SinoInsight 1
Outbreak overview
Beijing
In a press conference on March 15, Beijing Center for Disease Control and Prevention deputy director Pang Xinghao said that the city had 43 new and “mainly imported” COVID cases between March 7 and 1600 hours on March 15. He added that “multiple independent transmission chains” have emerged in seven districts within seven days, with COVID clusters appearing in office buildings, schools, and other places of gathering.
Xu Hejian, a Beijing municipal government spokesman, said at the press conference that schools should be at the focus of epidemic prevention. He ordered off-campus training institutions in Beijing to suspend in-person training.
Shanghai
On March 10, the local governments of Jiading, Xuhui, and other districts in Shanghai suddenly issued emergency requisition decisions to apartment management departments, forcing tenants to move out within a few hours. Over the next two days, the authorities temporarily locked down schools, businesses, restaurants, and shopping malls. Residents were advised not to leave the city unless necessary on March 12, and all terminals in Shanghai were shut down on March 14.
In a March 11 announcement, the Shanghai authorities blamed the local COVID-19 outbreaks on “management omissions” at Huating Hotel in Xuhui District. The authorities claimed that Huating, an old five-star hotel used for quarantining arriving visitors, had only one ventilation channel and that facilitated the spread of the virus through an asymptomatic person. The outbreak in Xuhui led to the quarantining of half the district’s local government leaders and grassroots cadres.
Zhang Wenhong, head of the Shanghai COVID-19 treatment team and director of the National Center for Infectious Diseases, said on March 14 that the epidemic is back in China and the country is undergoing its most difficult period since the Wuhan outbreak two years ago.
Guangzhou
According to a video circulating on social media on March 11, tens of thousands of people were suddenly locked down at the Canton Fair Complex convention center after an attendee was found to be COVID positive. Many tried to leave the place after learning of the news but were prevented from doing so, resulting in a crushing crowd. The center later canceled all of its exhibition activities.
Shenzhen
The current COVID-19 outbreak in Shenzhen appeared to start from Feb. 13 and is the third local outbreak in a year. As of March 13, the city had designated one high-risk area and 11 medium-risk areas.
The Shenzhen local government closed schools on March 4 and temporarily shut non-essential businesses, entertainment venues, fitness areas, cultural spots, childcare, and in-person training facilities a day later.
On March 13, the Shenzhen government announced a week-long lockdown. Only essential businesses and services (supermarkets, pharmacies, medical institutions, catering enterprises) remained open. Public transportation was suspended, but taxis and ride-hailing businesses were allowed to operate. Vehicles were allowed to transport goods to Hong Kong, but could only pass through certain cross-border control points (Huanggang Port, Man Kam To Port, Heung Yuen Wai Control Point, and Shenzhen Bay Port). Hong Kong-Shenzhen cross-border delivery drivers also had to disembark at the control points and hand over their vehicles to mainland drivers for the mainland leg of the delivery.
The authorities tightened travel restrictions further on March 15, including suspending passenger service on the Guangzhou–Shenzhen intercity railway and reducing the number of passenger trains, as well as suspending cross-border freight through the Heung Yuen Wai Control Point.
Jilin
Jilin Province reported local outbreaks from Feb. 28. The Jilin Agriculture Technology College campus was hit the hardest, but the school chose to conceal the outbreak by locking up more than 6,000 students in on-campus dormitories instead of only isolating the infected. The incident led to a public outcry and the eventual dismissal of the college’s Party Secretary Zhang Lifeng on March 10.
In a video that started circulating on Chinese social media on March 12, a family member of a tuberculosis hospital doctor described while in tears how COVID-19 had spread from the family members of nurses to the nurses, patients, and doctors of the hospital over the span of a week. While the hospital staff were all positive, they were not permitted to isolate and had to stay on the job.
On March 13, the Jilin authorities announced the building of another three makeshift hospitals (the province already has three makeshift hospitals with a total capacity of 1,200 beds) with the goal of having 10,000 available beds to deal with the COVID-19 outbreak. Concurrently, the local government would build a 6,000-person capacity isolation shelter to house those who come into contact with positive cases. The next day, the authorities put the entire province of 24 million people in lockdown.
