Russia’s trump card, and the EU’s gas crunch
On Wednesday, Russia gas monopoly Gazprom announced that it is cutting natural gas supplies to Germany through the Nord Stream 1 Pipeline by 60 percent – a day after announcing an initial 40 percent reduction. Gazprom is citing technical issues, in the form of delays in a turbine repair. The European Union is skeptical. These supply cuts came just as the leaders of France, Italy, and Germany visited Kyiv; Germany’s government has said it suspects that Gazprom is making a political point, and undermining Berlin’s efforts to stock up on gas supplies in advance of winter. Either way, the bottom line is clear: For all of the EU’s strong narrative stances, it still relies on Moscow for energy. And energy matters. As long as that reliance continues, the EU’s hands are more tied than anyone is acknowledging when it comes to pushing back against Russia’s aggression.
China is splurging on semiconductor machinery, whether the US likes it or not
Even as the US has tried to handicap transfer of advanced semiconductor equipment to China – including by placing restrictions on SMIC, a powerhouse State-owned chip manufacturer – Beijing continues to forge ahead with its semiconductor ambitions. Data reported by Bloomberg show that China remains the top global buyer of semiconductor tools and machinery. US chip firms suggest that Chinese companies are snagging this gear by paying above-market prices, outbidding their competition to acquire advanced technology that promises long-term strategic advantage.
This underscores the limitations of US policy: Washington appears not to be doing enough to ensure that its major chipmaking equipment manufacturers aren’t helping China gain technological capabilities. Nor do Washington’s policy tools address the reality of a globalized world, and the portals to technology acquisition it creates. Much of the chip equipment spending in China is by multinationals with production facilities there; US chip equipment firms risk sidestepping US export restrictions by building capacity elsewhere. And, perhaps the biggest problem, Washington hasn’t paired its defensive moves with proactive investment: As long as China’s are the biggest buyers in town, the technology will flow there. Money talks, louder even than multilateral export controls.
All eyes on Xinjiang
The US Uyghur Forced Labor Prevention Act will take effect next week – accelerating the reckoning over international exposure to China’s human rights atrocities. And this reckoning extends well beyond the United States: Germany’s largest trade union IG Metall, representing workers in the industrial sector of Europe’s largest economy, has demanded that Volkswagen withdraw from Xinjiang over human rights abuses against Uyghurs. Volkswagen has so far defended its presence in Xinjiang, with its CEO saying last month that the company’s footprint there “leads to the situation improving for people.” That position looks set to be harder to maintain as pressure piles on the automaker, including the German government’s decision last month to deny the firm investment guarantees for new projects in China.
But the elephant in the room: Xinjiang is an industrial hub for China, which itself is an industrial hub for the world. How much are companies actually able to do – and is there the political will to make them follow through?
Wall Street salaries vs. common prosperity
For years the world’s premier global banks have eagerly eyed the huge Chinese market as the next frontier for fat profits. They had reason for optimism: Beijing was cracking open its capital markets to foreign competition, allowing more global banks to take full ownership of joint ventures. Yet the turmoil of zero covid lockdowns, unpredictable regulatory crackdowns, and a broad economic slowdown – not to mention the intensifying US-China showdown – have dampened enthusiasm. Now, Beijing officials are going one step farther: They are warning the likes of Goldman Sachs and Credit Suisse over excessive banker pay that’s contrary to the Communist Party’s “common prosperity” agenda. This is where things get personal. Could it be a final straw?