Hong Kong, Chinese takeover of British semiconductor firm, Scotland and China

Beijing to Britain

Hello,

Welcome to ‘Beijing to Britain’ - a weekly overview of the ebbs and flows of the discussion in Westminster and the City around the UK’s relationship with China, and how it impacts politics, the private sector and society.

As always: tips, feedback, and your views to BeijingToBritain@protonmail.com. If this Briefing has been forwarded to you, please do sign up.


Politics

  • Apple Daily

  • Scotland and China

  • Chinese Embassy in London

Business

  • Chinese firm buying British semiconductor company

  • US mutual funds investing in China

  • Crypto slides

  • Anti-dumping

Society

  • What’s being discussed on Twitter?


First, a quick look at this week for China in Parliament

  • 48 mentions of China

  • No mentions of Xi Jinping

  • 8 mentions of Hong Kong

  • 3 mentions of Uyghurs

  • No mentions of CCP

  • 12 mentions of Magnitsky

  • 589 out of 650 MPs (90.6%) have a Twitter account.



Who’s asking what?

Order! Order!

Some of the more eye-catching questions asked in Westminster this week

  • Peter Dowd (Labour) asked “the Secretary of State for International Trade, how many of her Department's staff are based in the UK’s consulates and embassy in China.”

  • Rachael Maskell (Labour Shadow Minister, DCMS) askedthe Secretary of State for Foreign, Commonwealth and Development Affairs, what discussions he (a) has had and (b) plans to have with relevant stakeholders to establish a new process at the UN Human Rights Council to enable an independent international mechanism to investigate crimes under international law and other human rights violations against the Uyghur people in Xinjiang Province in China.”

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Spotted

The new Chinese Ambassador to the UK tweeted a screenshot of a meeting between himself and Chairman of the 48 Group Stephen Perry. Although the group no longer holds as much influence as it did in decades past, Ambassador Zheng uses the diplomatic term of “an old friend of China” to describe Perry, adding “I appreciate the efforts and spirit of Icebreakers and look forward to working closely with the 48 Group Club.” It was the first meeting the Ambassador publicly tweeted.

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Politics

Apple Daily, Scotland and China, Chinese Embassy in London

Kill the chicken to scare the monkey

As readers will know, this week saw Hong Kong’s Apple Daily shut down for good; next week will see the one year anniversary of the National Security Law. Two things from the offset are worth noting. First, the slew of arrests under the guise of the National Security Law has infuriated many British politicians, both past and present. Second, we suspect the dual technique of high profile arrests coupled with freezing assets may well become the norm for other ‘difficult’ professions or businesses in Hong Kong.

The British Government’s response was limited. Foreign Secretary Dominic Raab issued a statement, saying:

The forced closure of Apple Daily by the Hong Kong authorities is a chilling blow to freedom of expression in Hong Kong. It is crystal clear that the powers under the National Security Law are being used as a tool to curtail freedoms and punish dissent – rather than keep public order. The Chinese government undertook to protect press freedom and freedom of speech in Hong Kong under the UK-Sino Joint Declaration. It must keep its promises, and stand by the commitments it freely assumed.

Minister for Asia Nigel Adams retweeted Raab’s statement, adding:

China’s Ministry of Foreign Affairs slapped down Raab’s statement:

Naturally, the closure did cut through in Fleet Street. The Financial Times penned an editorial ‘Apple Daily case is assault on Hong Kong’s freedoms’, the Times ran ‘The Times view on Hong Kong’s Apple Daily: No News, Bad News’, and the Guardian added ‘The Guardian view on Hong Kong’s Apple Daily: gone but not forgotten’.

The Global Times also added comment:

The secessionist tabloid, depicted by Western politicians and media as the so-called defenders of freedom of speech, issued its final hard copy on Thursday, after some of its senior executives were arrested on suspicion of violating the national security law for Hong Kong. HK$18 million ($2.3 million) in assets was also frozen during the ensuing investigation. 

While a small proportion of readers called to “stand with Apple Daily” on a rainy night, trying to create an emotional scene of sounding an elegy for the paper, more Hong Kong people felt relieved, some observers said, as the shutdown of the 26-year-old newspaper, founded by modern-day traitor Jimmy Lai Chee-ying, is a symbolic move to bring the practice of the “one country, two systems” onto the correct path by ending an era when foreign proxies and secessionist forces could meddle in China's internal affairs by cultivating agents like Lai and his media group. 