On March 16, the authorities announced that it has built eight makeshift hospitals (11,488 beds) and two quarantine centers (662 rooms). Another two hospitals (over 5,000 beds) and five quarantine centers (more than 27,500 rooms) are under construction.
Other areas
March 14
Guangdong’s Dongguan City announced a seven-day lockdown after a local outbreak.
Meanwhile, the local authorities of Cangzhou City and Qinghe County in Hebei Province, Weihai City in Shandong Province, and Quzhou City in Zhejiang Province enacted quasi-lockdowns, including prohibiting unnecessary people movement and instructing people not to leave the area unless necessary.
March 15
Jiangsu Province announced the temporary closure of 167 entry-exit expressway toll stations.
Economic impact
Foxconn and other manufacturers in Shenzhen suspended production from March 14 due to the city’s partial COVID-19 lockdown. Foxconn said that production at its Longhua and Guanlan factories in Shenzhen, one of which makes iPhones, would be shifted to other plants in mainland China. The company restarted some production on March 16 after putting in place “close-loop” epidemic controls. The other manufacturers (Huawei, Tencent, and Oppo are headquartered in Shenzhen) were affected to various degrees by the lockdown.
PRC state-owned auto manufacturing company FAW Group shut down five major vehicle plants in Changchun, Jilin Province, from March 13 to March 16 after epidemic restrictions were imposed. The four-day halt meant that FAW Group lost about 48,000 units of production.
Official accountability
March 12
Jilin mayor Wang Lu and Changchun’s Jiutai District mayor Li Xin were dismissed over local outbreaks, according to official announcements.
March 14
Mainland media outlets reported that six officials in Guangdong Province, including the deputy director of the Guangdong provincial public security bureau, the executive deputy mayor of Dongguan City, the director of the Dongguan municipal public security bureau, the Party secretary of Dongguan’s Dalang Town, and the deputy director of Dalang’s health commission, were dismissed over “ineffective epidemic prevention and control” (防疫不力).
Health Times, a subsidiary of People’s Daily, reported that at least 60 local officials in five provinces and cities had been held accountable for “ineffective epidemic prevention and control” from February to March 14.
March 17
In a meeting of the Politburo Standing Committee, Xi Jinping called on officials to minimize the impact on the Chinese economy and people’s lives from COVID prevention and control measures, according to Xinhua. He also urged officials to curb the spread of the coronavirus and said that the central government would hold accountable local officials who fail to respond promptly to outbreaks.
Xi added that the PRC should “strive to achieve the biggest prevention and control effect with the smallest cost, and minimize the impact of the COVID-19 situation on economic and social development.”
OUR TAKE
1. There are several possible concurrent explanations for why COVID-19 cases have been rising quickly in mainland China since the beginning of March.
First, PRC officials are relaxing their cover up of outbreaks following the conclusion of the 2022 Beijing Winter Olympics. Mainland China already saw large-scale outbreaks in December 2021 and into the new year. However, pandemic news became scarce during the Games, a phenomenon in line with the CCP’s need to uphold its “great, glorious, correct” image during a period of national pride for the regime. The sudden spurt in outbreaks post-Winter Games could be partly due to local governments being forced by circumstances to more properly reflect reality again.
Second, the mainland outbreaks coincide with the Omicron wave spreading in Hong Kong and around the globe. The rising cases suggest that PRC vaccines, like those in the West, do not prevent transmission of COVID-19.
Third, local government incompetence is contributing to the failure of Beijing’s “zero-COVID” strategy. Noticeably, the so-called “management omissions” at Huating Hotel in Shanghai and the outbreak at the Jilin Agriculture Technology College campus are the result of officials prioritizing self-interests over the regime’s, to the detriment of the Xi leadership’s policy and regime stability. Those cases are also examples of the “deficiencies in government work” (formalism, bureaucratism, “one-size-fits-all” and “campaign-style” approaches, etc.) pointed out by Li Keqiang in his Two Sessions government work report.
