U.S.–China Week: Kushner EB-5 scheme, PACOM denied, U.S. helps rights lawyer’s family, tech national security reviews (2017.05.08)

Welcome to Issue 99 of U.S.–China Week. In a speech at the State Department, Secretary of State Rex Tillerson revealed a few details about the bilateral diplomatic approach. The first meeting of the “Diplomatic and Security Dialogue” is set for June in Washington, he said, with himself and Defense Secretary Jim Mattis chairing on the U.S. side. The economic and trade meetings are to be chaired by Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross. In general, he said, “we’ve asked them to bring people who report directly to the decision-maker, which is President Xi. So for the first time, we are seeking and we – so far it appears we will get people at the politburo level and at much higher levels of the government within China to participate in these dialogues.” In the now-dead Strategic and Economic Dialogue, of course, the economic track was led by a Politburo member (Vice Premier Wang Yang), as was the adjacent people-to-people meeting (Vice Premier Liu Yandong). Law enforcement and cybersecurity issues had been dealt with outside the S&ED framework by another Politburo member (Meng Jianzhu). That leaves the “Diplomatic and Security” side for elevation. Anyone want to place bets on who will show up in June?

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THE PRESIDENT’S MEN
Branstad confirmation hearing goes smoothly; Kushner family conflicts of interest in full bloom over EB-5 scheme

Though timing for a confirmation vote is not yet announced, Iowa Governor Terry Branstad appears likely to soon be U.S. ambassador to China following a broadly friendly confirmation hearing during which he came off as well-prepared and said, regarding President Xi Jinping, “as an old friend, I tell him where I think they’re falling short and the kind of things that need to be addressed; including these human rights, intellectual property rights and other things.” On the South China Sea, he said, “China cannot be allowed to use its artificial islands to coerce its neighbors or limit freedom of navigation or overflight.” On cybersecurity, he limited his comments to the well-worn issue of internet-enabled theft of intellectual property.

Closer to President Donald Trump, the politics were less smooth as reporters documented efforts by White House adviser and Trump son-in-law Jared Kushner’s sister to attract Chinese investment for the family real estate business. Investors would put in a minimum of $500,000 each in exchange for a path to U.S. permanent residency and citizenship through the EB-5 visa program. NYT and WaPo reporters attended part of a Beijing event pitching the deal before being thrown out. The EB-5 program has been under scrutiny in recent years over issues including whether invested funds are legally obtained, and WaPo reported that rumors had circulated about potential changes to the program under Trump. One slide in the Beijing presentation cast Trump as a key decision-maker on the EB-5 program. Jared Kushner “has divested his stakes in dozens of entities used to hold family company investments, although he remains the beneficiary of trusts that hold stakes in hundreds of others,” NYT reported, adding that a lawyer said he had divested interests in the project being pitched in China “by selling them to a family trust of which he is not a beneficiary,” in NYT‘s words.

ANALYSIS: Branstad’s performance in an admittedly friendly hearing room suggests he will soon be ambassador. From that moment on, there will be one more official to watch regarding influence on Trump administration China policy. An “old friend” of Xi by his own account (and an “old friend of the Chinese people” per the Foreign Ministry) appears to have less risk of a perceived conflict of interest than the president’s son-in-law. Kushner, who has reportedly played a central role in U.S.–China official contacts under his father-in-law, cannot be said to be clean of potential conflicts merely because he is not a named beneficiary of family entities that hold wealth for projects that bear his name. Trump too cannot be said to be clear of conflicts in deciding the administration’s position on the EB-5 program, since it’s reasonable that a person would be concerned for the success of a child’s spouse’s family business. The fact of the conflict was already there before this week, but the presentations in China clearly sought to profit from ties with Trump. I’ll leave it to the lawyers whether Kushner can still be legally in the clear; no special qualifications are needed to identify an integrity problem—one that could significantly complicate U.S.–China relations on a variety of issues if Kushner’s role is as central as reported.

