SinoInsight 1
The CCP continues to chip away at Hong Kong’s freedoms with arrests, targeting media outlets and prominent individuals, and attacks against a persecuted religious group. Meanwhile, the United States signals it is prepared to push back against the CCP’s abuses in Hong Kong, particularly those perpetuated under the new National Security Law (NSL), and defend religious freedom.
Arrests
- On Aug. 26, Hong Kong police arrested 16 people, including pro-democracy lawmakers Lam Cheuk-ting and Ted Hui Chi-fung, over triad attacks in Hong Kong’s Yuen Long district last July. Lam had earlier described the triad attacks of passersby as “indiscriminate,” blamed the police for their tardiness, and asserted that they were accomplices to the assailants. The police claimed that “both sides” used force in Yuen Long and the public had been misled on the incident.
- On Aug. 27, several news outlets reported the PRC coastguard intercepted a boat en route to Taiwan and detained over 10 Hong Kong residents on board. One of the detained is a Hong Kong activist arrested a fortnight ago under the NSL.
Media
- On Aug. 28, VanGO, a PRC state-owned convenience store chain with over 30 outlets in Hong Kong, stopped carrying Apple Daily, a pro-democracy newspaper critical of Beijing. Apple Daily circulation staff were only notified of VanGO’s decision at the door, when they tried to deliver papers to its convenience stores.
- On Aug. 29, Dr. Arisina Ma, president of the Hong Kong Public Doctors’ Association, declared she is not a Falun Gong “practitioner, follower or member” in a statement on her Facebook page after receiving NSL-related threats. “Any person or organization fabricating, distributing or circulating such false information may constitute defamation, and I reserve all my legal rights to pursue them,” she wrote. Ma’s statement was a response to what appears to be a CCP-backed disinformation campaign targeting her after she did an interview with The Epoch Times, a media outlet founded by Falun Gong adherents.
Religious freedom
- Between Aug. 21 to Aug. 25, a Falun Gong information booth in Hong Kong’s Mong Kok district was repeatedly attacked by pro-CCP vandals, according to overseas Chinese language media reports. The vandals splashed black paint on various information boards and banners at the booth, including a banner with the slogan “Heaven Will Destroy the CCP” (天滅中共). On Aug. 24, a female Falun Gong practitioner caught a male pro-CCP vandal in the act and yelled for assistance. Two youths who were passing by detained the activist. While waiting for police to arrive, the pro-CCP vandal told the Falun Gong practitioner: “Why do you still put up [Falun Gong material] when the NSL has been passed? When the police arrive, let’s see who they will arrest. You or me?” The practitioner later filed a vandalism complaint with the Hong Kong police, who accepted it.
United States
- On Aug. 26, Secretary of State Mike Pompeo issued a statement expressing dismay that “the Chinese Communist Party’s coercive bullying tactics against our friends in the United Kingdom continues.” Pompeo cited the example of British bank HSBC preventing Hong Kong-based executives at Next Media, the company behind Apple Daily and other pro-democracy publications, from “accessing their credit cards and personal bank accounts” while “maintaining accounts for individuals who have been sanctioned for denying freedom for Hong Kongers.” Pompeo wrote that “free nations must ensure that corporate interests are not suborned by the CCP to aid its political repression” and the U.S. is ready to help the U.K. government “resist CCP bullying and stand for freedom.”
- On Aug. 29, Secretary of Defense Mark Esper met with Japanese defense minister Taro Kono in Guam. Esper expressed to Kono “serious concern regarding Beijing’s decision to impose a national security law in Hong Kong, as well as coercive and destabilizing actions vis-à-vis Taiwan.”
- On Aug. 29, The Epoch Times premiered an interview with Ambassador at Large for International Religious Freedom Sam Brownback. Brownback criticized Beijing for turning Hong Kong’s “one country, two systems” into “one country, one system,” and described the CCP as the “biggest enabler of human rights abuses around the world” and a “global leader in persecution.” He also said: “For years, the world kind of turned a blind eye to what the Falun Gong was saying about organ harvesting … now you have two credible institutions outside of China saying that yes, this organ harvesting is taking place … this is just horrific, what’s taking place. I just don’t think that the world can now sit back and say we’re just not sure if this is happening … I think we do know, and I think we have to act.”
OUR TAKE
1. If not for fear of backlash, the CCP would have eviscerated all opposition to its rule in Hong Kong yesterday, wantonly wielding the NSL to contain all “counter-revolutionary” pro-democracy/anti-CCP elements in the territory to preserve regime stability. However, the close scrutiny from the U.S. and other free nations over the NSL, and stiff pushback meted out by the Trump administration have forced the CCP to take it slow and test waters.
