Withdrawal of CCP elites from HK signals factional struggle direction; Beijing’s ambitions, flaws laid bear in new ‘megaprojects’

     SinoInsight  1     

1. Xia Baolong, director of the Hong Kong and Macau Affairs Office, said “relevant legal loopholes” should be closed in Hong Kong’s electoral and administrative system to ensure that only “patriots” who “love” the PRC, its constitution and the CCP can hold office. So-called “anti-China elements” should not be allowed to hold positions in Hong Kong’s executive, legislature and judiciary branches, as well as in various statutory bodies.

“Key posts under every circumstances must not be taken up by anyone ‘who goes against China and disrupts Hong Kong’,” Xia said.

2. The PRC National People’s Congress is expected to vote on changes to the composition of a 1,200-member committee that elects Hong Kong’s chief executive during the upcoming Two Sessions in March, according to a report in The Wall Street Journal. The changes would “drastically reduce, or potentially eliminate, the 117 seats assigned to Hong Kong’s district councilors, a bloc now dominated by opposition groups,” sources told the Journal.

The NPC is also expected to deliberate proposals to change the way district council elections are held to “prevent such lopsided outcomes as in 2019, when pro-democracy candidates won more than 80% of seats up for grabs.”

3. Sean Tong and Louis Cheung, two co-founders of Alvin Jiang’s Boyu Capital, relocated to Singapore from Hong Kong in November 2019, according to the Journal. Alvin Jiang is the grandson of Jiang Zemin, the former CCP leader and figurehead of the Jiang faction which rivals the Xi Jinping camp.

Key parts of the report include:

• “Boyu’s tilt toward the Southeast Asian city-state of Singapore was mainly driven by concerns over the ebbing clout of the elder Mr. Jiang, 94 years old, whose patronage has buttressed the firm’s success … ”
• Boyu’s relocation to Singapore from Hong Kong “coincided with Chinese leader Xi Jinping’s efforts to curb the influence of retired Communist Party elders and tighten Beijing’s control over the Chinese territory of Hong Kong.”
• “Party insiders say Mr. Xi, in centralizing power, has curtailed the influence of retired elders who seek to steer decision-making to suit their own interests. Though the elder Mr. Jiang’s sway diminished as Mr. Xi grew dominant, the former leader’s eventual passing could further alter power dynamics within the party and leave his family and allies more vulnerable to purges, the insiders say.”
• “Boyu became known as a ‘princeling’ fund, a reference to the colloquial label for descendants of senior Chinese officials.”
• “Corporate records indicate that Messrs. Tong and Cheung started building Boyu’s presence in Singapore in late 2019, though Mr. Tong only recently obtained his permanent residency. At the time, violent antigovernment protests were engulfing Hong Kong, where many relatives of China’s Communist Party elite have hoarded their wealth and based their businesses, taking advantage of the territory’s accommodating regulatory regime and rule of law under an independent judiciary … Boyu’s transition continued as Beijing imposed a sweeping national security law on Hong Kong last year.”

OUR TAKE

1. In the last newsletter, we looked at why Xi Jinping and the CCP are keen to tighten the regime’s control over Hong Kong during this period. Xia Baolong’s recent remarks about how the CCP only wants “patriots” in the Hong Kong government, an expected NPC vote during the Two Sessions to ensure that local opposition are excluded from the process of picking Hong Kong’s leader, and proposed revisions to the rules for electing district councillors, are all geared towards giving the CCP absolute control over politics in Hong Kong.

The passage of the National Security Law (NSL) in 2020 marked the symbolic end of “One Country, Two Systems.” The CCP’s push to dictate all aspects of Hong Kong politics will transform the city into a de facto PRC province as soon as the legal revisions are passed.

2. There appear to be two central reasons for why Xi Jinping has been moving rapidly to revoke Hong Kong’s autonomy and stamp Beijing’s authority over the territory.

First, from the CCP’s perspective, the anti-extradition bill movement is a “counter-revolutionary riot.” The Party cannot allow “hostile foreign forces” to transform Hong Kong into a “counter-revolutionary base” from which to undermine the mainland, and Beijing would rather negate the “One Country, Two Systems” arrangement (in form, if not in name) by its own hand than allow the “counter-revolutionaries” to succeed and endanger regime security.

Second, Xi cannot allow the Jiang faction and other factional rivals to exploit the 2019 anti-extradition bill protests to sabotage his leadership. According to Chinese political commentators, Party princelings and the bosses of some PRC state-owned enterprises bought advertisements in support of the Hong Kong anti-extradition movement in various newspapers around the world before the Osaka G20 meeting in 2019—a clear demonstration of opposition towards Xi by members of the Party elite.

We previously analyzed that getting a handle on the factional struggle is another important reason for imposing the NSL on Hong Kong and why a national security committee was set up in the territory (see here and here). We wrote, “The national security law also has provisions (Article 43 in particular) that allow Xi to directly target rival factional elements in Hong Kong (Party princelings, Jiang faction, etc.) should the need arise. From the perspective of factional politics, rushing out the Hong Kong national security law is a matter of personal survival for Xi Jinping.”

From the perspective of factional struggle in the CCP, it is clear why two co-founders of Boyu Capital would want to relocate part of its Hong Kong business to Singapore in late 2019. With the Xi camp clamping down on Hong Kong, the Jiang faction knew that it would only be a matter of time before they found themselves in Beijing’s crosshairs. To avoid the confiscation of their funds and political risk, the Boyu co-founders were forced to move to Singapore, where it would be harder for Xi Jinping to move against them. Xi is almost guaranteed to carry out major purges in the lead up to the 20th Party Congress in 2022, where he is expected to push for a norm-breaking third term as Party boss.

