U.S.-China Confrontation Risk Is Highest in the South China Sea

As China and the U.S. trade barbs over everything from trade to Covid-19 to Hong Kong, the two powers are at greater risk of careering into physical confrontation. And nowhere are their warships and fighter jets coming as close to each other, with as much frequency, as the South China Sea.

A military conflict would probably be devastating for both. There are no signs that either side actually wants one. Still, in times of high tension, miscalculations can have unintended consequences.

In the first four months of the year the U.S. Navy conducted four freedom of navigation operations, known as FONOPS, in the South China Sea, which is criss-crossed by competing claims by nations including China, the Philippines, Vietnam and Malaysia. That puts it on track to surpass last year’s total of eight. At the same time, as China emerged from the worst of the coronavirus outbreak, its Navy steamed back out of port in Hainan and resumed drills in the area.

It’s a high-stakes game of cat and mouse between the militaries of two countries with a history of near-misses. With President Donald Trump months from an election, and President Xi Jinping rattling nationalistic cages at home to distract from a wounded economy, the mood is less conducive to the careful diplomacy needed to defuse a standoff at sea. Xi used an address Tuesday to delegates at the National People’s Congress in Beijing to again warn the military to strengthen war preparations.

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“While a premeditated armed conflict between China and the U.S. is a remote possibility, we see their military assets operating in greater regularity and at higher intensity in the same maritime domain,” said Collin Koh Swee Lean, a research fellow at Singapore’s S. Rajaratnam School of International Studies. “The interactions of these rival assets in the area would create chances of miscalculation and misjudgment leading to inadvertent or accidental use of force, which is thus potentially incendiary and could result in escalation. This is a risk we can’t discount.”

The U.S. and China have been dancing around each other in the South China Sea for years. While the U.S. is not a territorial claimant, the waters are a key thoroughfare for global shipping and trade, rich in fish and with large but mostly unproven energy deposits. The U.S. has supported some smaller states against China’s increased military presence in the area, including its move to build airstrips and land strategic hardware on rocky outcrops and low-lying reefs. Beijing has also in recent times deployed coast-guard vessels decked out with the same level of armory as a standard navy ship to escort its fishing fleets.

Defense Secretary Mark Esper spoke in December of his intention to prioritize the deployment of U.S. forces to the Asia-Pacific region from other areas in the face of growing competition with China. Covid-19 saw exercises scaled down or canceled and the sidelining of aircraft carrier U.S.S. Theodore Roosevelt in Guam after hundreds of crew members tested positive for the disease (it has now returned to sea). Still, there remain flashpoints.

Deputy assistant secretary of defense for Southeast Asia, Reed Werner, last week warned of a “very worrisome” trendline during an interview with Fox News, accusing China of the “harassment” of the Arleigh Burke-class destroyer U.S.S. Mustin while it patrolled the South China Sea. He also cited at least nine instances of Chinese fighter jets doing the same to U.S. reconnaissance aircraft.

In an effort to bolster its defense capacity in airspace over the disputed waters, China’s Defense Ministry has said it would formally declare an air defense identification zone after years of attempting -- mostly unsuccessfully -- to force planes from other nations flying in the area to change their course. I’s unclear, though, when this might actually happen.

The U.S. Navy also recently engaged in a standoff with Chinese vessels after twice sending warships on presence operations off the coast of Malaysia, where Chinese ships were shadowing a Malaysian state-contracted drill ship exploring two potentially lucrative energy blocks claimed by both countries. 7th Fleet Commander Vice Admiral Bill Merz said in a statement in mid-May that the U.S. had done so in support of “allies and partners in the lawful pursuit of their economic interests.”

China’s foreign ministry said at the time its survey ship was “conducting normal activities in waters under Chinese jurisdiction” and called the situation “basically stable.” On Sunday, Foreign Minister Wang Yi accused “non-regional countries” of “flexing their muscles” in an effort to sow discord between China and Southeast Asian nations.

Security experts familiar with the Malaysian government’s thinking said officials in Kuala Lumpur expressed concern to the U.S. that its presence would only serve to escalate the matter. A spokeswoman for Malaysia’s Foreign Ministry declined to comment. The U.S. was “clearly sending a signal,” said Bonnie Glaser, director of the China Power Project at the Center for Strategic and International Studies.

The U.S. Air Force sent two B-1B Lancers on a more than 30-hour round-trip sortie from South Dakota to conduct operations over the South China Sea on April 29, even as it reportedly ended its longtime practice of maintaining a continuous bomber presence in Guam. In an emailed statement, the Air Force said it had “transitioned” to an approach that lets bombers take off from a broader array of overseas locations, making them “operationally unpredictable.”

“I think part of the uptick in U.S. military operations is to make sure that the Chinese don’t miscalculate and think that the United States is unprepared because of the fact that the Theodore Roosevelt has been out of commission sitting in Guam,” said Glaser. “But I also think that it is in response to the increased op-temp by the Chinese.”

