Russia & Europe

Economy

Russia’s machine-building industry is showing signs of a major slowdown, as demand for steel in the first nine months of 2022 plummeted by 21% compared to the same period the previous year.

• Severstal, one of Russia’s largest steel producers, estimates that total 2022 orders for metallurgy and machine-building clientele will contract by 22%.

• Experts cite a number of factors culminating in the slowdown: a major deficit in componentry, broken supply chains, clients facing factory shutdowns, the departure of foreign producers from Russia, shrinking export markets, weak automobile sales, and the rising competitiveness of Chinese and Turkish imports against a strong ruble. 

• Demand for steel in the construction sector inched higher during the same nine-month period by 1.2% while an overall 2022 contraction of 4% is expected.e

Technology / Cyber

Russian Internet watchdog Roskomnadzor will launch a new network traffic monitoring system to root out noncompliant service providers and operators within the Russian segment of the Internet otherwise known as “RuNet.”

• Legislation does not detail the two-year, 1.2 billion ruble project, however experts allege it is intended to assess netflows to prevent distributed denial-of-service (DDoS) and other availability-based cyberattacks.

• Since the start of Moscow’s war on Ukraine in February, Russian entities have faced a spate of such attacks from pro-Ukrainian hacktivist collectives. During that period, Roskomnadzor has blocked roughly 7,000 websites—including independent media, NGOs, political parties, prominent figures, and social networks like Twitter, Facebook, and Instagram.

• Last week, Roskomnadzor briefly blocked the Telegram messaging app, which is widely used by Russian political, military, and media figures.

Politics

Indonesian president Joko Widodo, host of the G20 bloc of major economies told the media that he does not expect his Russian counterpart Vladimir Putin to attend the G20 leaders’ summit next week.

• Moscow’s war on Ukraine and the resultant economic and agricultural woes are expected to dominate discussion.

• Widodo has resisted calls to disinvite Putin, asserting that “the G20 is not meant to be a political forum. It’s meant to be about economics and development.”

• U.S. and Chinese presidents Joe Biden and Xi Jinping are expected to attend. Ukrainian president Volodymyr Zelensky is planning to attend.

Military

Finnish president Sauli Niinisto sought to clarify Helsinki’s stance on hosting nuclear weapons as it finalizes the accession process to join NATO.

·      Noting the danger of loose talk about such weapons and asserting that nuclear war “cannot be won,” Niinisto proclaimed that Finland neither intended nor had been asked to host any nuclear weapons on its territory.

·      The idea of a ban on hosting nuclear weapons has been raised by some Finnish and NATO member-state politicians as a precondition for final accession.

·      Early last month, defense minister Antti Kaikkonen asserted that “membership in NATO does not oblige Finland to host on its territory nuclear weapons, permanent bases, or troops,” but acknowledged that the country must agree that nuclear weapons are a key element of the alliance’s defense.

Society

According to figures released by Russia’s Federal Security Service (FSB) Border Service, the number of Russian passport-holders exiting the country from July through September 2022 totaled 9.7 million – almost double the number from the previous quarter, and a 12% increase over the same period last year.

• Four countries comprised nearly 70% of destinations: Kazakhstan, Turkey, Georgia, and Finland. Kazakhstan, Armenia, Kyrgyzstan, Tajikistan, and Mongolia—countries long regarded by Moscow as reservoirs of cheap labor—now see an opportunity to acquire the skilled knowledge workers their economies badly need.

• The outflow is also reflected in money transfers abroad. The volume to Kazakhstan in the first five months of this year hit a record $370 million—58% higher than in the same period last year.

• Meanwhile rent and accommodation prices have skyrocketed in Kazakhstan, and the interior ministry has proposed limiting non-passport holders to a three month stay to deal with the influx.

China & Taiwan

Economy

Politicians are the same everywhere. Xi Jinping gave a speech on Friday of last week at the China International Import Expo event in Shanghai, where he stressed the importance of economic reforms to China and the world.

