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Exclusive-U.S. and China hold first informal nuclear talks in 5 years, eyeing Taiwan By Reuters

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HONG KONG (Reuters) – The United States and China resumed semi-official nuclear arms talks in March for the first time in five years, with Beijing’s representatives telling U.S. counterparts that they would not resort to atomic threats over Taiwan, according to two American delegates who attended.

The Chinese representatives offered reassurances after their U.S. interlocutors raised concerns that China might use, or threaten to use, nuclear weapons if it faced defeat in a conflict over Taiwan. Beijing views the democratically governed island as its territory, a claim rejected by the government in Taipei.

“They told the U.S. side that they were absolutely convinced that they are able to prevail in a conventional fight over Taiwan without using nuclear weapons,” said scholar David Santoro, the U.S. organiser of the Track Two talks, the details of which are being reported by Reuters for the first time.

Participants in Track Two talks are generally former officials and academics who can speak with authority on their government’s position, even if they are not directly involved with setting it. Government-to-government negotiations are known as Track One. 

Washington was represented by about half a dozen delegates, including former officials and scholars at the two-day discussions, which took place in a Shanghai hotel conference room. 

Beijing sent a delegation of scholars and analysts, which included several former People’s Liberation Army officers.

A State Department spokesperson said in response to Reuters’ questions that Track Two talks could be “beneficial”. The department did not participate in the March meeting though it was aware of it, the spokesperson said. 

Such discussions cannot replace formal negotiations “that require participants to speak authoritatively on issues that are often highly compartmentalized within (Chinese) government circles,” the spokesperson said.

Members of the Chinese delegation and Beijing’s defence ministry did not respond to requests for comment. 

The informal discussions between the nuclear-armed powers took place with the U.S. and China at odds over major economic and geopolitical issues, with leaders in Washington and Beijing accusing each other of dealing in bad faith. 

The two countries briefly resumed Track One talks over nuclear arms in November but those negotiations have since stalled, with a top U.S. official publicly expressing frustration at China’s responsiveness. 

The Pentagon, which estimates that Beijing’s nuclear arsenal increased by more than 20% between 2021 and 2023, said in October that China “would also consider nuclear use to restore deterrence if a conventional military defeat in Taiwan” threatened CCP rule.

China has never renounced the use of force to bring Taiwan under its control and has over the past four years stepped up military activity around the island.

The Track Two talks are part of a two-decade nuclear weapons and posture dialogue that stalled after the Trump administration pulled funding in 2019. 

After the COVID-19 pandemic, semi-official discussions resumed on broader security and energy issues, but only the Shanghai meeting dealt in detail with nuclear weapons and posture.

Santoro, who runs the Hawaii-based Pacific Forum think-tank, described “frustrations” on both sides during the latest discussions but said the two delegations saw reason to continue talking. More discussions were being planned in 2025, he said. 

Nuclear policy analyst William Alberque of the Henry Stimson Centre think-tank, who was not involved in the March discussions, said the Track Two negotiations were useful at a time of glacial U.S.-Chinese relations.

“It’s important to continue talking with China with absolutely no expectations,” he said, when nuclear arms are at issue.

NO FIRST-USE?

The U.S. Department of Defense estimated last year that Beijing has 500 operational nuclear warheads and will probably field more than 1,000 by 2030. 

That compares to 1,770 and 1,710 operational warheads deployed by the U.S. and Russia respectively. The Pentagon said that by 2030, much of Beijing’s weapons will likely be held at higher readiness levels.

Since 2020, China has also modernised its arsenal, starting production of its next-generation ballistic missile submarine, testing hypersonic glide vehicle warheads and conducting regular nuclear-armed sea patrols.

Weapons on land, in the air and at sea give China the “nuclear triad” – a hallmark of a major nuclear power.

A key point the U.S. side wanted to discuss, according to Santoro, was whether China still stood by its no-first-use and minimal deterrence policies, which date from the creation of its first nuclear bomb in the early 1960s.