There are mechanisms in place to avoid a mishap between the Chinese and U.S. Navy. China, the U.S. and 19 other countries have joined a Code for Unplanned Encounters at Sea with a standardized protocol of safety procedures. U.S. Navy officials have said they’ve been communicating more closely with the People’s Liberation Army, and that CUES is working.

Still, it does not cover the coast guard or fishing militias, which are increasingly used by China to assert its claims to more than 80% of the South China Sea.

The “problem is that the incidents we observe in the region aren’t ‘unplanned’ -- in the lead up to these close encounters the rival naval forces at sea already knew each other to be present and they shadow and monitor each other underway, at visual range,” said Koh from the RSIS in Singapore.

There have been tense moments before. In 2001, a Chinese fighter jet collided with a U.S. surveillance plane in international airspace, forcing the U.S. aircraft to make an emergency landing in China and the Chinese jet to crash. In 2016, a Chinese naval ship seized a U.S. Navy underwater research drone in international waters, prompting Trump to accuse China of theft. It was later returned.

Most recently, China’s Defense Ministry said its navy followed and expelled a U.S. guided missile destroyer on April 28, saying it had violated Chinese territory. Under Xi’s watch China has refocused its military from land-based troops to air and sea capability. It commissioned more than two dozen new ships in 2016 and 2017, and said last October the development of a second home-made aircraft carrier was making “steady progress” after floating its first in 2017. In just 15 years, China has doubled its supply of launchers and built weapons that have extended the reach of its conventional warheads to cover most of America’s Western Pacific bases.

“I do worry about this situation,” said Zheng Yongnian, director of the East Asian Institute at the National University of Singapore. “The U.S.-China relationship is in free fall now, pushed by the hardliners from both sides. No doubt, the new Cold War between the two is escalating, and now people begin to worry about the possibility of a hot war, a regional one.”

“Even worse, there is no force to cool them down,” he said. “Nations in Southeast Asia are too small compared to the two great powers.”

The renewed tensions put those smaller Southeast Asian states in a tight spot. Singapore, while not a South China Sea claimant, has long warned against forcing countries to choose a side.

Read more: High-Seas Energy Fight Off Malaysia Draws U.S., Chinese Warships

Prime Minister Nguyen Xuan Phuc told Vietnam’s National Assembly on May 20 the situation in the South China Sea was becoming “more complicated.” Chinese state news agency Xinhua reported this month that Beijing would “strictly enforce” an annual fishing ban that started on May 1, prompting Vietnam to reject what it called a “unilateral decision.” The Philippines meanwhile has filed diplomatic protests against China’s creation of two new districts in an attempt to administer islands in the waters, its top envoy said.

“Southeast Asia finds itself increasingly in a hardened new Cold War,” said Paul Chambers, special adviser on international affairs at Naresuan University’s Center of Asean Community Studies in Thailand. “The tip of that iceberg is the South China Sea.”

— With assistance by Dandan Li, Samson Ellis, and Anisah Shukry

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Huawei CFO Loses Bid to End U.S. Extradition Fight in Canada

Huawei Technologies Co. Chief Financial Officer Meng Wanzhou failed to persuade a Canadian judge to end extradition proceedings, keeping her under house arrest in Vancouver as the fight against U.S. efforts to prosecute her moves forward.

The ruling marks an early victory for U.S. authorities but is already further straining relations between Canada and China. A Chinese embassy spokesperson in Ottawa on Wednesday called the case “a grave political incident” and urged Canada to let Meng return to China. Two Canadians, detained within days of Meng’s arrest in December 2018, also remain jailed in China.

Meng, the eldest daughter of Huawei’s billionaire founder Ren Zhengfei, has emerged as the highest-profile target of a broader U.S. effort to contain China and its largest technology company, which Washington sees as a national security threat. The U.S. Justice Department charged her with conspiring to defraud banks by tricking them into conducting transactions that violated American restrictions on selling technology to Iran.

Associate Chief Justice Heather Holmes of the British Columbia Supreme Court on Wednesday dismissed Meng’s request to throw out the case, ruling that it meets a key test of Canada’s extradition law known as double criminality — or whether the alleged crime in the U.S. would also be a crime in Canada.

Meng, 48, appeared in court Wednesday, dressed in black and wearing a face mask. She had argued that the U.S. was disguising its sanctions-violations allegation as a fraud charge in order to get around the double-criminality rule. Had they taken place in Canada, the banking transactions at issue wouldn’t have violated any Canadian sanctions, they said.

Holmes rejected the argument, saying fraud can be prosecuted in Canada if a U.S. bank was put at economic risk for violating U.S. sanctions.

