What happened

The Biden Administration is poised to issue a proposed rule that will ban Chinese software from autonomous vehicles “with Level 3 automation and above” due to concerns over national security risks,  Reuters reported last week, citing sources briefed on the matter.

“The Administration … also plans to propose barring vehicles with Chinese-developed advanced wireless communications abilities modules from US roads,” the sources said.

If put into effect, the measure could have far-reaching implications.

Not only would it ban the testing of autonomous vehicles produced by Chinese companies on US roads, but it could also shut China out of the US market, as former White House official Liza Tobin noted.

Why it matters

The one-two punch

The US has been investigating “data and cybersecurity risks posed by Chinese electric vehicles and other internet-connected cars” for months, Bloomberg said.

In February, Commerce Secretary Gina Raimondo told reporters that US officials were “reviewing the risks ‘before Chinese-manufactured vehicles become widespread in the United States and potentially threaten our privacy and our national security.'”

Although analysts expected curbs on the import of Chinese EVs, an outright ban was not in the equation. This is probably because, lacking sound legal basis, Chinese automakers could have obtained an injunction enabling them to continue importing their vehicles while awaiting a court decision on the merits of US action.

However, prohibiting the Chinese software installed in “smart cars” over data concerns would be much easier to defend.

“Many of today’s cars, both gas and electric, are equipped with modems connecting them to the internet, making them potential targets for hacking,” Bloomberg analysts noted in a separate report.

There is also plenty of evidence linking China to unwanted – and illegal – digital intrusions into private email accounts and critical infrastructure.

However, as Bloomberg staff also pointed out, just as concerning is the fact that “Chinese regulations require automobile companies to store and process much of that data within the country—a rule that could cover sensitive personal information collected by EVs, from license plates to facial characteristics.”

Since tariffs are within the purview of the US President’s executive authority, they are difficult to challenge in US courts. Combining them with a PRC data security case could basically knock Chinese vehicles out of the US market.

Brussels enters the ring

If you’re keeping up with the EU crackdown on the dumping of electric vehicles and other green tech items due to Chinese overcapacity, you’ll also find this part interesting.

Last week, the Financial Times cited the EU’s trade chief, reporting that “EU member states are likely to support the imposition of proposed tariffs on Chinese electric vehicles in November.”

European Commissioner for Trade Valdis Dombrovskis stated that the 27 countries, which often have differing views on China-related issues, would support actions to assist the domestic automotive sector in competing with imports that he claimed were heavily subsidized by Beijing.

Dombrovskis told FT, “It’s clear that member states realize the need to protect the EU’s car industry because this risk of injury is there. Chinese battery electric vehicle market share is growing very rapidly. That subsidization is there. So it’s certainly an issue that needs to be addressed.”

However, what is more pertinent here is that the EU takes data privacy very seriously.

Since 2018, the EU has been at the forefront of data protection by implementing the General Data Protection Regulation (GDPR), setting a global benchmark for data security in the digital age. Brussels’s primary aim is to instill a sense of security and confidence in the safeguarding of personal information by all businesses and individuals operating within the EU.

Public debate over the risks associated with China has been taking place for years, most notably in Germany, Sweden, and France.

The EU-China Summit in 2020 marked a significant moment, as EU leaders Ursula von der Leyen and Charles Michel explicitly highlighted China’s cyber attacks on Europe and other data protection violations.

According to Politico, China hawks from different member states began warning about the data security risks of Temu, a Chinese e-commerce app, last year, and popular online retailer Shein is facing similar criticism.

It’s not a far leap from a Chinese-owned e-commerce platform that collects user data to a Chinese-owned electric vehicle that does the same.

Futhermore, China business and security interests seem to intersect at the speed of light these days.

According to a document seen by Bloomberg last week, US officials held a summit on autonomous and internet-connected vehicles, which included delegates from Australia, Canada, Germany, the European Union, India, Japan, South Korea, Spain, and the UK.

“Ahead of the US move (to ban Chinese autonomous driving software), groups ranging from the German automotive industry to Ford Motor Co. to the Korean government have urged the Biden administration to limit the scope of potential regulations and give automakers time to adjust their supply chains,” Bloomberg said.

This Week’s China News

The Big Story in China Business

BOEING CUTS CHINA JOBS FOR INDIAN HIRES: In a strategic move to diversify away from China, Boeing is hiring nearly 20 times more engineers in India than in the PRC.

The shift, driven by geopolitical concerns, is a significant development in the aviation industry, as highlighted in a recent South China Morning Post report, which reviewed openings on Boeing’s Career website and gave a quick overview of the country’s 50-year history with China.

News staff also reported that Boeing has restarted the delivery of the 737 Max to China following a long delay due to safety concerns.

However, the timing could be unfavorable as “China has now fired up its own home-grown passenger jet – the C919 – as the Commercial Aircraft Corporation of China (Comac) attempts to grab market share.”

Despite the current shift in Boeing’s hiring strategy, experts predict that China will emerge as the leading aviation market globally over the next two decades.

Their projection underscores China’s importance in the aviation industry’s future. Still, Boeing may be exploring other avenues to enhance its capacities to address ongoing safety concerns and diplomatic and trade disputes between Washington and Beijing.

