SinoInsight 1
On Oct. 12, former CCP Central Party School professor Cai Xia tweeted that the recent trend of jointly appointing town vice mayors as town police chiefs in China is really a “reform” aimed at bolstering the public security apparatus (“it is actually the town police chiefs that are becoming town vice mayors”). Cai believes the move signals the strengthening of the CCP police state.
On Oct. 14, the Educational Testing Service released its TOEFL (Test of English as a Foreign Language) test slots for 2021 at 10:00 a.m. Chinese netizens later complained that all available TOEFL slots from January 2021 to August 2021 for Beijing and Shanghai candidates were snatched up within 5 minutes.
On Oct. 18, the Shanghai Municipal Bureau of Market Regulation and the Shanghai based dairy products company Bright Dairy & Food officially denied a widespread internet “rumor” that the latter had been fined 300,000 yuan (about $44,800) recently for running the advertising wordplay, “Please Give Me Bright [Dairy & Food]” (請給我光明). The last two characters, “guang ming,” has multiple meanings in Chinese, including “bright” or “hope”, causing speculation the company was fined for saying, “Please Give Me Hope.”
In its official statement, the Shanghai Municipal Bureau of Market Regulation claimed that Bright Dairy & Food was fined 300,000 yuan on Sept. 27, 2020 because the company was in violation of Article 9, Item 4 of the Advertising Law of the People’s Republic of China for using an inaccurate map of China in a video advertisement. Article 9, Item 4 states that an ad shall be prohibited from “damaging the dignity or interest of the state or divulging any state secret.” A copy of the ruling put up on a government website on Oct. 13 stated that the authorities had discovered Bright Dairy & Food’s breach of ad regulation on April 9, 2020, and that the company took down its video ad shortly after receiving notification of it.
Bright Dairy & Food’s statement admitted that its video ad, which had been up on its website since June 2018, did not “provide a complete and accurate representation of the Chinese territory.” The company also explicitly denied that it was being fined for the ad slogan, “Please Give Me Bright [Dairy & Food].”
OUR TAKE
1. The CCP’s propaganda outlets and “Great External Propaganda Plan” (大外宣) apparatus have been actively promoting China’s economic “recovery” and the regime’s prospects as a COVID and financial “safe haven.” The recent news items above, however, suggest that it is wary of deteriorating “social stability”—contrary to its “all’s well” and “China’s prospects are bright” propaganda narratives. The news items also hint at the Chinese people’s rising dissatisfaction towards the CCP regime.
2. Cai Xia makes a rhetorical point in stating that “town police chiefs are becoming town vice mayors,” but she is correct in her analysis that the CCP is strengthening its police state.
In recent years, executive branch members of provincial, city, and county governments have jointly held the top public security post in their jurisdiction. Some vice governors or vice mayors have served concurrently as provincial or city police chiefs (like the infamous Wang Lijun when he was in the Chongqing municipal government), while other county vice governors also function as county police chiefs. There was even a period where some police chiefs served as Party secretary of their local Political and Legal Affairs Committee, which meant that the public security branch held sway over the courts and procuratorates in those jurisdictions.
If the trend of town vice mayors doubling as town police chief continues, this indicates the public security apparatus at the township level will obtain more power and resources. This move suggests the CCP is pessimistic about the regime’s prospects, making precautionary preparations for more ensuing social instability, and preemptively strengthening its police state at the lower levels of government.
3. The high demand for TOEFL test slots in Beijing and Shanghai suggests that the Chinese people have a strong desire to emigrate from China to the U.S. and/or other English-speaking countries, despite deteriorating Sino-U.S. tensions and rising barriers to entry. It is not a good look for the CCP that the Chinese who do desire to emigrate are from China’s wealthy, cosmopolitan areas.
