Xi & his rivals issue warnings to each other as risks mount for the PRC

     SinoInsight  1     

• June speech: The Chinese stock market crashed. Observers consider the crash a “financial coup” by the Jiang Zemin faction against the Xi leadership.
• December speech: Xi formally institutes military reforms and consolidates power over the People’s Liberation Army.

• October speech: Xi assumes the title of Party “core” leader at the Sixth Plenary Session of the 18th Party Congress.
• December speech: Xi noticeably makes himself more than “first among equals” in the Politburo Standing Committee with subtle changes in protocol for public appearances and in propaganda.

• February speech: Xi begins using various measures to weaken the CCP “collective leadership” and promote strongman rule.

• January speech: At the upcoming Two Sessions, Xi would go on to abolish term limits for the PRC presidency and vice presidency; write “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” into the PRC constitution; and introduce Party and state institutional reforms.
• June speech: President Donald Trump announces the first tranche of tariffs on Chinese exports; the eve of the Beidaihe meeting period (July – August).

• May speech: The Trump administration raised tariffs on Chinese goods and added Huawei to the Department of Commerce’s entity list in May.
• July speech: The eve of the Beidaihe meeting period. By July 2019, the Fourth Plenum of the 19th Party Congress was close to being delayed for a year.

• October speech: By this time, the Xi leadership was struggling with epidemic prevention and control work, and facing pushback over “wolf warrior” diplomacy. President Trump also looked likely to win a second term.
• December speech: America was troubled with election fraud allegations; a video of Renmin University scholar Di Dongsheng bragging about elite capture in America which surfaced at the time raised questions about the possibility of CCP interference in U.S. elections.

• February speech: The Biden-Harris administration begins its first hundred days in office; the CCP advances its “the East is rising, the West is in decline” (東升西降) narrative as it looks to restore Sino-U.S. relations to the pre-Trump era.

OUR TAKE
1. The Qiushi piece was published after Xi Jinping and other senior Party officials started making public appearances again after mid-August, which is widely believed to be when the annual Beidaihe meeting was held. Propaganda purposes aside, the publication of the piece and its content portends ill for the CCP regime.

It is never a good sign for the CCP when it has to keep hammering home to its officials the importance of obeying Party Central and properly implementing its orders, keeping intra-Party unity, and having greater “political awareness.” Put another way, the CCP is sorely lacking in all those areas, a nightmare scenario in considering that the Party must stay united and ideologically solid if it is to stand a chance of weathering the “perfect storm” of internal and external pressures currently battering the regime. Hence, Xi Jinping is embarking on “Party-building” work in the hopes of fixing the aforementioned issues before the CCP’s “ship of state” capsizes.

We are very pessimistic about Xi’s odds of turning things around. For one, Party members today are nowhere near as driven as the founding revolutionaries, and excessive indoctrination work will more likely accelerate the alienating of Party members from Party Central than sway them to sacrifice their all for the regime. With the exception of die-hard Maoists and hardcore scholars, few in today’s China truly believe in communism and “socialism with Chinese characteristics.”

Meanwhile, Xi continues to be severely challenged by factional struggle. For such an article to appear in Qiushi right after Beidaihe indicates that the meeting did not go well for either Xi or his factional rivals, with tensions high and the situation looking like a stalemate. Xi’s only option is to publicly rally the Party around his “core” leadership while putting his political foes on notice by reminding them of the “crimes” and fates of early “splittists” like Zhang Guotao and Wang Ming.

Readers should be reminded that what the Party acknowledges is usually only the tip of the iceberg, and the situation is often already dire when it starts to harp on a matter. The Qiushi article reveals that the CCP is currently more divided and demoralized than outward appearances suggest. In its particularly vulnerable state, the Party’s ability to cope with Black Swan events will be drastically reduced, which could quickly prove calamitous for the regime.

2. Xi Jinping’s domestic enemies are not the only ones disappointed by the outcome of the Beidaihe meeting.

On Aug. 13, or two days before the publication of the Qiushi piece, prominent financier George Soros published an op-ed in The Wall Street Journal where he slammed Xi for becoming a dictator, “rejecting” Deng Xiaoping’s reforms, and endangering the PRC with his power consolidation and regime rectification, including cracking down on the financial sector and setting himself up for a norm-breaking third term in 2022. Soros also revealed that he had become an “outspoken opponent” of the Xi leadership since 2013.