Meng’s approach “would seriously limit Canada’s ability to fulfill its international obligations in the extradition context for fraud and other economic times,” Holmes wrote. ““For the double-criminality principle to be applied in the manner Ms. Meng suggests would give fraud an artificially narrow scope in the extradition context.

The judge’s decision helps clarify an issue that’s been in the spotlight in Canada because of the Huawei litigation, said Brian Heller, a criminal defense lawyer not involved in the case.

”There was a strong argument to be made by both sides,” Heller said. “It wasn’t a slam dunk. This has been the subject of a lot of analysis and it was a very, very important argument to bring forward.”

For more on the judge in this case, click here.

The U.S. welcomed Holmes’s decision. “The United States thanks the Government of Canada for its continued assistance pursuant to the U.S./Canada Extradition Treaty in this ongoing matter,” a spokesman for the U.S. Justice Department said.

Huawei said in a statement posted on Twitter that the company continues to stand with Meng in her pursuit of justice and freedom. It said it expects Canada’s judicial system will prove Meng’s innocence.

The judge’s ruling doesn’t end Meng’s battle against handover.

She also claims there was an abuse of process when she was arrested in 2018 and has sought additional details from the Canadian government, police and border officials on the circumstances of her detention. The Canadian government claims some documents are privileged and she can’t see them. Her lawyers plan are challenging those claims.

After issuing her decision, Holmes canceled hearings that were scheduled for June and will instead determine a new timetable next week.

Meng faces tough odds. Of the 798 U.S. extradition requests received since 2008, Canada has refused or discharged only eight cases, or 1%, according to the country’s Department of Justice.

The case was triggered when Meng was arrested on a U.S. handover request during a routine stopover at Vancouver airport, a city where she owns two homes and often spent summer holidays.

The U.S. is attempting “to bring down Huawei and other Chinese high-tech companies, and Canada has been acting in the process as an accomplice of the United States,” the Chinese embassy spokesperson said Wednesday. Canada should “not to go further down the wrong path,” the spokesperson said.

In the weeks after her arrest, China put two Canadians — Michael Spavor and Michael Kovrig — in jail, halted billions of dollars in Canadian imports and put two other Canadians on death row, plunging China-Canada relations into their darkest period in decades.

Securing the release of the two men remains Canada’s priority, François-Philippe Champagne, Minister of Foreign Affairs, said in a statement.

“We will continue to pursue principled engagement with China to address our bilateral differences and to cooperate in areas of mutual interest,” Champagne said.

Canadian Prime Minister Justin Trudeau — caught between his country’s two biggest trading partners — has resisted any such attempt to interfere, saying the rule of law will govern Meng’s case.

Heller said Holmes’s decision Wednesday appeared to bear that out. “It is another example of our judiciary acting independently and what strikes me as remarkable is China’s apparent belief that, acting as it has, it could somehow influence that outcome,” Heller said.

The pursuit of Meng by U.S. authorities predates the Trump administration: officials had been building a case against her since at least 2013, three years before Trump was elected president.

The U.S. claims Meng lied to banks including HSBC Holdings Plc and tricked them into processing more than $100 million in transactions through the U.S. in breach of sanctions.

— With assistance by Patricia Hurtado, Danielle Bochove, and Kait Bolongaro

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China Traders Are Buying Hong Kong Stocks Like Never Before

Mainland money is flowing into Hong Kong’s stocks at an unparalleled pace, offering support to a market at the center of rising tensions between Beijing and Washington.

Eligible investors, which can range from brokers to insurers or individuals with at least 500,000 yuan ($70,000) in their trading accounts, acquired $35.3 billion of the shares so far this year, the most for the period in data going back to 2017. Buying accelerated as Beijing’s plan to impose a security law on the city sparked an equity crash on Friday. The top targets of inflows were Chinese state-owned firms.

History shows mainland buying tends to pick up when Hong Kong shares drop. Onshore investors bought the dip in March when the Hang Seng Index fell to its lowest in more than three years. State-backed funds have also stood by to help steady Hong Kong’s markets around key political events, such as in 2017 when Xi Jinping visited the city to mark 20 years of Chinese rule.

Nervousness is building in Hong Kong’s financial markets after China confirmed plans for new national security laws that critics say would curtail the rights and freedoms of the city’s citizens. The U.S. is considering a range of sanctions on Chinese officials and businesses in response, as well as whether to declare that the former colony has lost its autonomy from Beijing. Protests are planned in Hong Kong for Wednesday.

Hong Kong equities stabilized Tuesday, with the Hang Seng rebounding 1.9% and a gauge of volatility dropping 5.6%, the most in a week. The city’s chief executive, Carrie Lam said Tuesday that the national security law can bolster business confidence, citing the Hang Seng rebound. She added that concerns over the law are unwarranted.