Minimal deterrence refers to having just enough atomic weapons to dissuade adversaries.

China is also one of two nuclear powers – the other being India – to have pledged not to initiate a nuclear exchange. Chinese military analysts have speculated that the no-first-use policy is conditional – and that nuclear arms could be used against Taiwan’s allies – but it remains Beijing’s stated stance. 

Santoro said the Chinese delegates told U.S. representatives that Beijing maintained these policies and that “‘we are not interested in reaching nuclear parity with you, let alone superiority.'” 

“‘Nothing has changed, business as usual, you guys are exaggerating’,” Santoro said in summarising Beijing’s position.

His description of the discussions was corroborated by fellow U.S. delegate Lyle Morris, a security scholar at the Asia Society Policy Institute. 

A report on the discussions is being prepared for U.S. government but would not be made public, Santoro said.

‘RISK AND OPACITY’

Top U.S. arms control official Bonnie Jenkins told Congress in May that China had not responded to nuclear-weapons risk reduction proposals that Washington raised during last year’s formal talks. 

China has yet to agree to further government-to-government meetings.

Bejing’s “refusal to substantively engage” in discussions over its nuclear build-up raises questions around its “already ambiguous stated “no-first-use” policy and its nuclear doctrine more broadly,” the State Department spokesperson told Reuters. 

China’s Track Two delegation did not discuss specifics about Beijing’s modernisation effort, Santoro and Morris said.

Alberque of the Henry Stimson Centre said that China relied heavily on “risk and opacity” to mitigate U.S. nuclear superiority and there was “no imperative” for Beijing to have constructive discussions.

China’s expanded arsenal – which includes anti-ship cruise missiles, bombers, intercontinental ballistic missiles and submarines – exceeded the needs of a state with a minimal deterrence and no-first-use policy, Alberque said. 

Chinese talking points revolved around the “survivability” of Beijing’s nuclear weapons if it suffered a first strike, said Morris.

The U.S. delegates said the Chinese described their efforts as a deterrence-based modernisation programme to cope with developments such as improved U.S. missile defences, better surveillance capabilities, and strengthened alliances.

The U.S., Britain and Australia last year signed a deal to share nuclear submarine technology and develop a new class of boats, while Washington is now working with Seoul to coordinate responses to a potential atomic attack.

© Reuters. FILE PHOTO: A nuclear-powered Type 094A Jin-class ballistic missile submarine of the Chinese People's Liberation Army (PLA) Navy is seen during a military display in the South China Sea April 12, 2018. Picture taken April 12, 2018. To match Special Report CHINA-ARMY/NUCLEAR      REUTERS/Stringer/File Photo

Washington’s policy on nuclear weapons includes the possibility of using them if deterrence fails, though the Pentagon says it would only consider that in extreme circumstances. It did not provide specifics. 

One Chinese delegate “pointed to studies that said Chinese nuclear weapons were still vulnerable to U.S. strikes – their second-strike capability was not enough”, said Morris.





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Macron’s ‘irresponsible’ snap election casts shadow over Olympics

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Emmanuel Macron’s move to call snap elections has cast a shadow over the Paris Olympic Games, raising the possibility of political unrest and a far-right government in charge of the world’s biggest sporting event.

The far-right Rassemblement National (RN) is projected to become the biggest parliamentary party after the run-off vote on Sunday. While a hung parliament appears the most likely outcome, if the RN were to win a majority, its 28-year-old party chief Jordan Bardella could be prime minister when the Games open on July 26, with his team greeting top athletes and dignitaries from across the world.

The timing of Macron’s decision to dissolve parliament was “catastrophic for the Games”, said Pascal Boniface, head of Paris-based think-tank Iris and an expert on the politics of sport. “We are in the thickest of fog over the future.”

Pierre Rabadan, a senior official responsible for Olympics planning in the Paris mayoralty of Socialist Anne Hidalgo, told the Financial Times he was “stupefied” by Macron’s “irresponsible” decision.

