Vermilion Interview

China Unveiled with Arbletter

Last week we had an interview with

Arbitrage Andy

where we talked about the team and answered some key China questions. You can find the original article here and the interview portion has been reproduced below.

What is Vermilion and why was it started?

Vermilion was created to combat the efforts of the Chinese Communist Party (CCP). There is a general lack of expertise regarding the CCP, not only because of the language barrier, but because the CCP purposely hides itself from observation. The Western expertise that does exist is generally outdated and focused in the wrong direction- namely the idea that continued engagement will lead to democratization or mutual benefit. It’s clear this is not the case and that Washington needs to view the PRC as a challenger to the international order. 

Regarding the name itself, Vermilion is a very bright red-orange hue. The color was produced in ancient China (maybe around 300s BC) from the mineral cinnabar and used in a wide number of products across Asia and Europe, including paintings and porcelains.

The Vermilion compound begins as a dark black semi-translucent substance and becomes redder the more it is ground during preparation. The Italian Renaissance artist Cennino Cennini wrote: "If you were to grind it every day, even for 20 years, it would keep getting better and more perfect." Renaissance greats like Leonardo and Raphael commonly used the expensive vermilion color. Most spectacularly, Leonardo’s painting of the Sistine Chapel’s ceiling includes it. These works represent the acme of cultural heritage not only for Europe, but all humanity. 

Unfortunately, the modern country of China is under the control of the CCP, which has taken the extremely bright vermilion hue for use as the color of the CCP and the flag of the PRC. The name Vermilion is meant to evoke the original spirit of the color: cooperation, trade, and exchange between China, Europe, and the rest of the world. Finally, the fact that Vermilion gets brighter under pressure means that our team will never relent until total victory, no matter the pressure, no matter the cost.

What can you share about the team and their expertise?

The team has combined decades of experience not only living and working in China but also serving in the military in combat, leadership, and staff roles. We are currently looking for more members, and can be contacted through the email in our “about” section.

How has China's economic and military rise in recent years affected the balance of power in global geopolitics, and what implications does this have for international relations?

China’s rise in recent years IS the balance of power. Since 1991, the US has enjoyed the fruits of coming out victorious and undamaged in WWII combined with unparalleled and spectacular success in victory over the former Soviet Union during the Cold War. Even today, the US retains undeniable economic, military, diplomatic, and cultural advantages no other nation possesses. So far, China has risen higher relative to the US than any other strategic competitor Washington has faced except for Great Britain. 

What are the key strategies and tactics that the CCP employs to expand its influence on the international stage, and how do they impact other nations?

The primary actor within “China” is just the CCP. It is the CCP that decides all major issues. A strategy is a stated national goal which is resourced. The CCP has been very clear and open (in mandarin language media) on its strategy: to become a world superpower by 2049. This includes building economic, cultural, and military power that meets or exceeds the level of what the US enjoys. Stepping stones to this national rejuvenation include the unification of Taiwan with mainland PRC, closing the gap with the US economy, and increasing the global influence of Chinese culture.

This is one of the many reasons that the CCP often sees the world in zero-sum terms, or in their words “win-win” accommodations where China wins twice (双赢). If the goal is simply to relatively catch up to the US in contrast to growing the maximum prosperity of a domestic economy, any time that the PRC can damage the US economy, it puts 2049 closer to Beijing’s grasp. This zero-sum approach has thus far defined the character of Beijing's rise and deeply impacted how other nations relate to China/the CCP. It is one of the major reasons that Japan, South Korea, Taiwan, Philippines, and others have started balancing against the PRC.

The South China Sea dispute has been a significant point of contention. How do you assess China's actions in the South China Sea and the responses of other regional powers and international organizations?

The CCP believes it cannot secure national sovereignty without resolving ongoing territorial disputes which includes the entire South China Sea (SCS). “Resolving” in this instance is a euphemism for asserting control over the SCS and adjacent areas incrementally. From the CCP’s angle there is little to no room for compromise. The SCS is the CCP’s front door to the world, since the vast majority of Asian trade flows from Singapore northward. Beijing, both Koreas, Taiwan, and Japan are dependent on this trade flow to sustain developed nationhood. Control of the SCS gives the CCP significantly expanded options for both defending PRC territory and coercing Taiwan, Philippines, Japan, and South Korea by threatening curtailment of maritime commerce. 