Chinese investors now own about 2.9% of the total market value of Hong Kong stocks eligible for cross-border trading, the highest since Hong Kong exchange data became available in March 2017, according to Bloomberg calculations. Chinese buyers’ top three targets since Friday’s slide have been Industrial & Commercial Bank of China Ltd., Ping An Healthcare and Technology Co. and China Construction Bank Corp., according to data compiled by Bloomberg.

It’s unclear whether China’s state-directed funds have been involved in recent days’ buying or whether they earmarked any cash to stabilize the market. Such funds have regularly intervened to manage swings in China’s $7.4 trillion equity market, especially around politically sensitive dates.

Some onshore money managers say they are taking note of a widening valuation gap with yuan-denominated shares, mainly focusing on large financial companies.

“As long as we stick with Hong Kong-listed companies with businesses on the mainland, the risks are completely manageable,” said Du Kejun, a partner at Beijing Gelei Asset Management Center LP. “It’s hard to evaluate what the impact of the law will have on the island, and if things will be better or worse than a year ago. I’d stay away from Hong Kong landlords and other locally based companies.”

The MSCI Hong Kong Index, which unlike the Hang Seng Index doesn’t include mainland firms, has fallen 21% in the past 12 months, led by real estate firms.

Read more:
  • How China Pounced on Hong Kong While Covid Overwhelmed the World
  • Hong Kong Stocks Trade Like a Frontier Market as Pressure Rises
  • Tencent-Backed Meituan Joins $100 Billion Club After Sales Beat
  • When Stocks Crash, China Turns to Its ‘National Team’: QuickTake

One of the main attractions of Hong Kong stocks for mainland investors is low valuations. The Hang Seng China Enterprises Index of Chinese firms listed in the city trades at eight times the next 12 months’ projected earnings, compared to 11 times for the Shanghai Composite Index.

Chen Jiahe, chief investment officer of the family office firm Novem Arcae Technologies Co., said he wanted to buy more Hong Kong-listed Chinese stocks last week but ran short of funds.

“We actually had to sell some of our A-share holdings to buy Hong Kong stocks,” he said. “And we’ll buy more if the market declines further and reinvest all dividends.”

— With assistance by Jeanny Yu, Amanda Wang, April Ma, and Fu Yin Ip

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Huawei CFO Gets First Chance at Release in Extradition Fight

In this article

The chief financial officer of Huawei Technologies Co., fighting extradition to the U.S., gets her first shot at release this week in a case that’s triggered an unprecedented diplomatic tussle between the U.S., China and Canada.

On Wednesday, the Supreme Court of British Columbia is set to release a decision on whether Meng Wanzhou’s case meets a key threshold of Canada’s extradition law. If Associate Chief Justice Heather Holmes rules that it fails to meet that test, Meng could be released from house arrest in Vancouver. If not, extradition proceedings will continue.

The case was triggered when Meng was arrested on a U.S. handover request in December 2018 during a routine stopover at Vancouver airport, a city where she owns two homes and often spent summer holidays. The fallout has since spanned three countries.

Meng, the eldest daughter of Huawei’s billionaire founder, Ren Zhengfei, has become the highest profile target of a broader U.S. effort to contain China and its largest technology company, which Washington sees as a national security threat.

China has accused Canada of abetting “a political persecution” against a national champion. In the weeks after her arrest, China put two Canadians — Michael Spavor and Michael Kovrig — in jail, halted billions of dollars in Canadian imports and put two other Canadians on death row, plunging China-Canada relations into their darkest period in decades. U.S. President Donald Trump muddied the legal waters further when he indicated early on that he might try to intervene in her case to boost a China trade deal.

Canadian Prime Minister Justin Trudeau — caught between his country’s two biggest trading partners — has resisted any such attempt to interfere in the high-stakes proceedings, saying the rule of law will govern Meng’s case.

“Canada has an independent judicial system that functions without interference or override by politicians,” Trudeau said last week in response to comments by the Chinese ambassador that Meng’s case was the biggest thorn in Canada-China relations. “China doesn’t work quite the same way and doesn’t seem to understand that we do have an independent judiciary.”

China’s foreign ministry didn’t respond to a request for comment.

Escalating Fight

Meng, 48, faces tough odds: of the 798 U.S. extradition requests received since 2008, Canada has refused or discharged only eight cases, or 1%, according to Canada’s Department of Justice.

Whether she goes free or continues her battle against U.S. extradition, the ruling is likely to further escalate the fight between Washington and Beijing, increasingly at loggerheads over everything from the coronavirus pandemic to the status of Taiwan and Hong Kong to trade and investment.

Huawei continues to play a central role in those tensions. Earlier this month, the Commerce Department barred chipmakers using American equipment from supplying Huawei without U.S. government approval, closing a loophole in an effort to cut the Chinese company off from essential supplies used in its phones and networking gear. The move drew condemnation from Beijing and warnings from Huawei’s rotating chairman, Guo Ping, that the latest U.S. curbs on its business would cause the whole industry to “pay a terrible price.”

