China Brief: 23-29 April 2019

A2 Global’s China Brief contains assessments of events and policies that may impact commercial interests, personnel, and assets throughout Greater China. This edition includes a protest in Hong Kong, the United States government blacklisting a major Chinese online retailer over fake goods, and new video games regulations in China, among other subjects.

Hong Kong – Political risk: Minor – Thousands protest against plan to permit extradition to China

China & United States – Washington blacklists major online retailer over fake goods

Hong Kong – Travel risk: Low – Labour Day festivities to cause travel disruption

China & Kyrgyzstan – Anti-Chinese protests in Kyrgyz capital heighten travel risk

Hong Kong – Security risk: Low – Human rights organisation allegedly hacked by China-linked group

China & United States – US DoJ accuses two Chinese nationals of economic espionage

China – Political risk: Medium – Authorities announce new restrictive games regulations

Hong Kong – Political risk: Minor – Leaders of ‘Occupy’ movement imprisoned for role in protests; demonstrations in their support possible

China – Political risk: Medium – US-China tech joint venture to close down at end of the month


Hong Kong – Thousands protest against plan to permit extradition to China

HONG KONG – Political risk: Minor

29 April: Thousands of people took part in Hong Kong’s largest protest march in five years on 28 April to oppose the local administration’s plan to permit the extradition of suspects to China, and to show solidarity with four leaders of the 2014 ‘Occupy’ movement imprisoned on 24 April by a local court (see Hong Kong entry for 24 April below). The protest organisers claimed 130,000 people took part in the peaceful march on Hong Kong Island, while the police put the number at around 22,000.

Why it matters: Further protests are planned unless the government reverses its extradition decision, which it is unlikely to do. A2 Global notes the march took four hours to cover the 2.2km route, indicating the number of participants was closer to the organisers’ estimates than that of the increasingly politicised local police. The march also served as a de facto test of public opinion, as much of the electorate feels effectively disenfranchised. Most of those who protested appeared drawn from the territory’s middle-income, professional, and student demographic, many of whom see little future in Hong Kong under China’s full control. The extradition issue and imprisonment of the Occupy leaders has served to reignite so-called ‘nativist’ and anti-Beijing sentiments. These will be manifested by further protests, notably on 4 June 2019 when a huge rally is expected to mark the 30th anniversary of the killing of pro-democracy activists and others in Beijing’s Tiananmen Square. Businesses should monitor the situation for any developments likely to impact travel and business operations.

China & United States – Washington blacklists major online retailer over fake goods

29 April: The Office of the United States Trade Representative (USTR) added Pinduoduo Inc., a major Chinese e-commerce platform, to its annual Out-of-Cycle Review of Notorious Markets – a report that includes a blacklist of intellectual property rights violators – published on 25 April, according to recent media reporting. The report also retained Alibaba Group Holding Limited’s Taobao, another major Chinese ecommerce marketplace, on the list for failing to curb the sale of counterfeit goods, stating that the company continues ‘to enhance cooperation with all stakeholders, especially SMEs, to address ongoing complaints’ and repeating its previously recommended measures. These include improving the effectiveness of its repeat-infringer policy, improving tools preventing illegitimate use of product images, an expansion of a reported ban of airbags, seeking input from SMEs, and enforcement of policies relating to automotive parts.

Why it matters: China also remains on the USTR’s priority watchlist of countries with intellectual property rights enforcement issues in its annual Special 301 Report. A2 Global advises e-commerce companies to ensure they are complying with intellectual property rights regulations and implementing safeguards to mitigate the expansion of counterfeit goods on their platforms. Failure to do so can result in addition to the USTR’s blacklist, potentially causing reputational damage and heightened scrutiny.

Hong Kong – Labour Day festivities to cause travel disruption

HONG KONG – Travel risk: Low

26 April: Labour Day festivities from 30 April to 5 May will see an estimated 6.68 million travellers transiting through Hong Kong’s land, sea, and air control points, the government said on 26 April. Of these, around 82 per cent – 5.48m travellers – will pass through land boundary control points. The number of inbound land travellers will reach its peak at about half a million passengers on 1 May, while the number of outbound land travellers will reach its peak at around the same number on 4 May. The busiest control point will be Lo Wu, with a daily average of 263,000 travellers, while Lok Ma Chau Spur Line and Shenzhen Bay control points are forecasted to have daily averages of 185,000 and 146,000 travellers, respectively.

Why it matters: A2 Global advises business travellers to avoid control points forecast to be busy, adjust their journey plans to avoid busy periods, and monitor the media for updates on traffic conditions. During the festivities, there is also an heightened risk of protests by trade unions and civil society groups. Avoid protests as a precaution, and allow for additional journey time, due to likely travel disruption.

China & Kyrgyzstan – Anti-Chinese protests in Kyrgyz capital heighten travel risk

25 April: Hundreds of people demonstrated in the Kyrgyz capital Bishkek on 24 April, against what protesters call Beijing’s growing influence in the region. Demonstrators gathered in Ala-Too square in the city centre and called on President Sooronbay Jeenbekov to limit the number of working permits given to Chinese nationals and ban Kyrgyz-Chinese marriages.

Why it matters: Anti-Chinese sentiment has grown in Kyrgyzstan in recent months, as China has been accused of holding ethnic Kyrgyz people in mass detention camps alongside members of the Uygur community, in China’s Xinjiang Uygur Autonomous Region. A2 Global advises business travellers of Chinese descent to practise heightened situational awareness due to rising anti-Chinese sentiment. As further demonstrations can be expected, all business travellers should avoid protests as a precaution and allow for additional journey time.