Soros’s piece is revisionist in several areas. Deng Xiaoping was a dictator just like Mao Zedong and other CCP paramount leaders, with his reforms being a means of preserving regime survival after the Party’s legitimacy was greatly weakened at the end of the Mao era and building a foundation to further the Party’s ultimate goal of world hegemony. Moreover, Xi has not undone Deng’s economic reforms, but has carried out “reform and opening up” to a greater degree in recent years, most prominently in allowing foreign financial institutions to own majority stakes in their China units. And targeting factional rivals aside, Xi’s crackdown on the tech sector is aimed at ensuring that foreign capital flows to industries that benefit the PRC’s development (semiconductors, electric vehicles, etc.) and not to the fictitious economy, something that analysts and investors are already recognizing.

Most curious is Soros’s claim to have started opposing Xi Jinping since 2013. Unless Soros had incredible foresight or precognition, he could not possibly have known that Xi would take his current path of power consolidation back in 2013 when even Xi himself was not decided on how he should proceed at the time.

The market-centric economic reforms laid out at the Third Plenum of the 18th Party Congress showed what Xi originally wanted before running into the serious problem of “orders failing to pass the gates of Zhongnanhai” (政令不出中南海) due to recalcitrant and rival officials in the regime. It was only after the military reforms of 2016 that Xi began to consolidate power in earnest to overcome the roadblocks of bureaucratic inertia and factional struggle. Of course, it is possible that Xi’s domestic rivals (Jiang faction, etc.) reached out to George Soros and Western establishment elites around the time Xi took office to collaborate on ousting him. Otherwise, Soros’ claims to have opposed Xi Jinping as early as 2013 ring hollow.

The timing of Soros’s op-ed—around the conclusion of Beidaidhe—is a little too coincidental to have no political significance. We do not rule out that establishment elites, particularly those who advocate the “anti-Xi, not anti-CCP” strategy, are putting Xi on notice after learning from opponents of Xi who attended Beidaihe that the latter intends to stay the course. Xi’s domestic and external enemies are also possibly in the midst of taking action against him. Xi’s rivals have huge incentive to sideline him in some manner ahead of the 20th Party Congress in 2022 lest he secures a third term and seriously hurts their interests by taking his policies to their logical conclusion.

3. Investors concerned with Xi’s tech sector crackdown, greater promotion of socialism in China (“common prosperity”), China’s declining economy, the Fed’s expected policy tightening, the U.S. withdrawal from Afghanistan, and other issues may decide against improving their presence in the PRC. Fewer funds flowing to China at a crucial time for the CCP regime means heightened financial and political risks, as well as increased chances of Black Swans emerging in China.

     SinoInsight  2     

Aug. 16
The second segment of national political and legal affairs education and rectification work commenced in over 10 provinces, including Jiangsu, Jiangxi, Hubei, Sichuan, and Yunnan. Provincial Party secretaries announced the education and rectification campaign under their title, “leader of the provincial Political and Legal Affairs Education and Rectification Leading Group.” They also named former security czar Zhou Yongkang and other purged members of the Jiang faction as negative examples that officials should avoid emulating.

The second segment of education and rectification work is scheduled to last for about three months, and will cover departments and work units in Party Central, including the Central Political and Legal Affairs Commission. The focus of the campaign is on unearthing “dual-faced” and “dual-faction” officials who show “disloyalty and dishonesty to the Party.”

Aug. 17 
The official website of the Central Commission for Discipline Inspection published an article regarding the punishment of seven officials who came under the management of the Central Organization Department (“兩天發布7名中管幹部處分通報 把嚴的主基調長期堅持下去”).

The seven officials are:

• Wang Fuyu, former Party secretary and chairman of the Guizhou Provincial Chinese People’s Political Consultative Conference, was expelled from the Party.
• Song Liang, former Gansu Province Party Committee member and executive vice governor, was expelled from the Party and public office.
• Meng Yongshan, former Party secretary and chief procurator of the Qinghai Provincial People’s Procuratorate, was expelled from the Party and public office.
• Liu Xinyun, former deputy governor and Public Security Bureau director of Shanxi Province, was expelled from the Party and public office.
• Peng Bo, former deputy director of the office of the Central Leading Group on Dealing with Heretical Religions (“610 Office”), was expelled from the Party.
• Xie Changjun, former Party member and deputy general manager of China Guodian Corporation, was expelled from the Party.
• Zhang Xinqi, former standing committee member and deputy director of the Shandong Provincial People’s Congress, was expelled from the Party.

The CCDI article on the seven officials noted that 19 Party Central-managed cadres have been investigated since the start of the year, and 22 Party Central-managed cadres have been disciplined. A total of 265,000 people were punished in the first half of 2021, of which 221,000 were subjected to Party discipline. This represents the most number of people punished over the aforementioned period since the relevant data was first released in the first quarter of 2017, according to the CCDI article.

Peng Bo and Liu Xinyun were accused of breaching serious political regulations in separate reports on the purged officials.