The U.S. government has lobbied its allies, including Canada, to ban Huawei from next-generation 5G networks, saying its equipment would make such infrastructure vulnerable to spying by the Chinese government. Despite that, the U.K. said in January it would allow Huawei a limited role. But in recent days, British media have reported the government is backtracking and preparing to end Huawei’s presence by 2023.

Trudeau has been stalling on Canada’s decision with the fates of Spavor and Kovrig hanging in the balance. The two detainees have been confined for more than 500 days without access to lawyers. In contrast, Meng was photographed by CBC News on Saturday as she posed with nearly a dozen colleagues and friends — social distancing rules to fight the virus notwithstanding — displaying victory signs in front of the courthouse.

The pursuit of Meng by U.S. authorities predates the Trump administration: officials were building a case against her since at least 2013, according to court documents in her case. Central to the case are allegations that Meng committed fraud by lying to HSBC Holdings Plc and tricking the bank into conducting Iran-related transactions in breach of U.S. sanctions.

Wednesday’s ruling will focus on whether the case meets the so-called double criminality test: would Meng’s alleged crime have also been a crime in Canada?

Her defense has argued that the U.S. case is, in reality, a sanctions-violations complaint framed as fraud in order to make it easier to extradite her. Had Meng’s alleged conduct taken place in Canada, the transactions by HSBC wouldn’t violate any Canadian sanctions, they say. The U.S. bank and wire fraud charges carry a maximum term of 20 years in prison on conviction.

If the ruling goes against her, Meng’s next court hearings are scheduled for June and are set to continue to at least the end of the year. Appeals could lengthen the process for years longer.

— With assistance by Kait Bolongaro, and Sharon Chen

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U.S. Warns New China Law Jeopardizes Hong Kong’s Special Status

Top U.S. officials warned Friday that China’s push to introduce new national security laws in Hong Kong could jeopardize the city’s special trade status and spark investor flight after President Donald Trump said his government would react “strongly” to the anti-sedition measures.

Secretary of State Michael Pompeo indicated Friday that the U.S. would reconsider exemptions that shield Hong Kong exports from tariffs that apply to Chinese goods if Beijing moves forward with “its disastrous proposal” to impose new restrictions on the island.

And Kevin Hassett, one of Trump’s top economic advisers, said his staff was studying possible retaliatory measures: “We’re absolutely not going to give China a pass,” Hassett said in an interview Friday with CNN. “All the options are on the table.”

The admonitions came as China signaled it was undeterred by international condemnation of its plans to bypass Hong Kong’s legislature and implement new national security laws that residents of the city fear will erode freedoms of speech, assembly and the press. The announcement marked an escalation of Bejing’s efforts to exert more control over Hong Kong, after months of sometimes-violent protests that gripped the city last year.

But pro-democracy activists quickly called for protests to oppose the plan, setting up another summer of unrest for President Xi Jinping, who is struggling to tame the coronavirus outbreak and keep the most populous nation in the world from a protracted economic decline.

“Any decision impinging on Hong Kong’s autonomy and freedoms as guaranteed under the Sino-British Joint Declaration and the Basic Law would inevitably impact our assessment of One Country, Two Systems and the status of the territory,” Pompeo said in a statement.

Hassett also warned that steps to change Hong Kong could prove “very costly to China and the people of Hong Kong” because outside investors may stop viewing the city as “the financial center that it is.” In a subsequent interview with Fox Business Network, he said investors were unlikely to invest “in a place where they’re basically, you know, sneering at the rule of law.”

“I would expect that they’re going to have serious capital flight problems in Hong Kong, if they follow through this, they will no longer be the financial center of Asia, and that they themselves will pay very, very heavy costs,” Hassett said.

Trump’s national security adviser, Robert O’Brien, also cautioned that China’s efforts could put Hong Kong’s status “under various customs unions” as well as “privileges that Hong Kong accrues because it’s considered a free system” at risk. And O’Brien hinted the U.S. might look to coordinate possible retaliation with its allies.

“If China moves forward and takes strong action with this new national security law against the people of Hong Kong, America will respond,” O’Brien said Thursday night in an interview with Fox News. “I think other countries in the world will respond including the United Kingdom and our allies and friends.”

U.K. Prime Minister Boris Johnson’s spokesman said the British government wants to clarify exactly what China has proposed — but warned it expects Beijing to respect the Hong Kong’s autonomy.

China’s announcement spurred a rare moment of bipartisan agreement on Capitol Hill. Republican senator Pat Toomey of Pennsylvania and Democratic senator Chris Van Hollen of Maryland on Thursday introduced legislation that would sanction individuals interfering with Hong Kong’s autonomy. That could include not only Chinese officials working to push the new laws through but also police officers and local officials who crack down on protests in the city.

