News round-up, July 10, 2023
Water is a precious resource that we have almost drained...
Water is considered the fundamental source and primordial element that precedes all forms. The philosopher, Thales of Miletus first introduced the concept of —-water's significance—-, suggesting that our understanding of its importance predates our comprehension of chemistry.
"We have a better understanding of the enormity of the cosmos that surpasses our comprehension of the immeasurable depths of the ocean.
In metaphysics, Aristotle emphasizes the significance of water as the primary element essential for preserving life. Water symbolizes:
"Mortality and renewal, purification, the cyclical nature of existence, and eternal recurrence.
Undoubtedly, water is an invaluable and indispensable resource for our sustenance. However, it has consistently been scarce throughout history. Water scarcity and conflict have a consistent correlation, evident in numerous historical contexts. This historical legacy can be traced back to ancient Babylon and has persisted through various conflicts, including the Vietnam War. Moreover, recent events remind us of the difficulties we confront in this matter, such as the dispersal of polluted water from the Fukushima nuclear catastrophe into the sea, prolonged periods of drought, and the escalating temperatures occurring in different parts of the world.
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Water is more than a common good
As the ready availability of fresh water becomes increasingly threatened around the world, attention has focused on minimising water use. But that obscures how deeply political the issue of universal access to water is.
Franck Poupeau's Le Monde Diplomatique, July EditionsThe South American capital with a week’s worth of water left
Workers have begun drilling wells in the capital to reach the water beneath the ground, while protests have erupted over shortages
The Telegraph By Harriet Barber, 7 July 2023Five Ways the Bull Market Makes Investors Nervous
Investors can’t stop looking over their shoulders for major risks looming in markets
WSJ By Caitlin McCabe, July 10 , 2023Putin met Prigozhin in Moscow after Wagner mutiny
Mercenary group ‘ready to continue to fight’ for Russia, Kremlin spokesperson says.
POLITICO EU BY NICOLAS CAMUT, JULY 10, 2023After Yellen visit, China speaks of ‘rainbows’ but prepares for trade battle
In the complex realm of international relations, China aims to underscore the importance of collaboration and mutual understanding with the United States. Rather than perceiving each other as primary competitors vying for global dominance, China advocates for a different approach, urging the United States to abandon the concept of forming exclusive alliances akin to forming a gang.
TWP By Christian Shepherd, July 10, 2023 
At the COA Spring Gala 2023, Andrés Gluski, the CEO & President of AES and Chairman of the Americas Society/Council of the Americas, presented President Lacalle Pou with the prestigious Gold Insigne. This award was given in recognition of President Lacalle Pou's outstanding leadership in successfully transforming Uruguay into a prominent technology and innovation hub, all while upholding a thriving democracy and robust economy.
The Central Arizona Project canal helps serve 80% of the population of Arizona, Peoria, 8 June 2023
Mario Tama Water is more than a common good
As the ready availability of fresh water becomes increasingly threatened around the world, attention has focused on minimising water use. But that obscures how deeply political the issue of universal access to water is.
Franck Poupeau's Le Monde Diplomatique, July EditionsDriving through southwestern Arizona under a scorching sun, I was struck by how absurd it is that while the western half of the United States is suffering a prolonged drought, new residential complexes are being built far into the Sonoran desert. The dusty plains of Pima County around Tucson airport are scattered with rundown housing without air conditioning and sometimes even running water. Yet just a few kilometres away there are luxury villas with valley views, surrounded by hundred-year-old cacti and elaborate desert gardens with artfully placed rocks, designed to comply with official injunctions not to waste water.
To support this urban sprawl and the economic benefits it brings, a canal diverts water from the Colorado river. Opened in 1993, the Central Arizona Project, 541km long and averaging seven metres wide, with 14 pumping plants and dozens of sluice gates, carries 85 cubic metres per second.
