SinoInsight 1
The United States Indo-Pacific Command announced the commencement of the Large Scale Global Exercise 21 (LSGE21) from Aug. 2 to Aug. 27. The exercise incorporates “U.S. Army, Air Force, Navy, and Marine Corps forces, alongside UK Armed Forces, Australian Defense Force, and Japan Self-Defense Force.”
Aug. 3
The Indian Ministry of Defense announced that it will send a task force of four warships to the South China Sea in early August (no specific date was given) for a two-month deployment. The task force will participate in several exercises during its deployment period, including in Malabar 2021 with Quad countries (U.S., Japan, Australia) and bilateral exercises with Singapore, Vietnam, Indonesia, and the Philippines.
Aug. 4
1. The China Maritime Safety Administration warned vessels from entering a vast navigation restriction zone in the South China Sea where PLA forces are slated to conduct large-scale military exercises from Aug. 6 to Aug. 10. The area designated for PLA training is located southwest of Hainan Island and is larger than Hainan, according to PLA media.
2. The U.S. State Department notified Congress of a proposal to sell $750 million of weapons to Taiwan, including 40 M-109A6 Paladin 155mm self-propelled howitzers and 1,698 precision guidance kits, 20 M992A2 Field Artillery Ammunition Support Vehicles, five M88A2 Hercules vehicles five M2 Chrysler Mount .50 caliber machine guns, and one Advanced Field Artillery Tactical Data System.
3. When attending the virtual East Asia Summit of foreign ministers, PRC foreign minister Wang Yi warned “foreign forces” against “stretching out their dark hands” to the South China Sea and threatening regional “peace and stability.”
Aug. 5
The PRC foreign ministry expressed its “firm opposition” to the U.S. plan to sell $750 million of weapons to Taiwan and called on America to abide by the “one China principle” and the three U.S.-China communiques. “China will take countermeasures to defend its legitimate interests,” the foreign ministry said.
Aug. 6
1. PRC defense ministry spokesperson Wu Qian expressed “strong dissatisfaction and resolution opposition” to the planned U.S. arms sale to Taiwan. Wu added that the PLA “has the determination, will, and ability” to defend PRC sovereignty and territorial integrity.
2. At the ASEAN Regional Forum Foreign Ministers’ Meeting, Secretary of State Antony Blinken called on “the PRC to abide by its obligations under the international law of the sea and cease its provocative behavior in the South China Sea,” and “raised serious concerns about ongoing human rights abuses in Tibet, Hong Kong, and Xinjiang.”
Blinken also “noted deep concern with the rapid growth of the PRC’s nuclear arsenal which highlights how Beijing has sharply deviated from its decades-old nuclear strategy based on minimum deterrence.”
Aug. 8
The South China Morning Post cited a source close to the PRC’s foreign and defense ministries as saying that the difference in how both ministries approach their external messaging “partly reflected struggles between the two ministries.”
“The foreign ministry is well known for hawkish Wolf Warrior remarks—it even criticised the People’s Liberation Army [PLA] as too ‘soft and weak’ when dealing with the United States,” SCMP’s source said. “The PLA expressed concern to Xi about the foreign ministry’s Wolf Warrior diplomacy, saying it would not ‘pay the bill’ for their irresponsible remarks.”
SCMP subsequently scrubbed the source’s remarks from its piece.
Aug. 10
1. The PRC foreign ministry announced the recall of its ambassador to Lithuania and requested that Lithuania recall its ambassador in China. The PRC was responding to Lithuania allowing Taiwan to open a representative office bearing the name “Taiwan” in its capital of Vilnius and Lithuania’s plan to open a representative office in Taiwan by the end of the year.
2. When asked about the PRC’s treatment of Lithuania, State Department spokesman Ned Price said, “we do stand in solidarity with our NATO Ally Lithuania and we condemn the PRC’s recent retaliatory actions … We support our European partners and our allies as they develop mutually beneficial relations with Taiwan and resist the PRC’s coercive behavior.”
