SinoInsight 1
In the late morning of July 16, several flights at the Beijing Capital International Airport were suddenly delayed, according to the flight information board at the airport. The majority of the delays (wording in red) are due to “military” matters, while “air control” is listed as a reason for the remaining delays. The unusual development at Beijing Airport follows a week of rumors and speculation about Xi Jinping being in trouble and possibly facing a coup.
OUR TAKE
1. We wrote on June 15 that the U.S. tariffs represent a major diplomatic defeat for Xi and create an opening for political foes to attack him. Xi, we wrote, would likely look to strengthen his control over society and establish safeguards.
2. We believe that recent efforts to downplay propaganda on Xi is likely Xi’s own initiative.
3. Xi seems to have a tight grip on affairs inside and outside the Chinese Communist Party, and the probability of a successful coup attempt against him now is close to zero. However, the coup speculation sounds like Xi’s rivals are seizing the opportunity provided by the lowered intensity of propaganda promoting Xi to make it seem like his authority is weakening. The coup speculation might also be a way for Xi’s rivals to gather more opposing voices to form an anti-Xi coalition. In other words, Xi is currently facing significant political risks.
4. If our analysis of the troubles facing Xi Jinping is accurate, then one explanation for the unusual development at Beijing Airport could be part of an operation by Xi to nab officials who might be threatening his rule.
SinoInsight 2
Between July 1 to July 18, a total of 111 peer-to-peer lending platforms (P2P) in China ran into trouble. There were 28 liquidations, 4 business suspensions, 19 who missed investor payments, 6 who have set fund withdrawal limits, 33 having difficulties issuing payments, 14 operators who have taken client money and fled, and 7 being investigated for economic crimes. According to data from rong360.com, the net inflow of funds to the online loan industry was negative 4.047 billion yuan.
A search of online lender data reveals 1,883 P2P platforms in regular operation and 2,170 platforms facing problems as of June 2018. Also in June, there was a total of 5.6167 million P2P investors; a turnover of 242.68 billion yuan; balance to be paid of 1.833306 trillion yuan; and P2Ps guaranteed to clients a yield of between 6.27 percent to 10.38 percent.
OUR TAKE
1. Former finance minister Lou Jiwei once said that financial products that guarantee a yield of over 6 percent are “fraudulent.” Guo Shuqing, the central bank Party secretary and chairman of China’s banking and insurance regulator, said that financial products that promise a return of over 6 percent should come with “a question mark” and products that guarantee over 8 percent yield “are very dangerous.” Investors that go for products with “guaranteed” returns of over 10 percent “should be prepared to lose their principal.
Meanwhile, P2P lenders in China are promising clients yields of between over 6 percent to over 10 percent.
2. The People’s Bank of China recently announced that it expected to completely “rectify” online financing risks within one to two years. Put another way, the death knell of P2P platforms has sounded.
3. The death of P2P lending should not pose a great threat to China’s financial system. As people lose their savings with the closure of P2P platforms, however, the CCP regime would likely be put under immense pressure from the populace. The social problems that would result from the P2P industry’s collapse would stem from the middle class, who have more clout than the lower classes that the CCP is used to suppressing. As suicides and street demonstrations mount, the CCP would become increasingly endangered.
4. The social problems brought about by China’s worsening economy would magnify as the economic situation deteriorates. Businesses in China need to prepare for an era of tremendous change and rising political risks.
