SinoInsight 1
Since President Donald Trump announced plans to impose tariffs on all Chinese goods on May 5, several developments have occurred which hint at an escalation in the CCP factional struggle between the Jiang faction and the Xi camp:
On May 7, state media announced that Nur Bekri, the former director of China’s National Energy Administration and deputy director at the National Development and Reform Commission, will go on trial at the Shenyang Intermediate People’s Court. We previously established Nur Bekri’s ties to the Jiang faction.
On May 9, former Chinese premier Wen Jiabao makes a high-profile public appearance in Wenchuan, or just days before the 11th anniversary of the Sichuan earthquake in 2008. Wen waved to passersby from his car, and later disembarked to greet the local residents with local officials. Wen Jiabao is part of the Hu-Xi alliance.
At 1500 hours on May 10, state media announced that formal charges have been filed against Meng Hongwei, the former public security vice minister and Interpol chief. We previously traced Meng’s links with the Jiang faction.
At 1600 hours on May 10, Xinhua announced the latest updates to the “Shaanxi 100 Billion Mining Case” follow up investigation:
- Wang Linqing, an assistant judge in the Supreme People’s Court, is being investigated by the supervisory authorities;
- Zhao Faqi, the businessman who initiated the “Shaanxi case,” is being “thoroughly investigated” by the public security authorities;
- Cui Yongyuan, the former state television presenter, was accused of helping Wang Linqing spread “fake news” on the internet.
At 1630 hours on May 10, Cui Yongyuan issued three “apologies” on his social media account:
- Cui would “resolutely support and acknowledge the findings of the Party Central Investigation Team”;
- Cui is “very regretful,” “sincerely apologetic,” and is “willing to assume all responsibility” for his actions;
- Cui would “devote his energies into his teaching and research work.”
We previously analyzed that Cui Yongyuan’s political backers are very likely from the Xi camp.
OUR TAKE
1. We have written on multiple occasions that the Sino-U.S. trade talks would result in an escalation of the CCP factional struggle.
Recent developments—the flurry of prosecutions of Jiang faction associates, a prominent Xi camp associate getting into trouble, and the public appearance of Wen Jiabao—indicate that our assessment about escalation is accurate.
2. Leading indicators of the CCP factional struggle include purges, public appearances by retired top cadres, and “you know what I mean” (“你懂的”) code signaling:
- The recent public appearances of Jiang Zemin, Zeng Qinghong, and Wen Jiabao are all aimed at sending a political message to supporters of the various factions;
- Xi Jinping is known to purge or prosecute Jiang faction associates at politically crucial junctures to assert his authority and dissuade his political enemies (the Jiang faction and other CCP interest groups) from opposing him (“killing the chickens to scare the monkeys”; see here, here, and here). The recent prosecution of Jiang faction associates during a sensitive moment in Sino-U.S. trade negotiations fits with Xi’s modus operandi;
- The “Shaanxi case” is a classic case of the factional struggle playing out through proxies like Cui Yongyuan.
3. Xi Jinping may have consolidated power to a high degree in the Chinese regime, but his authority is brittle. The Jiang faction and other CCP interest groups will use any opportunity they can get to challenge Xi and eventually force him to relinquish power, and the tricky Sino-U.S. trade talks present a golden opportunity for Xi’s political rivals to attack him. The latest twist in the trade talks (impending tariffs on all Chinese goods) leaves Xi in a highly vulnerable position.
Based on our research, we do not believe that the Chinese regime will be able to withstand additional tariffs on $325 billion worth of Chinese products. The regime will face an unprecedented crisis should Trump go ahead with his tariff threat, and Xi will face very high levels of political risk.
4. We believe that China will see Black Swans and Gray Rhinos this year. Businesses, investors, and governments who are looking to avoid political risks and spot hidden opportunities can contact us for consultation on specific topics.
SinoInsight 2
On May 7, Beijing held a video conference with local governments to discuss the issue of food inventories. Under Beijing’s “dispatch and guidance,” local governments are to inspect the quantity and quality of local food stockpiles. Also, local governments should deal with food inventory issues and not conceal them from the central authorities. Local governments are also advised to be “transparent” with Party Central and the State Council on their food inventory situation.
Previously, China’s National Food and Strategic Reserves Administration introduced a plan to inspect the national grain supply on Feb. 11. Inspections were due to start from March 31. The recent national-level video conference appears to be an effort by the central authorities to strengthen and coordinate food inspection efforts.
Meanwhile, China’s grain production has been affected by a fall armyworm infestation, according to a U.S. Department of Agriculture report released this week. The infestation has spread to Yunnan, Guangxi, Guangdong, Guizhou, Hunan and Hainan, and is believed to be spreading more rapidly than official estimates. Crops of corn, rice, wheat, sorghum, sugar cane, cotton, soybeans, and peanuts are at risk of suffering declines in yield and quality. An armyworm infestation can spread large distances and is very difficult to eradicate.
OUR TAKE
1. The State Council began food inventory inspection work last year after the U.S. officially imposed tariffs on Chinese goods. However, the inspectors were hampered by “accidental” fires breaking out in grain reserves.
2. There are several reasons why the central authorities have gotten directly involved in supervising and coordinating food inventory inspections.
First, the Sino-U.S. trade war makes it more expensive for China to import food from America. The central authorities are likely planning to import only what the country needs to cut costs, and thus accurate accounting of present food inventories is a must.
Second, the central authorities are likely very aware that fraud and corruption are pervasive in China, and local governments will more likely than not report fake data to the top. By getting more involved and stricter on food inventory inspections, central authorities stand a better chance of uncovering exactly how severe China’s food situation is.
Finally, the central authorities would likely wish to more accurately gauge the impact of natural calamities such as swine flu and the armyworm infection on China’s food supply.
3. We wrote in September 2018 that China is in a food crisis because the country only has a food self-sufficiency rate of 66 percent, or a rate that is far below the safe level of 95 percent. Also, we estimated that China’s grain data may be inflated by as much as 30 percent due to local government corruption.
Since 2014, China has imported over 100 million tons of grain legally per year. In 2017, China legally imported 130 million tons of grain. But after accounting for data inflation, China may have imported as much as 225 million tons of grain in 2017.
China needs to spend large amounts of foreign currency reserves to purchase grain from abroad. Over time, the U.S. tariffs will result in shrinking foreign exchange reserves, renminbi depreciation, and rising food prices.
4. The swine flu and armyworm infestation will definitely affect food production in China. And if the ongoing grain inspections uncover serious fraud, then China faces a major famine. A food crisis in China will seriously threaten the CCP’s political legitimacy and endanger the regime.