In Westminster, those MPs and Lords concerned with the China and Hong Kong lined up to show their fury. The cry for sanctions to be placed on Carrie Lam and other high ranking officials grows louder; both Labour and the Liberal Democrats have now endorsed this too.

A roundup of the key tweets follows:

Tom Tugendhat, Foreign Affairs Committee Chair and China Research Group co-chair

Stephen Kinnock, Labour’s Shadow Asia Minister

Iain Duncan Smith, IPAC co-chair and former Conservative leader

Layla Moran, Shadow Foreign Affairs for the Liberal Democrats

Alistair Carmichael, Liberal Democrats Home Affairs spokesperson

The last British Governor of Hong Kong, Chris Patten

The fundamental question is this. How did the British Government let the situation get to this stage? No one was under any illusion that Apple Daily would be allowed to function in this new Hong Kong - it was clearly a matter of when not if. This speaks to a larger issue within Government policy towards China.

An observational summary follows:

  • British foreign policy towards China is best understood as a series of fragmented positions across different Government Departments, each with their own agendas, these eventually end up being funnelled to the Prime Minister for sign off;

  • Each Department has varying levels of and access to China knowledge. There are pockets of strong China expertise, but they are hidden with the Civil Service machinery, rather than in more prominent Special Advisor roles. This also limits these experts’ ability to speak publicly and on the record as to what the China strategy is;

  • Although there is the National Security Council chaired by the Prime Minister which sits above Departments aimed at producing a more holistic approach to China policy, it is ineffective;

  • Even at the top, contradictions exist and go unchallenged. Take for example the Prime Minster’s recent admission that China is blocking the UN Security Council pushing for genocide declarations, a change from the British Government’s own position;

  • This in turn leads to a pattern. President Xi Jinping takes a calculated gamble (South China Sea, Hong Kong, etc.) and the British Government struggles to come to a decisive and clear response;

  • Take Apple Daily as an example; it seems remarkable that Britain has not led on coordinating with allies how it could have responded in this scenario - sanctions on Chinese officials in conjunction with the EU and the USA being just one option;

  • The below table shows the complicated system that guides UK engagement with China.

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Scotland and China

The relationship between Scotland and China continues to fly largely under the Westminster radar. Much of this stems from the fact that the former does not fully dictate its own foreign policy (yet…?). However, a recent report from the Scottish National Party (SNP) shows Holyrood is alive to the potential challenges Beijing poses. Spokesperson for Defence & Member of the Foreign Affairs Committee Stewart McDonald this week published ‘Disinformation in Scottish Public Life’

He comments:

This report, whilst not a wholesale strategy, is an attempt to outline my own assessment of how the threat of disinformation to Scotland currently manifests itself and maps out some ideas on how we can meet that threat. This ought to be something that has way more discussion in political and public life and so I hope, if nothing else, that is what my report encourages.

China is featured 12 times within the body of the text. A substantive paragraph outlines the perceived threat:

If ‘Russia is a forest fire’, said the former Deputy Director of the NSA in 2020, ‘China is global warming’. Rick Ledgett’s words on the security threat posed by the two states have particular resonance when applied to their role in information warfare. While Russia often targets specific events, democratic processes or institutions, the Chinese government attempts to gradually shape the global narrative around key issues of importance to China.

The report spares its harshest criticism for Confucius Institutes, an issue which arises in Scottish politics far more frequently than in Westminster.

In a 2010 People’s Daily article, the former head of the CCP’s Propaganda Department stated that the goal of Confucius Institutes is to ‘further create a favourable international environment for us’ and to ‘actively carry out international propaganda battles against issuers such as Tibet, Xinjiang, Taiwan, human rights and Falun Gong’. Many Scottish universities, seeking new sources of funding amid tightening budgets, have welcomed this new income source offered from Beijing. Today, The Times reports that Scotland has the world’s highest concentration of Confucius Institutes at universities and Confucius Classrooms at schools, language and cultural education facilities, all staffed with Chinese-trained and supplied teachers. Confucius Institutes appear similar to the British Council, Spain’s Instituto Cervantes or Germany’s Goethe-Institut.

