SinoInsight 1
Recently, an official notice from the local Political and Legal Affairs Commission of Fuyang City on “comprehensively mobilizing the wartime mechanism during the ‘Two Sessions’ period” was circulated on the Chinese internet. Located in Henan Province, Xingyang City is about over 700 kilometers away from Beijing.
Noteworthy details in the notice include:
- The “wartime mechanism” will be mobilized from Feb. 22 to March 17, 2019;
- Local officials involved in “stability maintenance” must make “daily reports” and “‘zero’ reports” to the local PLAC (a “zero report” is a report which notes that no incidents have occurred; put another way, the local PLAC wants to know everything, even when nothing is taking place);
- The bulk of the notice deals with monitoring “key personnel” (dissidents, rights defense lawyers, protesters, etc.) and preventing them from entering the province or Beijing.
- The bulk of the notice deals with monitoring “key personnel” (dissidents, rights defense lawyers, protesters, etc.) and preventing them from entering the province or Beijing.
OUR TAKE
1. Based on our consultations with other sources and information channels, it appears that the term “comprehensively mobilizing the wartime mechanism” has recently appeared several times in the lexicon of the political and legal affairs apparatus and the “stability maintenance” system. We believe that the recently issued notice from the Xingyang City PLAC is authentic.
2. The Xingyang City PLAC notice signals that the CCP regime is feeling a sense of insecurity and is experiencing a political crisis. The political crisis is very likely connected with the escalation in the CCP factional struggle. Sino-U.S. trade negotiations have become a contentious issue in the Party, and the outcome of the negotiations, regardless of how they turn out, will have a major impact on the Xi Jinping administration.
The regime is known to heighten the readiness level of its domestic security force during crucial periods. In 2012, the Beijing Military Region and the Beijing Garrison Honor Guard reportedly adopted Level II readiness (the second-highest readiness level) on the orders of Hu Jintao before that year’s Two Sessions and maintained the readiness state for a period of 248 days. Around that time, the Wang Lijun Incident broke out in China, and coup plot of Bo Xilai and Zhou Yongkang was exposed. Despite the severity of the political crisis, however, the CCP did not “comprehensively mobilize the wartime mechanism” to resolve matters.
China and the U.S. are waging a trade war, but a trade war is far from a “wartime” situation. The CCP’s choice of warlike lingo in ordering an escalation of “stability maintenance” work suggests that it believes that societal opposition to the regime has reached dangerous levels, and the people are akin to wartime “enemies” that could endanger regime safety.
SinoInsight 2
The Chinese markets have been experiencing a technical upswing in recent weeks. Since Feb. 1, the Shanghai index has risen 13.79 percent to nearly break the 3,000 points mark. In total, the Shenzhen and Shanghai markets gained 4.5 trillion yuan (about $672.234 billion) in value in February.
In the morning of Feb. 26, several mainland brokerages experienced trading system failures due to a surge of investors entering the markets. According to data from the official China Securities Depository and Clearing Co. Ltd., 316,100 new investors entered the markets in the week of Feb. 18, an increase of 50 percent from the previous month. Despite the surge of investors, the Shanghai and Shenzhen indexes did not rise significantly, but instead fell slightly.
OUR TAKE
1. In the Feb. 21 edition of this newsletter, we noted the trend of principal shareholders substantially reducing their holdings due to a lack of confidence in China’s economic prospects.
According to data from Chinese financial service provider Wind, Chinese public company shareholders had reduced 51.69 million shares from their holdings, or a cumulative market value of 860 million yuan. Since the start of the year, shareholders have liquidated 7.693 billion shares or 55.856 billion yuan in market value.
2. We believe that the CCP is taking advantage of the extension in Sino-U.S. trade talks to “manufacture” a technical bull market, drive small investors into the markets, and lower the risks of pledged shares being triggered by margin calls. We are not optimistic about the prospects of China’s stock markets.