Pima County, which lives above its means in terms of water, is pursuing various environmental initiatives. The Santa Cruz river, which had been dry for decades because of excessive pumping from aquifers and waterways (for cattle ranching, agroindustry, cotton growing, mining and urban growth), is flowing again, with reclaimed wastewater from Tucson. It doesn’t quite amount to an ecological restoration project, which would entail re-establishing a fully functional water cycle and self-regulating ecosystem, but it highlights a key feature of our relationship with natural resources today, even when we have the best environmental intentions. Access to water depends on massive technological infrastructure (1) – in this case, water treatment plants (which use chemicals) and pipelines to carry the reclaimed water to the Santa Cruz. Commentary on water conflicts often overlooks this simple fact in favour of a broad and (apparently) generous idea that water should be considered a common good essential to life. This would imply a right to water, formalising the obvious link between nature and humanity. Yet nothing could be less natural than access to water and how societies have acquired it.
Move to managing demand
Civil engineer and city planner Bernard Barraqué (2) identifies three periods in the development of Europe’s water industry: the ‘age of quantity’, when civil engineering brought water from distant sources (19th century), the ‘age of quality’, when sanitary engineering and local government became involved (late 19th-early 20th centuries), and lastly the age of ‘integrated and demand-side management and environmental engineering’ (since the late 20th century). In this third age, he writes, the water industry has moved from supply management (expanding availability) to demand management (discouraging use) in which water is treated less as a natural resource than as a service, especially in cities.
Most international institutions have adopted this supply-and-demand model, but the Global Water Partnership (GWP) – a specialist intergovernmental organisation concerned with water resource management – criticises the apparent lack of concern over drought in EU directives, and the virtual absence of measures to encourage cutting back on water use. Although EU management plans call for increasing the water supply, demand management is ‘broadly missing in the current EU architecture’ (3). Which means ordinary citizens need to work even harder to use less water (give up swimming pools, brush their teeth and pee in the shower).
From water infrastructure to supply and demand policies, the problems are the same. Who should pay for the water we use?
But by placing the burden of responsibility on the individual, and depoliticising the issues – the building, ownership and monitoring of the infrastructure required for collective living – these exhortations to use less water actually limit the scope of what can be done.
Water supply and sewage usually depend on networks of pipes. While rejecting unnecessary mega-projects (huge reservoirs, canals to divert water from one region to another etc), we should not forget that even the worthiest environmental initiatives depend on technology, whether it’s reclaiming wastewater, capturing rainwater, restoring waterways or installing permeable paving.
Implementing these initiatives requires a knowledge of hydrology, economics (pricing, provider status, contracts) and especially environmental engineering which takes account of ecosystems. There are many ‘ecosystem infrastructure’ projects being developed (4), especially the eco-neighbourhoods of the global North, which offer alternative and decentralised solutions.
When water shortages cause conflict
In recent years, water policy has become a focus of attention because of recurrent droughts following severe disruption of the hydrosocial cycle (5): high temperatures lead to more evaporation, streams and rivers run dry, and aquifers are slow to replenish, so access to water is no longer guaranteed everywhere, all year round, even in areas not previously considered arid. Across a growing part of France, water agencies expect shortfalls of up to 50% of annual consumption by 2050. Water shortages have given rise to conflict, as between farmers and environmentalists over ‘mega-basins’ (see Is storing water the real answer?, in this issue). But it’s hard to see what can be done when the balance of political power is so unfavourable to reform.
Whether the starting point is water infrastructure or a vision of a common good to be managed through supply and demand policies, the practical problems are the same. Who should pay for the water we use? Who should finance, build and maintain supply networks, and, above all, who should own and control those networks? For years, it was the state: in Asia and Africa, governments often based their authority on water mega-projects such as irrigation canals and flood defences; and from the 19th century the landscape of the American West was shaped by federal investment in huge water and transport projects, and the greening of the desert.
Western governments saw cities as strategic hubs for growing the economies of developing countries, and in the 1980s and 90s pushed them to outsource the running of urban infrastructure to the private sector, so the water industry became part of the great dismantling of public services. Meanwhile, international institutions mobilised private enterprise to develop networks in the global South.