However, Confucius Institutes, located on university campuses and co-funded by the Chinese government, steer students away from discussing topics which are politically uncomfortable to the Chinese Communist Party, such as the Uighur minority in Xinjiang or the “three Ts”: Tibet, Taiwan and Tiananmen Square. This attempt to launder China’s international reputation includes a range of topics: one student at the University of Kentucky was told that reports of pollution in China were ‘misinformation promoted in the US media.’ While Confucius Institutes may not engage in outright disinformation campaigns, their attempts to distort domestic political sentiment make them a key actor in the so-called information war. As Nina Jankovicz notes in How to Lose the Information War – her study of failed Central and Eastern European responses to Russian disinformation – these attempts to distort the information ecosystem must also be acknowledged and reckoned with. Without attention given to ‘the spectrum of [information] threats beyond disinformation and an understanding that local actors are being manipulated’, Jankovicz argues, anti-disinformation campaigns are doomed to fail.

Scottish politicians and policy groups have a unique fascination with these Institutes compared to their Southern counterparts. In the last six months alone:

  • The SNP’s Alyn Smith (an IPAC member) has penned a piece a highly critical piece;

  • The Educational Institute of Scotland overwhelmingly backed an investigation into the funding and influence of Confucius Institutes in Scottish schools a couple of weeks ago, and;

  • The Scottish Greens made a manifesto pledge to “remove Chinese regime influence from classrooms. The Confucius Programme is a propaganda tool of a state responsible for widespread and grievous human rights abuse. We will terminate ‘Confucius Classroom’ partnerships with Scottish schools, end cooperation with the programme by public bodies including colleges and initiate a review of the programme’s impact on academic freedom in the university sector”

Still not tackled is the question of what they plan to replace the institutes with. Scotland sorely needs Mandarin speakers.

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Diplomatic authority is limited

The new Chinese Ambassador, His Excellency Zheng Zeguang, had a busy few weeks. Aside from speaking to the 48 Group, Ambassador Zheng has also had a conversation with Lord Sassoon, Peer of the House of the Lords and President of the China Britain Business Council (CBBC), and Sir Sherard Cowper-Coles, Chairman of the CBBC and Group Head of Public Affairs at HSBC Holdings . The readout from the event was dry but is worth skimming.

This was followed by a keynote speech to a wider audience with the catchy title ‘at the Symposium on the Centenary of the Founding of the Communist Party of China and China's Future Development: Celebrate A Glorious Century and Create A More Splendid Future’. We hear from two sources that the Ambassador’s speech was viewed as aggressive, with little positive to take away for UK-China relations. Journalist Annabelle Timsit adds:

The event started with opening remarks by Yang Xiaoguang, who is deputy head of mission, followed by Ambassador Zheng, who I am told gave a harsh speech. Then officials from three of the UK's communist parties spoke, followed by John Ross (of Renmin University, writes for Socialist Action UK), and then Kerry Brown. The event lasted about an hour and some of the big names you'd expect were not in attendance.

Before we dive into the contents of the speech, it’s notable that several groups usually expected to have attended appear to have not been invited, while British communist party members were (and went on to give warm speeches). Notable too was the inclusion of Kerry Brown, the Lau China Institute and Professor of Chinese Studies at King's College London. Brown is viewed in some circles, perhaps unfairly, as being overly warm to the CCP and its apparatus, taking liberties other academics would not. For example, he was recently interviewed by the Global Times under the headline “Westerners need to adapt to China’s influence”.

Scanning the Embassy readout, it’s clear to see what rhetoric played a role in upsetting some of the British attendees. As the Ambassador comes towards the end of his speech, he sets out the Party’s view of those who attack it.

While leading the Chinese people to achieve national liberation and development, the CPC had been subjected to intentional slandering, isolation and attacks from the anti-communism and anti-China forces. However, we were not intimidated and we did not buckle under the pressure. We remained committed to doing the right thing and following the path of our own choice, because we firmly believe that ours is a just cause, and a just cause is invincible. History has proven this to be true and will again prove it true.

Recently, a handful of politicians in the West instigated by some US politicians once again started a disinformation campaign against China. They refused to recognize China’s development and progress and keep pointing fingers at China and resorting to endless slandering.