Citizens in authoritarian regimes have few channels to express their dissatisfaction with the government without risk. The climate of censorship, distrust, and “political correctness” in China means that polls declaring “very high satisfaction with the central government” can be very misleading even if the polling methodology itself is sound. A better way to ascertain if the Chinese people really approve of their government is to see how many “vote with their feet” come crunch time. Indirect emigration indicators like TOEFL test slots can sometimes reveal more about “government satisfaction” than polls.
4. The recent Bright Dairy & Food ad case also reveals widespread dissatisfaction with the CCP regime in China.
There are several curious elements about the case suggesting that while official statements from both the company and the authorities might be factual, they are doubling as a cover for their true intent—which is the CCP curbing what it perceives to be a potentially serious political incident before it snowballs into social unrest.
The fact that both the Shanghai authorities and Bright Dairy & Food had to publicly deny a mere internet “rumor” confirms its politically sensitive nature. One of the possible meanings of Chinese characters “guang ming” (光明) in the ad “Please Give Me Bright [Dairy & Food]” is “Please Give Me [the Light of Hope and Freedom].” The pun in the ad can be interpreted as a jab against the CCP, implying the Chinese people are in a hopeless situation under the regime’s jackboot. Given the double meaning, it is easy to understand why the Shanghai authorities would want to shut down “rumors” about the slogan. Whether or not the “Please Give Me Bright [Dairy & Food]” is indeed a “rumor” is secondary; the primary point is that the Party is paranoid to the point where it will attack anything remotely politically taboo to safeguard its political legitimacy.
We were unable to independently verify whether the “Please Give Me Bright [Dairy & Food]” ad slogan genuinely existed or is merely a sensational fabricated internet rumor. The CCP is known to be very diligent in erasing and censoring politically sensitive content from the Chinese internet. However, the official denials by the dairy company and the Shanghai authorities offer clues about the veracity of the “rumor.” First, it is a gross overreaction on the Shanghai authorities’ part to slap a hefty fine over a two-year-old video ad the company quickly took down after an issued warning. Second, it is overly petty of the Shanghai authorities to declare the company’s use of an inaccurate map of China qualifies as “damaging the dignity or interest of the state”; the fact that such a charge was levied, however, suggests that the dairy company did indeed commit a “crime” fitting that criteria. Third, the company had to explicitly, publicly deny it was fined over a “Please Give Me Bright [Dairy & Food]” ad slogan, whereas the government was silent on the issue, which reveals the extreme sensitivity of the issue for the CCP.
SinoInsight 2
Early last week, the Australian government said it was investigating reports China had stopped accepting Australian thermal and metallurgical coal. Chinese sources say that Chinese ports have notified steel mills, cement factories, and relevant industries that Australian coal will not be accepted from Oct. 1 onwards. An Oct. 15 report on China energy news portal china5e.com said over 20 ships bearing 3 million tons of Australian coal are still waiting to clear customs at the port of Jintang in Hebei Province.
Some observers have speculated that China’s unofficial embargo of coal imports from Australia is yet another attempt by Beijing to punish Australia for drawing closer to the United States in confronting the “China challenge.” Earlier this year, the PRC already imposed restrictions on Australian beef, barley, and wine.
Australian prime minister Scott Morrison told the media, “When it comes to coal, in China they do have their own coal industry and it is not uncommon that from time to time the Chinese government will have domestic quotas to support local production and local jobs in China. The arrangements they put around domestic quotas in coal production is not unusual.”
Near the end of the week, Australian industry groups said that China was targeting Australian cotton. “It has become clear to our industry that the National Development Reform Commission in China has recently been discouraging their country’s spinning mills from using Australian cotton,” said a joint statement from Cotton Australia and the Australian Cotton Shippers Association issued on Oct. 16.
On Oct. 17, The Wall Street Journal reported that PRC government officials have been warning their American counterparts “repeatedly and through multiple channels” that the regime may detain U.S. nationals in China in response to the Justice Department’s prosecution of PLA-affiliated scholars and researchers. The CCP has been partaking in “hostage diplomacy” in recent years with the arrest, detention, and interrogation of Australian, Canadian, and Swedish citizens on suspect allegations.