Last year, U.S. lawmakers passed a bill that requires the secretary of state to annually re-certify Hong Kong’s autonomy to preserve its special trade and commercial status. Pompeo delayed that review — saying he wants to see what happens at the National People’s Congress gathering where China is expected to introduce the new national security laws — and Trump could move to revoke Hong Kong’s special trade status.

The MSCI Hong Kong Index fell 6.8% on Friday, marking the worst day for Hong Kong stocks since the global financial crisis. Real estate firms were the worst hit amid concern over potential outflows and curbed spending, with Sino Land Co. and Link REIT plunging the most since 2008. The Hang Seng Index sank 5.6%, while the Hong Kong dollar weakened to a six-week low.

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US, China move forward in implementing trade deal

US, China trade deal now in question

The Chinese have made inquiries into relaxing the amount of U.S. goods and services they will buy in phase 1 of the U.S.-China trade deal. FOX Business’ Edward Lawrence with more.

The U.S. and China are making progress toward implementing the phase one trade deal struck earlier this year, with Beijing now accepting shipments from more U.S. plants than ever before.

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The announcement from U.S. Trade Representative Robert Lighthizer comes amid flaring tensions after the U.S. criticized Beijing's initial handling of the COVID-19 pandemic, which was first identified in Wuhan, China, and has since infected nearly 4.9 million people worldwide.

Even with the recent tensions between the two sides, however, Beijing has forged ahead with updating its list of U.S. facilities eligible to ship their goods to China. The list now includes 499 beef, 457 pork, 470 poultry, 397 seafood, 253 dairy and nine infant-formula facilities, according to the Office of the U.S. Trade Representative.

Agriculture products from blueberries to avocados and barley are now eligible for export to China, the Department of Agriculture and the Trade Representative's Office said Thursday.

“China has worked with the United States to implement measures that will provide greater access for U.S. producers and exporters to China’s growing food and agricultural markets,” Lighthizer said in a statement.


The U.S. and China signed a historic trade accord in January that called for Beijing to purchase an additional $200 billion worth of American products over the next two years, in addition to commitments to halt intellectual property theft, refrain from currency manipulation and cooperate in financial services.

The purchases will include up to $50 billion of U.S. agriculture and an additional $40 billion in services, $50 billion in energy and up to $80 billion worth of manufacturing.

In return, the U.S. reduced tariffs imposed by President Trump on some goods, but kept duties on $375 billion worth of merchandise.


Phase two talks were supposed to begin earlier this year, but the pandemic has delayed those discussions.

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Gilead Opens Treatment to Generics; China Cases: Virus Update

China reported seven new coronavirus cases and authorities have halted train services in the northeastern city of Jilin. Gilead Sciences Inc. is licensing its potential treatment, remdesivir, to five generic drugmakers, including Mylan, in India and Pakistan to speed supply-chain development and help meet anticipated demand.

Brazil recorded another record day in deaths. Over 1,000 Twitter accounts linked to an alleged Chinese government-backed propaganda campaign are sowing disinformation about the virus. Australia’s government downplayed a spat with China.

Key Developments:

  • Virus Tracker: Cases top 4.2 million; deaths exceed 291,000
  • Infections near U.S. meat plants rise at twice the national rate
  • China will exempt some foreign executives from travel ban

Subscribe to a daily update on the virus from Bloomberg’s Prognosis team here. Click VRUS on the terminal for news and data on the coronavirus. See this week’s top stories from QuickTake here.

Australia Downplays Trade Row With China (9:10 a.m. HK)

Australia’s Finance Minister Mathias Cormann downplayed a trade spat with China that’s impacting key agricultural exports. In an interview with Bloomberg Television Wednesday, Cormann acknowledged “disagreements” between the government and Beijing over Australia’s call for an independent inquiry into the source of the Covid-19 outbreak.

China Reports 7 New Cases in Jilin, Shanghai (8:29 a.m. HK)

China said among the new coronavirus cases reported May 12, one is a person in Shanghai who arrived from abroad and six are local infections in northeastern province of Jilin, according to the National Health Commission. Jilin’s railway station has halted train services, according to a report by China Central Televsion.

Canada’s NRC to Work With China’s CanSino on Vaccine (8:17 a.m. HK)

The National Research Council of Canada agreed to work with CanSino Biologics to advance bioprocessing and clinical development of a potential vaccine against coronavirus, the NRC said in a statement on May 12. The Ad5-nCoV vaccine candidate received Chinese regulatory approval earlier this year, allowing CanSino to move ahead with human clinical trials in China.

Social Stigma, Harassment Undermine Testing in Asia (8:00 a.m. HK)

For many people in Asia, coming forward to get tested — let alone revealing the personal information of friends, family and close associates — is more terrifying than getting Covid-19.