Fourth, it cannot be ruled out that Xi leadership’s current “tolerance” towards the reporting of higher case numbers could be due to a plan to quietly adjust “zero-COVID” without outright taking the policy off the books, with an eye on building herd immunity, eventually lifting epidemic prevention and control restrictions, and declaring the “zero-COVID” strategy a success (Xi Jinping would ideally want to make the “victory” announcement before the 20th Party Congress). Beijing would have realized that the PRC stands to lose greatly on multiple fronts (economy, trade, geopolitics, etc.) if it does not loosen up on COVID curbs, and hence took a calculated risk by concealing the current outbreaks to a lesser degree.
2. The epidemic situation on the mainland is likely more severe than what the CCP is presently acknowledging. For one, Shanghai had been handling the virus well since the Wuhan outbreak two years ago through a so-called “precise epidemic prevention” (精準防疫) strategy as opposed to the more draconian “zero-COVID.” The recent imposition of a quasi-lockdown, however, indicates that the virus is spreading quickly in the city and cannot be slowed through “precise epidemic prevention.”
The “temporary lock downs” in first-tier cities like Shanghai and Shenzhen, as well as the large-scale outbreaks across the country, will likely seriously impact the Chinese economy and supply chains. The economic “gains” (see SinoInsight 2) in the first two months of the year could be quickly wiped out, and Beijing’s effort to rescue the economy will be set back further.
3. The current wave of outbreaks further erodes Xi Jinping’s “zero-COVID” political legacy and leaves him with barely any “achievements” worth mentioning save the anti-corruption campaign in the lead up to the 20th Party Congress. Xi’s factional rivals could also claim that the current outbreaks indicate that “zero-COVID” is proven to be ineffective in stemming transmissions, making it an even greater failure than it already is (economic losses, reputational damage, humanitarian crises, diplomatic troubles, etc.).
Xi will be looking to turn things around before the Beidaihe meetings this year to firmly stake his claim for a third term at the 20th Party Congress. Political risks in China will spike if Xi cannot improve the situation and is forced to take more drastic factional struggle action to stay in power.
SinoInsight 1
Xi Jinping has become more embattled recently as the PRC continues to struggle with a worsening economy, fresh COVID-19 outbreaks (see SinoInsight 1), and growing geopolitical pressures over its support of Russia amid the latter’s invasion of Ukraine.
Economic
1. The PRC National Bureau of Statistics (NBS) released economic data for the January-February period in the week of March 14. The NBS interpreted the data as showing economic recovery, adding that the “main indicators are operating within a reasonable range.”
Key figures include:
- National fixed asset investment (excluding rural areas) increased by 12.2 percent year-on-year to 5.0763 trillion yuan.
- National real estate development investment increased by 3.7 percent year-on-year to 1.4499 trillion yuan.
- Real estate developer housing construction area increased 1.8 percent year-on-year to 7,844.59 million square meters. New housing construction area decreased 12.2 percent year-on-year to 149.67 million square meters.
- Sales area of commercial housing decreased 9.6 percent year-on-year to 1.5703 million square meters. Sales of commercial housing decreased 19.3 percent to 1.5459 trillion yuan.
- Real estate developers received 2.5143 trillion yuan in funds, a decrease of 17.7 percent year-on-year.
***
Changes in the sales prices of commercial residential units in 70 medium- and large-sized cities in February are:
New commercial residential units sales price change
- First-tier cities: 4 cities up.
- Second-tier cities: 12 cities up, 1 flat, 18 down.
- Third-tier cities: 3 cities up, 32 down
- First-tier cities: Shanghai, Beijing, and Guangzhou up; Shenzhen down.
- Second-tier cities: 3 cities up, 28 down.
- Third-tier cities: 3 cities up, 32 down.
Table 1: (Source: National Bureau of Statistics)***
According to the recent NBS data:
- Total social financing scale in January increased 19 percent (984.2 billion yuan) from the previous year to 6.175 trillion yuan.
- Total social financing scale in February fell 30.8 percent (minus 531.5 billion yuan) from a year ago to 1.19 trillion yuan.
- RMB loans increased 1.23 trillion yuan month-on-month in February, a decrease of 125.8 billion yuan in the growth rate over the same period last year.
3. In a special meeting of the State Council’s Financial Stability and Development Committee on March 16, vice premier Liu He said that the authorities would take measures to “boost the economy in the first quarter,” introduce “policies that are favorable to the market,” and “carefully introduce contractionary policies.” The meeting also noted that “any policy that has a significant impact on the capital market should be coordinated with the financial regulatory authorities in advance to maintain stable and consistent expectations.”
