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By STUART LAU
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GOOD MORNING, CHINA WATCHERS. This is Stuart Lau reporting from Brussels and before that London, bringing you an exceptionally busy Europe-China file this Tuesday. Phelim Kine is taking a well-deserved break, so special thanks to Eric Bazail-Eimil for bringing us the updates from Washington.
UK-CHINA GOLDEN ERA GONE WRONG
WESTMINSTER BOMBSHELL: Shortly after 3.30 pm yesterday came a moment that froze U.K.-China relations. Speaking in the House of Commons, U.K. Deputy Prime Minister Oliver Dowden publicly confirmed what had been leaked to the press in the preceding 48 hours: China was responsible for cyberattacks against U.K. lawmakers and the national election body. “Taken together, the United Kingdom judges that these actions demonstrate a clear and persistent pattern of behavior that signals hostile intent from China,” Dowden declared.
Guilty as charged: The National Cyber Security Centre, part of intelligence agency GCHQ, assessed that U.K. Electoral Commission systems were “highly likely compromised” by a China state-affiliated cyber entity between 2021 and 2022.
“The data … would highly likely be used by the Chinese intelligence services for a range of purposes, including large-scale espionage and transnational repression of perceived dissidents and critics in the U.K.,” NCSC said in a statement, referring to the incident in which the names and addresses of some 40 million British voters fell into the hands of Chinese government hackers.
Watching the hawks: In addition, NCSC found it’s “almost certain” that a hacking crew connected to the Ministry of State Security had conducted reconnaissance activity in 2021 against prominent China-critic lawmakers in the U.K., who are part of the Inter-Parliamentary Alliance on China.
Anger from within: British lawmakers from all parties lashed out at Dowden for the weak sanctions imposed — against only two Chinese spy ministry staffers and a small entity that employs no more than 50 people.
Tory MP Tim Loughton, one of those targeted by Chinese cyberattacks, said he was "underwhelmed" by the sanctions. Party heavyweight Iain Duncan Smith said the U.K. response was like an "elephant giving birth to a mouse.” Another of the affected MPs — the Scottish National Party’s Stewart McDonald — said Dowden had "turned up at a gunfight with a wooden spoon.”
Even former Tory Home Secretary Suella Braverman called for more action, asking the government to consider including China in the new “foreign influence registration scheme.” “It’s abundantly clear that China is a hostile state,” she said.
Man in the spotlight: Foreign Secretary David Cameron — the man who as prime minister ushered London into a controversial Golden Era with Beijing less than a decade ago — issued a statement and called Beijing’s actions “completely unacceptable.” “Such action by China will not be tolerated,” he said in a subsequent 40-second video posted on X.
But but but: British MPs such as Labour’s Stephen Kinnock questioned Cameron’s unwillingness to turn over documents that would show how much money he took from Chinese entities before he came back to national politics. POLITICO reported earlier that the former prime minister lobbied for Sri Lankan projects sponsored by China’s Belt and Road initiative. Here’s more on Cameron’s previous life as a China dove.
BIG QUESTIONS FOR ALLIES: Later yesterday afternoon, the U.S. revealed even more details in an indictment against the two sanctioned individuals — and five more fellow hackers in China.
Trump-era officials in the White House, Departments of Justice, Commerce and State, the Treasury, as well as bipartisan members of Congress, were also targeted, the DOJ’s indictment showed.
EU lawmakers also targeted: “The targets included every European Union member of IPAC,” the indictment said, adding that the number of U.K. parliamentary accounts hacked totaled 43.
But the EU has little to say: Apparently unaware of the DOJ investigations into EU-related targets, the European Union’s statement on the matter only focused on showing solidarity with the U.K., making no mention of Beijing’s efforts to compromise EU lawmakers.
According to IPAC coordinator Luke de Pulford, an “EU country tried to warn us back in 2021 about possible cyberattacks against our members.”
NOW — BEIJING REACTS: China says it "strongly condemns" the U.K.'s "egregious" move to sanction Chinese hackers, adding that it would "take the necessary reaction, as a matter of course, to the U.K.'s moves."
"We are neither interested in, nor required to, interfere in Britain's internal affairs. Whether the British government is good or bad, the British public will reach their conclusion soon enough," the Chinese embassy to London said in a statement, apparently referring to the Conservative Party's lagging popularity ahead of the upcoming general election.
XI’S TECH LOBBY WITH THE DUTCH
DUTCH PM IN CHINA: Mark Rutte begins a two-day visit to China, but don’t expect him to speak like the next NATO boss and lecture President Xi Jinping about cyber threats to Western democracy. His main mission is to go on a farewell tour as The Netherlands’ outgoing premier.
And the stakes are high for China. Premier Li Qiang and commerce chief Wang Wentao are expected to lobby Rutte and his security advisor-turned-trade minister Geoffrey van Leeuwen to make sure Dutch microchip giant ASML will keep servicing the machines it has already sold to China, two officials told China Watcher, confirming a Reuters story.
Reminder: ASML has been at the center of a transatlantic effort to slow down China’s civil-military capabilities. The Dutch government last year decided to side with the U.S. in imposing bans on ASML exporting machines that make the most advanced types of semiconductors to China. ASML itself said during the unveiling of its annual results that it doesn't expect to get any export licenses for the most advanced immersion systems.
POSTCARD FROM TSMC’S GERMANY PLANT
WILLKOMMEN TO CHIPS CITY: Amid the many warnings that Europe's industry is lagging behind, a city that was ferociously bombed by Allied forces at the end of the Second World War turned out to be the next big destination for the world’s most desired product: Semiconductors. My colleague Pieter Haeck takes you to Dresden in eastern Germany.
