SinoInsight 1
On Feb. 23, Xi Jinping addressed about 170,000 cadres and military personnel on epidemic prevention and control work in a national teleconference meeting. According to the People’s Daily official WeChat account, this was the largest teleconference meeting ever held in the PRC.
All members of the CCP Politburo Standing Committee were in attendance. However, state broadcaster CCTV footage of the Feb. 23 national teleconference showed that the unofficial “eighth” Politburo Standing Committee member, PRC vice president Wang Qishan, was absent from the meeting. On Feb. 27, state media reported that Wang had attended a foreign reception.
Xi’s speech, which was over 10,000 characters long, was divided into four parts:
- The first part (3,509 characters, or 32.8 percent of the speech) saw Xi give an account of how he worked rapidly to deal with the coronavirus outbreak and listed seven “achievements” in major areas.
- The second part (2,242 characters, or 20.9 percent of the speech) dealt with what the PRC had done to handle the epidemic in seven areas.
- The third part (2,649 characters, or 24.7 percent of the speech) looked at eight ways in which the PRC can restore economic production.
- The fourth part (2,224 characters, or 20.8 percent of the speech) focused on the need to strengthen the Party’s leadership over epidemic prevention and control work and economic development.
Key points of the speech include:
- Xi acknowledged that that coronavirus outbreak was the biggest public health emergency since the founding of the PRC and is “both a crisis and a big test” for the regime. He also talked up the so-called “institutional advantages” of the CCP regime. Further, Xi noted that it is unavoidable that the epidemic would hugely impact the economy and society.
- Xi said that the focus of epidemic prevention and control work in Wuhan City and Hubei Province is curbing the export of the coronavirus to other areas. As for Beijing, the focus is preventing the import of the coronavirus and its spread in the capital. Xi also called on cadres to step up “public opinion control and social stability” measures.
- Xi demanded that local governments not implement a “one-size-fits-all” approach to epidemic prevention and control work, and that production should be resumed as soon as possible. He also said that the Party’s leadership must be strengthened, officials who fail in their work should be punished, and that there must be the “vigorous promotion” of obedient officials.
The CCP propaganda apparatus lauded Xi’s Feb. 23 speech in a high profile manner for several days. A sample of headlines from Xinhua reports of Xi’s speech follows:
Feb. 23
- “General Secretary Xi Presides Over a Meeting of the Politburo Standing Committee, the Next Step of Prevention and Control Work Strategy is Decided!”
Feb. 25
- “At this Meeting, Xi Jinping Proposes a ‘Must-win Guide’”
- “Super-large Meeting Transmits Resolute Confidence”
- “Strengthening Must-win Confidence, No Talk of Success Until Complete Victory: General Secretary Xi Jinping’s Important Remarks at the Conference on Coordinating and Promoting the Novel Coronavirus Pneumonia Epidemic Prevention and Control Work and Economic and Society Development Work Meeting Provides Inspiration and Boosts Morale”
Feb. 26
- “Xi Jinping’s Important Remarks: A Program for Complete Victory Over the Epidemic”
- “General Secretary Xi’s Important Remarks Guides the Central Authorities to Act Together”
- “General Secretary Xi’s Remarks Attract Global Attention, Strengthens Confidence”
OUR TAKE
1. Xi Jinping was likely looking to address several political and operational issues via his massive Feb. 23 national teleconference:
- Xi’s number one priority would be leaving CCP cadres with the impression that his political position is stable. There were concerns earlier about Xi’s political standing because he temporarily “vanished” from the public eye and from state media headlines between Jan. 30 and Feb. 4. Based on our research, we believe that Xi very likely encountered stiff challenges (possibly even a coup attempt) from political rivals over the coronavirus outbreak, and thus “vanished” briefly to deal with factional struggle matters. Given the state media’s promotion of Xi’s Feb. 23 speech, his remarks about biosecurity on Feb. 14 and Qiushi Journal publishing his Feb. 3 speech to the Politburo on Feb. 15, and the “resurgence” of Xi in Party propaganda and renewed “Great External Propaganda Plan” (大外宣) efforts to attack detractors of the regime and sell the PRC’s handling of the coronavirus outbreak, it appears that Xi has defused the recent serious political challenges to his leadership and is more or less secured his position for the moment.