Price added, “Each country should be able to determine the contours of its own ‘one China’ policy without outside coercion. We have done just that. Of course, we have spoken to how this administration is engaging with the people on Taiwan in accord with our ‘one China’ policy. But for further details on this, I would refer you to the Government of Lithuania.”
3. The U.S. Navy and 20 other partner nations embarked on the 20th edition of the Southeast Asia Cooperation and Training (SEACAT) exercise in Singapore and virtually. The exercise involved about 400 personnel and 10 ships.
Aug. 11
Taiwanese media Liberty Times reported that four Taiwanese coast guard vessels held joint drills with their U.S. counterparts about 28 miles off the eastern port of Hualien. Liberty Times said that some officials with Taiwan’s Coast Guard Administration confirmed the drills to them in a low-key manner. The Coast Guard Administration later confirmed that drills had taken place but no U.S. vessels were involved.
Earlier this year, the U.S. and Taiwan had agreed to work more closely on maritime security issues, signing a Memorandum of Understanding to establish a Coast Guard Working Group on March 25. The American Institute in Taiwan confirmed on Aug. 11 that the first meeting of the working group had taken place.
OUR TAKE
1. The CCP’s “wolf warrior” approach is born out of Party culture, its instincts to survive and dominate, as well as Xi Jinping’s factional struggle requirements. “Wolf warrior” diplomacy had its uses early on in advancing the CCP’s “the East is rising, the West is in decline” narrative and coercing smaller countries to walk in lockstep with or not challenge the PRC.
However, the CCP’s arrogant and offensive approach to external affairs is seeing the regime increasingly face pushback from the international community. The PRC’s ability to carry out effective influence operations has also weakened as countries start to view China as a brutal techno-totalitarian regime run by a Leninist party. For example, the CCP’s effort to use the COVID-19 pandemic to advance its global hegemonic ambitions (以疫謀霸) has failed to increase goodwill towards China, while countries continue to call for the boycott of the 2022 Winter Olympics in Beijing. A May 26, 2021 report by the DC-based Center for European Policy Analysis found that the CCP “simply cannot compete” with the Falun Gong-linked Epoch Media Group for influence in Europe despite spending about $10 billion on international propaganda as compared to $8 million by Epoch Media Group. By the end of May, Xi Jinping was exhorting the PRC’s external propaganda apparatus to create a “trustworthy, lovable and respectable” image for the regime.
The CCP is still in the midst of self-reflection and self-correction over its “wolf warrior” approach. Chu Yin, a University of International Relations professor and deputy director of the Centre for China Globalisation, noted in a July 14 seminar in Beijing that “mirroring internal propaganda in external publicity” has led to serious backlash. “In the early days, we believed [speaking] good English would help [to tell the PRC’s story]. Now, we are able to use fluent and idiomatic English when telling China stories, but our foreign counterparts don’t understand at all,” Chu said. Chu Yin added that the mirroring of internal propaganda in external propaganda in the age of the internet and self-media has caused “tremendous confusion,” with some PRC experts and diplomats having lowered their professional standards in catering to domestic sentiments. The end result is the CCP’s difficulty in “telling the China story well” abroad and growing domestic troubles.
2. We are pessimistic about the CCP’s ability to redress its “wolf warrior” problem. Chinese officials today may don Western suits and attempt to adopt the diplomatic conventions of normal countries, but the Party’s coercive and thuggish tendencies have not changed much since its founding a century ago. Also, officials are inclined to “prefer left rather than right” and stay “politically correct” out of personal preservation, leaving Xi Jinping and the central government to pick up their mess.