To achieve the goal of “maintaining stability” in Hong Kong in the face of international opposition, the CCP is resorting to classic salami-slicing tactics to gradually erode freedoms in Hong Kong and instill a climate of terror. At the top level, the CCP works through the city’s government and police force, using the NSL or other means to target and arrest pro-democracy lawmakers and activists. At the ground level, the CCP manipulates local pro-CCP elements, including various individuals, groups, and businesses, to take advantage of the NSL environment to restrict freedoms, spread disinformation, divide and conquer the masses (群衆斗群衆), attack persecuted religious groups, and sow fear in the populace through intimidation tactics. The pace at which the CCP salami-slices Hong Kong’s freedoms can be curtailed if the U.S. and other free nations strongly rebuke and impose penalties on the Chinese communist regime for its transgressions. However, barring regime collapse, the CCP will not cease its efforts to “normalize” Hong Kong as failure to do so endangers the PRC, especially when the U.S. and China are in a “new cold war.”
2. The CCP’s salami-slicing tactics in Hong Kong are best seen in by the recent actions taken against Apple Daily and The Epoch Times (see above, here, and here), including harassing individuals interviewed by those publications like Dr. Arisina Ma. For the CCP, a crucial first step in curbing opposition and spreading fear is gagging independent media, their supporters, and other voices who have steadfastly refused to bow down to authoritarian pressure. The CCP will continue barraging independent media, cripple them financially, siphon away willing interviewees and/or proponents, until they lose popular backing domestically and internationally. Once independent media in Hong Kong quietly disappear, the CCP will take more drastic steps to completely strip the territory of its freedoms and expand brutal persecution campaigns (against Falun Gong, house Christians, ethnic minorities, etc.) on the mainland in Hong Kong. The Dr. Ma case and the Mong Kok Falun Gong information booth vandalism case, however, suggest the people of Hong Kong are currently resisting, standing firm in the face of a growing CCP disinformation and smear campaigns against independent media and religious groups. Meanwhile, Ambassador Sam Brownback’s recent interview with The Epoch Times and strong remarks against the CCP’s forced organ harvesting of prisoners of conscience (the bulk of whom are Falun Gong adherents) will give the CCP pause as it makes inroads into persecuting Falun Gong in Hong Kong (and even on the mainland).
Businesses, investors, locals, and foreigners in Hong Kong should not presume that they are exempt from persecution so long as they comply with the NSL and do not challenge the CCP. The CCP regime is a Marxist-Leninist regime, and Marxist dialectic demands the perpetual existence of “oppressors,” “capitalists,” and “counter-revolutionaries” for the regime to struggle against. Once the CCP is done with pro-democracy activists, Apple Daily, The Epoch Times, and Falun Gong, it will fabricate new enemies, and indiscriminately target ordinary Hongkongers and foreigners, including those who do not run afoul of the NSL, for the purpose of “stability maintenance.”
3. The CCP is still moving cautiously on Hong Kong in part because the U.S. has been responding to its abusive behavior with a series of appropriate countermeasures. Secretary Pompeo’s statement last week spotlighting HSBC can be taken as a direct warning that the Trump administration will move to punish the British bank and other foreign businesses should they take the CCP’s side on the Hong Kong issue.
The Trump administration will likely continue with their salami-slicing approach to rolling back CCP influence, up until the U.S. presidential election in November. In an Aug. 19 news article, Home Furnishings Association cited a D.C. lawyer as saying, “I’ve been told by Trump campaign officials and administration officials to expect an announcement of punitive action against China and Chinese companies every three to four days between now and Election Day”; this information seems accurate in tracking recent U.S. actions against China and President Trump’s second-term agenda items pertaining to the PRC. October could shape up to become a crucial month for Sino-U.S. relations.
SinoInsight 2
On Aug. 19, the PRC Ministry of Finance released China’s fiscal data for the period of January to July 2020. Per the ministry’s figures, China’s national general public revenue for the aforementioned period declined 8.7 percent from a year ago to 11.4725 trillion yuan (about $1.6711 trillion); the national general public expenditure fell 3.2 percent year-on-year to 13.3499 trillion yuan; and China’s fiscal deficit grew 52.1 percent from the previous year to 1.88 trillion yuan.