- Xi is looking to shift part of the responsibility of the regime’s epidemic prevention and control work to the other Politburo Standing Committee members, the central authorities, and local officials. That is why he first held himself “accountable” by spending nearly a third of his speech listing out what he had done before instructing cadres to take some initiative in handling the epidemic (no “one-size-fits-all” approach to epidemic prevention and control work).
- By directly addressing 170,000 cadres, Xi is likely looking to mitigate the regime’s age-old “game of telephone” problem in epidemic prevention and control work.
2. It is paramount for Xi to leave CCP cadres with the impression that he is not being hampered by factional struggle problems to facilitate effective epidemic prevention and control work and safeguard his political standing.
Under normal circumstances, cadres will either sit on their hands or put up “passive resistance” to Party central when there is serious infighting among the CCP elite until the outcome of the factional struggle becomes clearer. For whoever is in charge of the regime, cadre passivity leads to economic slowdown and maladministration (see here).
Cadre passivity becomes far more consequential during a major public health crisis like the COVID-19 outbreak when the central government needs local governments to obey orders so that the epidemic prevention and control work can be carried out efficiently. Worse, the regime may see a rise of “regionalism” as cadres shift from passivity to being “proactive” in looking out for local interests first; the case of the Yunnan provincial government punishing local officials in Dali City for intercepting surgical masks bound for Chongqing is an example of “proactive” cadre behavior in a time of crisis.
3. Xi could be looking to boost epidemic prevention and control work efficiency with the Feb. 23 national teleconference by eliminating the “game of telephone” that is played whenever orders from Party central get passed down to local governments in the provinces, the counties, and the cities. When orders are passed down via “game of telephone,” they usually become more “politically correct” (in most cases, 寧左勿右, or “better left than right”) by the time they reach the lower level governments. Xi is also almost certainly looking to pass responsibility for decisions on whether to enforce quarantine measures or get people back to work to local governments so that he can avoid being held to account later should problems arise.
CCP political culture, however, will guarantee that Xi fails to achieve either objective. A common saying in the PRC is “the top has policies, but the bottom has countermeasures” (上有政策, 下有對策). Local officials may understand perfectly what Xi is driving at, but they will find “innovative” ways to fulfill them and safeguard their political capital. For instance, local governments can both ensure that strict quarantine measures are in place and show on paper that regular work production has been resumed (factories can turn on their machines and “show” that work is being carried out as measured by electricity consumption). When the regime runs into trouble later due to fraudulent practices at the local level, Xi Jinping will still be blamed because he is the Party’s “core” leader and the buck stops with him.
4. From Xi’s Feb. 23 speech and the personnel in attendance, it is clear that the regime prioritizes regime stability over the Chinese people’s welfare during an epidemic outbreak. That is why we forecasted in our China 2020 outlook that “we do not rule out the possibility that the PRC will use unethical means to contain the spread of the diseases and eliminate the epidemics.”
5. Warring CCP factions can temporarily put hostilities on hold and reach a “consensus” when they need to ensure regime survival in the face of unprecedented risks. The recent “re-appearance” of Xi suggests that he could have sold the other CCP elites a way to transform the regime’s unprecedented risks into unprecedented opportunity to advance the Party’s domination agenda (see SinoInsight 2), and thus buying himself some “breathing space” in the factional struggle.
6. Wang Qishan’s absence from the national teleconference and his recent “vanishing” from public view is something to keep an eye on. Xi may have dealt with recent serious challenges from rivals, but he is most definitely not out of the woods yet if the reason for his close confidant’s public “absence” is a political compromise.
