Our ‘scarily accurate’ track record; ‘Fengqiao Experience’ and the CCP’s political risk

China Week in Review
Week of Nov. 12, 2018

China and the world

• Tensions between the People’s Republic of China and the United States heat up when top officials from the two powers attend high-level multilateral meetings in Southeast Asia.
• The U.S.-China Economic and Security Commission annual report affirms the shift in U.S. policy on China. The report also appears to draw a clearer distinction between the CCP nd the Chinese people.
• A New York Times report of North Korea’s “great deception” may prove to be greatly exaggerated given the official responses from the U.S. and South Korea to the report.

Nov. 12:

• Michael Pillsbury, the author of “The Hundred-Year Marathon,” told Fox News in an interview that whether or not Trump and Xi reach a deal at the G20 meeting in Argentina depends on “how President Trump is and how seriously he takes his promise to his base.”
• The Rodong Sinmun, a newspaper of North Korea’s ruling Workers’ Party, ran an article criticizing the U.S. and South Korea for holding a joint military exercise on Nov. 5.

Nov. 13:

• Chinese vice foreign minister Zheng Zeguang says that “other countries should not obstruct China’s friendly cooperation and exchanges with the island nations” in the Pacific.
• In an interview with The Washington Post, U.S. Vice President Mike Pence indicates that China must change its behavior if it is to avoid “all-out cold war” with the United States.
• Pence announces a $70 billion combined Japan-U.S. commitment to infrastructure development, with a main focus on the Indo-Pacific region.
• South Korea’s presidential office said The New York Times was “going too far” in calling North Korea’s activity at missiles sites a “great deception.” A spokesman said that the think-tank produced the analysis using information from a commercial satellite, but South Korean and U.S. intelligence agencies are “closely monitoring” the North Koreans using “far more detailed information from military satellites.” He added that the bases have nothing to do with intercontinental ballistic missiles or intermediate-range ballistic missiles, and that North Korea had not promised to close the facilities.
• Trump tweeted: “The story in the New York Times concerning North Korea developing missile bases is inaccurate. We fully know about the sites being discussed, nothing new – and nothing happening out of the normal. Just more Fake News. I will be the first to let you know if things go bad!”
• Premier Li Keqiang told Southeast Asian nations that he hoped that a code of conduct in the disputed South China Sea would be completed in three years.
• U.S. National Security Advisor John Bolton said that while America welcomes negotiations between China and ASEAN nations on a code of conduct for the South China Sea, the final agreement has to be “acceptable to all the countries that have legitimate maritime and naval rights to transit and other associate rights that we don’t want to see infringed.”
• NATO chief Jens Stoltenberg said that half of the PRC’s missiles would violate the Intermediate-Range Nuclear Forces Treaty if China was a signatory. He added that NATO supports expanding the treaty to include China.

Nov. 14:

• The U.S.-China Economic and Security Commission releases its 2018 annual report. The report notes that while U.S. policy toward China was for several decades “rooted in hopes” that engagement would “lay the foundation for a more open, liberal, and responsible China,” America’s hopes “have, so far, proven futile.”
• The U.S.-China Economic and Security Commission report also noted: “In many areas, the CCP will be quick to cast any pushback or legitimate criticism as fear, nationalism, protectionism, and racism against the Chinese people.”
• U.S. Rep. Chris Smith (R-NJ) introduces a bipartisan legislation condemning the PRC government’s abuses against Uyghurs in Xinjiang.

Nov. 15:

• Xi Jinping visits Papua New Guinea ahead of the Asia-Pacific Economic Cooperation summit, and pledges to “stand together with fellow developing nations.” On his first day, Xi opened a new Beijing-funded six-lane highway, which was lined with PRC flags for the occasion. While the PRC requested that the only their flags were to bedeck the highway for the entire duration of Xi’s visit the APEC summit, the Papua New Guinean government refused the request and flew the flags of the other APEC countries during the summit.
• Singapore prime minister Lee Hsien Loong said at the ASEAN summit that “major power rivalry is on the rise, manifesting itself in competing visions for the regional architecture and in a growing trade war.” He added: “The circumstances may come where ASEAN may have to choose one or the other. I hope it does not happen soon.”
• Fifteen ambassadors of Western countries drafted a letter to Xinjiang boss Chen Quanguo seeking a meeting with him to provide an explanation for human rights abuses in Xinjiang. A Chinese foreign ministry spokeswoman said that the PRC “firmly oppose ill-intentioned and biased attempts to interfere in the affairs of our local governments, or rashly criticize China over its internal affairs.” She also said that the letter violated the terms of the Vienna Convention.

