SinoInsight 1
On June 25, rumors that former Chinese vice president Li Yuanchao had committed suicide went viral on social media sites. The following day, Duowei News, an overseas Chinese language newspaper that is based in Beijing, published an article with a photo of Li reading the June 24 edition of the People’s Daily. Li’s rare “public appearance” via the photo is clearly intended to debunk the rumors of his suicide.
Li Yuanchao did not make the Central Committee at the 19th Party Congress in 2017 and retired at the 2018 Two Sessions. In 2016, overseas Chinese language media published rumors that Li’s wife, secretary, and driver were arrested for corruption, but he was spared because Hu Jintao intervened.
OUR TAKE
1. Based on our research and understanding of CCP factional politics, the recent Li Yuanchao “suicide” rumors and his subsequent “public appearance” are likely linked with the factional struggle between the Jiang faction and the Xi camp.
2. We believe that the Li Yuanchao “suicide” rumors are connected to the recent suicide of Shen Jian, Li’s former top aide.
When Li was in the Jiangsu provincial government (2000 – 2007), he served as deputy secretary and secretary of the Jiangsu Party Committee, as well as secretary of the Nanjing Municipal Party Committee (October 2001 – April 2003). Meanwhile, Shen Jian was appointed secretary-general of the Nanjing Municipal Party Committee and provincial government in December 2001, and joined the Standing Committee of the Nanjing Party Committee in February 2004.
It is possible that the recent rumors of Li Yuanchao’s “suicide” are a case of mistaken identity. Alternatively, the rumors were deliberately stirred to cause trouble for Li.
3. We previously gave an in-depth analysis of Li Yuanchao’s political situation in the article, “Why China’s Vice Presidency is an Office to Watch.” We wrote that Li was likely marginalized as vice president due to his links with the Jiang faction and his status as an “ousted crown prince.”
We also wrote at the time that “in the best case scenario, Xi allows Li to step down as vice president at the Two Sessions in March and enjoy a quiet retirement if he promises to stay out of factional politics. If Li creates trouble for Xi, then he is in danger of being investigated on charges of corruption or political disloyalty.” We believe that the second point holds true today.
There is a possibility that the recent rumors of Li’s “suicide” were concocted by the Jiang faction to poison popular sentiment in the Party against Xi Jinping and spark a broad uprising against the Xi leadership. While the princelings and the Party elite would be able to quickly discern the veracity of the rumors, most middle to lower level officials and cadres have few ways of knowing because sensitive information concerning the elite does not disseminate very well in the mainland where information channels are monitored. Party cadres who hear and believe the rumors will likely conclude that Xi is paranoid and especially ruthless because he would not spare the life of an “ousted crown prince” who retired “cleanly,” i.e. without holding on to any titles and positions. Fearing that they could be next, Party cadres would be more inclined to band together in an “anti-Xi coalition” and move from passive to active forms of resistance as survival instincts kick in.
Alternatively, the Jiang faction could be hoping that Li Yuanchao decides to join the “anti-Xi coalition” out of self-preservation after hearing the rumors. Should Xi be ousted, Li, a princeling who was once in good standing in the Party, would be ready-made to take over.
With the publication of Li Yuanchao’s photo shortly after rumors of his “suicide” went viral, however, it appears that Li does not have the appetite to be a pawn in the factional struggle. It is unclear if Li Yuanchao still harbors ambitions to take the throne, but it is clear that he lacks the political strength to seize the Party leadership. Li’s best option is to deflect rumors of his “suicide” least he is suspected by Xi of staging a suicide to spark an uprising and is actually purged.
4. If our read of the Li Yuanchao situation is accurate, then the Jiang faction is still pursuing the “soft coup” option against the Xi leadership. The Li “suicide” episode might seem insignificant, but it could trigger a further escalation in the factional struggle.
SinoInsight 2
According to the Washington Post, a U.S. judge found three large Chinese banks in contempt for refusing to comply with subpoenas in an investigation into North Korean sanctions violations. The three banks are Bank of Communications, China Merchants Bank and Shanghai Pudong Development Bank. The Post reported that Shanghai Pudong Development Bank is at risk of losing access to the U.S. financial system. Shares in the three Chinese banks fell following the release of the news report.
On June 25, Chinese foreign ministry spokesperson Geng Shuang said that China rejects the U.S. “so-called long arm jurisdiction on Chinese companies.” On the same day, the chief legal counsel of the China Banking Association said that the Chinese banks should not comply with the decision of the U.S. court.
OUR TAKE
1. We believe that the U.S. could be playing the financial card before the Trump-Xi meeting at the G20 to send a warning to the Chinese regime.
The Trump administration had previously played the financial card against Chinese officials and rogue regimes.
On June 24, U.S. President Donald Trump imposed financial sanctions against Iranian Supreme Leader Ayatollah Ali Khamenei and other senior figures of the Iranian regime in retaliation for Iran shooting down a U.S. drone. The sanctions prevent Iranian officials from using the international banking system or any financial vehicles set up by European countries or other nations. U.S. Treasury Secretary Steven Mnuchin said that the sanctions will “lock up billions of additional dollars in Iranian assets.”
Last September, the U.S. State Department imposed financial sanctions on China’s Equipment Development Department (EDD) and its director Li Shangfu.
2. China’s economy is rapidly worsening and its financial system is faced with unprecedented risks. The recent government takeover of Baoshang Bank in Inner Mongolia is a symptom of China’s financial troubles.
At the end of 2018, Baoshang Bank had total assets of 550.8 billion yuan and customer deposits of 277.2 billion yuan. While the Chinese regime can use administrative means (i.e. getting the central bank to print more money) to prevent a bank run on smaller banks should they go bankrupt, it will not be able to paper over the bankruptcy of large banks like the three mentioned above. China faces a financial disaster should the U.S. cut off financial services to Bank of Communications, China Merchants Bank and Shanghai Pudong Development Bank.
3. According to annual reports for 2018, the total assets and customer deposits for the Bank of Communications, China Merchants Bank and Shanghai Pudong Development Bank are as follows:
Bank of Communications: Total assets, 9.5 trillion yuan; customer deposits, 5.7 trillion yuan.
China Merchants Bank: Total assets, 6.7 trillion yuan; customer deposits, 4.4 trillion yuan.
Shanghai Pudong Development Bank: Total assets, 6.3 trillion yuan; customer deposits, 3.2 trillion yuan.
Total assets and customer deposits of the three banks: Total assets, 22.5 trillion yuan; customer deposits, 13.3 trillion yuan.
The combined assets of the three banks are 41 times that of Baoshang Bank while customer deposits are 48 times greater. The Chinese regime cannot cope with the fallout of their bankruptcy.
4. The Chinese regime’s tough talk against U.S. financial sanctions is just talk, and it cannot do much else to retaliate. The U.S., however, would likely be aware of the fallout of sanctioning large Chinese banks and would proceed cautiously. Ultimately, the three Chinese banks could admit to their violations and settle for a lesser punishment.
U.S. financial sanctions are particularly effective on high-ranking Chinese officials. Many have parked their wealth, assets, and family abroad in preparation for migration, and the United States is a popular destination for wantaway Chinese officials. Thus, the U.S. gains strong leverage against the Chinese regime by threatening to impose financial sanctions on individual officials.