7. While there appears to be a “lull” in the CCP factional struggle, the infighting has not ceased and will only grow fiercer. Because it is not well understood by most and even outright denied by some, the current factional struggle among the CCP elite will become the Black Swan event that blindsides the world when its full implications become apparent. Businesses, investors, and governments must not be fooled by the thin ice that is the CCP’s “authoritarian advantage” and should start to develop contingencies for coming regime instability.
SinoInsight 2
Over the past week, South Korea, Japan, Iran, and Italy reported the rapid spread of the COVID-19 coronavirus in their territory. On Feb. 25, the United States Centers for Disease Control said that it is expecting the coronavirus to spread at the community level and warned that “disruption to everyday life may be severe.” On Feb. 26, San Francisco declared a state of emergency over the coronavirus, while the New York Police Department handed out “thousands upon thousands of gloves, masks and wipes” to its police officers. On Feb. 27, Australian prime minister Scott Morrison said that “there is every indication that the world will soon enter a pandemic phase of the coronavirus.” At the time of writing, there are over 82,000 confirmed cases of COVID-19 in at least 50 countries in the world.
The coronavirus outbreak has hit global supply chains (China), manufacturing sectors (China, South Korea), and even the fashion industry in Milan (Italy). On Feb. 17, Apple said that it does not expect to meet its second-quarter revenue forecast due to lower iPhone supply globally and lower Chinese demand due to the epidemic. A survey conducted Feb. 17 to Feb. 20 by the American Chamber of Commerce in China (AmCham) found that almost half of U.S. companies in China expect revenue declines in 2020 if business cannot return to normal by the end of April. A fifth of the survey respondents expected revenue to drop by over 50 percent if the epidemic lasts through Aug. 30.
The rapid spread of the epidemic spooked global markets, resulting in $3.6 trillion in value being wiped out after global markets plummeted for six consecutive days. On Feb. 27, the Dow Jones Industrial Average entered correction territory for the first time since December 2019, falling nearly 1,200 points; the Dow fell over 1,000 points on Feb. 25 and nearly 900 points on Feb. 26.
As the coronavirus outbreak transitions from epidemic to pandemic, the PRC is projecting the notion that it is bringing the coronavirus under control. PRC health authorities have been reporting fewer and fewer new confirmed cases and deaths in the past week. The central government is rushing local governments to get people back to work to resume regular production. The propaganda apparatus has begun to give credit to Xi Jinping for his leadership in the public health crisis. And while the Chinese markets also declined along with global markets over the past six days, the prior period where the epidemic appeared to be at its worst in China saw the markets make logic-defying gains. Between Feb. 3 to Feb. 21, the Shanghai market grew by over 3.54 trillion yuan while the Shenzhen market increased in value by 4.19 trillion yuan. And between Feb. 19 to Feb. 21, the Shanghai and Shenzhen markets saw a combined transaction volume of over a trillion yuan a day.
OUR TAKE
1. The coronavirus outbreak in China has seriously impacted CCP elite politics, as well as the Chinese economy and society. Regime-ending Black Swans could yet be triggered by a pandemic, and the CCP faces unprecedented risks and what could be its toughest fight for survival to date since the end of the Cultural Revolution in 1976.
The CCP, however, has much experience in surviving against great odds and cannot be written off too quickly. Several factors boost the regime’s survivability in a pandemic:
- The CCP has demonstrated time and time again in history that it has no qualms with sacrificing the Chinese people to advance its agenda or preserve Party rule. So the Party should be taken seriously when it declares that the people of Wuhan have been sacrificing themselves “for the greater good” of the country and the world by enduring a crippling lockdown.
- Because no policy is too unethical for the regime when its survival is at stake, it is entirely within reason for the CCP to accept “losing” Wuhan or even Hubei Province to the coronavirus if it means preserving the rest of China. The CCP can even deny medical supplies and other essentials to people who refuse to go back to work due to concerns about the epidemic, and thus ensure a certain level of production when other countries are beginning to quarantine workers.