They turned a blind eye to the fact that China effectively put the Covid-19 epidemic under control in an open and transparent manner, and chose to manipulate the issue of origin tracing in an attempt to stigmatize China.

They turned a blind eye to Xinjiang’s economic progress, ethnic solidarity and social stability, and stuck a “genocide” label on China’s justified measures to tackle terrorism and radicalisation and maintain social stability.

They turned a blind eye to the chaos in Hong Kong in the past years and accused China of “infringing upon the freedoms and human rights” when we were only trying to strengthen effective governance, uphold “One Country, Two Systems” and safeguard the long-term stability and prosperity of Hong Kong.

They turned a blind eye to the “Taiwan independence” and separatist moves of the Taiwan authority and the severe threat of such actions to the peace and stability of the Taiwan Strait. Rather, they blamed China for “attempting to change the status quo of the Taiwan Strait unilaterally” when it is only justified for China to safeguard its sovereignty and territorial integrity.

They turned a blind eye to China’s devotion to the purposes and principles of UN Charter, and remarkable contribution to peace, stability and common development. Rather, they trumpeted “the rules-based international order” to incriminate China.

This list goes on and on.

This disinformation campaign against China is showing no sign of slowing down. However, accusing China of “spreading false information” is in fact a cover-up for the political agenda and hypocrisy of the accuser. This is nothing but a farce of “thief shouting thief” that confound black and white.

This farce is causing a series of negative effects. It is preventing the people of Western countries from knowing the truth. It is misleading people’s minds. It is also creating estrangement and confrontation between major countries, which hampers the joint global efforts to fight the pandemic and tackle climate change.

The words and actions of those Western politicians have not only hurt the feelings of the 1.4 billion Chinese people but also undermined the fundamental interests of the people of their own countries. This is totally irresponsible. It will never have the support of the people. We urge those Western politicians to stop spreading disinformation because it will not change the facts. No one should underestimate the ability of the international community to make out what is right and what is wrong. Just as previous attacks against the CPC, this new disinformation farce of certain Western politicians is doomed to failure.

We always believe that it is up to the people to choose the path of development that suits their own country. The CPC and the Chinese people have strong confidence in the system of socialism with Chinese characteristics. At the same time, we fully respect the independent choices of others for their own development paths. Just as we do not “import” others’ models, we do not “export” China’s model. Countries of the world should enhance mutual respect, increase mutual understanding and deepen mutual trust. China does not ask others to “copy” China’s system. And we resolutely oppose any attempt from outside to force China to change its system and we firmly reject the deliberate propagation of a so-called “new Cold War”.

And on the UK-China relationship specifically:

We are filled with pride as we look at how far the CPC has come, and we are fully confident as we look to the future.

Today, the CPC is standing at a new historical starting point. China is embarking on a new journey of building a modern socialist country in a comprehensive way. The achievement of China’s two centenary goals and the realization of the great rejuvenation of the Chinese nation will surely create broader space for the cooperation between China and the world, including the UK.

China is an opportunity for UK’s development, not a threat. I hope that the UK will seize the major trend of the times, keep in the right direction and work with China in the same direction forward. We should earnestly implement the important agreements reached between the leaders of out two countries. We must uphold the principles of mutual respect, equality and inclusiveness. And we must focus on cooperation, handle differences properly and join hands to bring China-UK relations back to the track of sound and steady development.

China and the UK may have differences in history, culture and development stage. It is only natural that we do not always see eye to eye on every issue. It is crucial for us to respect each other’s core interests and major concerns, and engage in dialogues on an equal footing in order to reduce misperception and build up consensus and mutual trust.

There are huge potential and broad prospects for practical cooperation between China and the UK. Both sides should work vigorously to expand cooperation across the board, from trade and investment to infrastructure and financial services, and from science and technology to education and health care. We should also expand cultural and people-to-people exchanges. In doing so, we can certainly bring more and tangible gains to the peoples of our two countries.

China and the UK have significant global influence. It is important that we enhance dialogues and coordination on global issues. If we can join hands in fighting the pandemic, promoting world economic recovery and tackling climate change, we would be able to make even greater contribution to world peace and common development.

The Embassy also wrote another letter to the Financial Times.

And the Ambassador made time to visit the grave of Karl Marx.

