China Week in Review
Week of Nov. 5, 2018
China and the world
- The United States and the People’s Republic of China hold a security and diplomatic dialogue, but the Chinese Communist Party continues to repeat old rhetoric on the bilateral relationship. The Trump administration seems to be going through motions with China at the moment, and there has been no real breakthrough in Sino-U.S. relations that may prevent an escalation of tensions.
- The Trump administration has not relaxed abandoned its pressure on the PRC. If anything, the rhetoric is kicking up a notch with Peter Navarro issuing a stern warning to Wall Street to stop serving as unpaid lobbyists for the CCP.
- North Korea continues its “backslide” from the previous week by postponing a meeting between top U.S. and North Korean officials.
Nov. 5:
- The U.S. re-imposes sanctions targeting Iran’s oil, banking and transportation sectors to pressure Tehran to curb its missile and nuclear programs and diminish its influence in the Middle East. Eight countries that buy oil from Iran received temporary exceptions from the U.S., including China, India, Greece, Italy, Taiwan, Japan, Turkey, and South Korea.
- Taiwan “will consider” a request by Washington to allow U.S. warships to dock at Taiping Island. Taiping, the largest of the Spratly Islands in the South China Sea, is under Taiwan’s control.
Nov. 7:
- A meeting between U.S. Secretary of State Mike Pompeo and North Korean counterpart Kim Yong Chol was postponed. A State Department spokesman said that the meeting was postponed due to a “scheduling issue.”
- At a press conference at the White House, President Donald Trump said: “We’re very happy with how it’s going with North Korea. We think it’s going fine. We’re in no rush. We’re in no hurry.”
Nov. 8:
- U.S. Ambassador to the United Nations Nikki Haley said that North Korea postponed talks with the U.S. “because they weren’t ready.” She said, “there’s no time to stall or no time to delay or try and get past not going through with what was agreed in Singapore.” Haley also criticized Russia for “cheating on U.N. sanctions on North Korea.”
- National Security Agency official Rob Joyce said that China violated a 2015 agreement between the U.S. and China to stop cyber espionage.
- Australia announced that it would establish a development fund to offer Pacific island nations over $2 billion for infrastructure projects while increasing military cooperation. “Australia has an abiding interest in a southwest Pacific that is secure strategically, stable economically and sovereign politically,” said new Australian prime minister Scott Morrison. “This is our patch.”
Nov. 9:
- The U.S. and the PRC hold the second round of diplomatic and security dialogue in Washington. Secretary of State Mike Pompeo and Defense Secretary James Mattis met with CCP Office of Foreign Affairs director Yang Jiechi and PRC defense minister Wei Fenghe.
- At a press conference after the dialogue, Yang’s repeated recent CCP rhetoric on “win-win” cooperation. A China foreign ministry statement on the dialogue described it as “frank, constructive and very fruitful.”
- Pompeo said at a press conference that it “was an incredibly productive conversation.” He also said, “the United States is not pursuing a Cold War or containment policy with China, rather we want to ensure that China acts responsibly and fairly.” Further, Pompeo criticized the PRC’s repression of religious groups, including Muslims, Buddhists, and Christians.
- Speaking at the Center for Strategic and International Studies, White House trade advisor Peter Navarro said: “As part of a Chinese government influence operation, globalist billionaires are putting the full court press on the White House in advance of the G-20 in Argentina.” (Go deeper on the CCP’s influence operations with our analysis of the Red Matrix.)
- Navarro also described current and former Wall Street executives as “unregistered foreign agents.” He said: “No good can come of this. If there is a deal, if and when there is a deal, it will be on President Donald J. Trump’s terms, not Wall Street terms.”
Sino-U.S. trade war
- Xi Jinping, Wang Qishan, and Liu He make a show of meeting with Henry Kissinger, possibly to signal to the Trump administration that the PRC is willing to negotiate. However, Xi and Wang’s recent speeches in Shanghai and Singapore suggest that the CCP will unlikely be sincere in making concessions. Trust may be hard to come by between the U.S. and the PRC.
