SinoInsight 1
On Nov. 11, the General Office of the CCP Central Committee released a document, “2019 – 2023 National Party Member Education and Training Work Plan,” along with a notice requesting that the Plan be implemented by various departments countrywide. The Plan calls for the “education” (i.e. brainwashing) of the CCP’s over 90 million members, the strengthening of Party leadership, highlights the need to study “Xi Jinping Thought,” and the need to uphold Xi’s “quan wei” (權威). The General Office also requested that Party committees at all levels take the “training” as an important task and conduct evaluations of the Plan’s implementation.
On Nov. 12, the CCP Central Committee and the PRC State Department issued a document, “Outline for the Implementation of Patriotic Education in the New Era,” along with a notice requesting for its implementation by various departments. The Outline defined “patriotism in the new age” as love of the Party, love of socialism, compliance with the leadership of the CCP, and supporting Xi Jinping as the core of the Party, and called on the various departments to deploy all kinds of means to “educate” (i.e. brainwashing and propaganda) the Chinese people.
OUR TAKE
1. The Plan and Outline issued by the CCP authorities are signs of worsening political crisis in the Party.
Xi Jinping needs to keep re-emphasizing his “quan wei” and primacy in the Party because his control over the CCP is still very unstable even after convening the Fourth Plenum. Thus, the idea behind stepping up brainwashing education of Party members and regular citizens is to remind everyone that Xi (and not his political opponents) is in charge, as well as increase the sense of crisis and broaden the scope of self-censorship in the regime. Xi is likely hoping that once every one, and particularly Party members, are on the same page as him, few will dare to challenge his and the CCP’s rule. With fewer challenges, Xi would theoretically be able to push through his policies more effectively.
Specific to Party members, the brainwashing sessions are likely designed to get them to publicly pledge their fealty to Xi, make them more hesitant to reveal their actual thoughts to each other, and ideally prevent opposition voices in the Party from coalescing into an “anti-Xi” coalition.
2. The CCP currently faces a “perfect storm” of problems:
- Escalating factional struggle in the CCP;
- Rising Sino-U.S. rivalry;
- A trade and tech war with America;
- A rapidly worsening economy;
- Local government financial deficits;
- Food shortages and soaring food prices;
- Mass business closures;
- Small- and medium-sized banks are showing financial risks;
- Problems with African swine flu and the spread of pneumonic plague;
- A five-month long anti-extradition bill protest in Hong Kong.
Each one of these problems has the potential to explode into massive problems for the CCP.
When faced with regime-threatening problems, the CCP’s first instinct is to strengthen control, particularly in the realm of the mind. The recently introduced Plan and Outline are almost certainly aimed at brainwashing the Chinese people into not dissenting as the CCP tightens its societal controls.
SinoInsight 2
According to a Nov. 10 Financial Times article, Chinese courts have listed 831 local governments as being in default in the first 10 months of 2019, as compared with 100 in the whole of 2018. Also, the value of overdue payments by the local governments increased by over 50 percent from 4.1 billion yuan at the end of 2018 to 6.9 billion yuan at the end of October 2019.
According to Chinese official statistics for local government fiscal revenue and expenditure in the first three quarters of this year:
- Five provinces (Anhui, Tianjin, Chongqing, Inner Mongolia, Heilongjiang, Jilin) have not issued expenditure data for the year;
- Of the remaining 25 provinces, only Shanghai made a revenue surplus of 23.1 billion yuan while the other 24 saw fiscal deficits;
- Henan suffered a deficit of over 500 billion yuan, the largest of the 31 provinces;
- Fifteen provinces and municipalities saw deficits of over 200 billion yuan;
- The provinces that contribute the most to China’s finances—Guangdong (minus 217.3 billion yuan), Zhejiang (minus 127.7 billion yuan), Jiangsu (minus 253 billion yuan), and Fujian (minus 151.1 billion yuan)—all suffered deficits.
OUR TAKE
1. We noted in 2018 that China cannot withstand a trade war with America (see here and here). The latest official data affirms our analysis and our China 2019 outlook prediction, “local debt defaults will increase.”
2. While an interim Sino-U.S. trade deal could potentially alleviate some of China’s financial and economic problems, we remain pessimistic that a deal can be reached. Both the United States and China are seeing domestic political troubles that would impede the signing of a trade agreement. And as seen in the analysis above, Xi Jinping’s power is currently very unstable and it is highly doubtful if he can make the sort of structural changes demanded by the U.S. without endangering his position. Even if a Sino-U.S. trade deal is reached, the CCP regime will unlikely be able to fulfil its commitments and the Chinese economy would not be able to recover quickly in the short-term.
3. We have written on multiple occasions that after the passing of Mao Zedong and the end of the Cultural Revolution, the CCP had tied its political legitimacy to its ability to deliver economic growth for China.
Financial risks will appear as China’s economy continues to deteriorate. Businesses, investors, and governments must prepare for Black Swan events in China in the near future.