These policies challenged the universal distribution model that had been seen as the best response to the problem of access to water for all. In particular, water management and major engineering projects were considered too costly for the poor of emerging countries. Yet projects in a number of countries of the global South have shown that people who don’t have access to public water services (and therefore have to buy bottled water, have water delivered by tanker or pay for rainwater capture equipment) end up paying more than those living in neighbourhoods connected to the mains (6). Most would be able to help pay for the building of water networks, provided the service really met their needs. This is one of the paradoxes of demand for urban services: even in poor countries, people would rather have better access than free services.
So it’s not enough to argue that the world’s poorest should have access to water simply because they have the right to it. The situation in regions suffering from water stress shows that (setting aside criteria such as fairness and democratic participation) we need to determine whether the supply model established in Europe and the US in the 19th century – urban networks or operators covering a particular area – is still the best answer to growing demand. It could be better to focus on the decentralised solutions that are emerging in the global North, such as eco-neighbourhoods, which for now exist alongside infrastructure supplying relatively wide areas. These residential developments are equipped to treat wastewater on site, capture rainwater and produce sewage sludge to fertilise their vegetable gardens.
However, these practices, though touted by the well-to-do and politicians keen to promote green technology, may actually be undermining the economic viability of the universal distribution model. Promoters of ‘green secessionism’ have been accused of abandoning public services, and therefore solidarity with society’s poorest. Between the power of the water authorities and the might of the multinationals, is it enough to encourage water-saving measures without addressing the financial and political question that underpins the roll-out of water infrastructure for all?
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Senior Vice President, Chief Strategy and Commercial Officer and President, New Energy Technologies SBU
People protest against the high levels of chloride and sodium in the drinking water, which were raised due to Uruguay's persistent drought CREDIT: EITAN ABRAMOVICH/AFPThe South American capital with a week’s worth of water left
Workers have begun drilling wells in the capital to reach the water beneath the ground, while protests have erupted over shortages
The Telegraph By Harriet Barber, 7 July 2023Uruguay’s capital is days away from running out of drinking water amid the nation’s worst drought in 74 years.
The government has told locals in Montevideo, a metropolis of more than 1.3 million people, that they have seven to ten days of drinking water left.
It follows a multi-year drought and high temperatures which have drained the city’s reservoirs. Officials announced that reserves are at 1.8 per cent of their capacity.
The state’s water company has begun drilling wells in the centre of the capital to reach the water beneath the ground, while protests have erupted over shortages.
Uruguay is the only country in Latin America to have achieved quasi-universal access to safe drinking water – meaning almost everyone has easy access to water free from contamination – after enshrining access to water as a fundamental right in a 2005 constitutional amendment.
However, locals have already been forced to turn to bottled water after the state-owned water company, Obras Sanitarias del Estado (OSE), began mixing salty water with fresh water to stretch supplies in June.
A bridge that emerged after 30 years under water of the Santa Lucia river at Paso Severino reservoir CREDIT: Ernesto Ryan
The mixing of salt water has triggered health concerns from vulnerable populations.
“It’s horrible. You can’t drink it,” teacher Adrian Dias told Reuters. “My wife has hypertension, so it’s impossible for her to drink this water for the amount of salt it has.”
Although the health minister said the mixed water was not a risk to most people, she advised people with hypertension and kidney disease, as well as those who are pregnant, to limit or avoid tap water completely.
Many residents in Montevideo and the surrounding area cannot afford to buy bottled water, and have been forced to keep drinking from the taps.
Anger over water shortages has incited multiple protests on the streets of Montevideo.
“There’s water, but it’s in private hands,” reads a banner hanging outside the offices of OSE, in Montevideo.
People take part in a protest called by Uruguay's Central Union in "defense of water" CREDIT: EITAN ABRAMOVICH/AFP
Federico Kreimerman, an OSE union leader, said agribusiness was partially to blame for Uruguay’s water woes, explaining water from the Santa Lucia River is syphoned off to private reservoirs for irrigation.
“The share of water for human consumption is tiny,” Mr Kreimerman told Reuters news agency. “Agribusiness entrepreneurs dam the river and use it for themselves.”
Redes-Amigos de la Tierra, an environmental protection group, also blamed the situation on “plundering” factories, rice-growing companies and soy farmers.
