SinoInsight 1
Dec. 10
The Yunnan branch of Hupan University, a corporate business school in Zhejiang Province founded by Jack Ma, announced that it has stopped accepting bids to build the school campus.
This Aug. 25, the Kunming local government signed a cooperation framework agreement with Hupan University to establish a branch university in Yunnan. The agreement set aside 1,281 acres for the campus, and construction was to be fully funded by the Kunming local government.
Dec. 15
Sun Tianqi, director of the People’s Bank of China’s Financial Stability Bureau, said many banks and internet financial platforms (like Alibaba’s Ant Group) have launched online deposit products over the past two years. “The proxy sales of bank deposit products on third-party internet financial platforms are illegal financial activities, and are like ‘driving without a license’,” Sun added.
Dec. 17
Radio Free Asia cited a source familiar with matters at Alibaba Group, saying that a central joint investigation team recently stationed agents in a number of e-commerce and internet companies under the Alibaba Group.
Dec. 18
1. Alibaba Group issued a statement refuting “rumors” in “foreign media” about the stationing of central joint investigation team agents in its companies.
2. Mainland media reported that Alipay and other internet financial platforms have stopped offering online deposit products. Alipay app users can no longer access online deposit products, unless they were purchased previously.
3. According to a report by The Wall Street Journal, Jack Ma told PRC regulators during a Nov. 2 meeting, “You can take any of the platforms Ant has, as long as the country needs it.”
Dec. 20
Lou Jiwei, a member of the Standing Committee of the Chinese People’s Political Consultative Conference and former finance minister, spoke at the China Wealth Management 50 Forum.
Lou criticized “financial disorder” at Baoshang Bank and Hengfeng Bank, and added that mixed business operations are not the way to go. He added that internet financial platforms should be prevented from becoming “too big to fail.” Further, Lou said that systemic financial risks should be resolved in the best interest of taxpayers, while those involved in corruption and misappropriation of funds should be held accountable to the furthest extent.
OUR TAKE
1. The above remarks by senior financial officials indicate that the CCP elite are very concerned about China’s financial risks, particularly risks stemming from “too big to fail” internet financial platforms like Alipay. Ironically, the roll out of CCP policies in recent years to grow the real economy by promoting “financial innovation” and “financial inclusion” have instead expanded China’s financial bubble and risks, without adequately resolving financial difficulties in the real economy. Failure of CCP policies can be partly attributed to institutional problems inherent in the authoritarian regime and Party culture.
2. The CCP’s intent in targeting Jack Ma and the institutions he founded (Alibaba, Ant, Hupan University, etc.) is a bid to “kill the chickens to scare the monkeys,” and bring other “too big to fail” Chinese internet and technology companies in line. We explained earlier that Chinese internet and tech giants pose a legitimate threat to the CCP’s comprehensive control over society, finance, and information. The Party cannot allow the power of capital to supersede the power of politics in the regime. Thus, Xi Jinping is curbing the expansion and monopoly of Chinese internet and tech giants, and could even break up some of the bigger companies.
Xi, however, faces increased political risks by moving against Chinese internet and tech giants. These giants are usually backed by members of the “red aristocracy” and strong factional forces, and the CCP elite will not take too kindly to Beijing infringing upon their interests. While the Xi leadership regulates internet and tech giants to strike a balance between profit generation and de-risking, vested interests will inevitably be hurt by the central government’s actions. Resentment will likely escalate the CCP factional struggle and hasten the end of the “red” dynasty.
3. The CCP’s recent spotlighting of financial risks affirms our earlier analysis of how Beijing believes it is relatively “safe” to carry out deleveraging in view of a pro-China Biden administration. We expect the CCP to roll out more economic and financial policies and regulation in the near future to curb financial risks.
Communist China’s derisking measures, however, could haunt them should President Trump secure a second term. This Black Swan event will severely impact the Chinese economy and the CCP regime, which is already on the verge of collapse.
SinoInsight 2
Dec. 16
Senator Tom Cotton (R-Ar) and Congressmen Chris Smith (R-NJ) and Tom Suozzi (D-NY) introduced the bipartisan Stop Forced Organ Harvesting Act in the House and Senate.
If passed, the Act will:
- Authorize the U.S. government to deny or revoke passports for illegal organ purchasers.
- Mandate annual reporting on forced organ harvesting in foreign countries. The State Department reporting would identify foreign officials and entities responsible for forced organ harvesting.
- Mandate an annual report on U.S. institutions that train organ transplant surgeons affiliated with foreign entities involved in forced organ harvesting.
