May 23, 2023
Russia & Europe
Russia recorded its worst labor shortage since 1996, according to figures provided last week by the Yegor Gaidar Institute for Economic Policy. According to a poll of over 1,000 industrial enterprises in April, 35% reported a lack of skilled workers.
The shortfall was due in part to the “partial mobilization” of military-aged men from last September. The shortages were most stark in lighter industry and mechanical engineering. Russian Economic Minister Maksim Reshetnikov in March noted that issues with training and labor productivity are becoming “issues of survival.”
Even so, the poll findings also indicate enterprises maintain an optimistic outlook at levels last seen before the COVID pandemic.
Technology / Cyber
The Irish Data Protection Commission this week handed down a record $1.3 billion fine against Facebook parent company Meta for the illegal transfer of European citizens’ data to the United States. Under the European Union’s General Data Protection Regulation (GDPR), such transfers are prohibited.
The fine is the largest ever incurred under the GDPR, and accounts for roughly 1% of Meta’s prior-year revenues. EU authorities have instructed Meta to either delete or return the data by November.
A new data-sharing arrangement between Washington and Brussels may be finalized this year but awaits approval from the European Commission. However, both the EU Parliament and the European Data Protection Board have expressed skepticism toward the proposed framework.
The European Commission is set to consider a bill in June aimed at increasing funding transparency for non-governmental organizations (NGOs). According to German newspaper Welt am Sonntag, the bill would establish a registry to clarify which NGOs, business associations, PR firms, and private broadcasters receive financing from non-EU countries. “It is time to expose secret foreign influence and dubious financing,” said commission official Vera Yurov.
The idea behind the legislation is to expose where authoritarian governments—including Russia, China, and those in the Middle East—are attempting to shape policy decisions and public opinion.
The bill comes amidst a major corruption scandal gripping the European Union, in which parliamentarians are accused of accepting bribes from Qatari and Morroccan officials.
Armenian Prime Minister Nikol Pashinyan this week said that the country may withdraw from the Russia-led Collective Security Treaty Organization (CSTO)—the latest indication of frustration with treaty ally Russia for its lack of support amid military threats from neighboring rival Azerbaijan. Moscow is slated to host peace talks between the two sides later this week.
Armenia and Azerbaijan have been locked in a decades-long conflict for control over the territory of Nagorno-Karabakh. The US and EU have recently stepped up diplomatic efforts at a settlement, while Pashinyan has had to accept several concessions since Azeri forces made major advances in the fierce battles in summer of 2020.
Pashinyan reemphasized this week that Armenia would be prepared to recognize Azerbaijan’s territorial claims in return for internationally backed guarantees for the security of ethnic Armenians living there.
At a summit of Central Asian states hosted by Chinese leader Xi Jinping last week, Uzbekistan, Kyrgyzstan, and China all signed a trilateral agreement to determine design, funding, and development of a new railway which would enable transit of goods to Europe, while bypassing Russia entirely.
Central Asian neighbors have long been hesitant to support the rail project, which China has proposed periodically since the 1990s. The railway would provide a new artery for East-West trade, the dynamics of which were complicated by Russia’s war on Ukraine.
The three nations reportedly aim to evenly split the costs of financing, which multiple sources indicate will approach $4.5 billion over several years. Regional investment banks may also take part.
The Wall St Journal reported that M&A activity of Chinese firms was slowing down in response to US chip export controls, just as KSG warned readers last October.
KSG’s executive network confirms WSJ’s reporting, as many private equity groups are reporting slowdowns in activity in the PRC.
China will be careful not to tie up any deals where it stands to benefit from acquisition, but deals that don’t expressly benefit the PRC are likely to slow down.
Technology / Cyber
The Cyberspace Administration of China—an organization whose other name is the CCP’s Central Cyberspace Affairs Commission and chaired by Xi Jinping—finished its short review of Micron technology and determined Micron chips to be too insecure for use in critical information infrastructure systems, a move that will push Micron from the PRC market.
The US has asked South Korea to not allow its chip producers to fill the market, but South Korea has indicated it will not stop its companies from selling into China. The move will cause tension in the US-SK alliance, just as the PRC hoped.
China’s move against Micron was decided as soon as the investigation into the company was announced earlier this month and is retaliation for US-led chip export controls against the PRC.
Other technologies where China depends on foreign imports, and where it can ban US firms while still getting what it needs, are in the crosshairs. Expect similar moves against other companies placed under investigation.
The censorship of a comedian after making a joke about the CCP’s military has set many in China on-edge. Crackdowns on other political speech, including some artists is also being reported.
Rather than having one precipitating event, the crackdown on near-political speech is another sign of the times under Xi’s leadership.
Recent education campaigns launched by the CCP on Xi Jinping Thought, paired with efforts to send the unemployed youth into the country-side are bringing up horrific memories of Mao Zedong’s rule between 1949-1979.
The monied elite, already busily trying to get wealth out of the country through family offices in Singapore, are particularly concerned, as those efforts are being stymied by arrests and investigations.
It says much more that people were startled by the censorship and crackdown than the crackdown itself. People are on-edge under Xi’s continued leadership.
The US might be considering lifting sanctions on China’s defense minster following PRC resistance to the two countries’ defense ministers meeting at the Shangri-La Dialogue this month in Singapore.
The White House and State Department have been speaking from both sides of their mouth as the negotiations over the removal of sanctions are apparently on-going.
The defense minister was sanctioned for the purchase of Russian military jets and anti-aircraft systems—an action China considers to be within its right and that should not trigger sanctions.
The US values military-to-military dialogue as a means to avoid accidental escalation, a dynamic that China uses to its advantage as the weaker of the two militaries.
A second wave of covid infections is cresting this month.
Although no one in government is saying it, a number of significant public events have been cancelled across China, drawing attention to the trend.
Experts outside the country estimate there may be as many as 50 million new cases per day this week. Disruptions to business, from illness—not crackdowns, may happen over the next few weeks.