SinoInsight 1
On Dec. 3, The Washington Times published an article on defecting Chinese spy Wang Liqiang’s 17-page statement given to the Australian Security and Intelligence Organization (ASIO).
According to the article, Wang had written in his statement that “in addition to arms procurement and influence operations, the military intelligence fronts were used to spy on Chinese officials who fled to Hong Kong after losing out in factional Chinese Communist Party disputes.”
For instance, former PRC vice president Li Yuanchao once made a “forced retreat” to Hong Kong, and Wang and other intelligence agents had “sought to pressure him into returning to the mainland as part of an investigation.” Wang and the others met with a “relative of Mr. Li’s at the Shangri-La Hotel in Hong Kong” and also “threatened Mr. Li’s wife as part of the pressure campaign and then began targeting the company he owned, identified as Leshi Internet Information and Technology Corp [Le.com].”
“The crisis of Le.com has never been a financial crisis as it has been known. It is in fact a political crisis. It was the faction strive [sic] inside the Communist Party of China that caused the collapse of this company,” Wang wrote in his statement to ASIO according to The Washington Times.
Wang Liqiang also noted that his former boss Xiang Xin, a Chinese executive based in Hong Kong whom Wang said was a PRC military intelligence officer, had told him that he “could have been a provincial governor but chose to remain undercover in Hong Kong to avoid factional fighting in Beijing.”
An unnamed U.S. official interviewed by The Washington Times said that Wang’s “information is very detailed and appears credible.” A former Defense Intelligence Agency counterintelligence official told the Times that he believes that Wang is a legitimate defector. “They will determine more during the debriefing process. They certainly have already done that otherwise this would not have gone public,” the former official said.
OUR TAKE
1. Wang Liqiang’s information about factional fighting in the CCP is mostly in line with what we have heard, observed, and have been writing about since 2017 (and earlier).
For example, we received information in December 2017 that former PRC vice president Li Yuanchao was being held in “shuanggui,” a CCP internal disciplinary and investigation system. In January 2018, we wrote that Li would likely step down at the 2018 Two Sessions due to factional struggle in the CCP.
We also noted after the 19th Party Congress in 2017 that Xi Jinping would step up anti-corruption efforts in the financial sector; Xi has used the anti-corruption campaign to go after his political rivals. Wang Liqiang’s claim that Le.com’s collapse is a “political crisis” and not a “financial crisis” corroborates our analysis.
2. As we wrote in our track record page, “Chinese Communist Party elite politics is upstream of nearly all issues in China today. And at the core of elite politics are factional struggles within the Party. Understanding factional struggle is key to making sense of China under Xi Jinping.”
Businesses, investors, and governments must closely track CCP elite politics and the factional struggle to avoid being blindsided by Black Swans and other political risks, and discover hidden opportunities.
SinoInsight 2
On Dec. 3, the PRC Supreme People’s Procuratorate (SPP) held an open day to “Promote the Spirit of Constitutionalism and the Modernization of the National Governance System and Ability.”
In a speech at the open day, SPP Procurator-General Zhang Jun said: “The Supreme People’s Procuratorate attaches great importance to equality and protects the legitimate rights and interests of private enterprises. The SPP clearly proposes that it will, where possible, not charge or arrest the people in charge of private enterprises who are suspected of criminal offenses. The SPP also proposes that petition letters will be replied within seven days and there will be a response to the petition within three months.”
Luo Qingdong, the deputy director of the SPP’s First Procuratorate, disclosed at the open day that the SPP had reviewed cases involving 1.277 million people between January to November this year and decided not to arrest 288,000 of the 1.277 million people (21.9 percent non-arrest rate). The non-arrest rate in the first eleven months of 2019 was 10.7 percentage points higher (about 168,000 people) as compared to 2009.
OUR TAKE
1. The CCP is boasting about “non-arrests” and “non-prosecution” as a form of propaganda to highlight political achievements and show that there is “judicial progress” in the PRC. However, the fact that the CCP regime can afford to make “non-arrests” and “non-prosecutions” is a clear sign that genuine “rule of law” is absent on the mainland; the CCP can easily “tighten” or “relax” its legal processes at any time to suit its needs.