- Prohibit the export of organ transplant surgery devices to entities responsible for forced organ harvesting.
- Sanction foreign officials and entities that engage in or otherwise support forced organ harvesting.
Dec. 18
1. The U.S. added 59 PRC companies to the Entity List, including Semiconductor Manufacturing International Corporation (SMIC) and SZ DJI Technology Co, for national security reasons. According to a U.S. Commerce Department statement, the entities enabled human rights abuses (4 entities), supported the militarization and unlawful maritime claims in the South China Sea (36 entities), as well as acquired U.S.-origin items in support of People’s Liberation Army programs and engaged in the theft of U.S. trade secrets (19 entities).
In a statement on the sanctions, Secretary of State Mike Pompeo said, “We urge the Chinese Communist Party to respect the human rights of the people of China, including Tibetan Buddhists, Christians, Falun Gong members, Uyghur Muslims, and members of other ethnic and religious minority groups.”
2. Xinjiang “Julian” Jin, a former Zoom Video Communications Inc. executive working in China, was charged by the U.S. government for censoring Chinese dissidents who held Tiananmen Square Massacre commemoration events on Zoom in May and June 2020. Zoom said Jin was terminated following an internal investigation and they are cooperating with the U.S. government on the matter.
3. President Donald Trump signed the Holding Foreign Companies Accountable Act, a piece of legislation that would delist Chinese companies that fall short of American auditing standards from U.S. stock exchanges.
According to the bill, foreign issuers of securities must disclose:
- The percentage of shares owned by governmental entities where the issuer is incorporated.
- Whether these governmental entities have a controlling financial interest.
- Information related to any board members who are officials of the Chinese Communist Party.
- Whether the articles of incorporation of the issuer contain any charter of the Chinese Communist Party.
4. The State Department announced that the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the United States (TECRO) signed a new Science and Technology Agreement (STA) to “advance joint understanding on a broad range of science and technology topics.” The STA builds on the Economic Prosperity Dialogue between the United States and Taiwan on Nov. 20.
Dec. 21
Secretary Pompeo announced additional restrictions on visas issued to PRC officials “who are believed to be responsible for, or complicit in, policies or actions aimed at repressing religious and spiritual practitioners, members of ethnic minority groups, dissidents, human rights defenders, journalists, labor organizers, civil society organizers, and peaceful protestors.” Family members of those officials may also be subjected to additional restrictions.
OUR TAKE
1. The Trump administration continues to toughen its stance on the CCP, while strengthening bilateral relations with Taiwan. We expect this trend to accelerate should President Trump win re-election. An escalated U.S. pressure campaign against China will expedite the arrival of the CCP’s “Berlin Wall” moment in 2021.
2. The introduction of the bipartisan Stop Forced Organ Harvesting Act follows a call by House Republicans to take action against the CCP over the issue in September. Top officials at the State Department, including Secretary Pompeo, are also investigating the CCP’s forced organ harvesting of prisoners of conscience, the bulk of whom are Falun Gong practitioners. We believe the bill will pass both the House and the Senate, and eventually be signed into law by President Trump.
As we previously analyzed, forced organ harvesting and the persecution of Falun Gong are extremely sensitive issues in the CCP regime, because they are a keypoint of former Party boss Jiang Zemin’s political legacy and concern Jiang faction interests. Although the Jiang faction diminished under the Xi leadership, Jiang faction members still hold top offices today in the political and legal affairs apparatus (Guo Shengkun, Zhou Qiang, etc.), which continues to oversee the Falun Gong persecution campaign. Targeted U.S. pressure against China over forced organ harvesting threatens the political legacy of Jiang Zemin and the survival of the Jiang faction and its supporters.
The Jiang faction will not trust Xi Jinping to protect their interests in the face of U.S. pressure and sanctions over forced organ harvesting and the persecution of Falun Gong. Likewise, Xi will not want to be held accountable for the genocidal crimes of his chief factional rivals. Thus, the “perish together” factional struggle in the CCP elite will almost certainly come to a head when America gets serious in taking the PRC to task over extremely politically sensitive human rights issues. To survive the factional struggle showdown, Xi has only two good options: Take accountability for a rival faction’s crimes against humanity and go down with the Party, or denounce his rivals and disintegrate the CCP.
We wrote in July 2019 that the current Sino-U.S. conflict is “not just a trade war or a tech war, but a critical battle of ideology, value systems, and morality.” Businesses, investors, and governments with a stake in the PRC are advised to evaluate whether their China interests represent favorable assets and opportunity, or massive risk and liabilities as the tide turns against the CCP.