While he said the main strategic decisions had already been made, the move had raised “pragmatic and operational questions”, including deploying mayoral staff and city police for both the elections and the Games.

“We had thought about all the possible scenarios, except for the dissolution of the Assembly,” added Rabadan, a former professional rugby player with Stade Français.

Security experts had already warned of big policing challenges for the opening ceremony, in which thousands of athletes will sail down the River Seine watched by around 300,000 spectators along the quays. Pressure on security services would further be aggravated if anti-RN protesters were to take to the streets, they said.

People gather at Republique to protest against the far-right which came out strongly ahead in first round legislative elections
Demonstrators in Paris protest against the far right after Rassemblement National came out ahead in a first-round vote © Louise Delmotte/AP

Rabadan said his main concern now was the image of France that a far-right government, with an anti-immigration and nativist policy platform, would present.

“The Games are about welcoming the entire world and showing that we are an open country,” Rabadan said. “That clearly goes completely against what the Rassemblement National wants.”

Hidalgo told France 2 on Tuesday that “the party would not be spoiled” by an RN government.

But dozens of athletes have voiced concerns about the elections. Prior to the first round, French football star and captain of the national team Kylian Mbappé called on the electorate to vote “against the extremists”, while almost 300 sportspeople, including Rabadan, signed a column in French sports publication L’Equipe opposing the RN.

“In my memory, I have never seen athletes engage to this extent in the political field,” said Boniface.

Macron’s sports minister Amélie Oudéa-Castera told journalists ahead of the first round that despite the extensive preparations for the Olympics, an RN majority would mean far-right politicians with no experience in national government would still have to make important decisions “in a geopolitical context that is difficult, delicate and tense”.

Bardella has said he would not change the officials running the Games.

Guy Drut, a former 110m hurdles Olympic champion and sports minister under President Jacques Chirac, and one of the few athletes to publicly back the RN campaign, told Le Monde: “There is no reason the Games would go badly under an RN government.”

Scattered protests were held against the RN after the first-round vote. Paris police commissioner Laurent Nuñez told France Inter that the authorities were ready for further unrest but that this would not interrupt the Games.

“We’re preparing for this type of protest and we will have an extremely large [presence] in the Greater Paris region of 45,000 officers to manage [disorder],” he said.

In a further potential risk to smooth running, four unions representing airport management staff have threatened to strike in pursuit of “a uniform and fair bonus” for working during the event. Police, air traffic controllers, rubbish collectors and train and bus staff have already been promised bonuses.

Despite his confidence that policing and organisation were well in hand, Rabadan lamented the impact of the elections on the build-up. “There is very, very strong enthusiasm and popular support,” he said. “But the president’s decision . . . has put a stop to that rise in excitement we were hoping for, so that’s really quite disappointing.”



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Hong Kong’s IPO market is set to improve over the next five years

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Hong Kong Exchanges and Clearing celebrates the 24th anniversary of its listing on June 21, 2024.

China News Service | China News Service | Getty Images

BEIJING — The market for initial public offerings in Hong Kong is set to improve significantly over the next five years, starting in the second half of this year, George Chan, global IPO leader at EY, told CNBC in an interview Wednesday.

“I think it will take a couple years to go back to the peak [in 2021] but the trend is there,” Chan said. “I can see the light at the end of the tunnel.”

High U.S. interest rates, regulatory scrutiny, slower economic growth and U.S.-China tensions have constrained Greater China IPOs in the last three years.

EY said in a report that while the volume of IPOs and proceeds in the U.S. increased significantly in the first half of 2024 compared to the same period a year ago, mainland China and Hong Kong saw a sharp decline in listings.

Many of the macro trends are now starting to turn around, which can support more IPOs in Hong Kong, said Chan, who is based in Shanghai.

“We are seeing a reversing trend,” he told CNBC. “We are seeing more of these [U.S. dollar] funds, they are moving back to Hong Kong. The main reason is that Hong Kong has already factored in these uncertainties.”

The Hang Seng Index is up more than 5% year-to-date after four straight years of decline — which was the worst such losing streak in the history of the index, according to Wind Information.