This creates a serious conundrum for China’s neighbors (Philippines, Taiwan, Indonesia, Vietnam) who have legitimate claims to parts of the SCS and have no desire to hand any amount of control over trade to the CCP. 

The Belt and Road Initiative (BRI) is a massive infrastructure project spearheaded by China. How has the BRI influenced global geopolitics and the relationship between China and other countries?

The BRI is an extension of China’s strategy of undoing US-led multilateral institutions (IMF/World Bank) and replacing them with Chinese institutions that exclusively operate through opaque bilateral negotiations. The BRI is almost certainly meant to reorient Eurasia’s economic base towards the PRC and explicitly away from the US. Most BRI recipients understand they are not getting great deals, but the CCP is willing to step in and offer terms that nobody else will (and conflict with Washington’s ethical standards).

What is the role of international organizations, such as the United Nations and the World Trade Organization (WTO), in managing China's growing influence and potential threats to global stability?

In short: China uses existing international institutions to further their own goals. When UN or WTO member nations act against China, China claims racism, victimization, an incorrect reading of history, or all of the above (see the 2016 Philippines v People’s Republic of China arbitration under the United Nations Convention on the Law of the Sea [UNCLOS]). These organizations lack the spine to deal with such problems and have been significantly subverted by the Chinese Communist Party. 

Long form: When it comes to China’s economic power, the United States has a lion’s share of responsibility for China’s meteoric rise. After the US normalized relations with China in 1979 and both countries signed a trade agreement providing mutual most-favored nation status, trade between the two nations skyrocketed from approximately $5 billion in 1980 to $19.8 billion in 1990 and then $116.4 billion in 2000. Normalization combined with domestic economic reforms in China led to a period of unprecedented economic growth. This growth went into ludicrous speed in 2001 when China was formally admitted into the WTO. Interestingly enough, at the time, President Clinton believed that admitting China to the WTO would reduce the US-China trade deficit and would be “a win-win result for both countries” (sound familiar?). 

Needless to say, China disregarded their voluntary agreement to move towards an open market-oriented economy and have actually moved in the opposite direction towards a more state centric economic model that is not amenable to any foreign access (outside of companies that will help fuel PLA military modernization). While ignoring their obligations and flouting the rules of the WTO, China has also effectively weaponized the WTO by making it common practice to launch antidumping and countervailing duty investigations to discourage trade partners from exercising their rights under WTO rules. When a country acts in a way that the Chinese Communist Party either dislikes or thinks infringes on their sovereignty, China uses WTO mechanisms to punish them. There are no “bad boy” carve outs in the WTO so there is no way to combat this type of activity aside from arbitration. The WTO is in the process of being co-opted by the CCP to serve Chinese national interests. 

The UN is no different. China has hollowed out parts of the UN that could oppose Chinese national interests and has used their position to influence key appointments and block resolutions.

How do Western democracies navigate their relations with China, particularly in light of human rights concerns and differing political ideologies, while also considering economic interdependence?

They don’t. All of Europe has done a great job ignoring Chinese human rights violations while at the same time pushing for increased economic engagement with China. The US record on this isn’t great either. The US recognizes that China is actively committing genocide against the Uyghurs in Xinjiang, but has done almost nothing about it aside from sanctioning certain individuals and banning US companies from using products made from forced labor in China. These efforts are largely symbolic. 

Cybersecurity threats and intellectual property theft linked to China have gained prominence – we know this has taken place at dozens of US Universities. What measures can be taken at the international level to address these issues and deter cyberattacks?

It is highly unlikely that the US and allies will come together to create a cybersecurity framework. It is more likely this could occur at the national level, but even then it will be very legally complex (at least for the US) for a government to coordinate a cybersecurity umbrella with private firms. The fact is that many cyber intrusion efforts are enabled by human infiltration. The only solution to cyber and IP theft is further economic delinkage.

How have the recent developments in Hong Kong and Taiwan influenced China's relations with the international community, and what are the potential implications for global stability?  Do you think China makes a move on Taiwan before the US election in 2024?

Most of the outcry over 7.5 million people in Hong Kong losing their natural rights has died out and western countries are continuing to engage with the Hong Kong authorities. A great example of this is the APEC invitation to John Lee, the chief executive of Hong Kong. He is currently sanctioned by the US for his role in instituting the National Security Law in Hong Kong, but somehow he still received an invitation from the current US administration to attend this month’s APEC summit in San Francisco. Sustained determination to counter the CCP is weak. 