An investigation into Peng found that “his ideals and beliefs had collapsed; he had been disloyal to the Party; he had deviated from Party Central’s decisions on the online public discourse struggle and gave up on positions taken on managing the internet; he had privately used public equipment; he had taken advantage of his office to benefit himself (靠網吃網); he had resisted the organization’s [the Party] efforts to investigate him; and engaged in superstitious activities.”

Meanwhile, Liu is charged with “losing his political principles; lacking in the ‘Four Consciousnesses’; participating in cliques and factions in the Party; making acquaintances with ‘political crooks’; being obsessed with political speculation; and creating bad political influence.”

Aug. 18
The CCDI published an article on its website noting that nearly 20,000 officials from the political and legal affairs apparatus had “voluntarily surrendered” to discipline inspection and supervisory authorities during the first segment of national political and legal affairs education and rectification work and the subsequent “another look” (回頭看) campaign.

The article also noted that cases were filed against 49,000 political and legal affairs officials who violated discipline and the law, with 2,875 officials taken into detention and four forms of discipline (criticism; light discipline; serious discipline and major job readjustment; and formal investigation) implemented against 178,000 officials.

OUR TAKE
1. The CCP anti-corruption authorities’ article on the punishment of seven Party Central-managed officials was published after the conclusion of the Beidaihe meeting and coincided with the beginning of the second segment of “education and rectification” work in the political and legal affairs apparatus. The move suggests that the “anti-Xi coalition” failed to “restrain” Xi Jinping at Beidaihe, and Xi has become even more determined to push ahead with “rectifying” the regime and putting the officialdom on notice.
The recent disciplinary actions complement the political signaling in the Qiushi article mentioned in SinoInsight 1.

2. As we previously analyzed, Peng Bo and Liu Xinyun are both Jiang faction officials and formerly served in the 610 Office. The strong accusations levied against the two officials affirm the factional struggle dimension in their downfall and hint at the trajectory of the Xi-Jiang struggle.

Peng and Liu appeared to have a working relationship between 2015 to 2018. Peng served as deputy head of the cyberspace administration until he was transferred to the Central Political and Legal Affairs Commission to lead the public discourse response team, oversee anti-Falun Gong as 610 Office deputy director, and serve as a member of the Central Comprehensive Management Committee—appointments that he held from August 2015 to September 2018. Meanwhile, Liu served as director of the cyber security bureau at the Ministry of Public Security and director of the National Computer Network Emergency Response Technical Team/Coordination Center of China from December 2014 to January 2018. During the period in which Peng and Liu’s job functions overlapped, the Xi leadership experienced stock market turbulence (2015), a massive explosion in Tianjin (2015), military reform (2016), soft coup attempts (2017, Sun Zhengcai-Fang Fenghui-Zhang Yang purge before the 19th Party Congress), and contradictory messaging in its trade war with the United States (2018; see here and here)

Peng Bo and Liu Xinyun would also have had ample opportunities to collaborate on Jiang faction maneuvers against the Xi leadership. For instance, Peng was in a position to censor negative news concerning Jiang faction members or enterprises while shutting an eye to negative news circulating about Xi Jinping. Peng could have reached out to Liu for technical support and to implement orders from the CPLAC and the 610 Office. Collaboration of this sort would thus lead to charges against them like “taking advantage of his office to benefit himself” (Peng) and “participating in cliques and factions in the Party” (Liu).

The charge against Peng for “deviating from Party Central’s decisions on the online public discourse struggle and giving up on positions taken on managing the internet” leaves ample room for imagination. For instance, Peng could be involved in the CCP’s contradictory messaging during its trade war with the U.S. which worsened bilateral relations at the time, i.e. allowing messaging that conveys a “combative” stance to percolate in the public discourse when Party Central was looking to adopt a more “peaceable” stance.

Both Peng Bo and Liu Xinyun were removed from their positions within a year after the 19th Party Congress in 2017, and were officially investigated in 2021 as part of Xi Jinping’s rectification of the political and legal affairs apparatus. The revelation that Peng was once the 610 Office deputy director in the official announcement of his investigation appears to be a deliberate effort by the Xi camp to target the anti-Falun Gong political legacy of Jiang Zemin and his faction.

3. Recent domestic and geopolitical developments are giving Xi’s rivals at home and abroad greater incentive to move against Xi Jinping. As Xi’s political risks rise, he has an even greater need to tighten controls domestically and speed up the rectification of the regime, and particularly the political and legal affairs apparatus, long a stronghold of the Jiang faction. Businesses, investors, and governments need to track developments in CCP elite politics to avoid being blindsided by political Black Swans in China.