from Asia Unbound

Japanese Offense, Tencent Meets Tesla, North Korean Hackers, and More


March 31, 2017

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North Korea


Energy and Environment

Rachel Brown, Sherry Cho, Lorand Laskai, and Gabriel Walker look at five stories from Asia this week.

1. LDP eyes offensive push for Japan. A policy research group in Japanese Prime Minister Shinzo Abe’s Liberal Democratic Party (LDP) is pushing for the adoption of new long-range offensive capabilities. Consisting primarily of former defense ministers, former deputy defense ministers, and former parliamentary vice ministers, the LDP group urged the government to begin considering a change to Japan’s military stance, citing a “new level of threat” from North Korea. The recommendations, focusing on the potential acquisition of new ballistic missile defense assets, exploration of “counter-attack” capabilities, and protection of Japan’s exclusive economic zone (EEZ), are in line with Abe’s efforts to shift Japan’s security posture away from its historically defense-oriented stance. Since taking office in 2012, he has been instrumental in ending a decades-long ban on weapons exports and facilitating the reinterpretation of Japan’s pacifist constitution to allow for the defense of allies. While proposals for acquiring long-range strike capability, such as cruise missiles, have been made in the past, the recent North Korean launch of four ballistic missiles—three of which fell into Japan’s EEZ—has spurred a new sense of urgency. The LDP, however, will face obstacles in pursuing any official change to Japan’s security stance. The LDP must account for their coalition partner, the Buddhist-backed Komeito party, which favors an exclusively defensive posture, and a challenging fiscal environment in which any increase in defense spending must account for both the conventional military threat of North Korea and countering assertive Chinese actions in the East China Sea.

2. Tencent builds global investment portfolio with Tesla stake. Chinese gaming and messaging giant Tencent invested $1.8 billion in Tesla this week, acquiring a 5 percent stake in the American automaker and energy storage company. The Tesla stake is hardly Tencent’s first major international investment, and rather represents a continuation of the company’s effort to diversify investments and expand beyond China. Tencent is among China’s most highly valued companies, but many of its products, including the messaging platform WeChat, have not yet caught on abroad. Instead, Tencent has invested heavily in gaming and messaging companies with products already popular both inside and outside of China. Such firms include Supercell, which makes Clash of Clans; Riot Games, which makes League of Legends; and Pocket Gems, Activision Blizzard, and Glu Mobile. Tencent is also reportedly considering an investment in the Indian e-commerce company Flipkart. But what Tencent saw in Tesla, a firm outside its core business, remains uncertain. The deal could demonstrate Tencent’s burgeoning interest in the electric car market, where it has made a few other bets including in Tesla rival NextEV. The deal could also help Tesla increase its presence in the Chinese market, where it hasn’t previously thrived. Other potential synergies also exist between the two companies; perhaps someday passengers will recline in the backs of autonomous electric cars while sending WeChat messages and playing League of Legends.

3. North Korean hackers target banks. An attempted hack into Polish banks recently exposed efforts by the North Korean government to target financial institutions around the world. The over one hundred targets identified through the hackers’ digital trails included international institutions, such as the European Central Bank and World Bank, national central banks, and private firms such as Bank of New York Mellon and Deutsche Bank. The information from Poland adds another red flag amidst growing concern over North Korean hacking and global financial systems. U.S. officials are also investigating North Korean involvement in the case of the $81 million stolen in the 2016 Bangladesh Bank heist; in that instance, Chinese intermediaries may also be implicated. Besides these more lucrative targets, North Korean hackers have also ramped up usage of ransomware as well as attacks on defectors and South Korean assets such as transportation and weather facilities. North Korea’s cyber capabilities include a network of an estimated 1,700 hackers who mostly live and work abroad, but remain under constant supervision by government minders.

4. Westinghouse files for bankruptcy protection. Ten years ago, Japanese multinational Toshiba Corp. purchased Westinghouse, the American power company, for $5.4 billion dollars—three times the company’s estimated value. At the time, some analysts predicted that the acquisition would “strain Toshiba’s financial standing.” This week, those analysts’ fears were realized: Westinghouse, a name that once “symbolized America’s supremacy in nuclear power,” filed for bankruptcy protection. The news comes in the long wake of the 2015 Toshiba accounting scandal involving $1.2 billion of overstated operating profits, and reports from earlier this month that Toshiba was considering a $1.8 billion writedown of overstated Westinghouse assets. Just two weeks ago, the company said it would “aggressively” seek strategic options to avoid declaring Westinghouse bankrupt, but evidently found no other way out. Though some argue that Westinghouse’s fate is more symptomatic of incompetent business practices rather than a failing nuclear power industry, the bankruptcy is a serious setback for Japan’s historic prominence in global nuclear energy generation.

5. Didi courts SoftBank. Didi Chuxing, China’s largest ride-sharing company, is reportedly in talks with Japan’s SoftBank to secure a multibillion dollar investment. Didi became the undisputed leader of ride-sharing in China after buying Uber China last year, ending a multi-year tussle between Uber and domestic competitors over China’s gigantic ride-sharing market. A large investment from SoftBank would put Didi Chuxing roughly on par with Uber in terms of capital funding and help the company invest in next-generation autonomous vehicles. The company, which is widely considered China’s newest “national champion,” has also expressed interest in expanding internationally. While Didi has not formally expanded its service abroad yet, the company is already partnering with Uber’s rivals abroad, including Lyft in the United States. Lofty ambitions for driverless cars and international dominance aside, SoftBank’s investment will also help Didi fend off a host of regulatory challenges at home.

Bonus: Cambodia bans breast milk exports. This week, the Cambodian government officially banned the sale and export of breast milk, following the temporary suspension of exports earlier this month. The Health Ministry allegedly singled out one Salt Lake City-based company, Ambrosia Labs, which was the sole exporter of milk collected from Cambodian mothers and sold overseas. Ambrosia, cofounded by a former Mormon missionary to Cambodia, collected milk daily from more than twenty women for around $.50 per ounce in a poor neighborhood on the outskirts of Phnom Penh, and resold it in $20 five-ounce packs to customers in the United States. Many donors, who made as much upwards of $10 a day or even $120 per week, relied on the stable source of income their milk provided. UNICEF, however, criticized the company for exploiting “vulnerable and poor” Cambodian mothers, and suggested that excess breast milk should remain within the country. A government statement endorsed by Cambodian Prime Minister Hun Sen said, “even though Cambodia is very poor, she doesn’t sell mothers’ breast milk.”