At the end of the day there really is no overarching international policy towards China. Germany still skirts export bans to sell engines that power China’s warships and subs, France likely helped China develop their WS-10 and WS-15 engines that are used in China’s most advanced fighters, and Israel, whose existence is in part thanks to the United States, has been selling US tech to China for decades. Even the United States can’t come up with a coherent policy that prevents firms like Blackrock from investing in Chinese strategic industries. 

In contrast to this, China is almost certainly taking very deliberate action in coordination with Russia and Iran to combat the United States. As the US continues to blunder through foreign policy, we expect to see increased regional instability in places like the Middle East, Eastern Europe, West Africa, and Latin America. 

It is unlikely that China will launch an assault on Taiwan prior to the US election, but expect to see more regular PLA activity around Taiwan if the Democratic Progressive Party wins the Taiwan presidential election that is coming up in January. 

China's policies on issues like climate change and COVID-19 have had a global impact. How do these issues continue to impact the United States and our allies?

China’s policy of hiding and lying about COVID-19 certainly did have a global impact in causing millions of deaths. On climate change China is no different. They obscure data and promise to adhere to international agreements without any intention of doing so. The PRC is the world’s largest polluter. If the CCP signals a desire to discuss COVID-19 or climate change, it is simply a trojan horse for wasting US time and resources.

What diplomatic and economic tools are available to nations to engage with China and address potential threats, and how can they collaborate on shared global challenges while managing areas of disagreement?

When it comes to engaging with China, there really isn’t much countries can do. We can see from past US-China meetings that verbal agreements don’t lead to change in good faith. In 2023 the Biden administration considered lifting sanctions on a Chinese police forensics institute suspected of participating in human-rights abuses just to get China to come to the table for a fentanyl working group, but this ended up stalling out because there were no real commitments on the Chinese side. 

When it comes to engaging around China, we can see nations that perceive China as an existential threat have made serious steps to come up with diplomatic, economic, and military tools that can be used to address the problem. Examples of this include international organizations like AUKUS and the Quad; reinvigorated mutual defense treaties with the Philippines, Thailand, Japan, South Korea; economic agreements like the US-Taiwan Trade Initiative; and increased bilateral diplomatic engagement between countries like Japan and the Philippines. 

Do you think most Westerners understand the threat China poses to the West in the coming years? Why or why not?

Absolutely not. Most people still view China as some distant mystical land and have no understanding as to why freedom in East Asia is so critical to US national security and the American way of life. 

If Beijing seizes Taiwan, the first island chain is broken and the Chinese Communist Party would control navigation and commerce throughout maritime Asia. US power in the region would evaporate and this would almost certainly lead to conflicts between China/Japan and North Korea/ South Korea. Pax Americana, the post-WWII period of relative peace and prosperity in the world, would come to an end. Everything is on the line.

What is your general assessment of the world today? We’ve seen dramatic shifts since 9/11 on the global stage, in our economy, and in our relationships with other world superpowers. What are three predictions you have in the coming 2 years?

The world is reverting back to a period of pre-Pax Americana where regional conflict is rampant and hard power is the currency of the realm. If China successfully takes control of Taiwan, regional instability will almost certainly increase, creating a more dangerous and violent world. Dictators would be empowered to act in their default mode of might makes right. Powerful regional nations would feel emboldened to act on long term grudges against their neighbors and some countries may cede territory or even cease to exist (think Armenia, Georgia, Baltics, Myanmar, Bhutan, Taiwan, Papua New Guinea, Solomon Islands, etc).

In a two year timeline we’ll likely see more of the same in terms of continued economic disengagement with China and hardening of alliances between the Allies (USA, Japan, UK, Aus, Philippines, SK, Taiwan, Canada, and others) and the Axis of Evil (Iran, Russia, North Korea, China). There will likely be a shift change in AI competition, as it becomes more evident that the field has a critical relationship with national security (targeting) and the effects of AI products are felt throughout the private market (enhanced workforce).

If we open up the timeline and look out 5-7 years, this is where we see the greatest danger in terms of a Chinese assault on Taiwan and what would almost certainly be the most disruptive conflict since World War II. This is also the timeframe where Xi’s health can become a critical vulnerability for the CCP.