SinoInsight 1
On March 5, PRC vice premier Sun Chunlan, Wuhan Party secretary Wang Zhonglin, and accompanying officials inspected several communities in Wuhan City. When Sun and her entourage visited the Kaiyuan Gongguan estate, however, local residents living in the area started yelling angrily from their apartments that the whole thing was staged. In videos of the inspection, residents could be heard shouting “fake, fake, it’s all fake”; “the estate is fake, estate management isn’t doing the job, replace the management”; “things have been very difficult for us”, etc. According to a social media account linked to a state-run media outlet, the residents also noted that the estate management company had rapidly cleaned up the estate before Sun Chunlan visited and even arranged for fake volunteers to deliver groceries to quarantined households. Many of the residents living in the estate have been essentially trapped in their homes since the Wuhan local government imposed a lockdown about 40 days ago.
After the Kaiyuan Gongguan estate incident, state media reported that Sun Chunlan had immediately requested that municipal and provincial leaders should carry out investigations to “thoroughly understand the situation.” In responding to Sun’s request, the Wuhan local government dispatched people to survey the over 3,000 residents at their homes.
On March 7, the Changjiang Daily, a media outlet run by the Wuhan Municipal Party Committee, reported that Wuhan Party secretary Wang Zhonglin had held a meeting in the evening of March 6 where he called on all local cadres to carry out so-called “gratitude education” among the city’s residents. The people of Wuhan should “express gratitude to General Secretary Xi Jinping, express gratitude to the Party, listen to the Party, and follow the Party,” Wang said.
Chinese netizens strongly condemned and ridiculed Wang’s “gratitude education” push. Many denounced Wang and the CCP for not doing a good job with the coronavirus prevention and control work, and denounced the CCP’s opportunism, or “spinning tragedy into cause for celebration” (喪事當喜事辦).
Separately on March 7, the local authorities sealed off all building entrances and exits, a move that was widely interpreted as retaliation against the residents for heckling Sun Chunlan.
On March 8, writings that were purportedly minutes from a teleconference meeting of the PRC State Council Information Office on March 7 made the rounds on Chinese social media. According to the minutes, the central authorities were aware that the “gratitude education” movement in Wuhan was facing public pushback to a scale that was similar to the public outcry over the death of “a certain doctor,” an oblique reference to Li Wenliang, the Chinese doctor who was punished for warning fellow medical professions in a chat group about the possible outbreak of a SARS-like coronavirus in December 2019.
The minutes also noted that the State Council Information Office was seeking the approval of the CCP central leadership to get Changjiang Daily to take down its “gratitude education” article and requested that other media outlets not publish additional reporting or commentary on the “gratitude education” issue. Instead, media outlets should seek to shift the direction of public opinion towards “relieve of worry” instead of educating them to be grateful.
OUR TAKE
1. The Kaiyuan Gongguan estate incident and Wang Zhonglin’s “gratitude education” meeting are clear propaganda missteps that have caused the CCP to lose some control over the coronavirus epidemic narrative (readers may recall that the CCP also lost control over the trade war narrative).
To gloss over the Kaiyuan Gongguan estate incident, the CCP is putting on a show of being “transparent” about local malfeasance and being “opened minded” enough to accept public criticism. This strategy will likely produce a mixed outcome because the problem of local maladministration and cover-up is prevalent and known to most mainland Chinese. Focusing attention on local malfeasance will eventually lead people to the more dangerous act of questioning the CCP’s overall handling of the epidemic and talking about the regime’s institutional problems.
Meanwhile, Wang’s “gratitude education” push has clearly backfired badly and the central government’s attempt to cover-up the issue could further stoke public discontent.
2. Incidents where Chinese citizens openly heckle senior CCP officials in person are extremely rare because many mainland Chinese are fearful of the Party and its penchant for retribution. Thus, the Kaiyuan Gongguan estate incident reflects a distinct shift in social attitudes towards the CCP on the mainland, and could prove to be a watershed moment.
Part of the reason for the shifting societal attitude in China is the threat of the coronavirus to people in all strata of Chinese society. The indiscriminate nature of the coronavirus, the CCP’s heavy-handed handling of the epidemic, and the near-solitary days of home quarantine for most families would have led people who previously did not care about politics or other injustices in the regime to reflect on the CCP’s governance and reconsider “sensitive” topics like “free speech” and “liberal democracy.” Put another way, the coronavirus outbreak is to the mainland Chinese what the anti-extradition bill protests are to the Hong Kong people, namely, a Black Swan event that forces even the most politically apathetic people to seriously think about CCP rule and how it affects their present and future.
3. CCP propaganda works best when people are content and unperturbed by crisis. Conversely, CCP propaganda loses its efficacy when whole societies are affected by crisis and Party rule is subject to extra scrutiny. Things could take an interesting turn in China if the phrase “it’s all fake” becomes a popular catchphrase to sum up what CCP rule means and the Chinese people start using it to show solidarity against the regime. The downfall of Serbian dictator Slobodan Milosevic shows how quickly popular sentiment can turn against unpopular dictatorships through the spread of a simple slogan (“Gotov je,” or “He’s Finished”).
Businesses, investors, and governments should not underestimate what it means for the authoritarian CCP to lose the hearts and minds of the Chinese people.
SinoInsight 2
On March 5, Reuters cited two sources as saying that PetroChina has suspended some liquefied natural gas and piped gas imports, and has issued a force majeure notice to suppliers of piped gas and at least one LNG supplier. PetroChina is China’s largest gas producer and piped gas supplier.
One of the sources told Reuters that PetroChina meets 40 percent of its total gas needs through imports. Also, about 70 percent of PetroChina’s imports are through piped gas from Russia, Myanmar, and central Asia, while the rest are through LNG.