Liu’s remarks lifted Chinese stocks, which had a day ago fallen to a 21-month low in mainland markets and the lowest since 2008 in Hong Kong. The Heng Seng Index recovered its March 15 losses by surging more than 9 percent to above the 20,000-point mark. The Hang Seng Tech Index jumped 22.2 percent, with shares of Alibaba and Tencent rising 27.3 percent and 23.2 percent respectively. The CSI300 Index rose 4.3 percent after falling by over 13 percent since the Russian invasion of Ukraine on Feb. 24.
U.S.-traded Chinese stocks slide over investor concerns about recent COVID-19 outbreaks, domestic regulatory pressure, global economic ramifications of the Russia-Ukraine war, and potential U.S. delistings over the disclosure of Chinese audit information. According to the Financial Times, Beijing is preparing to make some concessions regarding disclosures, resulting in “some Chinese companies that are listed in the U.S. being able to provide some audit information to US accounting regulators.”
4. On March 16, Xinhua reported that there are “no suitable conditions” to expand the list of cities to pilot a property tax this year.
Yan Yuejin, research director of Shanghai-based E-house China Research and Development, told media outlets that property tax implementation is challenged by macroeconomic and downward pressures on the property market.
International
March 5
Hu Wei, a professor at the Shanghai Municipal Party School’s School of Marxism who holds several joint appointments (vice chairman of the Public Policy Research Center of the State Council Counselor’s Office, chairman of Shanghai Public Policy Research Association, etc.), published an article titled, “Possible Outcomes of the Russo-Ukrainian War and China’s Choice” (俄烏戰爭可能的結果與中國的抉擇).
Hu argued that Russia would very likely turn out to be the losing party in the Russia-Ukraine war and see “Russia’s status as a great power come to an end.” He added that the United States and the West would likely emerge from the conflict in a strong position, resulting in an “Iron Curtain” falling again “not only from the Baltic Sea to the Black Sea, but also to the final confrontation between the Western-dominated camp and its competitors.” There will be a “life-and-death battle between those for and against Western democracy,” Hu wrote.
In considering the PRC’s “strategic choices,” Hu recommended “cutting off from Putin and giving up neutrality” to “help build China’s international image and ease its relations with the U.S. and the West.” This would “achieve the greatest possible strategic breakthrough” for the PRC and represents the “best option for the future.”
Hu’s article was eventually taken down by the authorities. It was later translated into English and republished by the Carter Center’s U.S.-China Perception Monitor, and was widely discussed in overseas China watching circles.
March 11
Prominent financier George Soros published an article about the Russia-Ukraine war on Project Syndicate where he claimed that Xi Jinping “appeared to have given Putin carte blanche to invade and wage war against Ukraine.”
In concluding, he wrote, “We can only hope that Putin and Xi will be removed from power before they can destroy our civilization.” MarketWatch republished the piece under the headline, “George Soros: Make no mistake, Putin and Xi are putting the world at risk of complete destruction.”
March 14
U.S. National Security Advisor Jake Sullivan and Central Foreign Affairs Commission General Office director Yang Jiechi held a seven-hour meeting in Rome.
A White House statement on the meeting said that Sullivan “raised a range of issues in U.S.-China relations” and had “substantial discussion of Russia’s war against Ukraine” with Yang.
The PRC foreign affairs ministry readout of the meeting said that Yang brought up the consensus reached by Xi Jinping and President Joe Biden in their last meeting, including Biden “making such important commitments as not seeking a new Cold War, not seeking to change China’s system, not seeking to target the revitalization of its alliances against China, not supporting ‘Taiwan independence,’ and having no intention to have a conflict with China.” Yang later noted that Washington’s “recent actions are obviously not consistent with its statements” on the Taiwan issue. The statement also noted that both sides “exchanged views on international and regional issues including the Ukraine issue, the nuclear issue on the Korean Peninsula, the Iranian nuclear issue, and the Afghan issue.”
