Russia & Europe

Economy

As Moscow seeks to plug a gaping hole in its budget – largely caused by a Western oil and gas embargo – the government is taking steps to pass the pain onto businesses, introducing a record number of new tax requirements, audits, steeper penalties, and “one-time” special assessments – totaling 120% of those from 2021.

• The Russian Union of Industrialists and Entrepreneurs (RSPP) this week proposed raising the current 20% income tax on companies by 0.5 percentage points – reportedly a counterproposal to Prime Minister Mikhail Mishustin’s recommendation that RSPP members pay a one-off “voluntary contribution” of $2.8 billion.

• Russia’s budget deficit rose to $24.8 billion in January, the Finance Ministry said Monday, its highest monthly level since 1998. Officials expect the total 2023 deficit to reach 2% of GDP.

Technology / Cyber

US and UK officials jointly named and sanctioned seven Russian citizens behind a spate of cybercrime, bank fraud, and ransomware targeting Western entities over the past several years. Officials alleged all seven are affiliates of a single network behind the Conti, Ryuk, and Trickbot attacks – and that they maintain links to, and receive tasking from, Russian intelligence and security services.

• The joint effort is the first public attribution by Western governments formally linking the Conti and Ryuk ransomware gangs and the Trickbot banking trojan to a single organization. Officials called this the first major move of a “new campaign of concerted action,” and expected more later this year.

• The UK government notably warned that “making funds available to the individuals such as paying ransomware, including in crypto assets, is prohibited.” However, officials claimed no intent to prevent or punish such moves, but rather to incentivize cooperation and transparency with authorities.  

Politics

Two massive earthquakes rocked portions of southern Turkey and northern Syria this week, prompting an outpouring of humanitarian aid that commentators note was still intertwined with the region’s complex politics.

• Azerbaijan, which counts Turkey as its closest ally, responded quickest, sending teams of hundreds of rescue workers and dogs to assist in rescue efforts. Azeri crude oil transit via pipeline to Turkey’s Ceyhan port, meanwhile, experienced major disruptions.

• Neighboring Armenia offered condolences, solidarity, and a team of rescue workers, as well. While smaller in scope, the overture carried the most political significance – the country is in the process of normalizing relations with Turkey following its 2020 war with Azerbaijan, and seeks Western support to accelerate the process.

• Armenian Prime Minister Pashinyan made similar overtures to Syrian President Bashar al-Assad, but was less committal about aid, despite areas of northern Syria being home to large ethnic Armenian communities.

Military

SpaceX this week moved to restrict the Ukrainian military's use of its satellite internet services, in particular to control drones, the company's president Gwynne Shotwell said Wednesday. She added that the service was “never meant to be weaponized,” merely to “keep the banks going, hospitals, keep families connected.”

• The move comes after SpaceX founder Elon Musk last October asked the US Department of Defense to take over responsibility for funding Starlink internet terminals in Ukraine.

• Since then, SpaceX and the Pentagon have continued discussions about a possible deal for military units, according to people familiar with the conversations. On Wednesday, however, Shotwell indicated at least part of those conversations had ended. “We stopped interacting with the Pentagon on the existing capability. They are not paying.”

• Ukrainian presidential adviser Mykhailo Podolyak responded that companies must choose a side: join Ukraine and "the right to freedom," or pick Russia and "its 'right' to kill and seize territories."

Society

According to UK-based research company Ember, solar and wind overtook coal and gas in 2022 as sources of electricity generation in Europe – reaching 22% of the total energy balance. The sharp turn from Russian supplies played a significant role in accelerating the transition, which experts expect to continue.

• The EU managed to reduce electricity consumption during this period by 8%, while French nuclear power plants and other hydroelectric projects are also expected to come online in 2023, increasing the share of “green” sources.

• A “solar surge” in 2022 saw record capacity generated, with 47% more installations than those in 2021. Meanwhile, 20 EU member states achieved their highest ever shares of solar power, with Netherlands in the lead with 14%. Ember estimates that fossil-fuel power generation could plummet by 20% in 2023, double the previous record from 2020.

China

Economy

US prohibitions against investment in particular economic sectors in China are still up in the air. Although some reports emerged last fall indicating such a measure was forthcoming, there appear to be significant hurdles to its announcement.

• The NYTimes is now offering a timeline of within two months.

• Prohibited sectors include biotechnology, AI, chips, quantum computing, advanced material sciences, and the like.

• The US Treasury Department is now wrangling allies to impose similar controls, as European capital could just as easily replace US capital in the event the US implements the drafted rules.

Technology / Cyber

After warning about how Deepfakes—computer generated videos and images of unreal persons or events—presented a critical issue for national security, the PRC has been caught red handed.

• Researchers identified deepfake videos of reporters for “Wolf News”—a fake outlet—regurgitating PRC propaganda in English online. The videos were ultimately traced back to the Spamoflauge actor, previously credited with poorly constructed social media campaigns.

• Policymakers and researchers—not just in China—have worried about the impact deepfakes could have political discourse. Now, China has confirmed those fears. Technical measures to identify deepfakes exist, to be sure, but when the false videos circulate in the next US presidential election, who will be the arbiter of truth? Will the warnings and news about videos being faked reach as many people as the videos themselves?

Politics

Ahead of Foreign Minister Wang Yi’s visit to the EU, the PRC foreign ministry has quietly started asking EU diplomats to not support Ukraine’s efforts for “total victory.”

• The news comes days after export data showing PRC state-owned enterprises sending military goods to Russia was reported.

• China likely has the inside track on what Putin will politically accept in Ukraine, and the talking points may reflect an effort to shape future negotiations, which Russia is likely to pursue at the end of any coming offensive this spring.

Military

The US has declassified or downgraded intelligence related to PRC “balloon operations” in an effort to show allies and the world that destroying the balloon was not an overreaction.

• The new information shows that balloons from China have been observed over 40 countries collecting intelligence.

• The incident reiterated US concerns about crisis communication when the PRC Ministry of Defense declined to speak by phone with his US counterpart. When former Speaker Pelosi visited Taiwan last fall, the PRC also cut off all forms of communication with the US. Although this behavior could result from a strategy designed to increase risks, and thus deter behavior by the US, what’s more concerning is if the behavior results from the military’s inability to make decisions during crisis under the political environment created by Xi.

• In China, the People’s Liberation Army is the armed faction of the CCP, not an arm of the state. If in some hypothetical future another political party came to power in China under the same constitutional system, they would have no military to command. Unfortunately, this means that the PLA is unable to take action without many layers of political oversight and approval—the exact opposite of what is needed during a crisis.

Society

China’s Ministry of Industry and Information Technology announced plans to electrify all public-sector vehicles by 2025, a market itself worth about $120B according to analysts.

• The policy is as much a stimulus for the domestic sector—and BYD in particular—as it is an effort to combat poor air quality.

• Many wealthy tier 1 and 2 cities already use electric buses to improve air quality— the announcement will build on this momentum.

• A more intriguing question is whether the vehicles that will be run from China’s public sector replacement mobile app for Didi will also be electric? If so, it will do more to improve PRC production of electric cars, not just buses.