OUR TAKE
1. Between Australia, Canada, and the U.S., only Australia enjoys a trade surplus with China (2019: $73.3 billion surplus; Jan-Aug 2020: $43.6 billion surplus). The CCP is likely taking advantage of Australia’s dependence on exporting to Chinese markets to punish the latter for playing an increasingly active role alongside the U.S. in a growing “anti-CCP” bloc.
2. The CCP’s trade actions against Australia, however, are not without repercussions for China.
Coal
a. Chinese industries have long been dependent on Australia for quality iron ore and coal. During the timeframe it takes for China to find an alternative supplier, coal prices in the country will undoubtedly rise. Rising coal prices will place an additional strain on companies already struggling from the coronavirus fallout.
b. Data from the PRC National Bureau of Statistics and the General Administration of Customs show that imports of Australian coal from January to August this year reached 70.43 million tons, or 91.5 percent of total imports last year. Australian coal accounts for 26 percent (about 77 million tons) of China’s total coal imports (300 million) in 2019.
Based on quantity alone, imported coal comprises less than 10 percent of China’s coal supply in 2019, with domestic production accounting for 3.75 billion tons. However, domestic coal contains a lot of impurities, and Chinese steel mills have a preference for clean, high-quality imported coal, particularly from Australia. This is why China imports large amounts of Australian coal yearly.
After news of the CCP’s possible retaliatory move broke, China’s metallurgical coal futures rose. Also, the price of low-sulfur coal from the port of Qinhuangdao (“Qinhuang 5500” grade coal) rose 51 yuan per ton from Sept. 1 to 630 yuan per ton, according to china5e.com.
Cotton
a. According to data from the National Bureau of Statistics and the General Administration of Customs, China produced 5.889 million tons of cotton and imported 1.85 million tons (about $3.5 billion in total value) in 2019. Of the 1.85 million tons, about 400,000 tons (21.6 percent of total imports) worth $817.7 million (23.4 percent of total import value) came from Australia.
b. According to official figures, China’s cotton imports fell 17 percent to 1.19 million tons from January to August this year. The total value of cotton imports fell 28.5 percent to $2.02 billion.
Meanwhile, China’s clothing exports from January to August 2020 decreased 15.74 percent from a year ago to $82.61 billion, according to Ministry of Industry and Information Technology data. Clothing export figures were negative in the first seven months of the year before positive growth was restored in August ($16.21 billion, up 3.23 percent YoY). The January-August period also saw China’s export of textiles increase 31.99 percent year-on-year to $104.8 billion, likely the result of a spike in global demand for face masks and other textile-related personal protective equipment.
China’s total cotton production for the year is expected to increase 0.4 percent from a year ago to 5.868 million tons, according to an August survey by the state-owned China Reserve Cotton Information Center.
China is the largest buyer of Australian cotton and the world’s second largest producer of cotton. The textile and garment industry is also one of the pillars of China’s exports. Orders, however, have dropped significantly this year due to the pandemic. As the demand for cotton products diminishes, the CCP has more “wriggle room” to turn a negative (economic downturn) into a positive (punishing Australia) for the regime.
3. Beijing might perceive Australia to be a weak threat, believing it has more leeway to bully Australia into not siding with America in the Sino-U.S. new cold war, or at least offer a tame challenge to China. Bullies, however, often waver, when their tactics are met with pushback, instead of fear. Australia will give the CCP pause if it does not submit to Beijing’s tactics, sticks to its values, and stays the course in working with its allies to counter the CCP threat. Australia could even cow Beijing, if it employs novel strategies targeting the CCP’s sensitive spots.
4. The CCP might be hesitant to detain Americans until after the U.S. presidential election on Nov. 3, to avoid creating an election topic for either candidate to exploit. However, Beijing could succumb to the temptation of retaliatory detentions, if it is backed into a corner in the coming weeks.
U.S. businesses with staff in China and China-based foreign investors must weigh rising political risks in China associated with the new cold war and take appropriate measures.