State mouthpiece CGTN’s report on the meeting had Yang telling Sullivan that “it is important to straighten out the historical context of the Ukraine issue, get to the bottom of the problem’s origin, and respond to the legitimate concerns of all parties.”
March 15
1. In a Wall Street Journal op-ed, former Australian prime minister and Asia Society global president Kevin Rudd wrote that a “protracted war in Ukraine poses a danger” for Xi Jinping.
“Some in the Communist Party are questioning his strategic judgment by departing from Deng Xiaoping’s foreign-policy wisdom of keeping a low profile. Others have challenged his economic judgment because of his moves against the Chinese private sector, which has powered Chinese growth for 35 years. Still others are watching and waiting for an explosion in COVID cases across the mainland emanating from Hong Kong, which would undermine Mr. Xi’s domestic political claim over the past two years that China got the pandemic right and the U.S. and the West got it radically wrong,” Rudd wrote.
He added, “Together these would make a powerful political cocktail by the 20th Party Congress this fall, where Mr. Xi seeks to ratify his rule. And were Mr. Putin himself to fall as a result of Ukraine, the political pressures on Mr. Xi would be formidable indeed.”
2. In a Washington Post op-ed, PRC ambassador to Washington Qin Gang dismissed U.S. assertions that “China knew about, acquiesced to or tacitly supported” the Russia-Ukraine war as “purely disinformation.”
Qin added, “On Ukraine, China’s position is objective and impartial: The purposes and principles of the U.N. Charter must be fully observed; the sovereignty and territorial integrity of all countries, including Ukraine, must be respected; the legitimate security concerns of all countries must be taken seriously; and all efforts that are conducive to the peaceful settlement of the crisis must be supported.”
Qin also condemned threats of sanctions against Chinese companies and “Taiwan independence” while calling for peace talks.
March 16
In an interview with NPR, U.S. Secretary of State Antony Blinken said that “China is already on the wrong side of history when it comes to Ukraine and the aggression being committed by Russia.”
He warned that things would be worse for China if it “actually provides material support in one way or another to Russia” as the latter invades Ukraine. “I think this is doing real damage to China reputationally in Asia, in Europe, in Africa, and other parts of the world—something it has to pay a lot of attention to,” Blinken said.
Politics
March 15
1. The Wall Street Journal published an article claiming that a “rollback” of Xi Jinping’s economic agenda “exposes cracks in his power.”
The article noted that Beijing has been dialing back its economic policies in recent months in considering its impact on the Chinese economy. The Journal said that the Xi leadership “anticipated hits on certain sectors,” but cited an economic adviser in Beijing as saying that “the speed of the slowdown was a surprise.”
As an example, the article pointed out that Xi’s “common prosperity” policy is “barely mentioned anymore.” The Journal reported that Xi had acknowledged that “wealth redistribution is hard to do when growth is slowing” behind “closed doors at a December conference to set the 2022 economic agenda.” Xi told officials that “common prosperity” was about “making the cake bigger first” before “dividing it more equally.” The Journal also noted that premier Li Keqiang “mentioned Mr. Xi’s common-prosperity agenda exactly once” in his government work report at the Two Sessions. However, Xi “isn’t done fighting for his economic revamp, and the pressure on entrepreneurs hasn’t entirely gone away.”
The Journal claimed that Beijing’s “course correction” has “created openings for other Party figures” such as premier Li Keqiang “to play a more visible role in what has long been a solo act.” The article suggested that Li “could leverage the economic pressure on Mr. Xi to install more members of his faction in key posts,” citing Party insiders. They also said that while “Mr. Li’s term as premier will soon end, he is likely to stay on in a different leadership position.” The Party insiders added that Party elders like former premier Zhu Rongji have “recently spoken up against Mr. Xi’s desire to break with the established leadership-succession system.”
The article further noted that different messaging on issues like the PRC’s support for Russia “betray tensions within the top echelon of the party around Mr. Xi’s policies,” citing Party insiders. The Journal observed that the article by Hu Wei on the Russia-Ukraine war was being widely discussed online, along with another article by late PRC diplomat Wu Jianmin that spotlighted then-PRC boss Jiang Zemin’s decision to side with the U.S. over the Sept. 11 attack “helped bring U.S.-China relations to a new level and won China years of development.”