On Aug. 21, the PRC State Administration of Foreign Exchange (SAFE) released figures showing that Chinese banks ran a deficit of $2 billion in foreign exchange settlement and sales by banks for customers in July. Conspicuously, the surplus of foreign transactions pertaining to portfolio investment dropped sharply to $500 million from $20 billion in June. Previously, Chinese banks saw three consecutive months of foreign transaction surplus from April to June (China re-opened in March).
On Aug. 29, the official WeChat account of “China Comment” (Ban Yue Tan, 半月談), a CCP-run newsletter, posted an article on the financial woes of local governments. Key information in the article includes:
- Zhang Ruhong, the mayor of Linhe District in Inner Mongolia, divulged recently that his government pays out 1.8 billion yuan annually to nearly 20,000 civil servants and pensioners (or over 90,000 yuan per person). However, Linhe District’s expected revenue for the year is estimated at only 1.648 billion yuan, down 62 million yuan from a year ago.
- The basic-level government in Linhe District’s Baji Township has an annual operating cost of $600,000 and runs a deficit of $200,000, according to Baji Party Secretary Li Yong. Li also noted that the township “often uses this year’s funds to pay off last year’s debt.” Meanwhile, Baji Township spent $500,000 on epidemic control work despite being only allocated $200,000, running an additional $300,000 deficit.
- Currently, provincial governments are financing the basic-level government deficits by issuing bonds or raising funds through loans.
- The central government issued 1 trillion yuan worth of special government bonds so far this year to finance epidemic work, and allocated 300 million yuan to an unnamed county in South China.
OUR TAKE
1. The recently released government data affirms our previous analyses (e.g., here, here, here) regarding the dire financial problems plaguing the CCP regime. The central government’s finances are shrinking, while provincial and basic-level governments run substantial deficits merely maintaining operations. Meanwhile, China seems to be seeing overseas hot money outflows.
2. The PRC’s fiscal issues suggest the CCP still has not brought the Chinese economy back to speed after the coronavirus lockdowns in the first quarter of the year. Despite propaganda boasts about China’s return to normalcy, passenger traffic, an indicator of economic activity, remains relatively low as compared to the previous year. According to data from the PRC Bureau of Statistics (see Table 1), passenger traffic in China only recovered about 60 percent of previous levels (2019) from May to July (although figures are gradually increasing). Coronavirus conditions and diminished passenger traffic means fewer migrant workers and lower economic activity, with lower economic activity translating to less government revenue. Another indicator of government fiscal problems is the very modest sums allocated for flood rescue work.
Compounding the CCP’s fiscal problems is the cost of maintaining “big government.” Per the CCP Organization Department’s 2019 Party statistical communique, there are as many as 7.678 million CCP members working in Party and state agencies. If we presume the average annual salary of a civil servant is about 90,000 yuan (based off what government staff in Inner Mongolia’s Linhe District earn), then the CCP has to spend at least 691.02 billion yuan on wages. No small sum.
The “Ban Yue Tan” article notes that the central government has thus far raised 1 trillion yuan through the sale of special government bonds to finance epidemic work, or enough to provide about 350 million yuan each to the 2,853 counties in China. The 350 million yuan, however, is merely a drop in the bucket for provincial and basic-level governments who financially support a large staff.
3. We previously warned of financial risks stemming from the Sino-U.S. trade war and a debt crisis facing China’s property sector (see here and here). The SAFE data cited above confirms China’s bleak economic outlook. Massive outflows of hot money could also potentially trigger systemic financial risks.
According to SAFE data (see Table 2), China saw trade surpluses from January to July 2020, with a peak of $25.7 billion in June. However, the figure fell to $23.4 billion in July, lower than the $23.8 billion in May. More worrying for the CCP is the drastic drop in foreign transactions pertaining to portfolio investment to $500 million in July, a sign of hot money outflows and coming pressure on the renminbi exchange rate. Once the market anticipates less room for speculative profits in the Chinese markets and the RMB depreciates, China could see even more hot money outflows.
4. In his annual work report at the Two Sessions, Li Keqiang did not set a GDP growth target, but instead emphasized the so-called “six stabilities” and “six guarantees.” One of the items in the “six guarantees” is “guaranteeing operations of basic-level institutions”—a tough ask given the financial shortages in provincial and basic-level governments, coronavirus conditions, and serious flooding.
Businesses, investors, and governments need to read between the lines of CCP propaganda to spot economic Gray Rhinos. When economic Gray Rhinos charge, political Black Swans are not too far behind.