Western airlines dropping China routes: News of the change in Boeing’s hiring strategy comes amid reports that some Western airlines are dropping their China routes for commercial reasons.

Earlier this week, BBC reported that British Airways “will drop its flights to Beijing from October” due to costs associated with flying longer routes around Russian airspace.

Virgin Atlantic also revealed last month that it would discontinue its flights to Shanghai, its sole destination in China, starting in October.

The airline specified that flight durations were about an hour longer when flying to Shanghai and two hours longer when returning to London.

In May, Australia’s flag carrier Qantas dropped its Sydney-Shanghai route, citing ‘half-full’ flights.

Law and International Xi

CHINA TO REGULATE FENTANYL PRODUCTION: New restrictions on chemicals used in fentanyl production are being enforced by China, a move that the US has long been pressing Beijing for to fight America’s opioid epidemic.

Nevertheless, experts say the measures are more indicative of Beijing’s intention to keep a significant diplomatic channel open with Washington before the November presidential election than of a genuine attempt to curb the country’s highly lucrative fentanyl trade.

In a comment to the Wall Street Journal, Brookings counternarcotics expert Vanda Felbab-Brown warned that criminalization of fentanyl production in China is unlikely to end the trafficking of the chemicals used to make the deadly drug as new uncontrolled options are constantly appearing.

“Drug-trafficking networks and Chinese chemists have shown a great deal of adaptability,” Brown said before noting that “China is going after relatively low-hanging fruit to try to signal to the US that it wants to keep the door open to further cooperation.”

The chemicals necessary for the production of fentanyl are obtained mainly from China and then distributed to Mexican cartels for the manufacturing and trafficking of the potent drug into the United States.

US ACADEMIC FOUND GUILTY OF SERVING AS CHINA’S AGENT: On Tuesday, a Chinese scholar was found guilty by a Brooklyn federal court jury of unlawfully serving as a foreign agent in the United States.

Wang Shujun was convicted on four counts, which included failing to notify the US attorney general of his activities as a foreign agent and providing false information to US authorities.

According to court documents seen by Reuters, Wang’s actions included gathering information about pro-democracy activists in New York who support democracy in China and sharing that information with Beijing.

Prosecutors say Wang presented himself as a scholar and champion of democracy who escaped China to establish a new life in New York but was working as a spy for the Chinese Communist Party.

Request for leniency: According to the New York Times, the US attorney for the Eastern District of New York’s 2022 indictment said that “Chinese government officials had directed Mr. Wang to target people pushing for democracy in Hong Kong, those who supported independence for Taiwan and Tibet and Uyghur activists, among others.

“He then relayed the information, prosecutors said, in correspondence and face-to-face meetings with his handlers, four members of China’s Ministry of State Security, who were also charged by the US attorney’s office, though they are in China,” NYT staff said.

Although Wang could get up to 25 years in prison when sentenced, his attorney is asking for leniency due to the defendant’s age, Reuters staff said.

Defense lawyer Zachary Margulis-Ohnuma told reporters after the jury’s verdict that Wang “is a 76-year-old man” who “certainly didn’t mean to hurt anyone” and had spent his life fighting the communist regime.”

Geopolitics

HARRIS’ NEW VP PICK HAS ‘LONG TRACK RECORD IN CHINA’: VOA News last week reported that “Democratic vice-presidential nominee Tim Walz has a decades-long connection with China dating back to the pro-democracy protests in Tiananmen Square in 1989.”

Walz was in southern China teaching American History, culture, and English in 1989 when hundreds of thousands of Chinese students participated in protests against the ruling Chinese Communist Party in Tiananmen Square.

Statements made to the media back in the 90s and early 2000s suggest the time Walz spent teaching in China and the brutal government crackdown on students in Tiananmen Square made an impact on him.

Meetings with activists: While in Congress, Walz was a member of the Congressional-Executive Commission on China, which specifically addressed human rights concerns within the country, VOA staff said.

“Walz quickly established himself as a vocal critic of the Chinese government, holding regular meetings with high-profile activists from China and Hong Kong, including prominent Hong Kong activist Joshua Wong and Tibet’s spiritual leader Dalai Lama,” news staff added.

Despite his commitment to China’s human rights record and military posture, Walz has insisted on the importance of cooperation with China.

“I don’t fall into the category that China necessarily needs to be an adversarial relationship. I think we need to stand firm on what they are doing in the South China Sea, but there (are) many areas of cooperation that we can work on,” he said in a 2017 video interview with Agri-Pulse Communications.

CHINA LAUNCHES STARLINK RIVAL SATELLITE SYSTEM: On Tuesday, China successfully launched its first group of internet satellites, which will be part of a network that aims to compete with SpaceX’s Starlink.

The constellation, called “Thousand Sails,” was launched by Shanghai Spacecom Satellite Technology (DST) and consisted of over 15,000 satellites in low-Earth orbit.

By 2025, China plans to launch 648 satellites as part of the initial stage of building the constellation.

Global Internet with Chinese characteristics: According to CNBC, which cited Chinese state media, the program is intended to establish a global internet network.

Reuters reported that Thousand Sails is “an important step” in China’s entry into “