SinoInsight 1
On Jan. 20, the People’s Bank of China issued draft regulations governing non-bank payment institutions (《非銀行支付機構條例（徵求意見稿）》). Per the regulations:
- The payment business of non-bank institutions will be reclassified into one of two types—stored-value account operations or payment transaction processing—and will be regulated accordingly.
- Non-bank institutions need to apply for a license before they enter the payment business. Regulators will strengthen supervision over personnel changes to a non-bank institution’s shareholders, actual controllers, and ultimate beneficiaries.
- Regulators will strengthen anti-monopoly supervision in the payment industry.
- A legal person shall not hold more than 10 percent of the equity of two or more non-bank payment institutions. Also, actual controllers shall not control more than two non-bank payment institutions.
- The PBoC and the State Council’s anti-monopoly agency will issue “early warnings” and break up non-bank payment institutions when, a) a non-bank payment institution acquires a third of the market share, b) two non-bank payment institutions control more than half of the market, c) three non-bank payment institutions control more than three-fifths of the market.
On the same day, Alibaba founder Jack Ma made his first public appearance in three months, speaking via videolink to 100 village teachers from Sanya, Hainan Province. In the 50-second video, Ma said he was unable to meet the teachers in person due to the pandemic, that his commitment to education “wouldn’t change,” and that he hoped to meet them after the pandemic has passed.
OUR TAKE
1. Jack Ma’s public appearance is in line with our latest assessment of his situation. In our Jan. 19 newsletter, we wrote that the CCP is not out to “defeat” Ma or Ant Group, both of whom are “too big to fail,” but is looking to make an example of them to “deter other tech giants and maverick CEOs from challenging the regime and compounding financial risks in the PRC.”
Ma’s reappearance, however, does not mean that he is out of the woods. Political security is a CCP priority, and Ma’s fate is tied to what the Party believes is best for regime preservation.
2. The new draft regulations governing non-bank payment institutions is the latest in a series of measures and policies intended to strengthen the CCP regime’s supervision over China’s private sector “Big Tech” firms, as well as break up and prevent market monopolies.
Beijing’s actions to “eliminate the disorderly expansion of capital in the payment sector” are aimed at reining in the political clout of China’s “Big Tech” companies so that they do not threaten CCP rule. Additionally, regulating China’s “Big Tech” forays into the payment business is part of the Xi leadership’s long-term effort to derisk the financial industry.
3. The new regulations appear to be an upgraded version of an earlier set of “administrative measures” governing non-bank institutions (《非金融機構支付服務管理辦法》) formulated by the PBoC in June 2010.
The clause aimed at breaking up monopolies in the new regulations is clearly aimed at existing internet payment giants like Alipay, WeChat Pay, and Tenpay. Currently, Ant Group and Tencent are a duopoly in the third-party payment market, with a market share of over 80 percent.
The CCP needs to break up market monopolies by private payment companies to remove obstacles to its digital renminbi and social control ambitions. Currently, the digital RMB is a far less attractive payment service because it does not pay out interest and is still at the early stage of development (insufficient application options, “fake” e-wallet, etc.).
SinoInsight 2
Jan. 18
In an op-ed published by Nikkei Asia, Asia Society president Kevin Rudd and Rhodium Group founder Daniel Rosen noted that Xi Jinping’s recent boast about accomplishing the PRC’s 2013 economic reform goals “does not happen to be true.” They argue that “Beijing’s divergence from the market reform project it long pursued is altering its future potential” and is a “a fundamental driver behind shifting international sentiment in a number of countries about engagement with China.”
“President Biden’s foreign policy team is analyzing this reality carefully and does not believe China can inextricably rise without continuing economic reform,” Rudd and Rosen wrote.
Jan. 19
1. Chen Wenling, chief economist at the PRC government think-tank China Centre for International Economic Exchange, told a seminar that Biden’s “policies will be about returning to multilateralism, returning to international organizations, and returning to the status of fighting without splitting.”
Chen added that Biden will be more predictable and pragmatic, leading to improved bilateral tiles. “There will be a partial recovery in Sino-U.S. relations, and cooperation will be possible in areas like energy, the environment, global governance and coordination on international policies,” she said. Cooperation, she added, is essential to prevent complete economic decoupling and unprecedented conflict.
2. The U.S. Senate held hearings to confirm President Joe Biden’s top administration picks, including Antony Blinken (Secretary of State), Janet Yellen (Treasury Secretary), Lloyd Austin (Defense Secretary) and Avril Haines (Director of National Intelligence).
When asked by lawmakers about the PRC intelligence threat, Haines said, “Our approach to China has to evolve and essentially meet the reality of the particularly assertive and aggressive China that we see today. I do support an aggressive stance, in a sense, to deal with the challenge that we are facing.”
In prepared remarks, Blinken told the Senate committee that the U.S. “can outcompete China—and remind the world that a government of the people, for the people, can deliver for its people,” without elaborating on the Sino-U.S. rivalry.
The U.S. faces “a world of rising nationalism, receding democracy, growing rivalry with China, Russia, and other authoritarian states, mounting threats to a stable and open international system, and a technological revolution that is reshaping every aspect of our lives, especially in cyberspace,” he said.