Nasdaq Staff Return to Be Voluntary (6:30 a.m. NY)

Nasdaq Inc. staff’s return to the office will probably be voluntary for the foreseeable future, Chief Executive Officer Adena Friedman said. The exchange operator surveyed employees about how comfortable they’d be with coming back, under certain conditions, and the vast majority said they’d prefer to keep working from home and wait to see how the recovery from the coronavirus pandemic progresses.

“We have the luxury of patience — we have the ability to work from home very effectively,” Friedman said in a Bloomberg Television interview with David Rubenstein, co-founder of Carlyle Group Inc. “We will ask people if they want to come back voluntarily, and if they feel they can do it in a safe way, then we would like to start to reopen offices to give them that flexibility. But we then will put a whole lot of protocols in place inside the offices to make sure they stay safe.”

Brazil Reports New Record Day of Deaths (6:15 a.m. HK)

Brazil reported a new record for coronavirus deaths as Latin America’s largest economy becomes the new global hotspot for the coronavirus pandemic.

The country reported 881 deaths on Tuesday, pushing the total to 12,400. Last week, the country surpassed the U.K.’s daily death toll, trailing only the U.S. in terms of recorded daily deaths. The number of infections has more than doubled in the past two weeks to 177,589 — numbers health officials say likely don’t fully reflect the situation amid a widespread lack of testing in the nation home to 210 million people.

L.A. County Seen Extending Orders Until July (5:30 p.m. NY)

Los Angeles County Public Health Director Barbara Ferrer told county supervisors at their meeting Tuesday that the area’s stay-at-home order “with all certainty” would last until July.

Los Angeles had only recently begun loosening up. The nation’s second-biggest city last weekend let residents hike on trails and play golf. Toy stores, flower shops and other retailers were allowed to reopen for curbside pickup. Beaches in the city were scheduled to reopen Wednesday.

California Governor Gavin Newsom said Tuesday that he would loosen statewide orders further, including allowing some malls and offices to open with limitations. Still, counties have the discretion to enact tighter rules. Beyond Los Angeles, the San Francisco Bay area has extended stay-at-home measures until the end of May.

Gilead Licenses Remdesivir to Generic Drugmakers (5:20 p.m. NY)

Gilead Sciences Inc. is licensing its potential Covid-19 treatment, remdesivir, to five generic drug manufacturers in India and Pakistan to speed supply chain development and help meet anticipated demand.

The companies are Cipla Ltd., Ferozsons Laboratories, Hetero Labs Ltd., Jubilant Lifesciences, and Mylan. They will be able to produce the drug without paying Gilead royalties until the World Health Organization declares the end of the pandemic or until another drug or vaccine is approved to treat or prevent Covid-19, whichever comes first.

Fauci Can Attend White House Meetings, HHS Says (4:40 p.m. NY)

Anthony Fauci, the top infectious disease official in the U.S., Centers for Disease Control and Prevention Director Robert Redfield, and Food and Drug Administration Commissioner Stephen Hahn will rejoin White House meetings under certain conditions after all three said Sunday that they were quarantining themselves after being exposed to a staff member who tested positive.

They’ll attend White House meetings providing they are asymptomatic, screened, monitored for fever and other symptoms, wear face coverings and maintain social distancing, according to a joint statement from the CDC and Department of Homeland Security.

U.S. Cases Rise 1.4%, Below Week Average (4 p.m. NY)

U.S. cases rose 1.4% from the day before to 1.36 million, according to data compiled by Johns Hopkins University and Bloomberg News. That was higher than Monday’s growth rate of 1.3% but below the average daily increase of 1.9% over the past week. Deaths rose 2.3% to 81,805.

  • Cases in New York rose 0.4% to 338,485 while deaths increased to 27,215, according to data from Johns Hopkins and Bloomberg News.
  • Florida reported 41,923 cases on Tuesday, up 2.3% from a day earlier, according to the state’s health department. Deaths reached 1,779, an increase of 2.5%.
  • Cases in California rose 2.1% to 69,382 while deaths increased 2.8% to 2,847, according to the state’s website.
  • Illinois cases rose by 4,014 to 83,021 while deaths increased by 144 to 3,601, according to the state’s health department.

Cuomo: N.Y. Needs $61 Billion From Feds (2:04 p.m. NY)

Governor Andrew Cuomo said New York needs $61 billion in federal support to replenish the state budget, which has been ravaged by the coronavirus pandemic. If the state doesn’t get cash assistance from Congress, it will be forced to cut spending, he said.

Cuomo, a Democrat, joined Republican Governor Larry Hogan of Maryland in calling for federal funding to show that the need for financial assistance has bipartisan support.

“When you don’t fund a state, who does the state fund?” Cuomo said at his daily briefing. “The state funds schools, local governments and hospitals.”

— With assistance by Enda Curran

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Boeing Airlifts 150,000 PPE From China To US

Boeing has transported more than 150,000 personal protective equipment or PPE units from China to the U.S. as part of the company’s COVID-19 airlift missions.

