SinoInsight 1
In July 2018, we observed that the Trump administration is seeking to reshape the CCP-hijacked world order.
In August 2018, we noted a coming ideological turn in U.S. policy on China.
In our 2019 Special Report, we wrote that “China and the United States are presently waging a zero-sum ‘cold war.’”
In July 2019, we noted that the “current Sino-U.S. conflict is not just a trade war or a tech war, but a critical battle of ideology, value systems, and morality.”
Our analysis and observations above have been affirmed by various developments in Sino-U.S. relations over the past two years. Yet speeches by members of U.S. President Donald Trump’s Cabinet given over the past fortnight represent the clearest confirmation to date of our prescience.
On Feb. 6, U.S. Attorney General William Barr delivered a keynote address at the U.S. Department of Justice’s China Initiative Conference. In his address, Barr said that “politically, the PRC remains a dictatorship under which the Communist Party elite jealously guards its monopoly on power. Marxism-Leninism and Maoism linger on as justification for Communist rule, which is authoritarian through and through.”
Barr also said that the U.S. had “indulged the illusion of democratic capitalism as triumphant, unchallenged by any competing ideology” but now faces “a new era of global tension and competition” where “China has emerged as the United States’ top geopolitical adversary, based on competing political and economic philosophies.” He noted that for the PRC, “success is a zero-sum game” before proceeding to lay out the PRC plans to dominate 5G and other technology sectors. Barr said that some of the U.S. concerns about Huawei and PRC 5G “could be met by the United States aligning itself with Nokia and/or Ericsson through American ownership of a controlling stake, either directly or through a consortium of private American and allied companies … We and our closest allies certainly need to be actively considering this approach.”
On Feb. 15, U.S. Secretary of State Mike Pompeo gave a speech titled “The West is Winning” at the Munich Security Conference in Germany. Pompeo said that European nations and America “have maintained our freedoms and our sovereignty for the past 30-plus years” through the challenges of radical Islamist terrorism, a global financial crisis, and “in the face of an increasingly aggressive Chinese Communist Party.” He added that “the United States has woken up to the world where China’s unfair trading practices impact us, the Chinese Communist Party’s newly aggressive turn, and its military and diplomatic efforts that confront.”
Pompeo also laid out a broad and inclusive concept of what he means by “the West”: “The West is winning. Freedom and democracy are winning. And by that, I don’t mean just geographical nations. The West doesn’t define a space or a piece of real state. It’s any nation – any nation that adopts a model of respect for individual freedom, free enterprise, national sovereignty. They’re part of this idea of the West.”
Pompeo was followed by U.S. Secretary of Defense Mark Esper. Esper noted that “the Chinese Communist Party is heading even faster and further in the wrong direction” under Xi Jinping and that the international community should “wake up to the challenges presented by China’s manipulation of the long-standing international, rules-based order that has benefited all of us for many decades.”
Esper added that while the U.S. is not asking its partners to reject engagement with the PRC, “we ARE asking our friends to clearly choose a global system that supports democracy, protects human rights, and safeguards our greatest asymmetric advantages: our values, our shared interests, and our unmatched network of alliances and partnerships.”
Speeches by Trump’s Cabinet officials aside, the U.S. has continued taking action to address the Sino-U.S. “tech war.” On Feb. 13, the U.S. Department of Justice charged Huawei with racketeering and conspiracy to steal trade secrets. And on Feb. 16, Western news outlets report that the Trump administration is considering a proposal to stop deliveries of jet engines co-produced by General Electric Co. for a new airliner being developed in China due to concerns that the PRC could reverse-engineer the engines, break into the global jet-engine market, and undermine U.S. business interests.
OUR TAKE
1. In their recent speeches, Trump’s Cabinet officials have collectively identified what the CCP/PRC is (a dictatorship that adheres to Marxism-Leninism and Maoism), the values it stands for (authoritarianism, repression, predatory economics, etc.), what the CCP regime has done to undermine the international order, and the threat it represents to the world. And in stating the values that America, its partners, and various nations uphold (freedom, democracy, free enterprise, etc.), Mike Pompeo and Mark Esper have essentially juxtaposed the U.S. and CCP/PRC systems and called on the nations of the world to choose between one or the other.
We believe that the recent speeches by Pompeo, Esper, and William Barr are the clearest indication yet that the ideological turn in Sino-U.S. relations is now official and that “Cold War 2.0” is being waged in earnest. While the Sino-U.S. “phase one” trade deal has been concluded, the world will not see a return to the “normalcy” of engagement-era geopolitics. Nations will be increasingly compelled by circumstances to align themselves with either the PRC or America; nations that favor a non-aligned strategy will find it increasingly more difficult to preserve their interests.
2. In his speech, U.S. Secretary of Defense Mark Esper said that the U.S. “does not seek conflict with China” and urged partner nations to show the PRC “the right path, and nudge them down it.” This suggests that the Trump administration does not presently want to effect regime change in China but rather is trying to force the PRC to gradually change its behavior by getting the international community to be less accommodating to PRC pressure.
What the Trump administration intends, however, matters less than what the CCP believes the administration’s words and actions entail. The CCP will likely interpret the recent speeches by Trump’s Cabinet officials as a sign that the U.S. has begun an ideological battle with the PRC (what the CCP fears), and will likely respond in kind.