Traders told Reuters that any cancellation of gas purchase by PetroChina is expected to have a big impact on prices since China is one of the world’s top gas and LNG importers.
On March 6, Reuters cited two sources as saying that China National Offshore Oil Corp has declared force majeure on prompt liquefied natural gas deliveries from at least three suppliers. On the same day, Reuters reported French oil company Total had rejected a force majeure from an LNG buyer in China.
According to PRC customs data, China imported 17.802 tons of natural gas in the first two months of the year, up 2.8 percent from the same period a year ago. The average import price was 2,764.6 yuan per ton, down 16.9 percent year-on-year.
OUR TAKE
1. SinoInsider readers will not be surprised to learn that China is suspending gas imports.
In recent editions of this newsletter, we noted that the CCP is still cover-up the actual epidemic situation and that there is local resistance to the central government’s push to resume regular work and production. And if regular production is interrupted, local governments are still enforcing lockdowns and home quarantines, and the movement of people and vehicles is greatly reduced across the country, then China will naturally consume less energy on the whole.
Official data confirms greatly reduced production and business activity (and hence correspondingly reduced energy consumption) in China can be seen from the official manufacturing purchasing managers’ index dropping to a record low of 35.7 in February as compared to 50.0 in January.
2. Reduced production and lower energy consumption in China will have negative implications for energy companies in particular and the Chinese economy in general. Energy companies face the problems of finite storage capacity, a cash crunch if they cannot offload their gas or oil products, and more costly imports in the future when the central government’s current stimulus measures (infrastructure building) causes currency devaluation.
We look at some related data points:
2.1. China could soon face an energy overcapacity problem if regular production does not resume quickly because the heavily oil-dependent PRC (China imports 60 percent of its oil) needs to maintain seizable stockpiles to meet its strategic requirements. According to the CCP’s medium- and long-term plan for national petroleum reserves (2008 – 2020), China will complete the construction of oil reserve facilities to store 90 days worth of oil by 2020, or about 503 million barrels worth an estimated $25.15 billion (presuming $50 a barrel of crude oil).
Lower production in China and the continued flow of imports (see France’s Total rejection of a force majeure notice from a Chinese LNG company as a case in point) means that the PRC could soon hit peak reserve capacity. Also, a lot of the PRC’s money would be left “locked up” in energy reserves instead of being spent elsewhere to stimulate the economy.
2.2. Official data from the first two months of the year indicate that the stagnation of the Chinese economy due to the coronavirus has put pressure on the PRC’s foreign exchange reserves.
According to customs data released on March 7, the total value of China’s exports in the January-February period was 2.04 trillion yuan, a year-on-year decrease of 15.09 percent. Meanwhile, China’s trade deficit in January-February was 42.59 billion yuan as compared to 293.48 billion yuan from a year ago.
Also on March 7, the People’s Bank of China announced that China’s foreign exchange reserves fell $8.779 billion in February to $3.107 trillion, the second consecutive month of declines. The decline in China’s foreign reserves follows a two-month surge in the appreciation of U.S. Treasury bonds being held by the PRC.
2.3. In what is almost certainly an attempt at stimulus, 13 Chinese provinces and municipalities recently released investment plans to finance various infrastructure projects totaling 33.83 trillion yuan. Also, the amount of currency in circulation in China increased by 9.3 trillion yuan in January 2020, or 1.6 trillion yuan more from a month ago.
The PRC’s coronavirus stimulus will inevitably lead to a significant depreciation of the renminbi. Chinese energy companies that cannot substantially raise their prices will suffer huge losses on the exchange rate.
3. The PRC’s suspension of energy imports will also impact its foreign relations.
The PRC government has established close ties with Russia, Iran, Myanmar, Venezuela, Saudi Arabia, and other countries to ensure a stable supply of energy. To facilitate energy purchase, the PRC opened an RMB-denominated crude oil futures exchange and even has plans to establish a new financial payment system.
The PRC, however, will almost certainly have to buy less from its usual clientele with the conclusion of the Sino-U.S. “phase one” deal in January. According to PRC customs data, China imports about $300 billion worth of crude oil, refined oil, and natural gas in 2019, of which natural gas accounts for $41.7 billion. In 2019, the PRC imported energy and energy-related products worth $42.5 billion from Russia and $41.2 billion worth from the United States. The “phase one” trade deal, however, requires China to purchase an additional $50 billion worth of energy from America over the next two years. An annual increase of $25 billion in energy is equivalent to 58.7 percent of the energy and energy-related products imported from Russia each year. Because the PRC has to meet the trade deal requirements to avoid an escalation in the trade war, it will have to reduce purchases from elsewhere, likely including Russia.
The coronavirus compounds the impact of the Sino-U.S. trade deal on the PRC’s energy imports. If we assume that the epidemic continues to impede the resumption of regular production until June, then the PRC will attempt to import less natural gas between March to May. In presuming a worst-case scenario where China imports 50 percent less natural gas between March to May this year and presuming also that China would have imported roughly the same amount of natural gas this year as in 2019, then the countries that typically export natural gas to China will sell $4.6 billion less to the PRC during the March-May period in 2020 (per PRC customs data, China imported up to $9.6 billion worth of natural gas during the March-May period in 2019.
All in all, reduced energy consumption in China due to the epidemic will cause the PRC to import less energy and spend correspondingly less in other countries. When those countries become less dependent on exporting energy to the PRC, they will become less easily swayed by the PRC’s diplomatic efforts. And when the PRC’s diplomacy becomes less effective, it ultimately hampers the CCP’s push for global hegemony.
