SinoInsight 1
On July 17, the PRC’s financial regulators announced they were taking over nine financial institutions affiliated with Chinese conglomerate Tomorrow Holding Ltd. Co. The following day, Tomorrow Holding issued a statement arguing that its operations were normal despite being tightly regulated by the authorities and that financial regulators were exaggerating risks.
Tomorrow Holding was founded by Xiao Jianhua, a mysterious Chinese billionaire based in Hong Kong. In January 2017, Xiao made headlines worldwide after he was “vanished” from his luxury apartment in Hong Kong to mainland China by PRC security agents. Xiao is widely believed to be an unofficial money launderer for the clan of former Politburo Standing Committee member Zeng Qinghong and other associates of the Jiang Zemin faction, as well as Party princelings and other members of the CCP elite.
OUR TAKE
1. Xi Jinping has likely targeted Xiao Jianhua’s Tomorrow Holding again due to factional struggle concerns. The factional struggle in the CCP elite has been steadily escalating since the Wang Lijun incident in 2012, and we analyzed several months prior that the factional struggle now treads toward a “perish together” (同歸於盡) direction. Also, we recently analyzed that the CCP factional struggle is a key reason why Xi rushed to enact national security law over Hong Kong.
2. Xi has good reasons to make an example of Xiao Jianhua, the Hong Kong-based “bagman” of anti-Xi CCP elite in Hong Kong and the mainland. Xi’s factional rivals in Hong Kong and the mainland have continuously vexed him during his eight years in office. In particular, Xi’s rivals are the culprits for aggravating the 2015 stock market turbulence in China, an event some China analysts refer to as a “financial coup” against the Xi leadership. Several prominent Jiang faction members reportedly had a hand in the “financial coup,” including then-vice chairman of Citic Securities Liu Lefei.
The takeover of the nine financial firms affiliated with Tomorrow Holding by PRC regulators is likely designed to “kill the chickens to scare the monkey” (殺鷄儆猴) and ensure that rebellious CCP members are also intimidated by the new national security legislation in Hong Kong. Xi’s rivals in Hong Kong and the mainland will get the hint they are being put on notice and stand to see their financial assets confiscated should they be suspected of plotting against the Xi leadership. Party princelings and other factional elements in Hong Kong are also disincentivized from challenging Xi because they can be legally “vanished” at any time by PRC national security agents in the city over suspicion of violating “national security”; the Xi leadership counts economic security as a part of national security.
3. The timing of the government takeover of the nine financial institutions linked with Tomorrow Holding and the recent publication of an article on the leadership of the CCP in the Qiushi ideological journal suggest that Xi Jinping could be proactively shutting down opposing voices ahead of the informal but important annual gathering of Party elites at Beidaihe. The CCP elite and Party elders will have much to gripe about given the “perfect storm” of problems plaguing the Chinese communist regime. Xi is faced with a deteriorating Chinese economy, the coronavirus, floods along the Huai and Yangtze river regions, and an escalating “new cold war” with America, including a reported U.S. travel ban on CCP members and tough U.S. actions against the CCP over the Hong Kong national security law.
Xi needs to control the agenda at Beidaihe meetings in the lead up to the 20th Party Congress in 2022 to secure a third term in office and ensure that personnel reshuffles at that key political conclave go his way. Thus, Xi needs to keep stressing his paramount authority (定於一尊) in the Party while placing the CCP elite on notice for “improper discussions of Party Central” (妄議中央), especially before critical gatherings like those at Beidaihe where the Party elite attempt to reach a consensus on key issues of the day.
It is presently unclear if the Beidaihe meeting will be held at all this year given the coronavirus situation and tightened control over the movement of CCP elites on the mainland. However, local residents are reporting heightened security (stricter security checks at train stations in Beidaihe as compared to Beijing, non-shipment of items like razor blades to residents, etc.) in the Beidaihe District of Hebei Province in July, according to an overseas Chinese language media outlet. If the security situation in Beidaihe District endures or ramps up in August, there is a very good chance that the Beidaihe meeting will commence.
SinoInsight 2
On July 19, the PRC authorities raised the flood alert level in the Huai River region from level II to level III, the second-highest level on a four-tier scale. The Huai River flows through major agriculture and manufacturing hubs in the provinces of Henan, Anhui and Jiangsu. Previously, the PRC authorities had raised the flood alert level in the Yangtze River region from level II to level III on July 12.
According to data from the PRC’s Ministry of Water Resources on July 16, an estimated 20.27 million people have been affected by rising flood levels in 24 provinces in China. The floods also saw the emergency resettlement of 1.764 million people and affected 2.208 million hectares of agricultural land (harvests were damaged in 381,000 hectares of agricultural land) per the July 16 data. Data released by the Ministry of Water Resources on July 19 show that the amount of affected agricultural land had risen to 2.478 million hectares with an estimated economic loss of 64.39 billion yuan.
The Ministry of Water Resources notes that 433 of China’s rivers have flooded, with 33 rivers swelling to record water levels and 109 flooding above so-called “guaranteed” levels. Two small dams in the provinces of Guangdong and Guangxi have reportedly burst due to the flooding. Meanwhile, a hot topic of discussion among Chinese netizens is the rumored failing structural integrity of the Three Gorges Dam. Official denial that the Three Gorges Dam is failing by Party mouthpieces like the Global Times have backfired, instead increasing public panic; fervent and outright denials of facts by PRC authorities are oftentimes viewed as evidence that confirms what is officially denied must indeed be taking place.
Meanwhile, the PRC’s National Bureau of Statistics announced data for summer grain production for 2020 on July 15. According to official figures, China produced 142.81 million tons of grain in the summer of 2020, an increase of 1.208 million tons (0.9 percent) from the same period in 2019.
OUR TAKE
1. The CCP’s summer grain production figures for 2020 are likely fraudulent given the range of harvest-affecting disasters that have plagued China this year:
- January-March: The spread of the Wuhan coronavirus across China led to lockdowns and delayed seeding. Grain productions would have also been affected by the restriction of domestic travel for migrant workers.
- March: The autumn harvest of corn in South China was affected by locusts; over 13 million mu (about 866,666 hectares) of wheat in nine provinces in China were affected by crop diseases.
- April: Crop planting in Heilongjiang Province is affected by rare and heavy snow and hail storms.
- June: Agricultural land in northeast provinces, Yunnan, and Hubei are plagued by locusts. Meanwhile, floods start breaking out in South China, affecting 11 provinces.
- July: Heavy rains and flooding in the Yangtze River region affect both agricultural lands and fishing.
2. The crop fields in the provinces of Jiangsu, Jiangxi, Anhui, Hubei, and Hunan account for a quarter of China’s total grain production and yield 65 percent of China’s total rice production. Those lands have been affected by the flooding of the Yangtze and Huai rivers in June and July, with July being a harvest month. A conservative estimate of flood damage would decrease China’s summer harvest by at least 10 percent, not increase 0.9 percent per official data.
3. We have warned of a food crisis in China on several occasions in recent years. The food crisis is partly the result of serious corruption by PRC officials and partly due to natural disasters affecting harvest. We are thus highly skeptical of the recently released summer grain production figures as well as PRC claims this year that China does not face food shortages.
A serious food crisis in China will delegitimize the CCP in the eyes of the Chinese people and hasten the arrival of a “Berlin Wall” moment for the CCP. Businesses, investors, and governments must prepare for political Black Swans and tremendous change in China.