Nov. 16

• Xi meets with the leaders of eight Pacific countries before the APEC summit.
• U.S. Vice President Mike Pence said at the ASEAN summit that the South China Sea “doesn’t belong to any one nation” and that the U.S. “will continue to sail and fly wherever international law allows and our national interests demand.” He added that China’s militarization and territorial expansion in the South China Sea is “illegal and dangerous” and that it “threatens the sovereignty of many nations and endangers the prosperity of the world.”

Nov. 17

• Xi Jinping and Mike Pence attend the 26th APEC Economic Leaders’ Meeting in Papua New Guinea.
• In his speech at APEC, Xi warned about unilateralism and conflicts. “History has shown that confrontation, whether in the form of a cold war, a hot war or a trade war, will produce no winners,” he said.
• Pence singled out the PRC’s Belt and Road project in his APEC speech. “The United States deals openly and fairly—and we don’t offer a constricting belt or a one-way road. When you partner with us, we partner with you, and we all prosper.”
• At APEC, Pence introduced a new $400 million Indo-Pacific Transparency Initiative to “empower the region’s citizens, combat corruption, and strengthen sovereignty.” He also said that “America first does not mean America alone. We know that our prosperity, our security, and our future are intertwined with yours.”
• The U.S. announced that it will joint Australia in developing a naval base in Papua New Guinea’s Manus Island.
• Mid-level Chinese officials attempted to force their way into the Papua New Guinea foreign minister’s office to voice their unhappiness with the draft language of a proposed communique. The officials were later escorted away by local police after a confrontation.
• Maldives’ new president Ibrahim Mohamed Solih took office and warned in a speech that the country’s coffers were “looted” after the previous administration piled debt with PRC lenders to build infrastructure. Indian prime minister Narendra Modi attended Solih’s oath-taking ceremony, and the Indian foreign ministry noted in a statement after Solih’s meeting with Modi that India is ready to help the Maldives through its economic difficulties.

Nov. 18

• The APEC summit fails to produce a communique due to a disagreement in the language of the proposed statement, the first time in its 29-year history. “You all know who the two big giants in the room were, so what can I say,” Papua New Guinea prime minister Peter O’Neill.
• According to The Wall Street Journal, a senior Trump administration official said that the APEC communique disagreement was about the inclusion of a sentence about opposing all forms of protectionism, including unfair trading practices. The officials noted that aside from China, all other 20 APEC nations had agreed to the inclusion of the language in the communique.

Sino-U.S. trade war

• A trade deal between the two countries at the G20 in Argentina is looking increasingly unlikely despite Trump’s “optimistic” remarks during the week. (We are not ruling out surprises though. See our analysis.)
• Xi Jinping and the Chinese Communist Party continue to recycle rhetoric on trade, reform and opening up, and “unilateralism,” a sign that the Party has no good plan to defuse the Sino-U.S. trade war heading into the G20 in Argentina.
• Mike Pence ups the U.S. rhetoric against the CCP’s abusive trade practices and pernicious behavior while reaffirming America’s support to countries in the Indo-Pacific.
  Meanwhile, the PRC continues to court U.S. allies and friendly nations.

Nov. 12:

• UK International Trade Secretary Liam Fox said that the British delegation to the China International Import Expo secured £2 billion of deals with China.
• China and Singapore sign an upgraded free-trade agreement. Singapore businesses gain greater access to the Chinese market and stronger investment protection, and the island state agrees to cooperate with China on the Belt and Road Initiative.

Nov. 14:

• At the ASEAN summit, Singapore prime minister Lee Hsien Loong said that negotiations on the Regional Comprehensive Economic Partnership (RCEP), a 16-country trade pact, have moved to the final stage. He added that “further prolonging negotiations puts the RCEP at risk of losing credibility and support from our stakeholders.” Japan and India are among the countries with reservations about the agreement.
• According to Reuters, China submitted a written response to U.S. trade demand, citing three U.S. government sources. Industry sources said that China’s response was “largely a restatement of previous Chinese commitments.” A Washington-based source told Reuters that America and China “are not close to a favorable deal on trade. Not in the same universe.”