- The CCP has not yet fully utilized all its “stability maintenance” tools, but can roll them out should the situation calls for it. For instance, the People’s Liberation Army could be deployed to instill de facto martial law in problematic regions. The CCP can also threaten to withhold the distribution of medical supplies and other essential material to recalcitrant areas.
- In dire situations, the PRC central government can introduce requisitioning laws to reclaim capital from the people and prop up the regime.
- Despite the severeness of the epidemic, the Chinese markets still went up in the earlier weeks of April. This is likely due to CCP intervention and international investments. To keep attracting capital and investments to China, the CCP could use foreign investors’ confidence in its authoritarian government’s ability to weather a pandemic better than the governments of other countries.
The rapid spread of the coronavirus outside China has also brought unprecedented opportunities for the CCP to advance its domination agenda:
- China is still the world’s second largest economy and the world’s factory. In a pandemic, this gives the PRC tremendous leverage over countries that cannot produce their own medicine, medical supplies, and other essentials.
- The CCP will likely use its leverage over production to coerce smaller and neighboring countries into aligning more closely with the PRC and accelerate its push to become a regional hegemon.
- Bigger countries that are capable of shifting supply chains back home or at least out of China still need time to do so. In the interim period, they are vulnerable to PRC pressure, and particularly if there is a pandemic.
- The United States, the PRC’s biggest geopolitical rival, will likely be hesitant to push the CCP too hard during a pandemic for fear of destabilizing the communist regime and severely affecting the global economy. The CCP will use this fear to hold the U.S. in a “hostage situation” and mitigate the geopolitical Black Swan risks that threaten its survival.
On paper, the CCP looks likely to survive the unprecedented risks brought about by the coronavirus, and could even seize the opportunity to make a push for global dominance. Reality, however, is far messier. The CCP’s so-called “authoritarian advantage” is inhibited by the natural inefficiencies of Leninist centralized control (do local officials take initiative in a crisis or stay “politically correct” and wait for instructions from the top?) and “you die, I live” factional struggles in the CCP elite. Election pressures in the United States could also affect how President Trump deals with China. It is too early to assume that the coronavirus outbreak will not become the “Chernobyl” that brings down the CCP.
2. The coronavirus outbreak in China and what seems like the imminent arrival of a pandemic presents a serious challenge to globalism, or at least its production-related aspects.
Countries and multinational companies are quickly discovering the dangers of being overly dependent on the PRC for manufacturing. To cope with the coronavirus’s impact, some multinationals have begun shifting supply chains. According to a Feb. 26 report by Nikkei Asian Review, Google and Microsoft are stepping up efforts to shift production of their new phones, computers, and other devices from China to Southeast Asia, with factories in Thailand and Vietnam the expected beneficiaries of the shift.
Meanwhile, the Trump administration appears to be taking the opportunity to double down on its “America First” policy. According to a Feb. 26 report by Politico, White House trade and manufacturing policy director Peter Navarro and “the administration’s other China hawks are pushing to use the coronavirus crisis to press U.S. companies to end their dependence on foreign suppliers.” A day earlier, Donald Trump Jr., the eldest son of President Trump, tweeted that the coronavirus outbreak shows that his father was “right to want a trade policy focused on increasing American manufacturing” because he “understands that it’s dangerous for our economy to be beholden to China.”
We believe that the coronavirus outbreak will very likely speed up the revival of America’s manufacturing industry and local manufacturing elsewhere as countries move to develop a degree of production self-sufficiency. Countries with no manufacturing base could also actively seek alternative suppliers and reduce their overall dependence on PRC products to hedge against future epidemics on the mainland.
The shift from globalization to localization of production would likely take place within a couple of years instead of over several decades. And once certain supply chains shift out of China, such as the production of essential medicines, existing supply chains on the mainland will be less competitive as countries factor in product safety, epidemic, and other disasters into cost considerations. The trend of reduced reliance on PRC products presents a dire and imminent threat to the CCP regime.