• “Watch what I say, not what I do.” The phrase probably best describes Xi’s speech as it comes on the heels of state-owned enterprises purchasing shares in China’s platform technology companies. KSG last week indicated this is a significant step for the state to exercise its will over its unpersuaded capitalist class.

• The speech was dovetailed by a speech to Huawei employees by the Deputy Chair of the Cyberspace Administration of China. The government leader implored Huawei employees, and all tech workers, to implement the policies identified at the 20th Party Congress.

• Last week’s share purchases and this week’s speech to Huawei are the real indicators of China’s direction, not Xi’s speech intended for international audiences.

Technology / Cyber

Microsoft’s annual threat report shows a significant increase in the number of 0days deployed by PRC hacking teams. The results come as no surprise, as a 2021 law requires the disclosure of software vulnerabilities to the government, which can pass vulnerabilities along to hacking teams.

• Software vulnerabilities have long been the focus of PRC government policies. China has bolstered research into automated vulnerability discovery technologies and cut its researchers off from foreign competitions to keep vulnerabilities in the country.

• China’s policies weaponize the bug bounty programs of private US firms. Companies incentivize research into their software’s vulnerabilities to make their products more resilient. Researchers find then disclose those vulnerabilities to the company for money. By collecting all the vulnerabilities from PRC researchers, the policy effectively allows foreign firms to pay for the vulnerabilities used by China’s intelligence services.

Politics

Xi Jinping is set to visit Saudi Arabia by the end of the year, marking the end of rumors that have circulated since spring of this year that Xi would do so.

• China seems interested in driving a knife into the relationship between Saudi Arabia and the US, something KSA’s ruler Mohammad bin-Salman seems interested in helping along.

• MBS is trying to diversify KSA away from oil and its status as a client of the US, which comes with annoying complaints about human rights and oil production. Besides long-standing access to oil, the US gains significant monetary leverage in the global system by KSA denominating its oil sales in USD. MBS has already taken steps to denominate some new sales in China’s RMB.

• The confirmation of the meeting comes a few weeks after Saudi Arabia warned of possible significant attacks against its oil infrastructure by Iran, which it asked for US help in defending against. MBS may see his China gambit as a way to hedge his relationship with the US, but that may only last as long as Iranian drones are not destroying his country’s poorly defended golden goose.

Military

Japan and the UK will sign a joint-defense pact next month aimed at deterring PRC aggression in the region. The agreement will likely extend the UK’s nuclear umbrella to Japan, helping provide another layer of assurance should the US elect a President not inclined to support Japan in the event of armed conflict.

• China sees yet another western nation signing up to contain its rise. Both nations, as with most western powers, have an offensive history of colonialism in China, which stokes angers even more. The pact fits neatly into the historical narrative pushed by the CCP, that China’s rise is inevitable, cannot be stopped, and is opposed by the old colonial masters of China’s “Century of Humiliation.”

Society

Covid cases are at a six-month high, and despite the continued rumors and bets by investors, there is no clear path out of zero-covid as of yet. We continue to wait for clear signs that 1) a PRC-made vaccine can effectively inoculate against existing variants and can be produced at scale to offer quick immunization, 2) the partnership with a foreign mRNA vaccine developer to sell into the PRC market.

• Apple has acknowledged that production of its iPhones is being impacted by the workers fleeing its Zhengzhou factory site, the origination place of horrific videos of laborers jumping barbwire fences and walking through barren fields with luggage to escape the factory’s lockdown.

• Protests occurred in NYC outside an Apple store blaming Apple for the labor conditions inside the Foxconn factory owing to Xi Jinping’s zero-covid policy. It’s unclear if the protests were organic and formed from opposition to Foxconn’s actually horrendous working conditions (suicide nets, anyone?) or if they were spurred on by China’s intelligence service to redirect the conversation away from zero-covid. At this point, we consider both to be equally likely.