Crypto News: Six lessons from the balloon

What the US says was a spy balloon and what China says was a weather craft sent off course by strong wind has sparked fresh tensions between the two powers.

The US shot down the balloon off the coast of South Carolina and called off a visit to China by Secretary of State Antony Blinken.

Key reading:

Both sides will be weighing further action. In the meantime, here are some lessons this episode highlights:

1) The leadership in Beijing does not cast an all powerful eye across the vastness of China. Its bureaucracy can be flabby and slow, instructions don't always cascade neatly out, orders aren't automatically followed. There is some question as to whether the balloon was timed deliberately or a clumsy mistake. China was contrite initially over the balloon when it became public. And it has since replaced its national weather chief.

2) Once US Republicans got wind of the balloon they loudly demanded action, which potentially forced President Joe Biden's hand. The Republican-controlled House may push the White House more on China policy in the run up to the 2024 election, especially as House Speaker Kevin McCarthy is expected to visit democratically governed Taiwan (which China claims as its territory) at some point.

3) It's not just the most advanced military technology that does the lifting. Surveillance balloons have some utility even in the era of satellites. Countries still want photos, footage, maps and plans. They can get information from hacking. But they also need to get a direct look at places. Russia's war in Ukraine has also shown the value of old-fashioned weaponry, like artillery.

4) All countries spy on each other. Many spy on their friends. There is a second balloon floating over Latin America, including countries where China does a lot of business (and where the lack of criticism of Beijing for that balloon is telling). The US is believed to have used spy balloons itself. And recall the claims that surfaced in 2013 that then-Indonesian president Susilo Bambang Yudhoyono's phone was tapped by Australia, which alongside the US is a member of the Five Eyes intelligence sharing group.

5) Neither side seems to want this to spiral. Blinken spoke with his counterpart Wang Yi and there are lines of communication open. Both Xi Jinping and Biden have domestic imperatives to sound tough (and China seems to be using the episode to fan nationalism). Beijing may opt to retaliate, be it via trade or a military show of force. The US may respond further, too. But Xi also needs to get his economy back on track. And both Biden and Xi have articulated a desire to at least put a floor under ties.

6) In the long run the relationship may be headed toward collision and confrontation either way. An emerging multipolar landscape will also sow division between advanced nations and what is known as the "Global South." We are seeing that already in other ways, including the fallout from Russia's invasion of Ukraine. — Rosalind Mathieson

Remnants of the balloon with a fighter jet and its contrail seen below it, Feb. 4. Photographer: Chad Fish/AP Photo

Click here to listen to the Big Take podcast on the Chinese balloon. And if you're enjoying this newsletter, sign up here.

Deadly tremors | Some of the most powerful earthquakes in decades hit the Middle East on Monday, killing more than 1,000 people in Turkey and Syria, and forcing a halt in crude oil flows to a key export terminal. Thousands were injured and trapped as buildings collapsed in the disaster that affected several Turkish provinces. President Recep Tayyip Erdogan, who faces an election in May, dispatched cabinet ministers to the area.

Turkey halted oil flows through pipelines to its Ceyhan export terminal on the Mediterranean coast as a precaution following the earthquake, an official said.

Budget standoff | Negotiations over raising the US debt ceiling are an "absolute nonstarter" for Biden, though he's ready to discuss spending with congressional Republicans, according to Jared Bernstein, a member of the president's Council of Economic Advisers. Republicans have said they won't increase the limit without spending cuts, raising concerns about a US default on payments.

A default would cause a spike in borrowing costs that squeezes American consumers and deals significant harm to the world economy, International Monetary Fund Managing Director Kristalina Georgieva said.

UK health-care workers will walk out in record numbers this week, crippling the National Health Service and piling pressure on Prime Minister Rishi Sunak to resolve multiple disputes over pay for public-sector employees.

Retirement clash | President Emmanuel Macron's government may offer another concession on plans to raise France's retirement age to 64 from 62, seeking to secure a parliamentary majority amid a massive public backlash. The government is under pressure to rethink Macron's signature economic reform. Debates on the proposal start today as unions plan fresh strikes tomorrow and polls show people overwhelmingly reject the move.

Tactical switch | Ukrainian Defense Minister Oleksii Reznikov will be replaced by military intelligence chief Kyrylo Budanov as the country braces for a Russian offensive, the parliamentary leader of President Volodymyr Zelenskiy's party said in a Telegram post. "The time and circumstances demand strengthening and regrouping," David Arakhamiya said, though he later added that no change was expected this week. Zelenskiy's office didn't comment.

Follow our rolling coverage of the war here.

Political risks | India's parliament was adjourned for a third day as the opposition drew attention to what they describe as the close ties between Prime Minister Narendra Modi and billionaire Gautam Adani ahead of national elections due next year. The opposition is highlighting the risks to millions of small investors due to some state-owned institutions' exposure to the tycoon's companies, which have suffered a stock rout.

Indian policymakers and regulators sought to calm nerves that the turmoil would spill over into the economy and affect global investor sentiment.

On the latest episode of Zero, Bloomberg Green's Akshat Rathi interviews Sweden's 27-year-old climate minister Romina Pourmokhtari about her first 100 days in office and whether her government is on track to meet its ambitious climate commitments. Listen to the episode — and subscribe on Apple, Spotify, or Google to get new episodes every Thursday.

Iran's Supreme Leader Ayatollah Ali Khamenei agreed to either pardon or reduce sentences for some people arrested in a violent crackdown against nationwide anti-government protests.
Thousands of computer systems worldwide were exposed to a ransomware attack, according to Italy's national cybersecurity agency, days after a UK derivatives trading operator was subject to a similar hack.
Japanese Prime Minister Fumio Kishida apologized for discriminatory comments about same-sex couples made by one of his aides last week, reiterating the government's policy of "respecting diversity and creating an inclusive society."
Cypriots will vote in a runoff election on Feb. 12 to choose a leader who will oversee the Mediterranean island's economic recovery.
China and Australia's top trade officials held talks for the first time since 2019, in the latest sign of a warming in diplomatic relations between the two countries.

Thanks to the 33 people who answered the Friday quiz and congratulations to Martin Mead, who was the first to identify China as the country that buys the bulk of the lithium production in Chile, the world's second-biggest source after Australia.

And finally ... The mass trial of prominent pro-democracy figures got underway today in Hong Kong's largest national security case to date, a test of the rule of law that has underpinned the financial center's success. The 47 defendants are charged with "conspiracy to commit subversion" over their roles in an unofficial primary vote in July 2020 to select pro-democracy lawmakers. As Kari Lindberg explains, the prosecution of so many opposition figures at once will draw focus on the controversial security law and the city's future as an international hub.