  

Hong Kong – Human rights organisation allegedly hacked by China-linked group

HONG KONG – Security risk: Low

25 April: Amnesty International (AI), a human rights non-governmental organisation (NGO), announced on 25 April that its Hong Kong office has been the target of a prolonged cyber-attack by an unnamed hacker group with links to the Chinese government. This has since been contained. It first detected that its systems had been compromised on 15 March 2019, when the office conducted a migration of its IT infrastructure to a more secure international network. Although financial information has not been exposed, AI has contacted individuals whose personal information may have been at risk.

Why it matters: Forensic experts have concluded that the office was the victim of an advanced persistent threat (APT) attack over several years, carrying hallmarks of previous APT campaigns associated with the Chinese government. If correct, this reflects the heightened risk that civil society groups and NGOs working in politically sensitive areas face from state-backed cyber-attacks. Organisations should regularly review their cyber-security measures and regularly assess their threat profile. Individuals responsible for cyber-security should ensure systems are updated with the latest security software, and consider providing additional training for employees.

China & United States – US DoJ accuses two Chinese nationals of economic espionage

24 April: A Chinese businessman and a former engineer have been charged with conspiring to steal trade secrets from Boston-headquartered engineering group General Electric Company (GE) and economic espionage, according to an indictment released by the US Department of Justice on 24 April. It is the first time the US government has officially pronounced that the alleged theft had Chinese ‘financial and other support’ and was intended to benefit China. In August 2018, former GE employee Zheng Xiaoqing, a naturalised American originally from China, was arrested in New York City on charges of corporate espionage on behalf of the Chinese state. He is alleged to have emailed files containing corporate secrets to Zhang Zhaoxi, a China-based businessman.

Why it matters: The charges represent the latest case in a growing crackdown on alleged Chinese spying by the administration of US President Donald Trump. In October 2018, Chinese national Xu Yanjun was extradited from Belgium to face espionage charges in the US for allegedly attempting to steal trade secrets from American companies, including GE Aviation, a subsidiary of GE and one of the world’s leading jet engine suppliers. A2 Global warns companies with links to China to be aware of the risk of insider threats. Firms operating in sensitive areas such as aerospace should implement strict access-and-egress procedures and conduct thorough due diligence on all employees.

China – Authorities announce new restrictive games regulations

CHINA – Political risk: Medium

24 April: Chinese authorities have ended a nine-month freeze on approving new video games, though the lifting of this freeze comes with the implementation of several rules, according to media reports on 24 April. These include bans games containing blood, corpses, mahjong, poker, and references to Chinese imperial history. Publishers and developers are also required to share screenshots, detailed scripts, and features to address gaming addiction.

Why it matters: China presents the world’s largest video game market, with annual sales estimated at USD30 billion. The new regulations are in line with broader trends of increasing censorship in the country, resembling existing content policing controls for short videos and live-streaming services. Similar to these, gaming companies have been ordered to create in-house censor teams to review their games. A2 Global advises gaming companies to factor the new regulations into their operational planning, as failure to comply will likely result in their games being banned.

Hong Kong – Leaders of ‘Occupy’ movement imprisoned for role in protests; demonstrations in their support possible

HONG KONG – Political risk: Minor

24 April: A court on 24 April sentenced four of the nine leaders of the so-called ‘Occupy’ movement to up to 16 months imprisonment for their roles in Hong Kong’s 2014 pro-democracy protests that closed down sections of the territory’s business and administrative centres for almost two months. Academics and founders of the Occupy movement Benny Tai Yiu-ting, 54, and Chan Kin-man, 60, were imprisoned for 16 months each while local legislator Shiu Ka-chun, 49, and League of Social Democrats vice-chairman Raphael Wong Ho-ming, 30, received eight months each. The remaining five defendants received either suspended or deferred sentences on grounds of age or ill health.

Why it matters: A2 Global notes popular reaction to the sentences will serve as a gauge to the extent the Occupy movement retains any credible support in the territory. The 30th anniversary of the Tiananmen Square killings in Beijing in 1989, which have a long served as rallying point for local opponents of China’s control over Hong Kong, falls in early June and A2 Global assesses the combination of the imprisonment of peaceful protesters and China’s consistent denial of its violent suppression of student demonstrators may serve to mobilise support for large scale demonstrations in the coming weeks. A2 Global also warns the Hong Kong police and local administration will seek to ensure there is no repetition of a loss of control over the ‘street’ in the event of such protests as occurred in 2014, which increases the potential for confrontation. As a result, A2 Global advises companies to reassess their security planning to factor in such potential risks in terms of protection of staff, property, assets, and business disruption. In addition, companies closely identified with Hong Kong face a growing risk of reputational harm in the event of widespread unrest.

China – US-China tech joint venture to close down at end of the month

CHINA – Political risk: Medium

23 April: Executives at Chinese server chip maker Huaxintong Semiconductor anounced on 18 April that a joint venture – 45 per cent owned by US-based telecommunications and semiconductor firm Qualcomm Incorporated (Qualcomm) and 55 per cent controlled by Guizhou provincial government – will be closed down by 30 April, according to a report on the news website The Information on 19 April.

Why it matters: The announcement is likely part of the country’s drive to become self-sufficient in strategic technologies – as set out in its ‘Made in China 2025’ policy plan. In this, the semiconductor industry plays a crucial role, due to its potential to facilitate other technological advances. It also follows Chinese regulators’ recent launch of a probe into Swedish telecommunications firm Ericsson over alleged antitrust violations, the second foreign company to be investigated; Qualcomm was fined RMB6.08 billion (USD975 million) for antitrust violations in 2015. A2 Global advises companies, especially those in the technology sector and with government partnerships, to factor this policy into their operational planning, review their risk exposure, and prepare contingency plans in the event of liquidation.