It should come as little surprise that the Embassy appears to be sticking to its previous Ambassador’s rhetoric. In his excellent new book examining China’s diplomatic history, China's Civilian Army: The Making of Wolf Warrior Diplomacy, Peter Martin explains how the history of this disciplined approach stems from Zhou Enlai:

Zhou summarised the approach in another phrase constantly repeated to his trainee emissaries: “diplomatic authority is limited” (waijiao gongzuo shouquan youxian).

Recruits today are still taught Zhou’s motto emphasising discipline.

Unrelated, but worth having eyes on the newest graphic from the Global Times/Chinese Ministry of Foreign Affairs being circulated on Twitter by the Embassy.

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Odds and ends

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Spotted

Foreign Secretary Dominic Raab touching down in Vietnam “at the start of a visit to South-East Asia visit to discuss the UK’s Indo-Pacific tilt.” Raab’s team tweeted that he is “Looking forward to discussing trade, security and tackling challenges such as climate change, COVID-19 & serious organised crime.

This was the first destination in a 3-day whistle-stop tour of South-East Asia for the Foreign Secretary. Also on the list were high-level meetings in Cambodia and Singapore focussing on trade, defence and security.

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Business

Semiconductors, investing in Xinjiang, Crypto, Dumping

Scoop

A friend of Beijing to Britain alerted us to an intriguing developing situation. On Tuesday, Foreign Policy published a piece examining the Biden Administration’s decision to block the purchase of Mangachip:

Magnachip, based in South Korea, produces a type of semiconductor needed in the most advanced screens, such as those for the newest smartphones. It’s a small company, with revenues of around $500 million last year, a tiny fraction of chip industry behemoths like Intel or Taiwan’s TSMC. But the Biden administration is now blocking its purchase by a Chinese private equity fund.

The U.S. government has not looked kindly on Chinese firms buying other chipmakers in recent years. In 2015, the U.S. Committee on Foreign Investment in the United States (CFIUS) torpedoed the purchase by China’s Tsinghua Unigroup of Micron, an Idaho-based memory-chip maker. In 2016, the Obama administration rejected a Chinese fund’s proposed purchase of Aixtron, a German company that made semiconductor equipment, on the grounds that Aixtron had facilities in the United States. In 2017, CFIUS blocked a proposed takeover of Oregon-based Lattice Semiconductor, citing national security risks. And in 2018, the Trump administration halted the purchase of Qualcomm by Broadcom, a Singapore-based company. So there is plenty of precedent for CFIUS blocking semiconductor deals.

Magnachip, however, is different from all these deals. It is a small company. It focuses on technology that is not a U.S. core competency. Moreover, it has little if any U.S. presence. The company has stated that “[a]ll manufacturing and research and development activities take place in South Korea.” Most sales are outside the United States, as are all the employees, IT systems, and intellectual property. Unless the company’s disclosures are hiding something, the only substantive connection Magnachip has to the United States is that its shares trade on the New York Stock Exchange.

This could have significant ramifications for the United Kingdom too. As readers may remember, a British semiconductor company based in Wales, Newport Wafer Fab, is currently in the process of being taken over by a Chinese company, Nexperia - a 100% owned subsidiary of the Chinese-based Wingtech Technology.

Unnoticed by most, Foreign Affairs Committee Chair and China Research Group co-founder Tom Tugendhat appears to have been following the deal closely. This week his Committee published a letter written to Kwasi Kwarteng, the Secretary of State for Business, Energy and Industrial Strategy.

Within, Tugendhat states:

I am writing to reaffirm my concerns that the takeover of Newport Wafer Fab (NWF) by Nexperia - a 100% owned subsidiary of the Chinese-based Wingtech Technology - will not be reviewed under the National Security and Investment Act. Since installing two board members at NWF in March, Nexperia has now begun the due diligence process for the takeover of NWF. I must stress again that having the UK’s leading 200mm silicon and semiconductor technology development and processing facility being taken over by a Chinese entity - in my view - represents a significant economic and national security concern.

With the world experiencing a shortage in semiconductor production and companies and countries competing over the limited supply that exists, it is crucial that the UK protects its strategically valuable manufacturing resources. I therefore urge you to reconsider your advice to NWF that the completion of the company’s takeover by Nexperia would not trigger a call-in under the National Security and Investment Act. Could you also please clarify whether you believe this is primarily a matter for the Welsh Government when the administration in Cardiff does not have the devolved authority to consider the national security implications that a transaction of this nature to a foreign purchaser would raise?

