SinoInsight 1
April 9
According to a Financial Times report, Beijing has forced Hupan University, a business school founded by Jack Ma, to stop enrolling new students. A person close to Hupan University told FT that “the government thinks Hupan has the potential to organize China’s top entrepreneurs to work towards a common goal set by Jack Ma instead of the Communist party. That cannot be allowed.”
According to another FT source, “some high-ranking officials in Beijing have begun to view the school as a modern-day version of the Donglin Academy.” Donglin Academy was one of four prestigious private academies in the Ming Dynasty. Many scholars and officials associated with Donglin Academy would go on to influence court politics, and this network of literati would be referred to by their political opponents as the “Donglin Faction.”
Jack Ma founded Hupan University in his hometown of Hangzhou in 2015 and served as its first president. The school also has eight other top Chinese executives and famous scholars as co-founders, including Lenovo’s Liu Chuanzhi. Signs that Hupan was in trouble with the authorities surfaced in December 2020 when its Yunnan branch announced that it had stopped accepting bids to build a campus, or barely four months after the business school signed a campus construction agreement with the Kunming government.
This March, Beijing also told Jack Ma’s Alibaba to dispose of its media assets, which include ownership of The South China Morning Post in Hong Kong and stakes in Weibo and Bilibili, according to The Wall Street Journal.
April 10
The PRC State Administration for Market Regulation imposed a record $2.8 billion fine against Alibaba for violating “anti-monopoly” regulations. Specifically, Alibaba was criticized for disadvantaging merchants with its “er xuan yi” (“choose one out of two”) practice. The fine was roughly equivalent to 4 percent of Alibaba’s domestic annual sales, and is higher in absolute terms when compared to the second-largest anti-monopoly fine of $975 million (8 percent of domestic sales) against Qualcomm in 2015.
April 11
According to Reuters, Beijing is looking to hire more staff and devote more resources to the State Administration for Market Regulation to help it power ahead with curbing anti-competitive behavior by powerful Chinese companies. The antitrust organ, which has about 40 staff, could hire another 20 or 30 more personnel, people with direct knowledge of the matter told Reuters.
OUR TAKE
1. Beijing’s recent actions against Hupan University and Alibaba are fallout from the Jack Ma-Ant IPO saga. As we previously analyzed, Beijing is looking to rein in the monopolistic power, financial clout, and de facto societal control of “too-big-to-fail” private technology companies so as to stop them from foisting immense financial and political risks on to the regime. Xi Jinping is also targeting the factional interests behind Ma and Ant ahead to reduce political risks ahead of the 20th Party Congress in 2022.
2. In considering classic CCP operations, the record $2.8 billion fine against Alibaba is more positive than negative news for Jack Ma. As a general rule of thumb, “wrongdoings” that are punished quickly and “resolved” through money will not be overly consequential for the parties targeted. The Alibaba fine is also not unduly large in relative terms; anti-monopoly fines are capped at 10 percent of a company’s annual sales, and Alibaba was “only” penalized with 4 percent as compared to the 8 percent of Qualcomm. Jack Ma and Alibaba would vastly prefer taking the fine now than suffer a “sword of Damocles” scenario where the authorities drag out the “completion” of their investigation, something that puts off investors and profitability in the long term. Put another way, the massive fine is Beijing’s way of signaling to Alibaba that the “worst is over, for now” (到此爲止了), while simultaneously “killing the chickens to scare the monkeys” (殺鷄儆猴) to get the other Chinese tech giants in line with Party Central. Xi Jinping is also signaling to Jack Ma’s political patreons (the Jiang faction and other Party interest groups) that they should take the Alibaba fine as a caution and abandon further notions of undermining or vying with Beijing through Ma and his companies.
Beijing, however, will very likely demand and oversee the restructuring of Jack Ma’s companies, including Hupan University, in a direction where they are loyal to the Party, have significantly less sway over public opinion and influence over Chinese society, and cannot leverage data and technology in a manner that would threaten the CCP regime. Beijing could also push Alibaba and Ant to decouple their financial business from tech innovation as part of broader national financial derisking.
Jack Ma and his political patrons may be “safe” for now, but their safety is far from guaranteed. If Xi suspects that Ma is not sufficiently “obedient” or that his factional rivals are working through the latter’s companies to cause mischief, then Ma and his companies could quickly find themselves in trouble. Beijing knows that it cannot restructure Ma’s companies in a manner that is too invasive and disruptive (as was the case with Xiao Jianhua’s Tomorrow Group or Wu Xiaohui’s Anbang) given the impact of such a move on shareholders, investors, the financial sector, and even geopolitics. But Xi would rather take drastic action to bring a recalcitrant Ma and his companies more solidly under Beijing’s control than allow them to run amok. Should the aforementioned hypothetical scenario play out, it would indicate that the Xi-Jiang factional struggle in the CCP elite is reaching a climax.
