles, where exactly does the China-Japan relationship go from here? What are the contributing variables, let's say, that will be necessary for more normalized relations, or at least a deescalation of current tensions?
Miles Yu:
I think the Japanese want to seek deescalation, but the ball is in China's court. China created this nonsense, this impasse. So it's incumbent upon China to [calm] down and to even apologize to Japan in my view. But of course, apologies are not really in the DNA of the Chinese Communist Party because the party itself basically is self defined as ever great, glorious, and ever correct, (伟大光荣正确) in Chinese. It's basically how the Chinese government [defines] itself. So in other words, the Chinese Communist Party cannot be wrong on any matters. That's why when you deal with the Chinese government, the first thing that the Chinese government will demand of you is that you recognize you are wrong, [and] you have to correct your thinking, and show more respect. For me, that's basically talking like an imperial dictator in the international community. China has been notorious for this kind of arrogance and hubris.
Colin Tessier-Kay:
Yeah, we won't hold our breath on that apology, but that's all the time we have for this week's conversation. A quick note for our listeners as we head into the holiday, we will be off the air for the next two weeks and we'll return on January 6th with the next episode of China Insider in the new year. A great thank you to our listeners for joining us again this week and over the past year. Thank you Miles, as always, for lending us your time to chat. Wonderful and hopefully happy holidays to you and looking forward to seeing you in the new year.
Miles Yu:
Happy holidays to everyone. Happy New Year.