China Week in Review
Week of Sept. 24, 2018
China and the world
- The Trump administration calls out China’s attempt to interfere in the U.S. midterm elections in November.
- Other actions by the Trump administration suggest that the Sino-U.S. “strategic competition” has now entered the middle game phase.
Sept. 23:
- The Sept. 23 edition of the Des Moines Register, a local Iowa newspaper, carried a four-page insert of China Watch which ran articles critical of President Donald Trump (“fruit of a president’s folly,” etc.) and the Sino-U.S. trade war. China Watch is paid for by China Daily.
- Maldives opposition candidate Ibrahim Mohamed Solih defeats pro-China president Abdulla Yameen.
Sept. 24:
- CIA director Gina Haspel said in a rare public speech that the U.S. is making a “strategic priority” of shifting focus from counterterrorism back to nation-state espionage. Haspel also said: “Unfortunately, I think [China is] working to diminish U.S. influence in order to advance their own goals” in the Asia Pacific and beyond.
- The U.S. State Department approved a $330 million sale of spare parts for F-16 fighter planes and other military aircraft to Taiwan. The People’s Republic of China (PRC) argues that the sale would hurt Sino-U.S. cooperation.
- Trump and South Korean leader Moon Jae-in sign a new U.S.-Korea Free Trade Agreement on the sidelines of the United Nations General Assembly.
Sept. 25:
- In an address to the UN General Assembly, Trump called out China’s trade abuses. “I have great respect and affection for my friend, President Xi, but I have made clear our trade imbalance is just not acceptable,” he said. “China’s market distortions and the way they deal cannot be tolerated.”
- Trump also criticized communism and socialism, and said that “all nations of the world should resist socialism and the misery that it brings to everyone.”
- On the North Korea issue, Trump said that the world will see a “very, very great outcome.”
- Director of National Intelligence Dan Coats said that China’s cyber activities are “unprecedented in scale.” He added that the PRC government is actively targeting U.S. state and local governments and officials, and is “trying to exploit any divisions between federal and local levels on policy.”
- The PRC denies a request for a U.S. warship to visit Hong Kong.
Sept. 26:
- Speaking at a UN Security Council session, Trump said: “Regrettably, we found that China has been attempting to interfere in our upcoming 2018 election coming up in November against my administration.”
- In a tweet, Trump described pages of China Watch found in the Sept. 23 edition of the Des Moines Register as “propaganda ads.”
- In a background briefing for reporters, a senior U.S. National Security Council official outlines the Chinese Communist Party’s (CCP) efforts to expand its influence globally and carry out political interference in the United States. The official said that NSC would declassify more information in advance of a speech by U.S. Vice President Mike Pence on the CCP interference issue in October.
- Secretary of State Mike Pompeo said that private messages between North Korean leader Kim Jong Un and President Trump were “very consistent” with his “intent on denuclearizing” the Korean Peninsula.
- Trump and Japan prime minister Shinzo Abe agree to begin negotiations on a new bilateral free-trade agreement.
- The U.S. House of Representatives passes the Reciprocal Access to Tibet Act, which seeks equal access to Tibetan areas for U.S. officials, journalists, and citizens. The PRC frequently denies such access. Also, PRC officials who discriminate against Americans who try to enter Tibet would be banned from entering the U.S.
Sept. 27:
- Pompeo announces plans to travel to North Korea for negotiations in October.
- The PRC criticizes Trump’s announcement of China’s election meddling. Meanwhile, a defense ministry spokesperson expressed opposition to the “provocative” flight of U.S. B-52s over the South China Sea during the week.
Sept. 30:
- A U.S. official told Reuters that the U.S. destroyer Decatur sailed within 12 nautical miles of Gaven and Johnson Reefs in the Spratly Islands, which the PRC has made claims.
- U.S. Ambassador to China Terry Branstad calls out PRC propaganda in the Des Moines Register in an op-ed for the paper. He pointed out the differences between America’s free press and CCP-controlled state media by revealing that “one of China’s most prominent newspapers dodged the offer to publish” his piece.