Please could you advise what the government feels is different about the takeover of NWF, and why it is not reviewing a deal involving a British company critical to the economic security of a variety of manufacturing industries falling into the hands of an entity that was set up to serve the needs of a systemic competitor.

Keep a very close eye on this. It’s worth noting straight away that Tugendhat has already attempted to raise his concerns with the Business Secretary on this issue and has had to resort to publishing a public letter. Will the Biden Administration pressure Downing Street to block this purchase? Will the Prime Minister cede to the pressure?

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Exposure

The South China Morning Post reported three giant US mutual funds - Vanguard, State Street and BlackRock - “have collectively poured millions of dollars into  Xinjiang’s publicly traded companies in recent years, many of them directly controlled by the Xinjiang government itself.” The paper continues:

One Vanguard ESG fund includes four Xinjiang companies, one of which has boasted in annual reports of “maintaining stability in South Xinjiang”, working to “strengthen the ideological re-education of transferred workers”, and providing “vocational training” to nearly 2,000 people in the region, terminology that rights groups say is a red flag for suspected human rights abuses.

It doesn’t require a huge amount of imagination to conjure up a situation in which millions of Brits have put money into funds that have ended up investing in Xinjiang - particularly ESG funds with a solar focus.

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Crypto-no

Once again it’s worth trying to understand in slightly more detail the economic effects on British wallets of China’s continued campaign against crypto-farming.

The Financial Times reports:

A wave of despair hit China’s cryptocurrency mining community this week after officials in all of China’s hubs for mining operations followed Inner Mongolia and released further measures targeting bitcoin creators. The northern region had banned mining and introduced a telephone hotline for reporting on suspected operations in May.

Sichuan, a hydropower-rich province in south-west China, has ordered the 26 largest local mines to stop operating as an investigation is conducted, after a series of meetings by the local Development and Reform Commission’s Energy bureau, Chinese media reported on Friday.

Governments in leading cryptocurrency mining locations Xinjiang, Yunnan and Qinghai also this month announced plans to shutter mining operations.

This caused the price of Bitcoin to halve, trading at about $30,000 below the April peak of almost $65,000. As of January this year, YouGov polling found that 5% of Brits have own or owned crypto - around 3.4m people. Is there currently an asset more widely held by the British public with the same level of exposure to Chinese domestic legislation?

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No dumping

The newly established Trade Remedies Authority (TRA) this week opened its first investigation in response to an application from a UK industry looking at allegations of Chinese dumping. Created earlier this month as a product of the Trade Act and operating at an arms length body of the Department of International Trade, its remit is to investigate whether new trade remedy measures are needed to counter unfair import practices and unforeseen surges of imports.

The materials being investigated in this case are rolled, drawn, extruded, forged or cast aluminium extrusions exported from the PRC, that are in the form of bars, rods, profiles, tubes and pipes.

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Odds and ends

  • The South China Morning Post examines the financial argument around the proposed UK flagship. (SCMP)

  • Chinese banks are effectively utilising social media influencers (FT)

  • Nike has defended its operations in China during an earnings call. (BBC)

  • The newly updated Companies House for the China-Britain Business Council appears to show the termination of Matthew James Rous as a director on 25 June 2021 (Companies House)

  • Hikvision is hiring lobbyists in America. The company is also under increasing scrutiny in the UK. (WaPo)

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Spotted

The UK’s most undervalued soft power asset back in play. Those of us watching the Euros have surely by now spotted the huge number of Chinese sponsors, including Alibaba. The appetite for the Euros is seen clearly in the data, with Chinese football fans among the most interested in the tournament around the world.

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Society

What are people talking about?

This week saw an uptick in tweets asking Prime Minister Boris Johnson to take action on a Chinese ‘dog meat festival’. An annual occurrence on Twitter, this year’s anger was started by the Prime Minister’s wife, Carrie Johnson, who shared a Sun article about the Yulin Dog Meat Festival.

Also on Twitter this week; the Free Tibet campaign hung a ‘Boycott Beijing 2022’ flag over Westminster Bridge, and pro-Beijing accounts shared a video of Jimmy Lai ‘praising’ the CIA.

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Reading list

What we learned from this week