- The PRC continues to court nations friendly to America and top executives in a bid to ease the trade war pressure, albeit with mixed results.
- While the PRC imposed tariffs on U.S. soybeans, it still saw soybean imports increase by 18 percent year-on-year in October. As we previously analyzed, the PRC is only punishing itself with soybean tariffs.
Nov. 5:
Xi Jinping gave a keynote speech titled, “Work Together for an Open Global Economy That is Innovative and Inclusive” at the opening ceremony of the China International Import Expo in Shanghai.
Singapore and China upgrade a bilateral free-trade agreement.
Nov. 8:
Xi Jinping and Henry Kissinger meet in Beijing. Xi said that “for some time, there have been negative voices within the US against China, which is worthy of attention,” and added that the PRC is committed to working with the U.S. to “achieve a non-confrontational, without conflict, and mutually respectful cooperation in which both sides win.” Kissinger said that the Sino-U.S. relationship needs strategic thinking and vision.
Chinese vice premier Han Zheng met with Microsoft co-founder Bill Gates in Beijing. Han told Gates that the PRC is looking to “deepen mutually beneficial cooperation” with the U.S. on “new energy and energy-related technological innovation.”
Nov. 9:
Chen Xiaodong, the Chinese assistant foreign minister, said at the Regional Comprehensive Economic Partnership in Beijing that the PRC wishes that the 16 nations involved in talks on an Asian free-trade deal reach an agreement “as soon as possible.”
China brought in 6.92 million tonnes of soybeans in October, up 18 percent from 5.85 million tonnes in the same month last year, according to the data from the PRC’s General Administration of Customs.
American Express won approval to set up card-clearing services in China, the first U.S. card company to do so. AmEx will form a 50-50 joint venture with Lianlian Group to establish the payment network.
Nov. 10
Former U.S. Secretary of State Henry Kissinger met with Wang Qishan and Chinese vice premier Liu He at Zhongnanhai in Beijing.
Kissinger told Wang that there are “more common interests than differences between the United States and China,” and told Liu that both sides should “enhance communication, deepen mutual understanding and effectively manage differences,” according to state media.
According to state media, Liu told Kissinger that the PRC and the U.S. should resolve trade and economic differences “under the guidance of the consensus reached” by Xi Jinping and President Trump.
According to state media, Wang told Kissinger that while PRC-U.S. relations has “had its share of ups and downs” since diplomatic ties were made 40 years ago, “history has taught us that mutual respect, equal consultation and mutually beneficial cooperation are the only correct choice for bilateral ties.”
Politics
Aside from attending expos and carrying out inspections, Xi Jinping’s recent trip to Shanghai and Guangdong is a way of showing support to the Party bosses of both regions, Li Qiang and Li Xi. Both men can be considered to be officials whom Xi trusts.
The lack of executive “star power” at the 2018 edition of China’s World Internet Conference appears to be the result of the Sino-U.S. trade war.
Nov. 5:
Xi Jinping announced at the import expo in Shanghai that a science and technology innovation board will be launched at the Shanghai Stock Exchange. He also announced the establishing of an experimental registration system for listed companies.
Nov. 6:
Xi inspects the Shanghai Tower in Lujiazui Financial City in the New Pudong District of Shanghai.
Hu Xin, the former editor-in-chief of the People’s Daily and its “Frontline News” subsidiary, was found to have fallen to his death at the state newspaper’s headquarters. Official media reports state she was suffering from depression.
Nov. 7:
The PRC holds the fifth World Internet Conference in Wuzhen. Xi Jinping did not attend the proceedings, and his remarks were instead delivered by Politburo member Huang Kunming. Also, top U.S. and China tech executives were noticeably absent from the event.
Lai Xiaomin, the former chairman of China Huarong Asset Management Co. Ltd., was arrested. He came under investigation in April.
Economy
China’s economy continues to worsen, per recently released official data. While exports have increased, the growth is almost certainly due to firms seeking to escape the coming U.S. tariff rate hike in 2019 or potential additional tariffs.