“Almost 80 per cent of our freshwater goes to the agricultural and forestry sector, so we can certainly say water resource exploitation is very high in Uruguay,” biologist and environmental expert Mariana Meerhoff told DW, a German media outlet.
“Because so much water is used in industry, the amount for water for personal use and nature is obviously very limited.”
Production has been paused in some of the city’s factories. The Frigorífico Canelones meatpacking company sent 700 workers to collect unemployment insurance when it halted production this week, according to the Buenos Aires Herald.
The dry lakebed of the Canelon Grande dam that normally provides drinking water for the capital CREDIT: Matilde Campodonico/AP
Climate change is exacerbating both water scarcity and water-related hazards, such as floods and droughts, in countries around the world. Neighbouring Argentina is also grappling with its worst drought in decades, which is having a severe impact on farming.
In June, Uruguay’s government declared a water emergency, exempting taxes on bottled water and ordering the construction of a new reservoir.
President Luis Lacalle Pou insisted his government was “hurrying all the works and trying to continue looking for alternative sources” of water.
The government is also distributing drinking water to vulnerable groups like schools, nursing homes and hospitals, said Gerardo Amarilla, undersecretary at Uruguay’s environment ministry.
At Canelon Grande Reservoir, a major water source for Montevideo, water levels have been so low that grass now covers what was once a lake.
“It’s bleak,” local Mario del Pino said, standing in the middle of the reservoir, surrounded by weeds and cracked dirt. “Water used to cover everything you can see.”
Image: Germán & CoCooperate with objective and ethical thinking…
ILLUSTRATION BY THE WALL STREET JOURNAL/ Editing by Germán & CoFive Ways the Bull Market Makes Investors Nervous
Investors can’t stop looking over their shoulders for major risks looming in markets
WSJ By Caitlin McCabe, July 10 , 2023A familiar question has crept back onto Wall Street: Could this be the most-hated bull market ever?
The S&P 500 charged into bull-market territory in the first six months of 2023, marking a 20% rally from a recent low, yet investors say they can’t stop looking over their shoulders. Even after U.S. stocks overcame big risks—including repeated interest-rate hikes and a banking crisis—money managers say they aren’t convinced this rally is sustainable.
History shows that investors don’t tend to love bull markets when they are in them. Traders grumbled about the 11-year bull run born out of the financial crisis. So far this time, investor anxieties have been largely suppressed. Yet a drop in stocks and surge in bond yields last week after a round of strong economic data show how brittle the current bull market may be.
Investors say they are monitoring worrisome trends in the market. Here are five that are on their minds:
1. Earnings Season Could Reveal Hidden Weakness
S&P 500 companies' net profit margin
Source: FactSetNote: Q2 2023 is a blend of reported results and analyst forecasts.Earnings season kicks off in earnest this week. Some investors are warning it could be bumpy.
Companies in the S&P 500 are expected to report a 7.2% decline in earnings for the second quarter, FactSet data show, marking what would be the third consecutive year-over-year earnings decline.
Investors are on the lookout for whether corporate pricing power is ebbing. The net profit margin of companies in the S&P 500 is expected to fall to 11.4%, down slightly from the previous quarter and notably lower than the 13% peak reached in 2021. Companies might find themselves squeezed at both ends, investors say, as they face rising financing costs while also struggling to raise prices further as inflation ebbs.
“The market is pricing in a very angelic scenario [for earnings], and we are very reluctant to buy into that,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers. His team has started trimming exposure to stocks in the firm’s flagship multiasset portfolio, he said, while also keeping 25% of it in cash.
2. The Yield Curve Inversion Is Deepening
10-year U.S. Treasury yield minus two-year yield
Source: Federal Reserve Bank of St. LouisA year ago, the U.S. bond market began consistently flashing a recession signal. Lately, the warning has been getting louder.
Part of the U.S. Treasury yield curve has been persistently inverted since last July, when the yield on the 10-year U.S. Treasury note slipped below that of its two-year counterpart. Last week, the yield on the 10-year U.S. Treasury note dropped to 1.08 percentage point below that of the two-year yield—the widest negative gap since 1981.