SOUTH CHINA SEA
Pentagon denies PACOM bid to sail warship by Scarborough; Duterte says Xi call was at Trump’s urging

NYT reported that a U.S. Pacific Command (PACOM) request for permission to sail a U.S. warship within 12 nautical miles (nm) of Scarborough Shoal in the Spratly Islands was denied, as were two similar requests, by the Pentagon “before it even made it to President Trump’s desk.” “Defense Department officials” told NYT that no U.S. Navy ship had traveled within 12 nm of a disputed island in the South China Sea since Trump took office. Following a U.S.–ASEAN meeting in Washington, Deputy Assistant Secretary of State Patrick Murphy said Secretary of State Rex Tillerson had told ASEAN counterparts “the United States will continue to assert its rights in the South China Sea through freedom of operation— freedom of navigation operations and through our diplomacy, through our dialogue with all of our partners in the countries in the region.” / Reuters reported: “Philippine President Rodrigo Duterte said on Thursday his telephone conversation this week with [Xi] to discuss the Korean peninsula crisis was at the behest of [Trump]. ‘So, I called President Xi Jinping, “I am calling you at the behest of the president of the United States”,’ he said in a speech in his hometown in Davao City, ‘”We have all agreed in the ASEAN, and even President Trump, that you can do something. Actually, the biggest contribution of all other is your intervention”,’ he said.” / Meanwhile, a Kyodo source reportedly said Chinese Ambassador Cui Tiankai asked the U.S. government to remove PACOM Commander Adm. Harry Harris, but Kyodo did not say it had checked the information nor did it describe the source in any way.

ANALYSIS: The NYT reporting on PACOM’s requests leaves several questions open. Many analysts have taken the report to be saying that the United States has conducted no Freedom of Navigation (FON) operations targeting China since Trump took office; but the report only said there had been no transits within 12 nm of disputed South China Sea features, and FON ops. can be undertaken without such a transit (for instance by traveling within the straight baselines China has drawn around the Paracels that the U.S. government rightly argues are inconsistent with international law). Nearly everyone assumed that a request to send a ship within 12 nm of Scarborough would have been a FON op.; but it would not classically qualify as one because FON ops. challenge “excessive maritime claims” and China has avoided making explicit maritime claims there, meaning there is no claim to challenge. (See my related argument here.)

Given that the NYT story provides insufficient detail to think through the highly law-entangled subtleties of the FON program, it’s probably best to think more holistically. What would the United States gain by sending a Navy ship specifically within 12 nm of Scarborough Shoal—a location where Chinese ships reportedly exercise some amount of control over fishing but lately have reportedly allowed Philippine fishing boats access to the internal lagoon, and where, in accordance with unconfirmed but widely reported U.S. pressure, China has not undertaken island construction activities? Arguments that the lack of such a voyage weakens the U.S. position on UNCLOS or acknowledges Chinese sovereignty over the rocks there are decoys. Proponents are advocating for a military demonstration more pointed than the already active U.S. Navy presence in the region. The debate over a show of force or intimidation should be had on those terms and not disingenuously wrapped in ill-fitting UNCLOS technicalities.

THE LONG ARM
AP: U.S. authorities whisk Chinese lawyer’s family from Thai jail, leading to airport confrontation with Chinese officials

In a remarkable story, AP reported that Chen Guiqiu and her two children—family of the Chinese rights lawyer Xie Yang, whose subversion trial took place very quickly today in Changsha after Xie’s own lawyer was detained—were led by U.S. Embassy officials out the back door of a Bangkok jail where they faced deportation just as “more than a dozen Chinese security agents were waiting” in front. After some further efforts, the trio made it to the United States on March 17, but details of their flight emerged today. Chen had reportedly fled with the children after escalating threats from Chinese officials as Xie, detained since July 2015, refused to confess. Texas-based Christian activist Bob Fu reportedly played a role in enabling Chen and children’s flight and activating U.S. government assistance when Chinese authorities appeared to have tracked them down in Thailand. The U.S. exfiltration led to “an hours-long standoff at the airport, [a source said, where] the confrontation between the Chinese, American and Thai officials nearly boiled over into a physical clash.” Chinese authorities had reportedly pressured other family members to travel to Thailand in an effort to bring back Chen and her children. Those relatives have had their passports taken away, “have been repeatedly interrogated, and their jobs have been threatened,” Chen reportedly said.