Then there is Beijing’s longtime struggle to get the officialdom to properly implement its orders (政令不出中南海). SCMP’s information about the PRC defense ministry’s displeasure towards the foreign ministry over the latter’s “wolf warrior” approach underscores the difficulties Xi Jinping faces in getting officials to put practical and regime considerations above ideological and personal security in enacting policy. That this insider tidbit was fed to Hong Kong media and later scrubbed is indicative of the intensity of intra-apparatus and factional struggle in the PRC and/or the CCP’s need to maintain political priorities. The CCP endeavors to depict an image of intra-Party “unity” and “consensus” to the outside world, and Beijing may have used its influence to effect self-censorship after realizing that the information revealed by SCMP’s source seriously threatened to disrupt that image. On the other hand, the information somewhat absolves the Xi leadership from blame for the backlash to the CCP’s “wolf warrior” approach, something that Xi’s factional rivals would be keen to shut down; SCMP is owned by Alibaba, whose founder Jack Ma has ties to the Jiang Zemin faction. From a broader factional struggle perspective, the Jiang faction had long influenced the PRC foreign ministry while its top two officials (Yang Jiechi and Wang Yi) rose up the ranks during the Jiang faction’s era of dominance, while the PLA is helmed by a Xi ally (Xu Qiliang) and has undergone more thorough “rectification” and loyalty tests during the Xi era.
Finally, the CCP cannot afford to back down from its tough image amid mounting international and domestic woes. Moving away completely from the “wolf warrior” approach would be a sign of major weakness that benefits neither the Party nor Xi Jinping. Even subtle adjustments can be taken as an indication that China is bowing in the face of international pressure, as seen from Western media’s reporting and analysis of Xi’s call in May for external propaganda to be “lovable.” However, the CCP’s aggressive showing at the Sino-U.S. meeting in Tianjin in July shows that the “wolf warrior” mentality is very much alive. The PLA’s recent large-scale naval exercise in the South China Sea is also a bearing of the “wolf’s fangs.”
3. Growing international pushback against the “wolf warrior” approach will cause headaches for the CCP and the PLA. PRC propagandists and diplomats may talk a good game, but when push comes to shove, the CCP is at risk of being found out and having its bluffs called.
For instance, hawkish propagandists, diplomats, and retired senior military officials have in recent years been threatening a PLA invasion of Taiwan should the U.S. land military aircraft on the island. However, when American military planes actually do land in Taiwan, such as the arrival of a C-130 plane to deliver diplomatic pouches to new American Institute in Taiwan director Sandra Oudkirk on July 19, the CCP is made to look foolish when a PLA invasion failed to materialize. To save face, the nationalistic Party propaganda outlet Global Times published an op-ed arguing that the lack of PLA activity is due to “the country is engaging in grand strategy and playing a great game of chess” (國家是在謀大局下大棋). SCMP’s information about the defense ministry being unwilling to “pay the bill” for the foreign ministry’s “wolf warrior” diplomacy could also be an effort at face saving.
The PLA still does its best “wolf warrior” impression when the international community threatens to breach the CCP’s “red lines,” with the recent naval exercise in the South China Sea being an example. But the PLA’s activities are noticeably constrained to avoid provoking an actual conflict; the CCP’s military is just not strong enough now to take on a multinational coalition, especially one led by the United States.
4. Recent displays of strength by the international community coincide with the CCP’s Beidaihe meeting period. It is possible that the global “anti-Xi coalition” is looking to pressure Xi Jinping while the important meeting is ongoing to weaken his hand in negotiations over key personnel arrangements at the 20th Party Congress in 2022 and his bid for a norm-breaking third term in office.
SinoInsight 1
Epidemic
There are 21 high-risk areas and 199 medium-risk areas in China as of 0100 hours on Aug. 12, according to official PRC data. Of the 21 high-risk areas, 13 are in Henan Province (including Zhengzhou, Kaifeng, and Zhumadian), four are in Jiangsu Province (including Nanjing and Yangzhou), and three are in Hunan Province (including Zhangjiajie). And of the 199 medium-risk areas in 12 provinces, 109 are in Jiangsu Province, 39 are in Henan, 25 are in Hunan, two are in Beijing, and one is in Shanghai.
1. Vice premier inspects Yangzhou
On Aug. 11, PRC vice premier Sun Chunlan visited Yangzhou City to investigate and guide local epidemic prevention and control work. Sun requested that the Yangzhou local government expand the scope of its testing and put suspected cases in quarantine within 24 hours after detection. She also called for strict lockdowns and management of high-risk areas.
