SinoInsight 1
Between May 26 to May 29, the Xinhua-ran “China Today” magazine published a four-article series criticizing the United States and proclaiming confidence in China’s ability to weather the trade war.
“Despite America’s intensive trade bullying and other extreme high-pressure tactics, China’s economy is still maintaining high-speed growth, society is stable on the whole, and various undertakings are developing vigorously,” according to an article in the series.
The “China Today” article series titles are:
Part 1 — The Great Rivers Flow and the Horizon is Vast (大江奔流天地宽)
Part 2 — A Big Stone Pillar Stands in the Raging River (屹然砥柱立中流)
Part 3 — Light at the End of the Tunnel (柳暗花明又一村)
Part 4 — Striving for New Creations with Heaven’ Work and Human Endeavor (天工人巧日争新)
OUR TAKE
1. We have observed that the CCP’s propaganda after recent trade war maneuvers by the U.S. (tariff rate hike, Huawei ban, etc.) has shifted from silence to projecting calmness to inciting anti-U.S. sentiments and nationalism to promoting economic stability in a high-profile manner. The somewhat haphazard response to U.S. tariffs by the CCP reflects its insecurity and lack of confidence.
Based on our analysis, we believe that the CCP has no effective countermeasures to deploy against America’s latest trade war maneuvers. Thus, the Party has to turn to propaganda as a form of opioid for the masses to buoy the national sentiment and prevent panic on the mainland.
2. China’s poor industrial growth numbers in April affirm our previous analysis that the economy has not rebounded and economic data only looks “healthy” as a result of massive stimulus early in the year. We expect to see poor official economic data across the board in April.
Meanwhile, the U.S. Huawei ban represents a fatal blow of sorts to China’s 5G rollout. The Huawei ban may accelerate the withdrawal of foreign capital and funds from the mainland.
3. Per CCP characteristics, it is usually experiencing great difficulties in whatever it hypes or harps in propaganda. Hence, it is almost certain that China’s economic problems are very severe, and probably much worse than the more pessimistic assessments found in mainstream views.
We believe that China’s second quarter economic data would be very poor. Poor economic performance would in turn affect the CCP’s political legitimacy and regime survivability.
SinoInsight 2
On May 27, Guo Shuqing, the China Banking and Insurance Regulatory Commission chairman and People’s Bank of China Party secretary, gave an interview with the state-run CCTV.
Noteworthy points in Guo’s interview include:
- Higher U.S. tariffs will have a “very limited” impact on China’s economy even if America raises levies to the maximum level;
- CCP authoritarianism is guaranteed to handle all sorts of risk challenges;
- China’s financial system can withstand external shocks;
- China will enhance the economic capabilities of financial service entities and continue to promote the opening up of the financial sector;
- Guo warned that speculators that short the renminbi will suffer huge losses.
OUR TAKE
1. Aside from Guo Shuqing, senior officials from the National Development and Reform Commission, the Ministry of Industry and Information Technology, and other government agencies have recently been claiming that the Sino-U.S. trade war would have a limited impact of the Chinese economy.
We believe that the Chinese regime is resorting to rhetoric to “stabilize” and “calm” the masses and prevent mass panic about China’s economic situation. On the flipside, the fact that the regime is working hard to “calm” the masses is an indication that market sentiment on the mainland is very pessimistic about China’s prospects and China’s economic situation is very bleak.
2. From recent official economic data and market reaction, the Chinese regime seems to be trying to prevent the RMB from falling below the 7 level. Also, the authorities have resorted to various measures to halt a steep stock market decline.
Based on our research, we do not believe that the Chinese regime can withstand the trade war and keep propping up the markets. However, the CCP will try to buy whatever time it can get to plan for a strategic adjustment. (Our analysis of the CCP’s next strategic moves is forthcoming.)