Investors look to the U.S. Treasury yield curve as a gauge of economic health. When the curve inverts, that means bond traders are betting the Federal Reserve will keep rates high in the near term to fight inflation but will then need to cut them later to resuscitate the economy.
Some investors are betting the yield curve will trump more positive signs about growth, including recent data showing continuing resiliency in the labor market.
3. Global Markets Look Cloudy, Too
Performance of global indexes, year-to-date
Source: FactSetMarkets outside the U.S. started 2023 on a positive note. China had just lifted its Covid-19 restrictions, stirring optimism that a flurry of spending from Chinese consumers would unleash economic growth at home and abroad. Asian stock indexes initially soared, as did those in Europe.
Since then, excitement has faded. Hong Kong’s Hang Seng is in the red for the year, while the Shanghai Composite has gained just 3.5%. Europe’s pan-continental Stoxx Europe 600 is up only slightly more—5.4% for the year—and on Thursday suffered its largest decline since March.
Fading optimism has been driven by darkened economic outlooks. The eurozone has slid into a recession, and investors continue to worry about the impact of the war in Ukraine and inflation that remains more stubborn compared with the U.S. China’s era of rapid growth, meanwhile, seems to be over, felled in part by its troubled property market, mounting debt burden and high youth unemployment.
4. Trouble From Higher Rates Keeps Bubbling
Response from market professionals when asked if higher rates will cause more accidents inglobal markets
Source: Deutsche Bank Research Note: Based on survey of 400 global participants conducted June 27-29.Accidents will continue andcause some market stressAccidents will be quicklycontained, with limitedmarket impactBigger accidents are coming,with serious financial stressUnlikely there will be anymore big accidents0%102030405060
Even the seemingly safest areas of the market are vulnerable to stress when interest rates rise.
The first warning shot came last fall, when rising rates sparked turmoil in U.K. bond and currency markets. Then came Silicon Valley Bank, whose collapse was sparked in part by a disclosure that the bank had booked a $1.8 billion loss on its bond portfolio due to rising rates. Even British utility Thames Water has recently come under stress, as it grapples with a large debt load and rising debt-service costs.
Many investors say they are nervous about what could break next. A June Deutsche Bank survey of market professionals showed that nearly all of its 400 respondents expect higher rates to cause more global accidents. Some 18% of them believe the strains will be significant, causing “serious financial stress.”
5. U.S. Stock Positioning Looks Stretched
Average investor positioning levels in U.S. stocks, five-day rolling average
Source: JPMorgan Data Assets & Alpha Group, Positioning IntelligenceNote: Positioning reflects multiple investor types, including hedge funds, retail investors, mutual funds, and inthe options market. A value of '0' marks the average over the last eight years.After sitting on the sidelines at the start of this year, asset managers, hedge funds and individual investors have picked up buying activity, joining quant funds.
Together, that buying has pushed their U.S. stock market positioning to its highest level in nearly 18 months, according to an estimate from JPMorgan Chase. Positioning in some parts of the tech sector, namely software and semiconductor companies, looks particularly stretched, said Eloise Goulder, head of the data assets and alpha group at the bank.
This crowded positioning has stirred worries that U.S. stocks could be vulnerable to a rapid reversal. Eight stocks in the S&P 500—Alphabet, Amazon, Apple, Meta, Microsoft, Netflix, Tesla and Nvidia—now account for 30% of the index’s market capitalization, according to Dow Jones Market Data. Tech’s influence, combined with crowded positioning, could magnify moves in the market if sentiment shifts and investors try to simultaneously exit positions.
FOMO, or fear of missing out, “is in full swing,” JPMorgan strategists led by Mislav Matejka said in a recent note.
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Yevgeny Prigozhin shows Vladimir Putin his school lunch factory outside Saint Petersburg in 2010 | Alexey Druzhinin/Sputnik/AFP via Getty ImagesPutin met Prigozhin in Moscow after Wagner mutiny
Mercenary group ‘ready to continue to fight’ for Russia, Kremlin spokesperson says.