In reporting on Sun’s trip, state mouthpiece Xinhua noted concentrated outbreaks in Yangzhou and the wide spreading of the coronavirus in communities and families. Xinhua added that the situation “isn’t very clear,” while epidemic prevention and control circumstances are “complex and severe.”
2. Mass testing and quarantines
Yangzhou City launched its fourth round of nucleic acid testing in key urban areas from Aug. 7. According to state media, the city had sampled 1.5837 million people as of 0800 hours on Aug. 8.
On Aug. 9, the Zhengzhou City local government added three areas to its medium-risk zone list. The next day, the local government carried out a new round of mass nucleic acid testing of key populations in the city.
3. China’s largest port closes
The Ningbo Municipal Health Commission issued a notice in the afternoon of Aug. 11 regarding a positive case of COVID-19 in the Meishan port area of the city. Mainland media reported that the person, an employee at the Meishan Terminal of the Ningbo-Zhoushan Port, had received two doses of the vaccine. The local government said that it traced 245 people who had contact with the person. The authorities later locked down the Meishan Terminal and suspended operations there indefinitely.
The Ningbo-Zhoushan Port is the world’s third-busiest port in terms of container traffic, with a throughput of 28.72 million TEUs in 2020. According to data from the PRC Ministry of Transport, the port saw 1.172 billion tons of cargo pass through in 2020, ranking it first in the world for 12 consecutive years. The Meishan port area accounts for 20 percent of container throughput traffic at the Ningbo-Zhoushan Port.
4. Officials disciplined
On Aug. 7, three officials from Nanjing—Nanjing Eastern Airport Group Party committee member, deputy general manager, and office director Wang Chao; Nanjing Eastern Airport Group emergency rescue department director Yin Yunwen; and Nanjing Eastern Airport Group ground service department director Xu Yongjie—were investigated over their handling of epidemic prevention and control work.
On Aug. 12, the Guangdong discipline inspection commission announced the punishment of 20 officials for allowing the import of the coronavirus from elsewhere between May 21 to June 19, 2021, leading to a local outbreak. Eleven of the officials were removed or dismissed from their post, while the remaining nine were given warnings, demerits, or demotion. Two of the 20 were deputy mayors of Guangzhou City, while three were from the city’s health commission. According to Global Times, a total of 70 officials have been punished across China over the recent Delta variant outbreak.
5. Humanitarian disasters
The CCP’s latest round of severe lockdowns has created humanitarian crises in several areas, according to videos and information circulating on Chinese social media.
A video posted on Aug. 3 shows people yelling from a high-rise apartment block, “Help! Help! Is there anything to eat?” and “Does anyone care about us?” The author of the post claims that the apartment block is Building 3 of Haiyu Gardens in Erqi District, Zhengzhou City, and that the whole block was put under strict quarantine (gate to the building blocked, inability to receive takeout, etc.) because testing revealed one positive coronavirus case there.
A WeChat group conversation that started circulating on Chinese social media on Aug. 9 tells the story of how a family of a mother and three children in Baodai New Village in Jiangsu Province were left starving for days after a quarantine was imposed. Because the mother was illiterate, the family was unable to order food online and they were not allowed out to buy food. The quarantined community only found out about the family’s plight on their local WeChat group on the eleventh day of the quarantine.
The quarantined residents of Baodai also revealed that the community authorities only delivered 100 food packages (about 60 yuan in value) to them each day, but there were over 10,000 people in the village. Many residents have since run low on food.
PRC vaccine incidents
1. Basic-level officials face ‘pre-dismissal’ over vaccination
On Aug. 8, mainland media reported that several basic level government cadres in Hunan’s Xiangxiang City were recently notified of their “pre-dismissal” for ranking third from the bottom in COVID-19 vaccination work on Aug. 5 and not hitting more than 60 percent of their assigned work target that day. Among the “pre-dismissed” officials include deputy mayoral candidates, members of a subdistrict Party working committee, and the deputy director of a subdistrict.