Meanwhile, China’s trade surplus has shrunk by a quarter and foreign exchange reserves have fallen for three consecutive months.
Foreign capital continues to leave China and companies consider shifting supply chains to cope with the Sino-U.S. trade war.
The phenomenon of courts auctioning off confiscated apartments suggest that Chinese buyers are struggling to make payments as the economy deteriorates.
The PRC’s positive-sounding “returning entrepreneurs” label for workers seeking jobs in the rural areas hint at serious unemployment problems on the mainland.
Top CCP officials seem to be paying greater attention to the plight of private enterprises, but they do not seem to have any substantial solution ready. This suggests that the CCP elite are very pessimistic about China’s economic prospects.
Nov. 7:
Guo Shuqing, the People’s Bank of China Party secretary, told a central bank publication that the central bank is considering a new loan policy to private enterprises that would see at least 50 percent of all bank loans to go to the private sector in three years. (For analysis, see the 11/8 edition of SinoWeekly Plus.)
PBoC data shows that China’s foreign exchange reserves fell by $33.93 billion in October to $3.053 trillion, an 18-month low. China’s reserves have been falling for three consecutive months.
Nov. 8:
According to data released by China’s customs administration, exports from January to October 2018 totaled 13.35 trillion yuan (up 7.9 percent YoY) while imports were 11.7 trillion yuan (up 15.5 percent YoY). China’s trade surplus was 1.65 trillion yuan, down 26.1 percent from 2017.
According to data by China’s agricultural and rural affairs ministry, there are now 7.4 million “returning entrepreneurs” in the rural areas. “Returning entrepreneurs” is an official euphemism for persons with rural residency (“hukou”) who return to rural areas to look for work after being unable to find work in urban areas. The growth rate for “returning entrepreneurs” in China’s rural areas saw double-digit figures recently.
According to Hong Kong media reports, the courts in neighboring Shenzhen had recently seized many apartments and luxury homes in the city and auctioned them off for half price.
Pegatron Corp, the second largest iPhone assembler, said that it is reallocating production from China to its factories in Mexico or the Czech Republic, and is considering setting up new manufacturing bases in Southeast Asia.
Nov. 9:
China’s markets were affected by the U.S. midterm election. After a brief rise, the Shanghai Composite Index fell below 2,600 points after five consecutive trading days. Stocks in the Growth Enterprise Market and the Shenzhen Stock Exchange also fell.
A State Council meeting chaired by Li Keqiang decided that financial institutions should support the financing of the private sector, especially small and micro businesses. The meeting also decided the government should tackle the problem of government departments and large state-owned enterprises being behind on payments to private firms. “No loans extended should be willfully withdrawn,” Li said.
Society
Nov. 5:
About 10,000 school teachers gathered outside the petitions office in Heilongjiang Province to seek government help for retirement issues. No government official met with the teachers, and instead large numbers of uniformed and plainclothes police were mobilized to drive away and intercept the protesters.
Nov. 7:
At about 2:00 p.m., over 300 workers suffering from pneumoconiosis and their family from Hunan’s Laiyang, Sangzhi, and Leiluo cities held a protest march from their dormitories in Shenzhen to the headquarters of the Shenzhen authorities. During the march, the workers yelled, “We want to eat! We want to see a doctor! But Shenzhen does nothing!” The workers later sat quietly in a square in front of the Shenzhen municipal government buildings after requesting a meeting with the local mayor. However, at about 8:30 p.m., police arrived on the scene to disperse the workers with tear gas and pepper bombs.
Nov. 11:
About a dozen young activists in Beijing, Guangzhou, Shanghai, Shenzhen and Wuhan who recently campaigned for workers’ rights were vanished by unidentified men. One of the activists, a recent graduate of Peking University, was beaten up on campus and dragged into a car, according to eyewitnesses.
SinoInsight 1
Mainland media reports on Nov. 11 note that Guo Boquan, the younger brother of purged Central Military Commission vice chair Guo Boxiong, is presently a counsel in the Shaanxi government’s Counselors’ Office (provincial institute for culture and history).
