China Policy Monitor No. 1605

AMERICAN FIRMS HELP CHINA SKIRT U.S. CHIP BANS
Despite U.S. government export controls begun in 2022, American companies continue to sell advanced microchips to more than a dozen PRC state-affiliated entities. Given the vast profits at stake, American and Chinese businesses are working together to skirt Washington's restrictions using an underground marketplace of smugglers, backroom deals, and fraudulent shipping labels. The chips, which are used to create AI, can be purchased freely in Shenzhen, Guangzhou. In April, one order containing more than 2000 chips cost $103 million. (New York Times, August 4, 2024)

CHINESE CRIMINALS LAUNDER FENTANYL CASH FOR MEXICAN CARTELS
Chinese organized crime groups in the U.S. are laundering billions in fentanyl proceeds for Mexico's Sinaloa and CJNG drug cartels. Since last year, U.S. federal prosecutors have charged at least 31 people linked to the network, which includes thousands of Chinese brokers. Cartel associates give cash to Chinese agents in the U.S., and then pick up their money, minus a fee, in pesos or cryptocurrency in Mexico. The Chinese brokers move cash into Mexico by importing retail goods like electronics from China and selling them to Mexicans at a discount. U.S. authorities are unable to subpoena WeChat, the encrypted messaging platform that the criminals use to move drug proceeds. "It's like wearing a blindfold," said former DEA agent Bill Bodner. (NBC, August 3, 2024)

CHINA'S INDUSTRIAL PARKS TURN TO CASH TO LURE FOREIGN FIRMS
China's industrial parks are offering cash incentives to attract foreign firms amid an economic slowdown and rising tensions with Washington and Brussels. For decades, local governments lured foreign businesses by offering rent-free offices, cheap loans, and tax breaks, but investments have dried up. For instance, the Suzhou Industrial Park, which has seen total trade fall from $92 billion in 2020 to $86.2 billion in 2023, is "facing challenges mainly from the complex international situation, geopolitical tensions and risen costs in the domestic market," says its head of investment promotion, Chen Liuying. "The traditional local investment promotion model has encountered bottlenecks. Tax, land and other offers make it easy to attract projects but difficult to retain them," confirms Tao Tao of Peking University. In May, the development zone in Kunming, Yunnan began offering up to $8.3 million in cash to attract foreign enterprises. (South China Morning Post, August 6, 2024)

CHINA LAUNCHES SATELLITES TO RIVAL SPACEX'S STARLINK
China's Qianfan, or Spacesail, has launched the first 18 of what it hopes by the end of 2025 will be 600 satellites beaming broadband internet, expanding to a constellation of 14,000 by 2030. Qianfan, aka G60 Starlink, is among three planned Chinese mega constellations that will grow to include a total of about 40,000 satellites in coming years. The China Satellite Network Group's Guowang project will have 13,000 satellites and Landspace's Honghu-3 plans to launch 10,000. These systems extend the PRC's telecommunications model "based on surveilling and censoring the flow of information," warns Kari Bingen of CSIS. Starlink now has about 6000 satellites in orbit, with plans to expand to 42,000. (CNN, August 9, 2024)

CHINA-FUNDED CANAL TO CONNECT PHNOM PENH TO THE GULF OF THAILAND
Cambodia has started on the China-funded $1.7 billion, 180km-long Funan Techo canal to link Phnom Penh to the Gulf of Thailand. The 100m-wide, 5.4m-deep canal promises lower shipping costs to the deep-sea port at Sihanoukville and reduced reliance on Vietnam's ports. It will promote "national prestige, the territorial integrity and the development of Cambodia. We will build this canal, no matter the cost," said Prime Minister Hun Manet, who took power last year from his father, Hun Sen. Billboards promoting the canal dominate the countryside, and the construction site is covered in Cambodian flags. Still, according to The Stimson Center, concerns remain about the project's "transboundary impacts to water availability and agricultural production in Vietnam’s Mekong Delta." (Associated Press, August 5, 2024)

[EDITOR'S NOTE: In June 2022, China and Cambodia broke ground on a naval port expansion project that gives the PLA a friendly dock on the Gulf of Thailand. Chinese-funded hotels and casinos dot Cambodia's landscape, and PRC state banks have financed airports, roads, and more. Nearly 40% of Cambodia's $11 billion in foreign debt is owed to China.]