SinoInsight 1
On Oct. 18, the one-year anniversary of the 19th Party Congress, the Chinese Communist Party is again hyping up “Xi Jinping Thought.” State and semi-official media ran as their lead article a Xinhua commentary with a bombastic headline declaring that a “renewal is rising from the East” that is guided by the “Xi core.”
Meanwhile, the People’s Daily WeChat account published a complex mind map of the “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era.
OUR TAKE
1. Xi Jinping is facing huge domestic and external pressures. Externally, the Sino-U.S. trade war is in full swing with no sign of de-escalation. President Donald Trump’s comments about China election interference and Vice President Mike Pence’s major policy speech on China have also signaled strongly to the world that America has shifted its stance on the CCP regime away from “engagement” and towards competition. Worsening China-U.S. ties have in turn triggered a panic in the Chinese markets, causing stocks to plunge and the currency to fall.
The Xi leadership’s poor performance has given political rivals an opening to undermine Xi Jinping. We recently analyzed that Xi’s rivals may have launched a “soft coup” against him, forcing him to make drastic moves to preserve his position (see here and here). One year anniversary of the 19th Congress aside, the recent step up in “Xi Jinping Thought” promotion is very likely part of Xi’s move to strengthen his personal authority in the face of pushback.
2. Signs that Xi is facing stiff opposition can be seen from a recent essay by a Party scholar.
On Oct. 10, Zhang Cheng, head of the Department of Literature and History at the Central Party School, published a 3,000-word commentary titled “Grasp Deeply the Political Meaning of the Great Struggle.” Zhang’s piece was carried by Party publications like Qiushi Magazine and Guangming Daily.
Zhang’s piece focused on the “four greats” mentioned in Xi Jinping’s 19th Party Congress speech, and noted that there must be a “serious ideological struggle inside the Party” to actualize a “high degree of unity within the Party” and fulfill the “great dream” of the great rejuvenation of the Chinese nation.
In reading Zhang Cheng’s commentary in the context of the escalating CCP factional struggle, Xi is facing massive internal resistance in implementing his policies and he needs to clear the opposition and suppress dissent using classic CCP “struggle” methods.
SinoInsight 2
On Oct. 18, the Shanghai Composite Index closed down 2.9 percent at 2,486.42, breaking the 2,500 mark. Last Thursday, the index closed below the 2,600 level, and 167 stocks stopped trading.
OUR TAKE
1. Chinese markets have been falling for most of the year and especially after U.S. Vice President Mike Pence’s major policy speech on Oct. 4.
After President Trump signed an executive memorandum on March 22 to impose $60 billion of tariffs on Chinese imports, China’s stock markets lost 14.3 trillion yuan (about $2 trillion using an exchange rate of 6.9 yuan to the dollar), or 5.5 times the value of America’s 2017 trade deficit with China ($375.2 billion). And after the week-long China National Day holiday in October, the stock markets evaporated 6.14 trillion yuan.
Unlikely recent stock market crashes which were largely inspired by internal factors, the present crash is the direct result of the Sino-U.S. trade war and worsening bilateral ties. Beijing has been in damage control mode, but thus far its actions have not managed to stem the bleeding. In considering the geopolitical reasons for the stock market plunge, we believe that the worst is yet to come.
2. A more serious consequence of the stock market crash is the risk of forced selling of shares pledged as collateral for loans. Continued losses in equities will lead to a liquidation chain reaction and trigger a financial crisis.
According to data by Wind.cn, a total of 2,422 listed companies in the Shanghai and Shenzhen stock exchanges (68.2 percent of total A-shares) have pledged shares worth 3.95 trillion yuan. In other words, poor stock market performance puts a large segment of Chinese equities at risk.