OUR TAKE
1. Guo Boquan was steadily sidelined after Guo Boxiong was arrested in April 2015.
In September 2015, the younger Guo was removed as director of the Shaanxi Provincial Civil Affairs Department.
In October 2015, he was no longer director of the Shaanxi Provincial Working Commission on Ageing.
In November 2015, Guo Boquan moved to the Shaanxi government’s Counselors’ Office to serve as deputy secretary of its Party group and head of its institute for culture and history. He held those offices for only eight months before being demoted to counsel, a post which he holds today.
While a counsel in a provincial government’s Counselors’ Office is a bureau-level post, it is a non-leadership position that is usually reserved for retiring or retired officials. Alternatively, it can be a provisional appointment for younger officials who are waiting to assume leadership roles.
Guo Boquan is 57 this year, and is three years away from the retirement age of bureau-level officials. In other words, it is atypical of him to be where he is at now career-wise.
However, it may also seem unusual for Guo to escape arrest for so long given what happened to his brother. Also, per the characteristics of institutional and familial corruption in the CCP, Guo Boquan is almost certainly guilty of serious corruption.
2. There are three likely reasons for why Xi Jinping might wish to keep Guo Boquan, or others in a similar situation, around in the officialdom.
First, Xi is in no rush to immediately purge the family members of his political enemies because doing so may result in greater pushback. Being too aggressive will result in political instability and guarantee that Xi’s reign is short-lived.
Second, Xi showing “clemency” to the family members of political rivals is beneficial for extracting confessions and increasing the odds that associates of said rivals “surrender” to his leadership instead of strengthening their opposition. Specifically for Guo Boquan’s case, he has avoided further downgrading after Guo Boxiong was formally charged in July 2016. In other words, the younger Guo appears to have been kept in office as a political “hostage” of sorts to smooth the processing of the older Guo’s corruption case.
Third, by not touching the family of purged cadres who are holding office, Xi is signaling to entire officialdom that he can be “merciful” to the associates and kin of his political enemies if they do not appear to create further trouble and instead fall in line with his leadership.
3. The Xi leadership has resorted to various tactics to punish and win over officials in the current CCP factional struggle.
For instance, Beijing has been known to turn a blind eye from time to time on the issue of confiscating all the ill-gotten gains of purged officials, especially if the official in question pleads guilty and gives a good confession. If the family members of purged officials feel safe that their assets will not be seized, they may be less likely to cause further troubles for Xi. Further, other misbehaving officials have “incentive” to cooperate with Xi and distance themselves from his political rivals.
An example of varied punishment can be seen in the discipling of former top generals Zhang Yang and Fang Fenghui. According to the CCP Central Committee’s Oct. 16 statement on the expulsion of both generals from the Party, Zhang’s assets were “confiscated according to the law,” but no such phrasing was used in describing the prosecution of Fang. The subtle difference in the treatment of the two generals is likely intended to signal to the rest of the officialdom that they should not think of committing suicide before being prosecuted like Zhang Yang, or they risk implicating and impoverishing their family members.
As for Guo Boquan, the needs of the Xi Jinping leadership will likely determine his fate. Renewed resistance from Guo Boxiong’s former associates may mean that his younger brother will not enjoy a quiet retirement.
4. CCP elite politics is a cutthroat affair. The cases of Guo Boquan, Zhang Yang, and Fang Fenghui show that Xi Jinping has to vary the degree and intensity of the punishment so that the officialdom is both served a warning and sees a “silver lining” to support, and not oppose, the Xi leadership.
Should Xi fail to handle purges well, he faces intense revolt and resistance from the regime. Indeed, claims in the media or scholarship that “Xi Jinping is the most powerful leader since Mao Zedong” fail to capture the complexity of the CCP factional struggle and the importance of understanding the dynamics in CCP elite politics. And failure to accurately understand CCP elite politics will impact the assessment of political risk in business or policy decisions.