2. Adverse reactions to PRC vaccines
There are multiple videos and stories on social media of people experiencing adverse reactions to PRC vaccines, including fainting, non-stop bleeding, fever, suddenly contracting leukemia, and even death. The PRC authorities have denied that the adverse reactions experienced by those who received vaccinations are related to the vaccine.
A video from Aug. 1 shows a student being carried away by medical staff. The author of the Twitter post claims that the student underwent spasms after receiving a vaccination during a mass vaccination drive at the Wuxi Jiangyin Middle School, and was subsequently pronounced dead by medical staff who arrived in an ambulance. Mainland media reported that Wuxi Jiangyin Middle School held a vaccination drive on July 31.
A video from Aug. 7 shows a female student passing out after being vaccinated. The author of the post claims that the student is from Meizhou City, Guangdong Province.
A video from Aug. 8 shows a teenage boy receiving CPR on a sidewalk. The author of the post claims that the boy is a middle school student from Guo Village in Yangzhou’s Jiangdu District. According to Yangzhou media reports, the local government is pushing for a 93 percent vaccination rate for people over the age of 12 by the end of September.
On Aug. 8, a resident from Huzhou City in Zhejiang Province claimed to have contracted leukemia after being vaccinated. The resident claimed that a physical examination in November 2020 did not show any problems. The resident then took the first vaccination shot on Jan. 26, 2021 and the second on Feb. 9. Afterwards, the resident complained of fatigue. In April, the resident suffered from incessant bleeding in the gums, and a visit to the hospital revealed a low blood platelet count. The resident was hospitalized on April 16 and diagnosed with acute leukemia on April 19. However, the hospital said that the resident’s condition was not a vaccine adverse reaction case.
Previously, the PRC education ministry issued an urgent notice on July 30 requesting local education departments to “securely” promote vaccination, noting that vaccination is voluntary. The mass vaccination drives, however, are the result of local governments making vaccinations mandatory through various means (including denying school registration for unvaccinated families); PRC officials stand to receive excellent performance evaluations if there are high vaccination rates in their area.
3. Calls to cease vaccination
On Aug. 5, the Guangdong Provincial Health Commission issued an urgent notice to pause the vaccination of minors, citing “expert consensus.” Four Chinese cities—Dongguan, Chengdu, Luoyang, and Laiyang—also independently announced the suspension of vaccinations.
On Aug. 9, the Zhengzhou City local government issued an urgent notice to suspend COVID-19 vaccinations with immediate effect, claiming that it wanted to stop people from gathering and spreading the virus.
Economic deterioration signals
1. Plummeting social financing
According to a People’s Bank of China report of July 2021 financial data issued on Aug. 11, China’s total social financing (TSF) increased 1.06 trillion yuan in July, or a year-on-year decrease of 37.5 percent (down 636.2 billion yuan). The July TSF was also a 71.1 percent decrease (down 2.6 trillion yuan) from the previous month (June TSF: 3.67 trillion yuan).
Analysis: The sharp drop in the TSF increase is due mainly to local governments issuing fewer bonds and fewer banker’s acceptances being issued. This could be related to the local governments selling less land recently and real estate companies reducing investments due to their debt problems.
2. Real estate cooling
Suspension or postponement of second round land auctions
On Aug. 6, the Shenzhen Exchange Group announced the suspension of transactions for 22 plots of land that were scheduled for sale on Aug. 9, and noted that a future transaction date would be announced separately.
On Aug. 10, the Tianjin local government extended the listing period for 61 lots of land until Sept. 10. Meanwhile, Qingdao City terminated 100 land auctions and set another time for their sale. Huizhou City also suspended a commercial and residential land auction on Aug. 11.
Land returns
On Aug. 10, Sundy Land Investment, a listed property company in Zhejiang Province, returned land in Hangzhou that it previously won in an auction, losing its deposit of 50 million yuan. Mainland media reported that Sundy Land returned the land because a company that it partnered with decided to unilaterally withdraw from the development project.
