SinoInsight 1
On Nov. 5, the CCP issued its Fourth Plenum document, the “Decisions on Some Major Issues Concerning How to Uphold and Improve the System of Socialism with Chinese Characteristics, and Advance the Modernization of China’s System and Capacity for Governance” (henceforth referred to as the “Decisions”). The next day, the CCP issued an “instructional reader” for the “Decisions,” or a collection of articles by CCP officials and scholars interpreting and elucidating the many vague-sounding points in the “Decisions.”
On Nov. 9, the Hong Kong and Macao Affairs Office of the State Council (HKMAO) published the “instructional reader” on its website and featured an article in it by HKMAO head Zhang Xiaoming. Zhang’s article, titled “Persevering in and improving the ‘one country, two systems’ model,” was republished on its own by several official PRC media outlets and pro-Beijing Hong Kong media. The reception of Zhang Xiaoming’s “instructional reader” article suggested that his political career, which seemed to be in jeopardy of late (see here and here), was regaining its “footing.”
OUR TAKE
1. In our previous analyses, we pointed out several developments which indicated that Zhang Xiaoming faces high levels of political risk and predicted that could be sacrificed at any time if his higher-ups in the CCP were looking to seize strategic opportunities to resolve the Hong Kong problem. Aside from the publication of Zhang’s article in the “instructional reader” for the Fourth Plenum’s “Decisions,” the bulk of political signals on Zhang Xiaoming continue to indicate that he is in serious trouble.
- The public appearances (or lack thereof) by CCP officials offer insight into their personal political risk. Since Zhang’s “no-show” at the important Beijing reception of incoming Macau head Ho Iat Seng in September, he made one public appearance in October (a meeting with low-level, pro-CCP groups in Macau) and one in November (a meeting in Beijing with a delegation from the American Chamber of Commerce in Hong Kong [AmCham HK]), according to what is listed on the “important events” column of the HKMAO website.
- Zhang’s meeting with the delegation from AmCham HK on Nov. 1 was only covered in 39 words and with two pictures on the HKMAO website.
- On Oct. 14, AmCham HK released a survey of its members which showed that 46 percent of companies are pessimistic about the long-term situation in Hong Kong; 24 percent are considering downsizing operations in Hong Kong or shifting operations from the city; and 61 percent of those surveyed “have started to feel the heat as they consider moving operations from Hong Kong, making contingency plans, or have had difficulties hiring people from overseas while also experiencing a talent drain.” The pessimism of the business community in Hong Kong can later be upheld by Zhang Xiaoming’s superiors as an indicator of failure on his part to handle Hong Kong affairs.
3. We previously noted that the CCP appears to have prepared two plans to shape local district councilor elections in Hong Kong that are currently scheduled for Nov. 24. If the CCP opts for the plan to allow the elections to be held, then Zhang Xiaoming is at high risk of being sacrificed at the CCP finds ways to “give pro-establishment figures a strong advantage over their opposition.”
SinoInsight 2
On Nov. 7, former state television presenter Cui Yongyuan wrote a WeChat post that was widely circulated: “It’s now November. I’ve been unable to solve the issue of losing my personal freedoms since March. I can’t go to Japan to have my sickness treated; I can’t travel to England to attend an academic conference; I can’t visit my daughter who is abroad … I can only stay at home and view the motherland. I’m not so angry anymore, and not so anxious anymore … Thinking about it, I’m still your humble slave.”
OUR TAKE
1. After examining Cui Yongyuan’s role in the takedown of actress Fan Bingbing, the latest judicial ruling on the “Shaanxi 100 Billion Mining Case,” and his run-in with Sing Pao Daily boss Gu Zhuoheng, we believe that Cui is deeply involved in the Xi Jinping-Jiang Zemin factional struggle and has political backers from the Xi camp. In other words, Cui Yongyuan’s plight offers insight into the state of the factional struggle in the CCP elite ranks.
2. If what Cui claims in his Nov. 7 WeChat post about him not being able to leave the country is accurate, then it means that while he is personally safe for the moment, his movements are being restricted. The line “thinking about it, I’m still your humble slave” (思來想去，內心還是個奴才構造) is Cui’s way of signaling that he is still loyal to the CCP and should be allowed freedom to travel.
3. Cui Yongyuan’s situation suggests that Xi Jinping still faces very high levels of political risk despite being able to convene the CCP Fourth Plenum to re-emphasize the primacy of his leadership and boost his “quan wei” (權威). The Jiang faction and other Xi opposition will likely seize on the increasingly tense Sino-U.S. relations, ambivalent trade talks, China’s rapidly worsening economy, and the chaos in Hong Kong to attack Xi Jinping and his supporters.
Given strong domestic pressures, Xi needs to reach some sort of trade agreement with President Donald Trump to alleviate some of the pressure. However, we are not optimistic about the prospects of a Sino-U.S. trade deal, particularly with factional struggles in the CCP being “you die, I live.”
SinoInsight 3
On Nov. 5, the People’s Bank of China released a public consultation draft notice on launching “large-scale cash management” systems in the provinces of Hebei, Zhejiang, and Shenzhen. The notice said that a pilot registration and analysis system for big cash deposits and withdrawals, as well as substantial cash transaction systems, will set up in the three aforementioned provinces. Corporate bank customers in the three provinces need an application to withdraw cash exceeding 500,000 yuan, while the threshold for personal accounts is set at 100,000 yuan in Hebei, 200,000 yuan in Shenzhen, and 300,000 yuan in Zhejiang.
On Nov. 6, the PRC State Council’s Financial Stability and Development Committee held its ninth meeting, which focused on financial risk in small- and medium-sized banks. Plans to “merge or reorganize” small- and medium-sized banks were potential risks were discussed at the meeting.
Also on Nov. 6, Yingkou Coastal Bank, a city commercial bank in Liaoning Province, saw a bank run. The local police refuted “untruthful rumors about the bank’s deep financial crisis spread online” and detained nine people for “spreading rumors,” while the local government issued a statement claiming that “all of our depositors’ money at Yingkou Coastal Bank is safe.” This was the second bank run in China within a span of 10 days.
OUR TAKE
1. We do not believe that the CCP’s plan to carry out “large-scale cash management” to prevent bank runs will have much effect. On the contrary, the CCP’s introduction of such financial control measures could spook bank depositors and inspire some of the large depositors to at least transfer their funds in small- and medium-sized banks to large banks. This is because many of the large depositors in small- and medium-sized banks are connected with CCP interest groups, would likely hear of bank problems ahead of the average depositor, and have the ability to make the bank transfers. Large depositor movement, however, would increase the financial risks faced by small- and medium-sized banks.
2. We warned in the Oct. 31 edition of this newsletter: “We believe that the CCP is still able to mobilize funds to rescue small banks from bankruptcy and revive depositor confidence in the short-term. However, the CCP’s ability to carry out financial rescue will diminish over time with the Chinese economy deteriorating rapidly and with the spread of financial risks. The CCP regime can still mobilize the armed police or the military to deal with bank runs, but the mobilization of security forces instead of financial support would indicate that the CCP is facing an unprecedented crisis and risks.”
The latest signs indicate that China’s financial risks are potentially more severe than we previously assessed, and a financial crisis could break out with little warning. We believe that this December and January 2020 are high-risk periods, particularly with Sino-U.S. trade negotiations being as shaky as they are. Businesses, investors, and governments need to be prepared for Black Swan events.