Taiwanese injection: The global chips race is heating up and the likes of the U.S. and China are spending billions on chip factories. But Dresden has secured a significant win to keep up in the race: Global market leader TSMC plans to build a €10 billion factory in northern Dresden, together with three companies already present in the vicinity — Bosch, Infineon, and NXP.
The region has been building up to this: TSMC's decision to invest in Dresden "was prepared over a very long period of time," with "confidence-building discussion" around topics such as infrastructure, energy, water supply, wastewater treatment and skills, Saxony’s Economy Minister Martin Dulig told Pieter. TSMC "knows that we have a tight labor situation," he said — adding that there's confidence in Saxony's ability to attract people from all over the world.
On skills: The state of Saxony, the Technical University of Dresden and TSMC have jointly set up a program to send students to Taiwan for a study program at the National Taiwan University in Taipei, with a subsequent internship at TSMC. The first students have just jetted off, and the program is expected to grow in the coming years.
TRADE DANGER
OVERCAPACITY WILL GET WORSE: Ever since European Commission President Ursula von der Leyen warned about China’s overcapacity, especially in the field of electric vehicles, EU governments have been trying to assess how bad the situation will be. A new report will shed light on the deepening worries.
Political signals: A just-concluded legislative session in China came back with “an explicit focus on industrial policy favoring high-technology industries, and very little fiscal support for household consumption,” according to a new report by Rhodium Group, previewed by POLITICO.
Worse than before: This means that China’s overcapacity will have an even more marked impact on the West, since the weak economy in China would lower the ability of the domestic market to absorb the output.
Global impact: “This sets China, the EU, and the US on a dangerous course of trade confrontation in 2024,” according to the report, which says even emerging markets could start launching a pushback to the massive Chinese exports.
EU-CHINA GREEN DIPLOMACY
FIRST OF ITS KIND: Four EU countries as well as the bloc’s diplomatic arm are planning a joint trip for their climate envoys to Beijing to meet their new Chinese counterpart, three officials told Stuart, Zia Weise and Karl Mathiesen.
Green chats: Germany, France, Denmark and The Netherlands will send their top climate diplomats on the trip, tentatively scheduled for April 8.
Why now? Europe is seeking to grab the first mover advantage with Liu Zhenmin — who succeeded Xie Zhenhua as China’s climate envoy two months ago — as John Kerry just left the White House as President Joe Biden‘s top climate change adviser. Kerry and Xie used to keep a functioning direct line.
Read our full story here.
TRANSLATING WASHINGTON
YELLEN PLANS CHINA VISIT IN APRIL: Treasury Secretary Janet Yellen will travel to China to meet with members of Beijing’s senior leadership next month, two U.S. government officials familiar with the trip planning told POLITICO. Yellen's trip will be a follow-up to her meetings in Beijing in July, which resulted in the formation of Economic and Financial Working Groups designed for "frank and substantive discussions" on contentious issues. Phelim and Daniel Lippman have the full story here.
NEW CHINA COMMITTEE CHIEF: Rep. John Moolenaar (R-Mich.) will become the new chair of the House Select Committee on China. He will take over from Mike Gallagher (R-Wis.), who announced Friday he will leave Congress on April 19. Gallagher had announced last month that he wouldn't seek reelection in November, but his decision to retire early came as a surprise.
Gallagher's successes in leading the avowedly bipartisan committee in an otherwise polarized Congress climaxed with the passage in the House of a bill to compel TikTok's Chinese parent company to divest itself of the social media app earlier this month. His departure could derail his plans for the committee to produce a bipartisan legislation package targeted at China's perceived national security threats in this legislative session
BEIJING SLAMS HK SECURITY LAW CONCERNS: China's Foreign Ministry has pushed back against State Department criticism of Hong Kong's restrictive Art. 23 security law, enacted last week. "Any external interference and intimidation will not shake the Chinese government's firm determination to fully implement one country, two systems," in the territory, a spokesperson for the Foreign Ministry's Hong Kong outpost said Saturday, per the South China Morning Post. The State Department warns the law raises risks for U.S. citizens in the territory. The law "will have broad implications for the people in Hong Kong as well as U.S. citizens and companies operating there," Secretary of State Antony Blinken said in a statement on Friday.
STATE: CHINESE MARITIME AGGRESSION 'DESTABILIZING' REGION: The State Department had strong words for Beijing following the latest face-off between Chinese Coast Guard and Philippine vessels in the South China Sea. A Chinese Coast Guard unit attacked a Philippine ship with water cannon while it was on a resupply mission to a military outpost on the Second Thomas Shoal on Saturday, per the Associated Press. Such increasingly frequent incidents are "destabilizing to the region and show clear disregard for international law," State Department spokesperson Matthew Miller said in a statement Saturday.
Beijing insists its actions are justified despite the fact that an international tribunal in 2016 ruled the shoal is within Manila's territorial waters. The Philippines should "cease making any statements that may escalate tensions and stop all acts of encroachment" in Chinese waters, China's Defense Ministry spokesperson Wu Qian said Sunday, per Chinese state media. Manila shot back by demanding that "Chinese vessels leave the vicinity" immediately, the Philippine Foreign Affairs Department said in a statement on Monday.
IN HEADLINES
The Australian: Labor's national security kowtow a win for Beijing.
Bloomberg: Once high-flying bankers in Hong Kong become a lost generation.
CNN: A high-altitude tunnel is latest flashpoint in India-China border tensions.
New York Times: In one key AI metric, China pulls ahead of the U.S.: Talent.
Reuters: China says relations with Philippines are at a crossroads.
MANY THANKS: To editor Paul Dallison, reporters Pieter Haeck, Andrew McDonald, Emilio Casalicchio, Zia Weise, Karl Mathiesen, Eric Bazail-Eimil, Daniel Lippman and producer Fiona Lally.
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