3. Virtually all big Chinese internet companies aside from Alibaba are practicing the “er xuan yi” model that the latter has been punished for. It remains to be seen if the authorities will eventually fine companies like Tencent, Meituan, JD.com, and others. In March, Tencent boss Pony Ma met with antitrust officials to discuss compliance matters, according to Reuters. The coming expansion of the State Administration for Market Regulation also indicates that Beijing plans to get tough on Chinese tech companies on the whole, not just Alibaba.
However, if Tencent and the other big Chinese internet companies are “let off” with a “slap on the wrist”-type punishments (comparatively smaller fines and warnings, etc.), then it would imbue Beijing’s handling of Alibaba with unique weight. Such a scenario would signal that Xi Jinping is far more concerned with the factional struggle aspect of the Jack Ma-Ant IPO saga than the financial and political risks associated with big Chinese tech companies in general.
SinoInsight 2
April 6
Guo Shengkun, secretary of the CCP Central Political and Legal Affairs Commission (CPLAC) and head of the National Political and Legal Affairs Education and Rectification Leading Group, chaired a meeting on advancing first segment rectification work (全国第一批政法队伍教育整顿工作推进). In a speech, Guo called for investigating and punishing policemen who “violate discipline and the law,” the “elimination of black sheep,” and safeguarding the “physical health of the political and legal affairs apparatus.”
April 8
Cao Jing (age 64), a former Hainan Public Security Bureau inspection team member, was investigated on charges of “serious violations of discipline and the law.”
Cao’s official career suggests that he is with the Jiang faction. He spent the bulk of his career in the Hainan public security apparatus, where did technical reconnaissance (signals intelligence and surveillance) work in his first 21 years as an official. Hainan has long been Jiang faction territory until March 2017 when Liu Cigui, Xi Jinping’s former colleague in Fujian, was appointed Hainan Party secretary as part of provincial-level reshuffles before the 19th Party Congress.
Cao Jing’s promotion to head of the Danzhou Public Security Bureau in 2008 coincided with a period where Zhou Yongkang was security czar and the Jiang faction attached great importance to “stability maintenance.” Four years later, Cao was transferred back to the Hainan Public Security Bureau to head its discipline inspection commission and serve as first deputy inspector. Later, Cao was appointed a public security bureau inspector (Oct. 2016 – Feb. 2017) and provincial Party Committee inspection team leader (April 2017 – Dec. 2019). He retired in April 2020, and was officially investigated six months later.
April 9
1. Chen Xiaojun (58), the director of the CPLAC’s Comprehensive Management and Supervision Bureau (Special Actions Office), was transferred to the China Earthquake Administration to serve as deputy director and Party Committee member in March, according to mainland media.
Chen had an unspectacular career. After serving 19 years in the CPLAC, including a four-year stint at the CPLAC’s publishing house and experience-accumulating temporary assignments in the provinces, Chen Xiaojun only rose to the bureau rank. Considering that he is near the retirement age for his rank (60), his “downgrade” transfer to the China Earthquake Administration suggests that Chen is being “put out to pasture” at a sinecure position before stepping down at the 20th Party Congress.
2. Wang Zhizhong (56), the former deputy director and deputy Party secretary of the Ministry of Public Security’s Special Service Bureau (bureau rank), replaced Li Chunsheng (60) as deputy governor of Guangdong and director of the Guangdong Public Security Bureau. In January, Li had moved on to the Guangdong People’s Congress to serve as a deputy director.
Until his recent move to Guangdong, Wang spent his entire career in the Special Service Bureau (formerly known as the MPS Security Bureau before a Jan. 1, 2019 reform), a unit responsible for the security of senior CCP officials. Wang Zhizhong eventually served as the deputy of Special Service Bureau director and MPS executive deputy minister Wang Xiaohong, a close associate of Xi Jinping. We can reasonably infer that Xi appointed Wang Zhizhong to senior positions in the Guangdong government at the recommendation of Wang Xiaohong, and both Wang Xiaohong and Xi Jinping have reason to believe that Wang Zhizhong can be trusted with important office despite a lack of experience in provincial governments.
3. Liu Xinyun (59), vice governor of Shanxi Province and director of the Shanxi Public Security Bureau, was placed under investigation by the anti-corruption authorities.