Nov. 15:

• Vice President Mike Pence told ASEAN leaders that “we all agree that empire and aggression have no place in the Indo-Pacific.” Also, “the United States seeks collaboration, not control. And we are proud to call Asean our strategic partner.”
• Canadian prime minister Justin Trudeau said in Singapore that Canada and China will continue to work together towards an “eventual” free-trade deal.
• U.S. Commerce Secretary Wilbur Ross said at a ribbon-cutting ceremony in Texas that all Sino-U.S. trade discussions leading up to the G20 are just “preparatory” for the meeting between President Trump and Xi Jinping. He added that the Trump-Xi meeting will “set if there is going to be a real framework.”
• Wilbur Ross told Bloomberg that the U.S. will still increase tariff rates on Chinese goods from 10 percent to 25 percent in January 2019.

Nov. 16

• Speaking to reporters at the White House, President Trump said that the U.S. had received a list of 142 items from Beijing in response to America’s asks for reform. He said that the list contained “a lot of the things we asked for,” although “four or five big things” were not on it. “I think a deal will be made. We’ll find out very soon,” Trump added. “Hopefully we’ll make a deal. And if we don’t, we’re doing very well just the way it is right now.”
• In speaking to reporters, Trump also said that he wants to put China in a “great position,” and not a bad position. “But it’s called reciprocal. We have to have reciprocal trade. We can’t have trade that’s meant for stupid people.”

Nov. 17

• Speaking at the APEC summit, Vice President Mike Pence said that the U.S. has “taken decisive action” to address America’s trade imbalance with China. “We put tariffs on $250 billion in Chinese goods, and we could more than double that number,” he said. “The United States, though, will not change course until China changes its ways.”
• Vice President Mike Pence spoke twice privately and briefly with Xi Jinping, according to The Wall Street Journal. “I reiterated that they need to open up their markets,” Pence said. “President Trump believes that a [trade] deal is possible but we also believe we’re in a very strong position.”
• The South China Morning Post cited a Chinese source as saying that the PRC is offering to buy more natural gas from the U.S., offer greater market access, and improve intellectual property rights protection to reach a truce in the Sino-U.S. trade war.

Politics

• The CCP continues to play up the reform and opening up line.
• CCP control over society tightens, a sign that the regime is under immense pressure.
• Xi Jinping strengthens his control over the military and continues to clean out the political and legal affairs apparatus.

Nov. 13:

• The Central Military Commission held a two-day meeting to discuss policy and systemic reforms. During the meeting, Xi Jinping stressed the importance and urgency of implementing the reforms.
• Chinese vice president Wang Qishan met with German foreign minister Heiko Maas in Beijing. During a press conference with Chinese foreign minister Wang Yi at the Diaoyutai State Guesthouse, Maas urged the PRC to be more transparent on human rights issues in Xinjiang. Wang Yi replied that people should not “listen to gossip or rumor” about Xinjiang because only its local government understands the situation best “and not some other people or organizations.”
• The Cyberspace Administration of China announced that it has shut 9,800 social media accounts of independent news providers for spreading “politically harmful information.” The cyber authority also issued stern warnings to WeChat and Weibo.
• Wu Changzhi, a deputy procurator and Party committee member of the provincial procuratorate in Jilin, was investigated. According to Hong Kong media reports, Wu is the nephew of Du Qinglin, a former vice chairman of the CCP’s political consultative body. Du is believed to have “sheltered” former CCTV anchor Rui Chenggang, and Rui was reportedly purged for his involvement in the CCP factional struggle.

Nov. 14:

• Xi Jinping chaired the 5th meeting of the central committee for deepening overall reform. A string of reforms pertaining to the development of a free-trade zone in Hainan Province was approved at the meeting.

Economy

• The expectation of improving Sino-U.S. relations caused a small rebound in the Chinese markets and the RMB exchange rate.
• Most of China’s economic figures in October hit a new low, falling below market expectations.

Nov. 12:

• Following news that vice premier Liu He and U.S. Treasury Secretary Steven Mnuchin spoke over the telephone, China’s A-shares rallied. Over 100 stocks saw gains while the Shanghai index regained 2,600 points.
• The state-owned China Securities Journal said that the authorities will not set specific targets for individual banks on how much they should lend to private enterprises, citing regulatory sources. The previous week, top banking and insurance regulator Guo Shuqing said that at least a third of new loans by big banks should go to private businesses, while at least two-thirds of new loans by small and medium-sized banks should go to private firms.