Blinken said that the Trump administration’s “basic principle was the right one” with regard to China, but disagreed with the administration’s methods. “There is no doubt that [China] poses the most significant challenge of any nation-state in the world to the United States,” he added in response to lawmaker questions.
Janet Yellen told the Senate Finance Committee that China is “our most important strategic competitor,” and that the U.S. is prepared to “use the full array of tools” to “take on China’s abusive, unfair and illegal practices.” She added that China is guilty of “horrendous human rights abuses.”
Lloyd Austin described China as a “pacing threat” and said that he would reevaluate and “update” the National Defense Strategy, which he believes is “absolutely on track for today’s challenges.” Austin said, “China presents the most significant threat going forward because China is ascending.”
None of Biden’s appointees made reference to the “Chinese Communist Party.”
3. Mike Pompeo, the Trump administration Secretary of State, determined that the PRC, under the direction and control of the CCP, has committed “crimes against humanity against the predominantly Muslim Uyghurs and other members of ethnic and religious minority groups in Xinjiang,” as well as “genocide against the predominantly Muslim Uyghurs and other ethnic and religious minority groups in Xinjiang.”
Pompeo also said that the Trump administration “exposed the nature of the Chinese Communist Party and called it what it is: a Marxist-Leninist regime that exerts power over the long-suffering Chinese people through brainwashing and brute force.”
When asked about the Trump administration’s Xinjiang determination, Antony Blinken said, “that’s my judgement as well.”
OUR TAKE
1. The remarks of Biden administration officials on China suggest that the U.S. will likely engage in “competition without confrontation” with the CCP regime over the next four years. From what we have observed to date, this might mean the end of strong ideological challenges, particularly prominent efforts to clearly distinguish between “China” and “the CCP.” The writings and remarks of Biden’s nominees also suggests that “competition without confrontation” means more “multilateralism,” “working with allies,” working through international organizations, and “predictable” foreign policy, or vague actions and rhetoric that aligns with global establishment elites, while departing from the Trump administration’s direct and penetrating approach to the “China challenge.” However, we acknowledge that what Biden officials say may play out differently in practice. Time will tell what Team Biden’s PRC strategy actually looks like, and we will reassess the Biden administration’s stance on China based on what they have done.
The CCP welcomes the Biden administration’s approach to China, or at least what it seems like it will shape up to be. This is clear from the recent remarks of PRC scholar Chen Wenling. After all, “measured” and “moderate” U.S. policies allow Beijing greater freedom to push harder and faster for world domination, its ultimate goal.
Chen, however, anticipates only a “partial recovery in Sino-U.S. relations” under Biden. This is likely because there is strong bipartisan support in the U.S. for being tough on China, preventing the Biden administration and subsequent administrations from resetting the U.S.-China relationship to how it was during the “engagement” era. The CCP is being realistic about the current geopolitical situation, and will likely attempt to figure out the Biden administration’s “red lines” early on before setting the tone for the Sino-U.S. relationship.
2. Team Biden’s “competition without confrontation” does not mean the immediate scrapping of the Trump administration’s hardline China policies and measures, at least not in the early days of the Biden administration. The Biden administration could see benefit in keeping most of the hardline policies and measures on the books (certain trade tariffs, pro-Taiwan and pro-Hong Kong stance, etc.) to use as leverage when negotiating with the CCP regime.
Early signs indicate that Team Biden plans to get tough on Xi Jinping if the latter does not set the PRC on the path of greater economic and financial liberalization, particularly in fulfilling what he laid out at the Third Plenary Session of the 18th Central Committee in 2013. The Biden administration could take the lead in singling out Xi for criticism, including his breaking “promises” of economic reform and not militarizing the South China Sea, as well as the intensification of Uyghur persecution in Xinjiang during his second term. Increased criticism of Xi Jinping, however, does not mean that the Biden administration’s “competition without confrontation” is a milder variant of the Trump administration’s “principled realism”; we believe that the former strategy will more closely resemble “soft engagement” in due course.
The current state of the factional struggle in the CCP elite suggests that confrontation is inevitable between Xi and the Biden administration. Xi cannot abandon the “strongman” model of governance or pursue genuine liberal-minded reforms until he has successfully purged the “anti-Xi coalition” and “rectified” the regime. From Xi’s ceaseless personnel reshuffles, rhetoric about “political stance,” and ongoing effort to clean up the political and legal affairs apparatus, he is still in the process of consolidating power, establishing a loyal base of supporters, and eliminating factional resistance to his rule.
By our assessment, Xi will only be “safe” enough to consider enacting sweeping liberal-minded reforms, if he is so inclined to, about midway into a third office term; by then, Xi would have promoted sufficient loyalists to key positions, mostly resolved his factional problems (opponents either purged, placed “under control,” or too old to be a threat), and possibly accumulated enough “quan wei” to carry out much-needed reforms in the regime that would be highly risky in other circumstances. However, Xi’s factional rivals will not let him have his way as their interests and survival are at stake the stronger he gets. Further, geopolitical opponents of the PRC have no incentive to allow Xi the time to get his house in order before instituting reform. Neither will they be inclined to risk him becoming too powerful, lest China truly come into its own as a superpower.