Sino-U.S. trade war
- The CCP’s “position paper” on the Sino-U.S. trade conflict indicates that it is not planning to back down in confronting the United States. This verifies our earlier analysis that the CCP, having misread the situation with America, is gambling on the outcome of the U.S. midterm elections to be in its favor.
Sept. 24:
- The PRC State Council releases a white paper on trade frictions with the United States. The paper accuses the U.S. government of starting a unilateral trade war, and claims that the Sino-U.S. trade conflict would impact the global economy and hurt U.S. interests.
- U.S. tariffs of 10 percent on $200 billion worth of Chinese goods come into effect. The PRC retaliates with $60 billion of tariffs on U.S. products.
Sept. 25:
- Chinese vice commerce minister Wang Shouwen accuses the U.S. of holding a knife to someone’s throat by adopting “large-scale trade restrictions,” and questioned how “negotiations can proceed” under such circumstances.
Sept. 27:
- Taiwan signs a $1.56 billion deal to purchase U.S. soybeans over the next two years.
Politics
- Xi Jinping’s call for “self-reliance” hints at the PRC’s troubles in coping with the trade war. Also, the CCP elites are likely anticipating international isolation in its confrontation with the United States.
- Xi and Li Keqiang publicly voice their support for private enterprises, likely to dispel recent speculation that the CCP is preparing to do away with the private sector in favor of hybrid public enterprises.
Sept. 25:
- Xi Jinping conducts inspection tours in Heilongjiang Province, and says that China’s agricultural reform must adhere to the directions of state-owned farms. He also said that China must be “self-reliant” in developing key technologies, which are becoming harder to obtain internationally.
Sept. 27:
- When inspecting Liaoning, Xi stressed that it is necessary not only to develop the public sector, but to also “encourage, support, guide, and protect” private economy.
- Li Keqiang traveled to Zhoushan in Zhejiang Province to inspect the construction of the Zhoushan Green Petrochemical Plant, the largest private investment project in the Chinese regime to date.
Economy
- The renminbi continues to depreciate, and Chinese property stocks plummet after the latest round of U.S. tariffs kick in.
- It is unclear if China’s import tariff cuts apply to U.S. products.
- The U.S. and its allies promote reforms to the international trading system in response to China’s unfair trading practices.
Sept. 25:
- Onshore renminbi rates fall below the 6.88 level.
- A-shares in the Shanghai and Shenzhen stock exchanges, especially blue chip and property stocks, fell in the wake of new U.S. tariffs.
Sept. 26:
- The PRC State Council announces that it would cut import tariffs on over 1,500 products, including machinery, electrical equipment and textiles, from Nov. 1. The State Council did not release the full list, and did not indicate if the tariff cuts would apply to U.S. imports.
- The U.S., EU, and Japan announce that they would work together to tackle World Trade Organization reform and reject unfair trade conditions.
Sept. 27:
- The U.S. Federal Reserve announces a 25 basis point rate hike (2-2.25 percent), a move that set rates at the highest since 2008. Other central banks around the world also increased rates, but the People’s Bank of China kept its rates unchanged.
Sept. 28:
- Onshore RMB rates broke through the 6.89 level, setting a monthly record.
Sept. 30:
- The State Council announced that tariff cuts to over 1,500 products effective Nov. 1 for countries with most-favored-nation status.
Society
- Social contradictions in China deepen, and the mood in Chinese society is increasingly shifting against the CCP.
- The CCP continues to strengthen societal controls.
Sept. 22:
- Riots broke out in Dalong Town, Guizhou Province over the relocation of poor households. Police SWAT teams were chased and beaten up, while police cars were overturned and wrecked. The riots were triggered when local students tried to collect protection money from the newly resettled impoverished families.
Sept. 23:
- After the curtain call of the musical “Les Misérables” in Shanghai (the Broadway show is on tour in the city from Sept. 21 to Sept. 30), many audience members stayed behind to sing “Do You Hear the People Sing.” The song, one of the trademark numbers from the musical, has been used by political and social causes worldwide to reflect popular revolt.