The aerospace and defense giant said it deployed thee Dreamlifter aircraft to transport protective eye goggles and face shields to frontline health care professionals in South Carolina.

Boeing worked in partnership with the Medical University of South Carolina or MUSC to deliver the PPE supplies to frontline health care professionals in the MUSC system.

The MUSC Health team will use the PPE for their statewide COVID-19 community testing and outreach efforts as they ramp up diagnostic testing and antibody testing across South Carolina.

Boeing noted that the MUSC Health team was first in the U.S. to launch a combined virtual urgent care platform and drive-through specimen collection site. They are now bringing a version of this successful model to the communities that need it most.

Boeing has used the Dreamlifter, a converted Boeing 747-400 Large Cargo Freighter, for its current and previous airlift missions. The medical cargo was transported in the lower lobe of the aircraft, while 787 component parts were flown in the main deck cargo hold.

Boeing said it has donated the cost of the mission transport, while Atlas Air operated the flights on behalf of Boeing.

The company has scheduled additional flights to deliver a total of 400,000 units of PPE to MUSC in the near future.

Last week, Boeing resumed all 787 operations at its South Carolina facility that were temporarily suspended on April 8 in response to the COVID-19 pandemic.

Boeing has also resumed operations in production facilities in Philadelphia as well as the Puget Sound-region.

The airplane maker had said in late April that it would not seek additional funding through the capital markets or the U.S. government options after it successfully raised $25 billion in a bond offering.

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US pork exports to China continue to rise

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U.S. pork exports to China remain high even as American supermarkets limit the amount of meat customers can buy at one time.

The United States sent nearly 17,500 tons of pork to mainland China in the week ending on April 30 compared to less than 4,000 tons at the same time last year.


In fact, U.S. pork exports to China have skyrocketed since the end of 2019 after much of China's pig population was destroyed by an African swine fever epidemic.

That number was expected to stay high after China agreed to buy billions of dollars of pork a year as part ofPresident Trump's phase one trade deal. Now, U.S.-China tensions caused by the coronavirus pandemic may throw off the agreement.

A sign at a Kroger store in Atlanta limits shoppers to two packages of pork on Tuesday, May 5, 2020. (AP Photo/Jeff Amy)

White House trade adviser Peter Navarro told "Sunday Morning Futures" that "patient zero" in China was in mid-November and said China's actions will continue to have dramatic economic consequences for the United States.

"We know that China hid the virus from the world behind the shield of the World Health Organization," Navarro said.

Meanwhile, a bottleneck in pork processing caused by pandemic-related plant closures is forcing farmers to kill off their healthy livestock without sending it to the market. Officials have estimated that about 700,000 pigs throughout the United States can’t be processed each week and must be euthanized. Most of the hogs are being killed at farms, but up to 13,000 a day also may be euthanized at a pork plant in Worthington, Minn.


China produces and consumes two-thirds of the world's pork, but its supplies plunged as authorities destroyed pigs and blocked shipments to contain an outbreak of African swine fever that was confirmed in August 2018. Chinese farmers have allowed herds to dwindle.

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China, U.S. Teams Agree to Work to Implement Trade Deal

The top trade negotiators for China and the U.S. pledged they will create favorable conditions for the implementation of the bilateral trade deal and cooperate on the economy and public health.

China’s Vice Premier Liu He talked with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin by phone Friday Beijing time, according to a statement from China’s Ministry of Commerce. They also agreed to maintain communications.

“Both sides agreed that good progress is being made on creating the governmental infrastructures necessary to make the agreement a success,” according to an emailed statement after the call from the USTR. “In spite of the current global health emergency, both countries fully expect to meet their obligations under the agreement in a timely manner.”

The phone call was the first time Liu and Lighthizer have officially spoken about the agreement since it was signed in January, just before the global coronavirus pandemic hit the world’s two biggest economies and upended global supply chains. The deal called for Liu and Lighthizer to talk every six months.

President Donald Trump told reporters at the White House on Wednesday that he’d be able to report in the next week or two if he’s happy with how the trade deal is progressing.

According to the text of the agreement signed earlier this year, China has agreed to buy an additional $200 billion in U.S. goods and services over two years compared with 2017’s level.

The purchases so far have been behind the pace needed to reach the target of the first year’s $76.7 billion increase, as goods imports from the U.S. declined by 5.9% in the first four months of 2020 from a year ago due to the coronavirus outbreak. Given that imports in 2019 were smaller than 2017, the pressure to catch up is mounting.

Relations between the U.S. and China have deteriorated further since America became one of the countries hardest hit by the coronavirus. Trump has blamed China for misleading the world about the scale and risk of the disease, and even threatened more tariffs as punishment. China’s foreign ministry has in turn accused some U.S. officials of trying “to shift their own responsibility for their poor handling of the epidemic to others.”

— With assistance by Sharon Chen, and Miao Han

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