Depending on how the U.S.-PRC ideological battle unfolds, regime-ending Black Swans could emerge in China sooner rather than later. Some Black Swan leading indicators include:
- Whether or not the CCP will place the “racism” card against the Trump administration, and how the Trump administration reacts to this;
- How quickly the Trump administration moves to counter CCP external propaganda, and what actions are taken;
- How the Trump administration decides to respond to increased CCP influence and interference operations.
3. Businesses, investors, and governments who acted on our earlier analysis of the trajectory of Sino-U.S. relations and recognize the CCP’s problem with regime-ending Black Swans would have ample time to make preparations for more pronounced great power competition, including shifting supply chains, re-calibrating investment strategies, adjusting foreign policy, etc.
Businesses, investors, and governments who have not yet accounted for escalating Sino-U.S. rivalry or the CCP’s problem with regime-ending Black Swans should start making preparations.
SinoInsight 2
After Beijing acknowledged the Wuhan coronavirus (COVID-19) outbreak on Jan. 20, local governments rushed to lockdown cities and areas while high-ranking officials talked about “wartime conditions” and described epidemic control work as a “people’s war.”
Over the past week, however, the central government took measures which suggested that it was eager to rush people back to work.
On Feb. 14, Taiwanese enterprises in Jiangsu revealed that the local Public Security Bureau was sending its officials to various factories to compel them to resume production. To comply with the local authorities, large companies began searching everywhere for surgical masks and some are even preparing to purchase machines to make their own masks.
On Feb. 15, various PRC government departments issued emergency notices and policy requirements to local governments requesting that they resume production as quickly as possible, as well as keep logistics and material supplies moving. For instance, the General Offices of the PRC Ministry of Agriculture, the Ministry of Transport, and the National Development and Reform Commission jointly issued an emergency notice on “resolving current practical difficulties and accelerating the resumption of production and agriculture” which calls on areas not severely impacted by the coronavirus (like Wuhan) to resume regular production and agriculture work. Also, the PRC State Administration For Market Regulation, the National Medical Products Administration, and the National Intellectual Property Administration announced “Ten Articles on Supporting the Resumption of Work and Production.” Local governments also issued similar “work resumption” orders.
On Feb. 16, the CCP ideological journal Qiushi published a speech that Xi Jinping delivered during a Politburo Standing Committee meeting on coronavirus epidemic control work on Feb. 3. In his speech, Xi called on local governments to, under the precondition of doing good epidemic prevention and control work, “fully support and push” the various production enterprises to “resume work and production to maintain the overall stability of supply chains.”
OUR TAKE
1. Conventional wisdom suggests that the CCP is able to deal with crises better than democratic governments and “get things done” due to its “authoritarian advantage.” The Wuhan coronavirus outbreak, however, has effectively debunked the “authoritarian advantage” myth.
The CCP’s “epidemic prevention and control measures” prioritize regime security over the welfare of the Chinese people. Thus, local governments can lockdown cities on a whim to curb the spread of the plague without considering things like ensuring the flow of supplies, minimizing disruption to people’s livelihood, or the national economic situation. Then when the central government sees the need to resuscitate a suffocated economy, it has no qualms about rushing local governments to reopen cities and resume production, a move that could lead to a worsening of the epidemic if not handled well.
2. The CCP, however, cannot both have its cake and eat it. The central government’s recent measures to restore regular work and production has the potential to backfire spectacularly on the regime.
As touched upon in the previous point, forcing people and companies back to work without taking proper epidemic control precautions could hasten the spread of the coronavirus in mainland China. The second wave of lockdowns could involve more areas and even first-tier cities, and subsequent disruptions to work and production could be even more pronounced as compared to the January-February period.
Chinese society is already panic-stricken over the outbreak of the coronavirus, the lack of information about the epidemic due to strict government censorship, and the highly disruptive area lockdowns and other epidemic control measures. Recent central government orders to rapidly resume work and production will likely cause the Chinese people to worry and panic more, as well as deepen their distrust of the authorities. And if the epidemic worsens as a result of the work and production resumption orders, then the CCP regime will see its political legitimacy and credibility, which have already been seriously eroded due to its clumsy handling of the Wuhan epidemic, take another major hit.
Based on various reports and information channels, the resumption of work following the end of the extended Spring Festival holiday on Feb. 10 has resulted in mass infections and quarantines in some parts of China.
3. The central government’s bid to rush people back to work is almost certainly driven by concerns that the exodus of foreign capital would accelerate and the Chinese economy would tank if production is stifled for a prolonged period.
Yet it is uncertain whether local governments, concerned about the spread of the coronavirus in their area and the safeguarding of other local interests, would wholeheartedly comply with orders from Party central. For instance, the Economic Development Zone Management Committee of Lianyungang City in Jiangsu Province announced on Feb. 12 that companies must pay a “return to work deposit” to the local health authorities before they can resume work and production. The Lianyungang health authorities will refund the “return to work deposit” to companies after the public health crisis has blown over; should a company suffer an infection outbreak, the money in the deposit would be used to fund epidemic prevention and control work at the company. Given the seizable fees involved (to resume work, company legal representatives must deposit 100,000 yuan; company senior executives must deposit between 20,000 to 50,000 yuan; and employees must make a deposit equivalent to two months salary), Lianyungang City’s “return to work deposit” policy is almost certainly designed to deter companies from restarting normal operations and inadvertently worsening the spread of the epidemic in the city. And unless it is modified or scrapped, Lianyungang City’s “return to work deposit” policy will hamper the central government’s effort to get companies to resume regular production and work.
