◎ The current situation for Xi and the CCP is bleak in light of the “perfect storm” of domestic and foreign problems facing the regime.
At a glance, things could not be looking better for Chinese Communist Party General Secretary Xi Jinping. COVID-19 seems to be under control, as state media show with coverage of massive pool parties in coronavirus epicenter Wuhan and Xi’s ceremony lauding “heroes” of the “People’s War” against the virus. The People’s Republic of China has started publicly showing off its coronavirus vaccine and has projected its release by the end of the year. Economic data released in early September—rising exports, surging auto sales, and growing foreign exchange reserves—point to a coronavirus recovery. “China is the first major economy to return to growth since the COVID-19 pandemic,” state media reported Xi as saying on Sept. 8. Meanwhile, the CCP is preparing to unveil at the upcoming CCP Fifth Plenum in October a new five-year plan based on the so-called “dual circulation” strategy that analysts are viewing positively.
Go beyond the headlines, however, and things become a lot less certain for Xi and the CCP. For one, it is unclear if Beijing has truly curbed the coronavirus—which scientists have described as “diabolical” and Xi himself called a “devil”—or if recent propaganda projects are further attempts at cover-up. Continued attempts by the CCP to curb investigation into the origins of the coronavirus (see here and here) means that its narratives of “first to beat back the virus” and “saving the world” should be treated with extreme skepticism. It is also still too soon to say if China has truly “returned to growth” with the latest economic figures, which are less than spectacular. Finally, a closer look at the figures and anecdotal evidence (see here, here, here) suggest that “dual circulation” is far less positive for China than promoted.
‘Perfect storm’
The current situation for Xi and the CCP is bleak in light of the “perfect storm” of domestic and foreign problems facing the regime:
- Several systemic financial and economic problems are at risk of being triggered, including a mounting debt crisis and a massive property bubble (see our newsletter entries).
- Local government fiscal woes, including reduced tax revenue and troubles with paying civil servant wages, pensions, and public security.
- Food shortages due to government corruption, poor harvest, and natural disasters in breadbasket areas (flooding and typhoons).
- Floods that hit 27 provinces and reached historic levels in several areas.
- An America that is standing up to the CCP across the board effectively, including the targeting of the Party’s Achilles Heel areas like ideology, human rights, trade, and tech.
- Strengthening U.S. alliances to counter the CCP, including efforts to “formalize” the Quad security grouping (U.S., Australia, Japan, India) with an eye on China and the possible expansion of the “Five Eyes” intelligence-sharing alliance to include the PRC’s close neighbor and rival Japan in a “Six Eyes” arrangement.
- Growing global support for Taiwan and its inclusion in international organizations.
- Broad international condemnation of the CCP’s move to impose a national security law over Hong Kong and firm U.S. action against the PRC for its “normalization” of the territory before the conclusion of the “One Country, Two Systems” arrangement in 2047.
- Rising anti-CCP sentiment in the free world, particularly in regions that were “on the fence” or even pro-CCP in the past decade like Europe and India. The CCP’s recent actions, such as COVID opportunism, border clashes with India, provocations in the South and East China seas, and bullying of Australia and European countries will hasten and intensify the spread of anti-CCP sentiment globally.
Some of the problems listed above are serious enough on their own for the CCP elite to hold Xi Jinping accountable under normal circumstances. In fact, it is almost certain that the Party elite have already privately raised their concerns with Xi. A sizable proportion of the CCP are also dissatisfied with the direction that Xi is taking the regime—exiled Party princeling Cai Xia revealed that over 70 percent of middle- to high-ranking CCP officials believe there must be “reform” in Xi’s China.
Meanwhile, Xi’s latest efforts to further tighten his control over the Party and clear out lingering rival factional networks, including a renewed campaign to rectify the political and legal affairs apparatus (see here and here) and roll out a digital currency, will pressure his factional enemies into moving against Xi before the 20th Party Congress. The balance of the CCP factional struggle will swing too far in Xi’s favor if he were to secure a third term in office in 2022, replace retiring factional rivals in senior positions with loyalists, and introduce policies to strengthen his grip on power.
However, the “anti-Xi coalition” presently does not have sufficient ability or pretext to oust Xi owing to several reasons:
- Xi might not have the “quan wei” of a Mao or Deng, but he has consolidated power to a very high degree in the regime. Any effort to openly move against Xi without an exceptionally strong rallying figure and sufficiently strong political grounds will be crushed and will doom subsequent efforts at resistance.
- The “anti-Xi coalition” does not have a ready candidate who can replace him at a moment’s notice.
- The CCP elite are currently more inclined to project a sense of “unity” in the face of a legitimate, external existential threat (America and the free world becoming increasingly clear-eyed about and willing to act on the “China challenge”) when they do not yet have the ability or pretext to oust Xi.
- Xi’s policies have yet to be perceived as an unmitigable failure because major external circumstances are still in flux, particularly the outcome of the 2020 U.S. presidential election.