Sundy Land is presently looking to recover 20 million yuan in damages from its partner, according to mainland media. The company had an operating revenue of 972 million yuan and net profits of 36.85 million yuan in the first quarter of 2021.
Analysis: Sundy Land’s willingness to give up a substantial deposit rather than persist in developing the land it bought on its own indicates that the company is pessimistic about China’s real estate prospects.
3. Soaring U.S.-China shipping rates
On Aug. 10, Yicai Global reported that ocean freight prices for the China/Southeast Asia to North America (East Coast) journey was in excess of $20,000, or up more than 500 percent year-on-year, citing the Global Container Freight Index. Yicai said that shipping rates had soared due to a general slowdown in container turnaround time, which is in turn due to shortage of handling personnel in foreign ports. For example, cargo transit times (including transit of the cargo at the origin and vessel voyage) from Shanghai to Chicago via Los Angeles increased from 35 days to 73 days, or roughly a 50 percent reduction in effective container capacity.
4. Lower-than-expected trade figures in July
China’s exports increased 19.3 percent year-on-year in July, as compared to a 32.2 percent increase in June. Analysts surveyed by Reuters expected an increase of 20.8 percent.
China’s imports rose by 28.1 percent in July, lower than the 33 percent expected per the Reuters survey. Imports grew by 36.7 percent from the previous month.
China’s trade surplus in July was $56.58 billion, compared with the forecasted $51.54 billion surplus and $51.53 billion surplus in June.
OUR TAKE
1. From Sun Chunlan inspecting epidemic prevention and control work in various parts of the country to the punishing of dozens of officials over local outbreaks, the various developments listed above indicate that the recent spread of the coronavirus is very serious in China. The current wave of COVID-19 sweeping through the country is debunking the CCP government’s propaganda of having successfully controlled the epidemic.
The CCP’s efforts to stem the latest coronavirus wave appears to be creating a host of problems for only marginal returns. Mass testing is an expensive move that potentially creates opportunities for cross-infections. Harsh lockdowns are creating humanitarian issues in the affected areas, just as in the first round of major lockdowns in early 2020. And efforts by PRC officials to force vaccinations on the populace could prove to be a double-edged sword for themselves and the regime in general given the questionable efficacy of PRC vaccines (see the next point). Finally, the CCP’s rigid, “one-size-fits-all” approach to epidemic prevention and control risks stalling the Chinese economy at a time when it is badly in need of activity and recovery.
The Chinese people may be able to tolerate temporary discomforts and loss of income from the CCP’s draconian epidemic control measures if they ultimately prove effective. On the flipside, a severe outbreak will shake the Chinese people’s confidence in the Party and show them that the so-called “institutional advantages” of the regime are not really effective in preserving their health and lives. The CCP’s control over society will naturally erode when people facing multiple threats (disease, hunger, unemployment, etc.) find that they have nothing to lose.
2. Reports and anecdotal evidence about PRC vaccines suggest that they are of dubious efficacy. Efforts by some local governments to cover-up adverse reactions to the vaccine or suspend vaccination drives also indicate serious problems with those vaccines. The CCP could find itself in an awkward situation where the current epidemic outbreak is complicated by vaccines that potentially do more harm than good to those who receive it.
However, the CCP will ultimately push vaccinations unless very serious vaccine-related incidents occur. The Party cannot afford to lose face at home and abroad by admitting that it produced an inferior and even toxic vaccine for COVID-19. But in saving face, the CCP could end up bringing upon itself immense political risks, especially if there is large-scale pushback against PRC vaccines domestically and overseas.
3. China’s economic data in July affirms our previous analysis about local governments having trouble in issuing bonds. Also, the slowdown of the real estate sector is set to exacerbate in the coming months with the resurging epidemic, the CCP’s real estate control policies, and property companies running into severe debt problems.
We are very pessimistic about the outlook of China’s economy in the second half of 2021. The rapid deterioration of the Chinese economy will further weaken Xi Jinping’s “quan wei” and sharply raise the CCP regime’s political risk levels.