2. Yuan Hongbing, an Australian-based Chinese dissident and jurist familiar with the chatter and developments in the CCP elite, shared the latest elite concerns about Xi Jinping and international reaction to the Russia-Ukraine war in an interview with the Chinese language edition of The Epoch Times.
Yuan said that Western sanctions against Russian oligarchs had caused a lot of panic inside the Party. Party elites are afraid that Xi Jinping will invade Taiwan before 2024 and incur U.S. sanctions in doing so, leading to the confiscation of overseas wealth of princeling clans. “Jiang Zemin, a massively corrupt criminal and kleptocrat, is said to have $1 trillion in overseas assets,” Yuan said, adding that Jiang’s grandson Alvin Jiang (Jiang Zhicheng) has luxury yachts in the possession of “white gloves” (bagmen).
Yuan added that the usually fractious princelings are uniting against Xi over fears of U.S. sanctions. “The princeling clans are going crazy. Not just them, but also some of the nouveau riche clans as well,” he said. Yuan analyzed that America could be looking to intimidate the CCP princelings by targeting Russian oligarchs in hopes that they would stop Xi Jinping from invading Taiwan.
Yuan said that the princeling clans opposing Xi include those of powerful Party elders like Chen Yun, Wang Zhen, Ye Jianying, and Zeng Qinghong. Less prominent princelings are also challenging Xi, “like Liu Yazhou.”
Yuan Hongbing repeated what he said in a previous interview about how PRC officials are carrying out “peaceful, rational, non-violent” (和理非) struggle against Xi Jinping.
OUR TAKE
1. The CCP’s official figures indicate that the Chinese economy is still rapidly deteriorating despite claims of recovery. Beijing’s recent concessions to the U.S. over the disclosure of Chinese audit information exposes the PRC’s financial vulnerabilities and underscores economic frailties.
Worsening domestic and external conditions, including the developing Russia-Ukraine war and its implications for the PRC, as well as the recent COVID-19 outbreaks, foreshadow even bleaker economic figures in March and beyond. This would in turn worsen the real estate debt crisis, with dire repercussions.
The Xi leadership has clearly stepped in to rescue the markets and assure investors that the PRC government will intervene where necessary to keep things stable. However, Beijing’s ability to carry out successful interventions will weaken as the economy heads to a recession, the CCP’s political legitimacy erodes, and geopolitical risks rise.
2. Many observers have overstated the importance of Hu Wei’s article on the Russia-Ukraine war.
Pundits and media outlets mention Hu’s State Council job as a sign that he perhaps influences thinking in Beijing or reflects the thinking of certain Party elites. However, the official State Counselor’s Office website description of Hu’s job indicates that it is far less prestigious or influential than it may seem. The Public Policy Research Center of the State Council Counselor’s Office where Hu serves as vice chairman is a “non-physical mechanism research platform” (非實體機制化研究平台; i.e. no office) without an assigned budget. Put another way, Hu’s State Council job is one of those “title only,” likely non-salaried appointments that are useful for scholars doing CPPCC work, and not a role held by a valued adviser of Zhongnanhai.
A review of Hu Wei’s previous articles and CV show that his main job is the more modest position of professor at the Shanghai Municipal Party School’s School of Marxism. This is the title that the PLA Daily used in a Dec. 21 piece by Hu; Hu’s State Council job is not listed.
Some China watchers believe that Hu Wei represents the views of Party elite who oppose Xi because the aforementioned PLA Daily article is similar to Qu Qingshan’s “reform and opening up” piece, which drew controversy because it did not mention Xi. However, Hu and Qu were both discussing “reform and opening up” entirely within the framework of Xi Jinping’s “historical resolution,” and not challenging Xi Jinping by putting out a different view as popularly presumed. Hu’s earlier articles also largely conform to the political orthodoxy of the times.
A likely explanation for Hu Wei’s article is that it was a panicked reaction by a scholar to seemingly seismic geopolitical changes. In the early months of the Sino-U.S. trade war during the Trump years, several PRC scholars also issued articles calling on Beijing to make good with Washington with the intention of preserving the “good times” of the post-Deng era and other regime interests. Those views eventually went away after the Xi leadership settled on its current tough stance in dealing with the United States.
