Risk Watch: How the CCP Could Do a ‘Pearl Harbor’ to Survive the ‘New Cold War’

◎ The CCP could use conventional and “unrestricted warfare” strategies and tactics against the United States.


A confluence of factors is causing unprecedented crisis for the Chinese Communist Party:

  • Non-stop escalation of the “you die, I live” factional struggle between the Xi leadership and the Jiang faction;
  • A rapidly deteriorating economy;
  • A food crisis brought about by corruption, disease (swine fever, bird flu, etc.), and pests (fall armyworm);
  • Increasing social unrest across China.

The CCP’s problems have been compounded by the Sino-U.S. trade war and America’s toughening stance on the Chinese regime:

  • In May, United States President Donald Trump announced plans to add tariffs to all Chinese goods (increase tariff rates on $200 billion worth of Chinese products in May; add 25 percent tariffs on an additional $300 billion of Chinese exports in June);
  • The U.S. Commerce Department announced a ban on Huawei, a move which essentially dooms the state-backed Chinese telecommunications maker;
  • The U.S. appears to be moving against other Chinese technology companies, particularly those involved in human rights persecution on the mainland;
  • The Trump administration is playing the human rights and Taiwan card;
  • The U.S. is stepping up military activity in the South China Sea on its own and with allies;
  • The U.S. is strengthening alliances and partnerships in the Indo-Pacific to counter the Chinese regime.

Based on our research into the CCP, we believe that the Party and the regime cannot long withstand the perfect storm of political turmoil, economic crisis, food shortages, social unrest, and intense U.S. pressure. With its survival at stake, the CCP will not resign itself to fate and will instead do whatever it can, by all means fair and foul, to stay alive.

Given enough time, the CCP can weather any internal problem. Hence, it will prioritize the resolving of external problems to buy time to handle domestic woes. Topping the list of the CCP’s external threats are the United States and the Trump administration. With more U.S. tariffs coming near the end of June, we believe that the CCP would deploy its countermeasures sooner rather than later.

Below we list some possible conventional and “unrestricted warfare” strategies and tactics which the CCP could use to pull off a “Pearl Harbor” against the U.S. and survive the “new cold war.”

1. The CCP could seek to disrupt U.S. financial markets

  • CCP propaganda recently began making comparisons between the Chinese and U.S. stock markets. The propaganda asserts that there are higher risks in the U.S. market and claims that the Chinese market is more “resilient” under CCP authoritarian rule.
  • Veteran Chinese officials and scholars have recently been talking about how the trade war could cause a “global financial crisis” and the problems with America’s financial markets.[1]
  • The CCP could tap into its Red Matrix to weaken investor expectations and confidence in the U.S. markets and economy.
  • Chinese companies listed overseas and China’s sovereign wealth fund could find ways to trigger stock market panic around the time when new U.S. tariffs are imposed in June. Pro-PRC elements on Wall Street could even cooperate with the CCP to profit from the financial disruption.
  • Should it succeed in triggering a U.S. stock market crash, the CCP could rollout a gold-backed currency to replace the dollar in the global financial system and win the “currency war” with America.

2. The CCP could seek to influence and interfere in U.S. politics and society

  • The CCP would almost certainly focus its influence and interference operations to take down the Trump administration, turn President Trump’s attention away from the China issue, and shape the 2020 U.S. presidential election.
  • To undermine the Trump administration, the CCP could find ways to influence politicians in both major parties to disrupt governance or Trump’s policies. For instance, the CCP would like for Trump’s trade and tariff authority to be restricted, see impeachment proceedings started against him, and to see his domestic initiatives (infrastructure, healthcare, etc.) stalled until after the 2020 U.S. presidential election.
  • To turn Trump’s attention away from China, the CCP could tap into its Red Matrix to accuse the Trump administration of “racism” and wanting a “clash of civilizations” while emphasizing the threat of other “bad actor” countries (Russia, Iran, etc.) over China.
  • To shape the 2020 U.S. presidential election, the CCP could find ways to back other candidates while producing or supporting the production of anti-Trump propaganda.
  • To divide American society, the CCP could try to play up the “clash of civilizations” issue and accuse the Trump administration of “xenophobia.”

3. The CCP could engineer foreign crises to divert America’s attention away from China

  • The PRC could strengthen relations with Russia and encourage Russia to become more antagonistic towards America.
  • The PRC could find ways to provoke military confrontation between Iran and the United States.
  • The PRC could encourage North Korea to play hardball on denuclearization with America, including stepping up missile testing.
  • The PRC could secretly support the Maduro regime in Venezuela and impede the country’s shift away from rule by dictatorship.

4. The CCP could avoid U.S. containment by fracturing alliances and partnerships

  • The PRC could step up efforts to win over Europe while driving a wedge between America and its European allies.
  • The PRC could try to convince countries in the Indo-Pacific to “fight against U.S. hegemony” or keep playing both sides (U.S. and China). This would prevent Indo-Pacific countries from cooperating with the U.S. to counter the PRC threat.

Our take:
1. A wounded animal is most dangerous. Our list of possible strategies and tactics which the CCP could use against the U.S. is not exhaustive, and we do not rule out the possibility of the CCP deploying even more nefarious and unthinkable countermeasures.

2. The toughening U.S. stance towards the PRC is a net positive for America and the world. However, America’s strong measures would inspire strong responses from the CCP and sharply raise global political, economic, and military risks. While we believe that the U.S. is currently on track to win the “new cold war,” victory could come at a steep cost if it only uses the current strategies.

3. Based on our research, we believe that the PRC’s backtracking in trade talks is directly related to the escalation of the CCP factional struggle. The current state of the factional struggle has opened a critical window of opportunity for the U.S. to exploit and drastically reduce the length of time needed to win the “new cold war,” as well as the overall costs. To take advantage of this window of opportunity, the Trump administration must be able to differentiate between the reformers and Maoist hardliners in the regime and apply strategic pressure on the latter group.

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Notes
[1] On May 16, Renmin University professor Jin Canrong said in an exclusive interview with a mainland media outlet that the U.S. stock market is in more serious trouble than the Chinese market. He likened the collapse of the Chinese market to a person jumping off the second floor of a building (ankle sprain/minimal costs) and the collapse of the U.S. market to that of a person leaping from a building’s 50th floor (certain death/financial disaster). Jin added that Wall Street stock accounts for 26 percent of the U.S. GDP while Chinese stocks only make up 4 percent of China’s GDP, and that 80 percent of American businesses rely on the stock market for financing as opposed to 10 percent in China.

On May 31, former People’s Bank of China governor Dai Xianglong said at a press event in Beijing hosted by think tank China Center for International Economic Exchanges that the Sino-U.S. trade war “may cause a global financial crisis” if it escalates.

On June 2, CCTV’s “Xinwen Lianbo” aired a four-minute interview with top securities regulator Yi Huiman about the Chinese and U.S. stock markets. Yi made the following points:

  • China’s A-shares merely “fluctuated” in the face of a “U.S. policy attack” (tariffs) while U.S. shares showed a “clear decline”;
  • The U.S. “bull” market is at the top of a 10-year bull cycle while the A-share market is the bottom of “bear” market which began in 2015;
  • Stocks account for 35 percent of American household investment while Chinese households only invest 1.4 percent of their funds in stocks;
  • “If the stock markets of both countries fall, who has more leeway and who would be hurt more? This is self-evident!”