The Wall Street Journal report on Boyu largely confirms our analysis of the “you die, I live” Xi-Jiang struggle and developments in that struggle in Hong Kong since 2019. Political Black Swans loom ahead, especially as Xi closes in on his factional rivals and other opposition interest groups in Hong Kong and the mainland. Businesses, investors, and governments must track developments in CCP elite politics to sidestep approaching political risks.

     SinoInsight  2     

Jan. 21

The CCP released its “number 1 central document” of the year, titled: “Opinion of the Central Committee of the Chinese Communist Party and the State Council on Comprehensively Promoting Rural Revitalization and Accelerating Agricultural and Rural Modernization” (中共中央國務院關於全面推進鄉村振興加快農業農村現代化的意見).

OUR TAKE

1. The two CCP documents above were released after Xi Jinping declared that “time and momentum” are on the PRC’s side in a Jan. 11 speech. Xi’s declaration indicates that he and the CCP likely believe that the ascension of the Biden-Harris administration will accelerate the “steady, irreversible structural decline” that the Party believes is taking place in the United States. Secretary of State Antony Blinken’s failure to mention “China” by name in condemning the CCP’s atrocities in Xinjiang and undermining of freedoms in Hong Kong in speaking to the 46th UN Human Rights Council on Feb. 24 will only reinforce Beijing’s view of American unwillingness to confront the PRC.

In view of America’s “inevitable” decline as the world’s hegemon and in betting that the current U.S. administration will not seriously address the “China challenge,” Xi and the CCP now feel confident enough to introduce grandiose megaprojects aimed at securing regime dominance. In contrast, Beijing deliberately “hid” and downplayed earlier megaprojects such as “Made in China 2025” during the Trump administration because it knew that hyping those endeavors would attract regime-crippling sanctions and pushback from America.

2. In examining the “perfect storm” of problems facing the CCP regime and the Party’s own plans (including the documents cited above), we believe that the CCP will look to address four priorities:

a) Resolve the issue of food shortages in China to avert a food crisis and fix the backwardness of the rural economy.

b) Drive the economy and technological advancement through infrastructure megaprojects like the so-called “national comprehensive three-dimensional transport network.” Such megaprojects will also help the CCP strengthen its surveillance over the Chinese population and consolidate the techno-totalitarian regime’s control over society.

c) Transform China into a genuine economic and financial hub, and in doing so, take a huge step forward towards accomplishing the CCP’s long-stated goal of replacing the U.S. as the global hegemon.

d) Again pull back the goalposts for the Chinese people and international investors with new “pie in the sky” (畫大餅) campaigns. This serves to appease public grievances over the CCP’s failure to achieve past campaign goals (“four modernizations,” “moderately prosperous society,” etc.) and attract foreign investment to China.

3. The CCP is fond of announcing ambitious megaprojects and campaigns, and declaring that it can accomplish anything due to the advantages of its authoritarian “state capitalism” system. However, the CCP system contains fatal flaws that generate huge waste and prevent it from truly accomplishing its goals time and again:

a) CCP officials are inclined to “prefer left rather than right” (寧左勿右) and prioritize meeting their performance targets regardless of consequences. The CCP officialdom is also plagued by corruption. In other words, the central government can expect a good portion of its massive investments in its transportation megaproject and rural development initiative to be pocketed by officials, and for officials to inflate their “achievements” to win promotion. The CCP’s failure to develop the domestic semiconductor industry and new energy vehicles offers a glimpse at how its latest projects will unfold.

b) The CCP’s ability to encourage tech innovation in China runs into a totalitarian paradox. The adoption of superior technology leads to superior surveillance, indoctrination, and thought control, which in turn stifles tech development. The CCP resolved this dilemma in past decades by stealing technology from other countries, but will see increasingly limited “gains” from such theft as it makes up a greater share of the global tech market and leaves foreign companies with less funding to put into innovation.

c) Decades of communist rule in China has severely eroded morality in Chinese society. CCP officials and the Chinese people are more inclined to accumulate wealth for themselves as quickly and easily as possible, with little regard for the nation’s welfare. The growing morality vacuum in China also results in increased inefficiencies, reduced production, and a perpetually declining demographic. This adversely affects the CCP’s ability to deliver on its megaprojects and campaigns, and could even heighten the incidence of accidents and disasters (especially in infrastructure construction).

d) The CCP has issued several so-called “number one central document(s)” on rural policy since 1982. After the Cultural Revolution, Deng Xiaoping focused on supporting the “three rural areas” (agriculture, villages, farmers), and transformed the commune system into the partially privately-owned “contract system.” This gave China’s farmers enthusiasm for production again and allowed the CCP to tide over a political crisis. However, the “three rural areas” policy ultimately created more problems than it resolved over the next two to three decades—many farmers lost their land and became migrant workers, while China failed to become self-sufficient in food and still had to rely on imports. The Party may have profited from its “pie in the sky” campaign, but China’s farmers were left worse off.

e) Factional struggle in the CCP will impede the implementation of Xi Jinping’s grandiose plans. Many of Xi’s earlier policies were thwarted by the Jiang faction, including his economic liberalization initiative announced during the Third Plenum of the 18th Central Committee in 2013. Xi’s failure to accomplish his stated goals have even inspired Western establishment elites to call for “China(‘s) return to its pre-2013 path—i.e., the pre-Xi strategic status quo” and the implementation of an “anti-Xi, not anti-CCP” strategy by the United States. Such a strategy will make it difficult for Xi Jinping to legitimize his consolidation of power and continued rule as necessary to “protect the Party and protect the regime”; Xi’s opponents will argue that a return to “collective leadership” is what’s required to truly “protect the Party and protect the regime.” Political crises in the CCP regime will derail any grand plan, no matter how “bullet proof” they appear when announced.