- Last but not least, because Xi has closely intertwined his position with that of the CCP by virtue of consolidating power through adhering to Party orthodoxy, both him and the CCP share the same exposure to political risk and fate. Party propaganda calls for the upholding of the “CCP with Xi Jinping as its core.” If Xi were to be exposed as “problematic,” then the Party would too be problematic; this is akin to the situation in post-Mao China where Deng and the CCP were compelled to judge Mao as “seven parts good, three parts bad” so as not to delegitimize the Party, despite the Chairman’s ruinous and traumatizing rule. Put another way, whatever threatens Xi poses a threat to the Party, and vice versa.
Not having sufficient ability or pretext to oust Xi, however, does not mean that Xi’s rivals are not actively working to that objective. We previously laid out the various “soft coup” attempts against Xi since 2017, including the Sun Zhengcai–Fang Fenghui–Zhang Yang case, the Meng Hongwei case, and the recent shift in the factional struggle from “you lie, I live” to “perish together” (同歸於盡) brought on by the efforts Xi’s rivals have taken to undermine his leadership.
Meanwhile, his position in the regime notwithstanding, the totality of challenges Xi faces at present have him in what is arguably the most precarious moment of his leadership since 2012, the year Xi foiled a coup by the Jiang Zemin faction on the eve of assuming office.
Black Swans in China
The conditions are now in place for the CCP regime to meet its “Berlin Wall moment.” Political Black Swans and tremendous change could come to China very quickly if some or all of the following developments unfold in the coming months:
China
- The PRC is overwhelmed by systemic economic and financial risks, including the bursting of the property bubble.
- The PRC’s need to maintain the RMB exchange rate and other fiscal emergencies prompt the large-scale selling of U.S. Treasury bonds.
- Capital flight results in a severe shortage of foreign exchange reserves.
- The renminbi depreciates sharply.
- China’s food security becomes a visible social issue.
- Local governments are unable to pay civil servants or finance disaster relief due to fiscal shortages.
- China sees a compounding of popular unrest owing to myriad domestic woes and anger with the government for its corrupt and repressive measures. The authorities could rapidly lose control of the situation if local governments cannot adequately finance or sustain “stability maintenance” operations. Trouble areas to watch include Hong Kong and Inner Mongolia.
- It becomes increasingly apparent that “dual circulation” is an attempt by the CCP to partially close up China (半閉關鎖國).
- China is hit by another round of contagious infectious diseases that triggers or exacerbates most, if not all, of the developments mentioned above. The infectious disease in question could be a second wave of COVID-19, or a deadlier mutation (natural or man-made). The CCP’s notorious history with the manufacture of dangerous vaccines also means that vaccine-related diseases cannot be ruled out.
International
- The Trump administration continues to tackle and give prominence to the CCP’s politically sensitive human rights abuses, including the mass incarceration and cultural genocide of Uyghur Muslims in Xinjiang, and live organ harvesting of Falun Gong adherents and other prisoners of conscience.
- The Trump administration uncovers evidence of CCP interference in the 2020 elections and retaliates strongly.
- President Trump wins re-election and moves to fulfill his second term agenda—economic decoupling from China and holding the CCP fully accountable for the coronavirus pandemic.
- Taiwan is reintegrated into the world stage in increasingly prominent ways, such as being admitted as a member of a new global health organization.
- A growing number of countries decide to reject Chinese tech or stand up to the CCP. These countries do not necessarily have to ally themselves with the United States for their actions to damage the Party’s geopolitical interests.
- The Sino-Indian border clash could escalate into a larger, but still limited armed conflict.
- The CCP’s continued border provocations could lead to minor skirmishes in the Indian Ocean and South China Sea. Increased aggression from Beijing could spark a limited regional war.
Especially with what the CCP is already going through, the above U.S.-related developments, those involving economics, and another round of infectious diseases are sufficient to trigger a showdown in the CCP between Xi Jinping and his factional rivals. Depending on the severity of the showdown, the CCP factional struggle could escalate to a point where it becomes more perceptible to the public, potentially endangering Xi’s prospects of holding a smooth Fifth Plenum this October. The factional clash could see purges of retired Politburo Standing Committee members or even active Politburo members; meanwhile, Xi’s enemies may disregard CCP regime survival in their desperate attempts to undermine his leadership and safeguard their interests.
Should Xi find himself backed into a corner by his rivals, he will be forced to choose between either continuing to uphold the Party’s rule, or taking steps to secure his personal survival. We believe, however, that the CCP regime will collapse regardless of which path Xi opts to take, given the “perish together” escalation in the factional struggle and the sum of crises facing the PRC.
In June, we gave a 30 percent chance that the CCP regime will collapse by the end of 2020, and a 50 percent chance of regime collapse before June 2021. If some or most of the developments that we outlined in this segment come to pass, particularly the U.S. presidential election-related and infectious diseases developments, then we estimate the odds of regime collapse by the year’s end to be as high as 50 percent.