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“Our HK cap markets team is very busy and has a strong pipeline for H2.  We expect to see many HKSE listings,” Marcia Ellis, global co-chair of private equity practice at Morrison Foerster in Hong Kong, said in an email Wednesday.

Many companies that were waiting for a listing in mainland China’s A share market have decided to switch to one in Hong Kong, she said. “Previously [China Securities Regulatory Commission] approval was slowing things down but recently our team has gotten CSRC approvals pretty quickly.” 

In June, China issued new measures to promote venture capital, and authorities spoke publicly about supporting IPOs, especially in Hong Kong. Investors and analysts said they are now looking at the speed of IPO approvals for signs of a significant change.

Chan said another supportive factor for Hong Kong IPOs is that many of the companies listed in the market are based in mainland China, where economic growth is “quite satisfactory.”

He expects consumer companies could be among the near-term IPO beneficiaries.

“As the economy slowly recovers, a lot of people in China are willing to spend,” he said, noting that was especially the case in less developed parts of the country.

Official national-level data have showed that retail sales are growing more slowly in China — up by just 3.7% in May from a year ago versus growth of nearly 10% or more in prior years.

Also significant for global asset allocation, the U.S. Federal Reserve and other major central banks are pulling back from aggressive interest rate hikes. High rates have made Treasury bonds a more attractive investment for many institutions instead of IPOs.

“I would say if the interest rate can be further cut down, 1% maybe, that would have a significant effect on the IPO market,” Chan said.

Hong Kong IPOs raised $1.5 billion during the first half of the year, a 34% drop from a year ago, EY said in a report released late last month. Back in 2021 and 2020, the Hong Kong Stock Exchange saw nearly 100 or more IPOs a year raising tens of billions of dollars, according to the report.

In comparison, mainland China IPOs raised $4.6 billion in the first six months of 2024 — a drop of 85% from the year-ago period, according to EY.

HKEX CEO aims for more large-scale IPOs this year

Bonnie Chan, CEO of Hong Kong Exchanges and Clearing Limited, said during a conference last week that so far this year, the Hong Kong exchange has received 73 new listing applications — a 50% increase compared to the second half of last year. She is not related to EY’s George Chan.

“The pipeline is building up nicely,” she said, noting about 110 IPOs in total are in line for a Hong Kong listing. “All we need is a set of good market conditions so these things get to launch and price nicely,” she added.

Improving post-IPO performance

“What we need is a strong pipeline,” EY’s Chan said. “We need an interested investor with the money to invest, and we need a good aftermarket performance.”

Hong Kong IPO returns are improving. The average first-day return of new listings on the Hong Kong stock exchange in the first half of 2024 was 24%, far more than the average of 1% in the same period last year, according to EY.

“The aftermarket performance of Hong Kong IPOs has been doing quite good compared to the past five years,” Chan said. “These things added together are projecting an upward trend for the Hong Kong market [in the] next 5 years.”

Chan said he expects the number of deals to pick up in the second half of 2024.

Goldman Sachs says it remains positive on Hong Kong capital markets activity

He said those will likely be medium-sized — between 2 billion Hong Kong dollars to 5 billion Hong Kong dollars ($260 million to $640 million) — but added he expects better market momentum in 2025.

Slowing economic growth and geopolitical uncertainty have also weighed on early-stage investment into Chinese startups.

Total venture funding from foreign investors into Greater China deals plunged to $19 billion in 2023, down from $67 billion in 2021, according to Preqin, an alternative assets research firm.

U.S. investors have not participated in the largest deals in recent years, while investors from Greater China have remained involved, the firm said in a report last month.

U.S. IPO outlook

As for IPOs of China-based companies in the U.S., EY’s Chan said he expects current scrutiny on the listings to be “temporary,” although data security rules would remain a hurdle.

In early 2023, the China Securities Regulatory Commission formalized new rules that require domestic companies to comply with national security measures and the personal data protection law before going public overseas. A China-based company with more than 1 million users must pass Beijing’s cybersecurity review to list overseas.