Liu’s official career marks him as a Jiang faction member. In April 2001, Liu, then Shandong’s Zibo City Public Security Bureau deputy director, was jointly appointed deputy director of the city’s 610 Office, the extralegal organ that oversaw the execution of Jiang Zemin’s anti-Falun Gong campaign. After that, Liu’s won rapid promotion, becoming political commissar and deputy Party secretary of the Zibo Public Security Bureau in December 2002, and subsequently director and Party secretary of the Heze and Jinan public security bureaus. Liu also appeared to be groomed for more important jobs, having attended a three-month “national training class for young cadres of public security organs” in the same month and year that he became Zibo City 610 Office deputy director.
After the 18th Party Congress in 2012, Liu Xinyun was handed two important posts, namely, director of the MPS’s Cyber Security Bureau and director of the National Network and Information Security Information Notification Center. At the time, Jiang faction member Guo Shengkun was in charge of the MPS; the Jiang faction also prizes cyber security as an important “stability maintenance” tool in the persecution of Falun Gong practitioners and the suppression of society. After Xi consolidated power to a greater degree at the 19th Party Congress, however, Liu was “parachuted” out to Shanxi to take up the positions that he held before being investigated. At 59, Liu was slated to retire in 2022, but has instead been purged under Xi’s latest effort to rectify the political and legal affairs apparatus.
4. Xiao Zhuo (53), former director of the Procuratorate Supervision Bureau of the Supreme People’s Procuratorate (SPP) and a former SPP inspection office director, was expelled from the Party and removed from public office.
Xiao’s case appears to be directly connected with that of Jiang faction member Qin Guangrong, the first provincial-level leader to turn himself in to the anti-corruption authorities in April 2019. Both Qin and Xiao were colleagues in Hunan provincial capital Changsha in the 1990s. In the late 90s, both officials were transferred to Yunnan, where they served in various positions in the province’s senior leadership (Qin) and political and legal affairs apparatus (Qin and Xiao). Qin Guangrong’s downfall began in 2014 following investigations into his subordinates and predecessor Bai Enpei. In late 2020, Xiao Zhuo was removed from his various offices.
OUR TAKE
1. As we analyzed in previous newsletters, Xi Jinping is strengthening his grip on the political and legal affairs apparatus—the Party’s “knife handle” (刀把子)—ahead of the 20th Party Congress in 2022 to ensure that officials are loyal to Party Central and deny factional rivals any opportunity to turn societal contradictions against Beijing at crucial moments.
The recent personnel reshuffles and ongoing “education and rectification” campaign in the political and legal affairs apparatus are part of Xi’s broader power consolidation and factional struggle effort as he looks to secure a norm-breaking third term in office.
2. Three of the recently “rectified” CCP officials (Cao Jing, Liu Xinyu, Xiao Zhuo) won swift promotion during the Jiang faction’s era of dominance (1997 to 2012), and particularly during the period when political and legal affairs officials were encouraged to earn political capital by diligently implementing Jiang Zemin’s anti-Falun Gong campaign. From the CCP’s own information, we are certain at least that Liu Xinyu, the former Zibo City 610 Office deputy director, was directly involved in persecuting Falun Gong practitioners. Last month, Peng Bo, a former Central 610 Office deputy director, was investigated. And in January, the anti-Falun Gong Hong Kong Youth Care Association was officially and abruptly disbanded.
The developments mentioned above may or may not indicate that Beijing is shifting or may shift its stance on Falun Gong; the persecution is officially on the books and falls under the purview of the CPLAC and the MPS even though the 610 Office was dissolved in 2018 as part of state and Party institutional reforms. However, the targeting of the political and legal affairs apparatus and its officials associated with the Jiang faction, as well as recent actions against Jack Ma and Alibaba (see SinoInsight 1), indicate that factional struggle is a Xi priority.
3. The international community’s increased attention on Xinjiang and Hong Kong, as well as the Biden-Harris administration’s China actions to date, directly or indirectly target Xi Jinping’s negative political legacies, and appear to be largely in line with an “anti Xi, not anti-CCP” strategy that surfaced in January and seems to be favored by establishment elites. The spotlighting of Xi’s negative political legacies ultimately benefits the Jiang faction, which is close with Western establishment elites and Wall Street. It is possible that Xi suspects treachery, and has responded by hitting the Jiang faction’s wallets (Ant IPO, increased financial sector regulation, etc.) and threatening to call attention to Jiang Zemin’s negative political legacies (massive corruption, anti-Falun Gong campaign, forced organ harvesting, etc.)
The battle of negative political legacies will lead to political Black Swans in the CCP that could bring about tremendous change in China. Businesses, investors, and governments must track this factional struggle development to sidestep risks and seize opportunities.