Nov. 13:

• The People’s Bank of China released data showing that the scale of social financing rose by 728.8 billion yuan in October, a 27-month low and less than a third of September’s total. Also, China’s M2 broad money supply increased 8 percent year-on-year in October, the lowest in history. China’s narrow money M1 grew 2.7 percent from the previous year, the lowest since 2014.
• China’s Ministry of Finance issued data showing that the national general public budget revenue was 1.5727 trillion yuan in October, down 3.1 percent from 2017. Tax revenue was 134.64 billion yuan, a year-on-year drop of 5.1 percent.

Nov. 14:

• According to data released by China’s National Bureau of Statistics, industrial production only grew 5.9 percent in October from the previous year while total retail sales of consumer goods increased 8.6 percent year-on-year. Both consumer goods and industrial production saw the second-slowest growth rate in over the past 12 months.

Nov. 16

• The Shanghai Composite Index gained 3.09 percent during the week. The offshore renminbi exchange rate also rebounded to 6.92 to the U.S. dollar.

Society

Nov. 13:

• Document no. 73 [2018] of Peking University’s Party Committee was leaked on social media outside China. The document, which was dated September 13, called for the establishment of two new internal supervision departments, namely, the CCP Peking University Inspection Office and the Peking University Internal Control Office. Reuters also reported on the document and the setting up of “control and management” bodies.

Nov. 14:

• Peking University warned students over instant messaging platforms against joining demonstrations of support for recent labor-rights activism that involved former students of the college. The university said that students will be held responsible if they “challenge the law.”

Nov. 15:

• The Zhejiang Education Examinations Authority announces that all students applying for universities and other institutions of higher education (not including public security and information security training academies) are required to undergo “political review.” Last week, the education examinations authorities in Chongqing and Fujian released a similar statement and drew backlash from the public.

SinoInsight 1

On Nov. 12, the Central Political and Legal Affairs Commission and the Zhejiang provincial Party committee held a meeting in Zhejiang’s Fengqiao District to commemorate the anniversary of the “Fengqiao Experience.” On Nov. 13 and Nov. 14, the People’s Daily published commentary calling for the need to persevere in and develop the Fengqiao Experience in Xi Jinping’s new era.

The Fengqiao Experience was the CCP’s attempt to create a “class dictatorship” for the purposes of “maintaining social stability.” Initiated by the Zhejiang provincial Party Committee in 1960, the Fengqiao Experience saw public security officials encourage the people to “educate” and “reform” so-called “reactionaries” themselves. The Zhejiang CCP officials were initially looking to keep and resolve local problems locally using the classic CCP tactic of “inciting the masses to struggle against each other” (群衆斗群衆).

In 1963, Mao Zedong praised the Fengqiao Experience as part of his attempt to regain prominence in the CCP factional struggle. The Experience was to become a prelude to the mass struggles of the Cultural Revolution. After Mao’s passing, the term “Fengqiao Experience” fell out of favor, and it was not used again until the 1990s when Jiang Zemin pursued a “stability maintenance” policy based on keeping local problems local and not troubling the central authorities. Hence, local social groups and officials would prevent local petitioners from traveling to Beijing by placing them under de facto house arrest or detention in black jails.

After Xi Jinping took office, he mentioned the need to persist in and develop the Fengqiao Experience as part of following the “mass line,” the first Chinese leader since Mao Zedong to do so publicly. However, Xi’s version of the Fengqiao Experience is a continuation of Jiang-era “stability maintenance,” and not a reversion to Mao.

OUR TAKE
1. The fact that the CCP is promoting Fengqiao Experience is an indication that Beijing is aware that social problems in China are reaching a boiling point and increased “stability maintenance” at the local government level is a must. In other words, the CCP is expecting social problems to become a critical political risk for the regime.

The CCP’s promotion of Fengqiao Experience for “stability maintenance” over more conventional public security measures is also another sign that the regime is wary of its finances as China’s economy continues to worsen. Conventional public security measures are a drain on the finances of local governments, a number of whom are struggling with heavy debts and a shortage of funds. Thus, the central authorities appear to be turning to “inciting the masses to struggle against each other” as a means to lower the cost of “stability maintenance” and ease the financial burden.

2. The Fengqiao Experience is a paradoxical solution to societal control when promoted by the central authorities. This is because Beijing is tasking local governments, the ones who are usually responsible for the outbreak of local and intractable problems, with resolving the problems in-house. Hence, more Fengqiao Experience-style “stability maintenance” results in more petitioners journeying to Beijing and never-ending clashes between local officials and citizens, some of which we’ve written about in the newsletter and in articles on our website.