POLITICO EU BY NICOLAS CAMUT, JULY 10, 2023Russian President Vladimir Putin met with Wagner chief Yevgeny Prigozhin in the Kremlin after the paramilitary group’s aborted mutiny last month, according to Russian media reports.
“This meeting took place in the Kremlin on June 29. It lasted almost three hours,” Kremlin spokesperson Dmitry Peskov said Monday, according to state-owned newswire Ria Novosti.
Prigozhin rebelled against the Russian military establishment on June 23, seizing the city of Rostov-on-Don the next morning and sending his Wagner Group mercenaries on a march to Moscow. The mutinous warlord only turned his tanks around as they came within 200 kilometers of the Russian capital and threatened to tip the country into civil war.
Thirty-five people were invited to attend the high-stakes Moscow meeting, including “all the commanders of the military detachments” and Prigozhin, Peskov said.
During the meeting in the Kremlin, Putin “gave an assessment of the company’s actions” on the front line in Ukraine and of “the events of [the rebellion on] June 24,” the spokesperson said.
The Wagner commanders were then offered “further options for employment and further combat use,” Peskov said, adding that the paramilitaries said they were “ready to continue to fight” for Russia.
“Putin listened to the explanations of the commanders and offered them further options for employment and further combat use,” Peskov added.
After the mutiny was aborted following talks between Prigozhin and Belarusian leader Alexander Lukashenko, who negotiated a climbdown from the mercenaries, the Wagner leader was supposed to be exiled to Belarus.
He has not, however, been seen in public since. Lukashenko initially confirmed that Prigozhin had popped up in Belarus, before later saying that he wasn’t actually there — and could even be in Russia.
Usually very active on social media, oligarch-turned warlord Prigozhin has been discreet since the mutiny ended — only appearing a couple times on Telegram.
Wagner troops have been involved in some of the bloodiest fighting in Moscow’s full-scale invasion of Ukraine, including in the city of Bakhmut which was battered for months by invading Russian forces during the winter and spring.
U.S. Treasury Secretary Janet L. Yellen and Chinese Vice Premier He Lifeng in Beijing on Saturday. (Mark Schiefelbein/Pool/AP) / Editing by Germán & CoAfter Yellen visit, China speaks of ‘rainbows’ but prepares for trade battle
In the complex realm of international relations, China aims to underscore the importance of collaboration and mutual understanding with the United States. Rather than perceiving each other as primary competitors vying for global dominance, China advocates for a different approach, urging the United States to abandon the concept of forming exclusive alliances akin to forming a gang.
TWP By Christian Shepherd, July 10, 2023 BEIJING — China hailed the absence of major contention during the visit to Beijing by U.S. Treasury Secretary Janet L. Yellen as progress toward easing long-standing tensions, even as it continues to prepare for a protracted standoff with the United States over critical technologies.
In a statement released Monday, the Finance Ministry called discussions over Yellen’s four-day visit “frank, pragmatic, in-depth and constructive” while giving China an opportunity to clarify its position on what constitutes “healthy economic competition.”
But Chinese scholars and policy advisers have also underscored that serious disagreement remains over the ground rules for the trade relationship. They said that Beijing is unwilling to accept the terms of economic engagement being offered and will continue to strike back at what it sees as unfair trade restrictions imposed by Washington.
Yellen hails modest gains in economic talks with Chinese leaders
Tensions remain in part because China is strongly opposed to even limited trade restrictions on sensitive technologies, especially when American allies and partners are involved, said Lu Feng, an economist at Peking University.
“China wants to convince the United States that working together requires not viewing us as a primary competitor or gathering your friends to form a gang,” he said.
On Friday, Premier Li Qiang — the face of China’s efforts to attract foreign businesses and revive a sluggish economy — spoke of “rainbows” after the storm when receiving Yellen in the Great Hall of the People, before warning against “total politicization and securitization” of the economic relationship and urging that the United States see China’s development as a “plus not a risk.”
Unlike past engagement with the United States, talks now are less about expanding the relationship and more about “recalibrating” within the United States’ framework of great power competition, said Sun Chenghao, a research fellow at the Center for International Security and Strategy at Tsinghua University.
