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Geostrategic Business Intelligence Trends: October 25, 2022
Russia & Europe
Western firms continue to decouple from Russia despite the Russian government’s opposition:
Yum Brands announced that it had reached an agreement to sell its KFC restaurants in Russia to a local company. Yum is going to transfer ownership of the operations, KFC locations, and franchise rights to the Russian firm Smart Services.
German software group SAP announced it will miss its initial deadline for leaving Russia by the end of the year, because the company has not found a buyer for its Russian business yet. SAP’s products are used by major Russian companies, including energy giant Gazprom and mining company Nornickel. SAP has shut down its cloud business and data centers in Russia, but it remains under contract to provide service maintenance.
Technology / Cyber
Ukraine’s president Zelensky accused Russia of having ordered about 2,000 drones from Iran:
These 'Shaheds' drones are being used to attack Kyiv.
Trying to avoid responsibility with an obvious diplomatic facade, Iran's foreign minister responded by reiterating previous denials that Iran has sold drones to Russia for use in the Ukraine war.
Russia continues to weaponize food in the war in Ukraine:
Ukraine has accused Russia of deliberately stalling the arrival of over 165 cargo ships from Turkey with prolonged inspections.
The ships are heading to Ukrainian ports to take grain loads.
Over the weekend, Russian Defense Minister Sergei Shoigu accused Ukraine of preparing to blow up a critical dam:
The dam is in Ukraine and its destruction will result in massive flooding across the country.
Ukraine rejected the accusation and claimed Russia is planning to blow up the dam.
Shoigu’s accusation, which has been repeated by other Russian officials, may be a Russian scare tactic to erode Ukrainians’ morale or as Ukraine claimed, a preparation for a Russian-initiated destruction of the dam.
A Russian TV host Anton Krasovsky’s has been suspended for encouraging the “drowning or burning” of Ukrainian children:
Krasovsky worked for Russian state-controlled media RT.
His remarks caused a public outrage and RT stopped collaborating with him “for the moment.” Perhaps there is some hope left for Russia.
China & Taiwan
PRC economic data for Q3 was released as expected, just after the Party Congress wrapped up. The economy reportedly grew by a surprising 3.9%, a number most financial analysts find dubious.
US talent is leaving PRC chip makers in droves.
YMTC’s American employees have left the company in last week, effectively halting the company’s work on producing NAND memory chips, the input sought by Apple.
LAM Research, Applied Materials, and KLA Corporation (all American) have stopped sales and support into PRC. ASML, the dutch equipment manufacturer that produces machinery used in chip fabrication, asked its American employees to withdraw from supporting any PRC-based clients.
The damage of US export controls will show up in the Q4 reports for LAM, AM, and KLA, and in PRC economic data for Q4 and well-beyond.
We are still awaiting the PRC response, which should come by the end of this year. If China behaves rationally, it will not weaponize foreign firms’ dependence on PRC supply chain or inputs (like minerals), but may use anti-monopoly rules to prevent M&A activity by foreign firms in China’s emerging tech sector.
Technology / Cyber
The Politburo, the group of 24 men who sit one rung beneath the penultimate Politburo Standing Committee, added five new technocrats to its ranks. Technocrats are STEM professionals who are elevated as trusted apolitical actors into policy positions.
For Xi, they represent hope and trust in competent bureaucrats who are unwilling to play politics. Xi aims to have his policies implemented with less back-talk by adding them to the Politburo.
Xi Jinping got his third term, as expected. More surprisingly, Xi eroded two norms around retirement ages and the security services role in politics while creating the Politburo Standing Committee.
Xi stacked the seven member committee with all loyalists. Many in the US financial sector had hoped successors to the moderate economist Li Keqiang would fill his place and push back against Xi’s detrimental economic policies—but that was misplaced hope.
Xi allowed two new members of the Standing Committee to be over the age of 68, which has been the cut off for appointments since 2002. Xi would rather have allies than norms.
Xi promoted the head of China’s intelligence agency, the Ministry of State Security and the head of the Ministry of Public Security to the Politburo. The CCP has long fought over control of the intelligence services and some have used branches of the organization to spy on other political factions. The Party tried to avoid politicization of the services as much as possible, and now Xi violated a rule by appointing the MSS head to the 2nd highest CCP committee.
Xi’s power looks near absolute. His worst tendencies, including interventionist economic policies and zero-covid, are unlikely to be moderated by anyone in elite circles of the CCP.
PRC stocks fell dramatically when the market opened on Monday, and recovered after some state-instigated buying by large institutions.
Some wealthy Chinese families are now executing their escape plans, according to media reports.
The CCP reiterated past commitments to reunify with Taiwan at the 20th Party Congress and in its subsequent revisions to the Party Constitution. Xi also retained the only high-level military officer on the Central Military Commission with war experience.
The all-important Central Military Commission now hosts two officers with experience in China’s Eastern Military Region, responsible for Taiwan contingency planning and military operations.
The CMC still contains only one officer from the PLA Navy, and one officer from the PLA Air Force—four other officers represent the PLA Army. The Army has long dominated the CMC for historical reasons and other service branches are often seen as inferior within the PLA.
The unwillingness to promote more officers into the CMC from the Navy or Air Force point towards issues of implementing joint-service operations, a combination of services that would be required in any Taiwan operation or war scenario.
The US Department of Justice unsealed two more indictments against PRC intelligence officers operating in the US yesterday, making three total indictments this month.
One indictment showed how China uses people unaffiliated with the security services to harass China-born US citizens into returning to the PRC for political retribution. In one harrowing quote, the defendants threaten the victim’s family and boasts that China willing to spend $800m-$1B to achieve its political goals.
The second indictment embarrassingly details the security service’s interest in US legal action against Huawei and efforts to influence judicial proceedings against the company. The indictment removes all doubt about the relationship of Huawei and PRC intelligence services.
The third indictment details how the security services tried to prevent protests in the US in 2008 along the olympic torch route. The final indictment reads as an embarrassing catalogue of the PRC’s agents comments, complaining about low-pay, their willingness to abandon agents, and how their work was menial. The indictment will mostly serve to embarrass the PRC intelligence community and dissuade would-be spies for China.
Shanghai Municipal Government released a statement on social media that nasal vaccinations for covid-19 would be rolled out in November. The vaccines were developed in concert by 5 PRC firms.
Efficacy remains questionable until proven otherwise. Uptake of the vaccine may be high in the city, but is likely to remain low outside well-educated, monied cities.