ANALYSIS: It’s unclear at what level U.S. officials decided to undertake efforts on this family’s behalf, but it seems likely U.S.-side lobbying by Fu and/or others had a significant effect. For now, without knowing who decided what, I would not draw any conclusions about future Trump administration behavior on Chinese human rights issues. One macro question remains: Is the Trump administration subordinating human rights and other issues to the hope of effective Chinese cooperation on the Korean Peninsula? This story played out before the Trump-Xi meeting in Florida in April, so the linkage dynamic suggested by numerous Trump statements since then was not necessarily in play.

CYBERSPACE + TECH
Revised national security review measures for tech products released, to go into effect June 1

The Cyberspace Administration of China (CAC) released revised measures for national security review of “network products and services” that will go into effect alongside the Cybersecurity Law on June 1 (original/English). The measures included modest but significant changes since the draft for comment released earlier this year. Broad language saying the reviews were designed to serve “the public interest” was removed, though the goal of “national security” is still broad and vague. Examples of “critical information infrastructure” sectors are now given and include “public communication and information services, energy, transportation, water conservancy, finance, public services, and e-government.” And language barring government and Party procurement of products that had not passed review was removed. Peking University’s Hong Yanqing wrote on the measures and, among other things, interpreted the meaning of “secure and controllable” as meaning that products and service providers (1) must not illegally collect user information or violate users’ rights to control over their information; (2) must not be able to illegally control user systems or devices or stop users from controlling them; and (3) must not exploit the fact of their use for unfair competition or to seek unfair advantage. The reviews, Hong writes, are not designed to measure performance but to determine whether devices or service providers that influence or might influence national security might be vulnerable to tampering, interference, or interruption. / Meanwhile, FT reports that Tencent will open an artificial intelligence lab in Seattle. And the Electronic Frontier Foundation published a post on the new “12426 Copyright Monitoring Center,” which it said is “dedicated to scanning the Chinese Internet for evidence of copyright infringement” and lists big Hollywood studios as partners.

ANALYSIS: As always, the proof will be in implementation as to whether the national security review regime, which is called for in both the Cybersecurity Law and the National Security Law, will be used narrowly and for legitimate interests or more broadly and in such a way as to erect a significant new barrier to U.S. companies’ competition in the Chinese market. Taken as a whole, regardless of the intention, the Chinese government’s emphasis on “secure and controllable” network and information technology products is widely seen as amounting to a barrier. If the reviews are carefully, openly, and narrowly implemented, CAC could allay some international concerns. If not, fears will be realized and officials can expect increased international pressure over high-tech market access and unfair competition.

#USChinaWeek1967
‘Peking Urges Forces’ Vigilance Against the U.S.’

“HONG KONG, May 3[, 1967]—Communist China called on its armed forces today to maintain ‘high vigilance’ against ‘military provocations’ by the United States following an alleged bombing attack by American aircraft on Chinese territory. Chiehfang Chun Pao, the armed forces publication, declared in an editorial that was broadcast by Peking: ‘Never relax your fighting will and remain always ready to meet and crush and surprise attack by United States imperialism and its accomplices.’ A statement by the Ministry of National Defense said that four American F-105 fighter planes intruded over the southern area of Ningming County in the Kwangsi Chuang Autonomous Region and dropped several bombs, causing damage to property and threatening loves. … The United States Defense Department said yesterday in Washington: ‘Although the Department of Defense does not normally comment on Chinese Communist propaganda broadcasts, reports failed to show any evidence that these propaganda allegations are true.'”

(Source: The New York TimesThis entry is part of an ongoing feature of U.S.–China Week that follows U.S.–China relations as they developed in another era of change and uncertainty, 50 years ago.)

ABOUT U.S.–CHINA WEEK

U.S.–China Week is a weekly news and analysis brief that covers important developments in U.S.–China relations and features especially insightful or influential new policy analysis.

Graham Webster is a senior research scholar, lecturer, and senior fellow of the Paul Tsai China Center at Yale Law School, where he specializes in U.S.–China diplomatic, security, and economic relations through research and Track II dialogues. He is also a fellow for China and East Asia with the EastWest Institute. His website is gwbstr.com.

Disclaimer: Opinions expressed here are my own (and I reserve the right to change my mind).

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