Beijing’s dislike of that framing makes it more likely to drive a hard bargain. “China will more often conduct exchanges based on its own interests where benefits for each side are reciprocal, rather than going along with requests for cooperation from the United States,” he said.
U.S. and European policymakers are increasingly talking about “de-risking” to broaden economic supply lines, lessen dependence on the Chinese economy and reduce Chinese access to advanced technologies with military applications — a distinction from “decoupling” that Beijing does not buy.
For China, de-risking is little better than earlier threats of “decoupling” because the meaningful content is the same, said Shen Yamei, director of American Studies at the China Institute of International Studies, a think tank under the Foreign Ministry.
“The U.S. interpretation of de-risking is actually de-Sinification, which is to say that it means excluding China,” she said.
U.S. and Chinese flags before Yellen's meeting in Beijing on Saturday. (Mark Schiefelbein/Pool/Reuters)
Yet even as it criticizes de-risking, China is engaging in a series of measures to confront the U.S. economy, including lessening its dependence on American manufacturers.
Days before Yellen was due to touch down, the government announced export controls on metals primarily found in China that are critical for the manufacture of microchips and fiber optic cables — Beijing’s first official “rare earth” restrictions since an export control law was passed in 2020.
The announcement was part of a years-long effort to become better equipped to stare down the United States in a trade and technology war that began under the Trump administration and, from Beijing’s perspective, continued — at lower volume — under President Biden.
Unlike during Secretary of State Antony Blinken’s visit last month, Yellen did not meet with Chinese leader Xi Jinping, who spent the day of her arrival visiting the Eastern Theater Command, the branch of the military in charge of enforcing Beijing’s claims over self-governed Taiwan.
Underscoring the importance Xi places on building indigenous advanced manufacturing capabilities, he also visited HYC Technologies, a tester of machinery used for semiconductors and electric vehicles, as part of his tour of Jiangsu province.
Beijing has long used its economic heft as leverage in geopolitical standoffs, including temporary restrictions on rare earth metal exports to Japan in 2010. But more recently, the Chinese government has rapidly expanded a framework of laws and regulations that Chinese experts tout as a means to fight back should the tentative détente fail.
China’s export controls were a countermeasure to “unbearable bullying” from the United States, Chen Fengying, a researcher at the China Institutes of Contemporary International Relations, a think tank under the Ministry of State Security, told state-run media.
Before Yellen arrived, Chinese officials made exacting demands for substantial shifts in U.S. trade policy, including canceling plans to add new tariffs on imports and reversing a Trump-era intellectual property investigation’s ruling that underpins existing ones.
The export controls come on top of a string of actions that have spooked the international business community. Authorities raided American firms Mintz and Bain, and Chinese police publicly named and shamed expert network Capvision, a Chinese company with offices in New York and a large number of international clients, over alleged spying.
Revisions to Chinese counterespionage laws that came into effect on July 1 have heightened the United States’ concerns about national security impinging on business interests — fears intensified by the growing use of exit bans to prevent foreigners and Chinese alike from leaving.
China’s national security ban on sales of U.S.-made Micron memory chips to Chinese entities involved in key infrastructure has also been interpreted as a sign that long-running efforts to curb dependence on American-sourced components are accelerating.
If an American company in China works on areas deemed sensitive and critical for the country’s future development, “you can start planning your exit strategy,” said one Beijing-based executive who spoke on the condition of anonymity because of the sensitivity of the matter. “It’s a question of when, not if.”
News that the United States had updated its travel advisory for China to urging U.S. citizens to reconsider travel to the country over concerns about arbitrary enforcement of local laws also sparked an angry response last week. China’s Foreign Ministry called it “gratuitous political manipulation.”
For some Chinese scholars, American concern over China’s evolving national security legislation is just another sign that there is no immediate end in sight to the tensions.
“China asks the United States to understand how its legal system is built but doesn’t expect complete acceptance,” said Wang Wen, executive dean of the Chongyang Institute for Financial Studies at Renmin University. “Going forward, China-U.S. contestation will continue to be very intense.”