“As time goes on, when people are more familiar with the Chinese [securities regulator] approval process and they are more become comfortable with geopolitical tensions, more of the large companies … would consider [the] U.S. market as their final destination,” Chan said.

“When the time comes I think the institutional investors would be interested in these sizeable Chinese companies, as they pretty much want to make money.”

He declined to comment on specific IPOs, and said certain high-profile listing plans are “isolated incidents.”

Chinese ride-hailing company Didi, which delisted from New York in 2021, has denied reports it plans to list in Hong Kong next year. Fast-fashion company Shein, which does most of its manufacturing in China, is trying to list in London following criticism in the U.S., according to a CNBC report.



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Microsoft hack affected Veterans Affairs and State Departments, government says

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The US Department of Veterans Affairs and an arm of the US State Department are among a growing list of Microsoft Corp. customers that have acknowledged they were impacted by a breach of the technology giant that was blamed on Russian state-sponsored hackers.

The US Agency for Global Media, part of the State Department that provides news and information in countries where the press is restricted, was notified “a couple months ago” by Microsoft that some of its data may have been stolen, a spokesperson said in an emailed statement. No security or personally identifiable sensitive data was compromised, the spokesperson said.

The agency is working closely with the Department of Homeland Security on the incident, the spokesperson said, declining to answer additional questions. A State Department spokesperson said, “We are aware that Microsoft is reaching out to agencies, both affected and unaffected, in the spirit of transparency.”

Microsoft disclosed in January that a Russian hacking group it calls Midnight Blizzard had accessed corporate email accounts and later warned that they were attempting to use secrets shared between the technology giant and its customers. The company has declined to identify the customers who were impacted.

“As our investigation continues, we have been reaching out to customers to notify them if they had corresponded with a Microsoft corporate email account that was accessed,” a Microsoft spokesperson said on Wednesday. “We will continue to coordinate, support and assist our customers in taking mitigating measures.”

In addition, the Department of Veterans Affairs was notified in March that it was impacted the Microsoft breach, officials for the agency said.

A one-second intrusion

The hackers used a single set of stolen credentials — found in the emails they accessed — to break into a test environment in the VA’s Microsoft Cloud account around January, the officials said, adding that the intrusion lasted for one second. Midnight Blizzard likely intended to check if the credentials were valid, presumably with the larger intention of breaching the VA’s network, the officials said. 

The agency changed the exposed credentials, along with log-in details across their Microsoft environments, once they were notified of the intrusion, they said. After reviewing the emails that the hackers accessed, the VA determined that no additional credentials or sensitive email was taken, the officials said.

Terrence Hayes, the VA’s press secretary, said an investigation is continuing to determine any additional impact.

The Peace Corps was also contacted by Microsoft and notified about the Midnight Blizzard breach, according to a statement from its press office. “Based on this notification, Peace Corps technical staff were able to mitigate the vulnerability,” according to the agency. The Peace Corps declined further comment.

Bloomberg News asked other federal agencies for comment, and none of the others disclosed that they were impacted by Midnight Blizzard’s attack on Microsoft. Bloomberg previously reported that more than a dozen Texas state agencies and public universities were exposed by the Russian hack.

Midnight Blizzard, also known in cybersecurity circles as “Cozy Bear” and “APT29,” is part of Russia’s foreign intelligence service, according to US and UK authorities. 

In April, US federal agencies were ordered to analyze emails, reset compromise passwords and work to secure Microsoft cloud accounts amid fears that Midnight Blizzard may have accessed correspondence. Microsoft has been notifying some customers in the months since then that their emails with the tech giant were accessed by the Russian hackers.

The Midnight Blizzard breach was one in a series of high-profile and damaging security failures at the Redmond, Washington-based technology company, which has drawn strong condemnation by the US government. Microsoft President Brad Smith appeared before Congress last month where he acknowledged security failures and vowed to improve the company’s operations. 



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