Hu’s Russia-Ukraine article was then picked up and promoted by external observers who prefer that Beijing follow its course of action. Those observers have much to gain in pushing the idea that Hu’s views are representative of either Zhongnanhai or Xi’s rivals; the first interpretation puts pressure on Xi Jinping to conform to the international community on the question of punishing Russia over its invasion of Ukraine, while the second interpretation holds that Xi is facing strong pushback at home and is hence now vulnerable to attack.
3. As the March 15 Wall Street Journal article observed, the Xi leadership has indeed made adjustments to its economic policy since “common prosperity” was announced last year. However, we are skeptical that the “course correction” represents “cracks” in Xi Jinping’s power. Senior officials still have to submit written briefs to Xi, and the anti-corruption/“self-rectification” campaign continues to steamroll ahead, noticeably with the arrest of Liu Yanping after the Two Sessions. Those developments indicate that Xi’s grip on power is firm even though his “quan wei” is diminishing amid failures on multiple fronts.
Beijing’s economic “course correction” appears to have more to do with practical adjustments to cope with China’s worsening economy and the real estate sector crisis, and less to do with Xi’s weakening power. The downplaying of “common prosperity” and continued efforts (see here and here) by state media to explain what the authorities mean by tackling “disorderly expansion of capital” are likely aimed at addressing investor concerns that Xi is reverting the regime back to the Mao era as Beijing looks to court and retain capital to stabilize the economy. However, the Xi leadership is still keen on checking Chinese financial elites like Jack Ma who have abused the system for their gain while endangering regime security. As the Journal notes, Xi “isn’t done fighting for his economic revamp, and the pressure on entrepreneurs hasn’t entirely gone away.”
We are also skeptical about the Journal’s Party insider information regarding Li Keqiang, especially in light of news that he is stepping down next year. We previously analyzed what Li’s retirement entails and why it is unlikely that he opposes Xi (see here and here). It is in the interest of Xi’s factional enemies to play up the notion that Li is vying with Xi (“Xi-Li split”) to undermine the Xi camp; we earlier analyzed how various Party factions seek to gain leverage over each other “by leaking damaging information about their rivals to overseas media outlets.”
The Wall Street Journal and Yuan Hongbing’s latest Party insider information appear to reflect the viewpoints of those who oppose the Xi leadership. Such information is indicative of intensifying intra-Party opposition towards Xi Jinping, and could serve as political mobilization to expose Xi’s weaknesses and rally foreign and domestic rivals against him.
4. George Soros and Kevin Rudd’s op-eds mentioning Xi, as well as the Wall Street Journal article on the “cracks” in Xi’s power and Yuan Hongbing’s latest interview with The Epoch Times, affirm our analysis that Xi Jinping is facing serious challenges from enemies both within and without the CCP regime. Such challenges will likely escalate in the lead up to the 20th Party Congress as the larger “anti-Xi coalition” seek to deny him a third term in office and engineer his ouster.
We do not rule out that some of the PRC’s current financial difficulties could be the work of Xi’s enemies pursuing an “anti-Xi, not anti-CCP” strategy. Notably, Soros warned in January, “It remains to be seen how the authorities will handle the [real estate] crisis … In my opinion, the second quarter of 2022 will show whether [Xi Jinping] has succeeded. The current situation doesn’t look promising for Xi.”
Growing international pressure on China, while certainly the fault of the PRC’s doings, could also be partly aimed at ruining Xi’s third term bid on the part of his external enemies. We would not be surprised to see the U.S. impose sanctions on the PRC over Russia and other developments, or apply other punishments, with an eye on affecting the Chinese economy and stocks so as to embarrass and undermine the Xi leadership. Foreign punishment and sanctions would also serve to intimidate the Party elite and compel them to take bolder action in dealing with Xi Jinping. Xi’s external enemies could look to make their move before the Beidaihe meeting and other sensitive dates ahead of the 20th Party Congress.
As Xi becomes increasingly hamstrung by domestic and foreign crises, he would be forced to more fiercely pursue and purge his rivals in the Party elite. This would sharply escalate political risks for Xi and the regime, paving the way for Black Swans to emerge in China in 2022.