Sept. 24:
- Hundreds of military veterans seeking the implementation of government policies for veterans gathered outside the Central Military Commission building in Beijing. By the evening, thousands of veterans had turned out to protest.
Sept. 26:
- The Cyberspace Administration of China suspends the website, news channel, and news app of Phoenix New Media for between two weeks to a month for “disseminating illegal and harmful information, distorting news headlines and sharing news information in violation of rules.”
Sept. 28:
- Chinese social media hotly debated the case of Zhang Xiaoping, a former deputy director of space rocket design at a state-owned enterprise (SOE), after an essay about his plight was published on Weibo. The essay noted that Zhang, who reportedly had an outsized role in developing technology to launch China’s rockets to the moon, had left for the private sector recently because he was marginalized and underpaid at his former job. The SOE that hired Zhang since 1994 only sought to bring him back through a legal suit after they realized that he has “irreplaceable” talents and was “most crucial to the development process” of China’s moon project.
SinoInsight 1
Kweichow Moutai, a publicly listed, partial state-owned firm, held an extraordinary shareholders meeting to write “Party-building” amendments into its company constitution on Sept. 28.
On June 15 this year, the China Securities Regulatory Commission made it mandatory for listed companies to establish internal Communist Party organizations per the provisions of the CCP constitution.
In the past year and a half, 123 Hong Kong-listed Chinese SOEs and Party-owned enterprises have amended their company constitutions and established Party committees, according to a Hong Kong media report. The 123 companies, including eight blue-chip firms, account for 5.43 percent of the 2,262 publicly-listed companies on the Hong Kong stock exchange.
OUR TAKE
There was panic in China earlier in the month after a former Chinese investment bank official floated the idea that the CCP would abandon private enterprise in favor of a “hybrid state-private sector.” Subsequently, Xi Jinping and Li Keqiang publicly expressed their support for private enterprise.
We believe that the CCP will not shift away from its “guo jin min tui” (“the state advances, the private sector retreats”) policy. However, the CCP dares not do away entirely with private enterprise given the dire implications of the move:
First, with the worsening of the Chinese economy, the CCP will inevitably opt to sacrifice private enterprises to save SOEs. SOEs, which are squarely under the CCP’s thumb, will come to dominate the Chinese economy.
Second, the success and development of “unicorns” and private capital pose an existential threat to the communist regime in the long-term. Hence, the CCP is seeking to strengthen its control over the private sector by requiring them to set up internal Party organizations.
Third, SOEs have infamously low economic efficiency. The CCP still needs thriving private enterprises in China to keep down unemployment and provide financial “blood transfusion” to the SOEs from time to time.
Fourth, the complete abolition of private enterprise in China is tantamount to declaring opposition to the Western economic and trading system, and the CCP will not engage in activity that directly and immediately threatens its continued survival.
SinoInsight 2
On Sept. 26, Xi Jinping visited Chagan Lake in Jilin Province to inspect the autumn harvest. State-run media carried photos and videos that appear to indicate a bountiful harvest and good fishing haul.
However, some Chinese netizens revealed on overseas social media that the Songyuan City authorities had closed roads and tightened police control for several days. The big and healthy fish that were hauled out of the lake was apparently released into the waters only recently, and several days of rehearsal were carried out in preparation for Xi’s inspection.
OUR TAKE
The CCP is preoccupied with image management. When the economy is doing poorly and there is a shortage of grain (see the 9/27 edition of SinoWeekly Plus), Xi Jinping’s effort to promote China’s “bountiful harvest” helps to prevent nationwide panic and destabilization.
On the flipside, the fabrication of “great, glorious, and correct” propaganda creates a dangerous “reality distortion field” in the regime. Lower-ranking officials seeking promotion will pull out all stops to flatter the higher-ups, and the higher-ups will come to believe that the situation in China is perhaps not very dire. The skewed information problem is set to become more acute under Xi given the “China is in a great new era” line advanced at the 19th Party Congress.
In other words, the CCP is becoming increasingly susceptible to the information flow problem faced by all authoritarian regimes. Going forward, the CCP will see greater political and geopolitical risk.