Regardless, arrests in mainland China are up from a decade ago. According to public information released by the SPP, procuratorial organs in the CCP regime approved the arrest of 958,000 people and rejected the arrest of 112,000 people in 2009. Meanwhile, procuratorial organs approved the arrest of 997,000 people between January to November 2019 and rejected the arrest of 280,000 people. That means that procuratorial organs dealt with 39,000 more arrest approval cases in the first 11 months of 2019 as compared to 2009.
2. The fact that the CCP is promoting its “non-arrest, non-prosecution, non-probation” of private entrepreneurs suggests that many private entrepreneurs were arrested in China in the previous two years. This phenomenon is likely due to economic woes on the mainland, and indirectly confirms the rapid deterioration of the Chinese economy. The arrest of many private entrepreneurs could also have contributed to making the bad economic situation worse; that would partially explain why the CCP has to publicize its “non-arrest, non-prosecution, non-probation” of private entrepreneurs as a form of reassurance to them.
3. The CCP has been pushing its “the state advances, the private sector retreats” (囯進民退 or “guo jin min tui”) for several years. As China faced an economic downturn in 2015, the CCP adopted so-called “supply-side reforms” where private enterprises were suppressed using administrative means and state enterprises were allowed to form monopolies and substantially boost their profits.
Starting in 2018, the “guo jin min tui” strategy was advanced through ideology. In January 2018, the CCP ideological journal Qiushi published an article titled “Communists Can Sum Up Their Theory in One Sentence: Elimination of Private Ownership”; many public observers strongly criticized the “extreme left” views presented in the article. In June 2018, Qiushi ran a piece titled, “Communism is the Elimination of Private Ownership.” In September 2018, Wu Xiaoping, an establishment “senior financial person,” published an article titled, “China’s Private Economy has Complete its Task of Assisting the Development of the Public Economy and Should Gradually Retreat from the Scene”; the article again stirred public panic about “guo jin min tui.”
The “guo jin min tui” strategy has thus far proven to be detrimental of the Chinese economy. Private sector loses have been far larger than state sector profits; as a result, the PRC government has seen reduced finances and has to deal with growing unemployment.
4. In the last two years, the PRC central government has rolled out policies to reduce taxes and fees for enterprises, and also called on local governments to find ways to cut expenses. Faced with the above demands, local governments have moved to squeeze private enterprises to bolster their finances, either by investigating private enterprises for tax evasion (real or trumped up) or finding all sorts of reasons to slap them with fines. Private business owners who fail to pay fines or taxes are at risk of being investigated.
By late 2018, Beijing appeared to somewhat “relent” on the “guo jin min tui” strategy. In November 2018, Xi Jinping said at a symposium for private enterprises that “private and public entrepreneurs are all our own people.” Later, PRC justice minister Fu Zhenghua said during an inspection tour in Zhejiang Province that judicial organs should guarantee the “rule of law” and “rule of law environment” to facilitate the development of private enterprises.
However, the fact that the SPP had to hold a “Promote the Spirit of Constitutionalism and the Modernization of the National Governance System and Ability” open day recently to assuage private entrepreneurs suggest that the legal environment has not improved for them.
In September this year, Cai Xiaopeng, a former representative of the All-China Federation of Industry, Commerce, and Agricultural Products Chamber of Commerce and old college of Xi Jinping’s top ally Wang Qishan, said at a closed-door symposium that companies are “panic-stricken” because “public justice is too unruly.” Cai noted that while the central government had issued several documents on protecting private enterprises, “not one had been actually implemented” and “no legal proceedings have been started against the abuse of public justice.”
All in all, the business environment for private entrepreneurs in China remains very poor. As the Chinese economy deteriorates, local governments will keep trying to shake money from the private sector to replenish their coffers, a move that could help them earn or preserve political capital in the short-term, but will further worsen the Chinese economy in the medium- to long-term.
