SinoInsight 1
On June 14, state mouthpiece Xinhua announced that Le Yucheng (age 59), PRC foreign vice minister in charge of daily operations, was appointed deputy head of the National Radio and Television Administration.
Earlier on June 9, former State Council Information Office director Xu Lin was appointed National Radio and Television Administration director.
OUR TAKE
1. Before Xi Jinping took office in 2012, Le Yucheng served in a number of positions at the PRC Ministry of Foreign affairs and mainly rotated to Russia during his stints abroad. Le did not see significant career progression, and was only an assistant minister of foreign affairs (bureau level) by the time Xi became CCP General Secretary.
Xi’s considerations in the factional struggle appeared to be a main reason behind Le’s more rapid climb up the foreign ministry ranks. The CCP foreign affairs apparatus had long been under the sway of the Jiang Zemin faction, and Xi was looking to bring the apparatus more fully into his grasp through personnel reshuffle and the rebuilding of patron-client relations. Le’s relative lack of career progression during the Jiang faction’s era of dominance suggested weaker associations with that faction, and the Xi camp would soon appoint him to higher positions.
From 2013 to September 2014, Le Yucheng was sent to Kazakhstan to serve as ambassador. A day before Xi Jinping visited India on Sept. 17, 2014, Le was suddenly appointed PRC ambassador to India (sub-ministerial level), while his immediate predecessor Wei Wei was demoted and sent to the CCP’s Institute of Foreign Affairs. Days before Xi’s India trip, hundreds of People’s Liberation Army troops made an incursion into an area along the Sino-Indian border that India considers to be its territory and built a 1.2-mile-long road or battle trenches (depending on the report). Indian prime minister Narendra Modi later confronted Xi over the issue during their meeting and left Xi very embarrassed and angry, according to overseas Chinese-language media.
Some Chinese observers believe that the PLA’s maneuvers at the Sino-Indian border before Xi’s trip was the result of factional struggle and an effort to undermine the Xi leadership ahead of an important diplomatic engagement. This is possible because Xi had yet to enact military reforms and consolidate his control over the PLA in 2014. It is unclear what role Wei Wei had in the incident; however, being abruptly replaced and demoted do not reflect well on him. At a minimum, his replacement by Le Yucheng indicates that the Xi leadership wanted to have a trusted senior diplomat in India to mend the relationship, and Wei was not the man for the job.
After India, Le returned to China to serve as deputy director of the office of the Central Foreign Affairs Leading Group (upgraded to the Central Foreign Affairs Commission in March 2018) in September 2016. In 2017, Le was elected an alternate member of the Central Committee at the 19th Party Congress, and promoted to foreign vice minister in charge of daily operations and foreign affairs related to Hong Kong, Macau, and Taiwan in March 2018. And until his recent appointment as deputy head of the National Radio and Television Administration, Le’s career trajectory and patron-client relations marked him as a likely candidate to replace the retiring foreign minister Wang Yi (69).
2. Le Yucheng’s sudden transfer from the foreign affairs apparatus to the propaganda apparatus is very unusual. Who will replace the retiring foreign minister Wang Yi (69) is now in question; Le was the most likely candidate to succeed Wang given the former’s current appointment and rank (Le is the only Central Committee alternate member among the four current foreign vice ministers), his career trajectory, and his status as a favored Xi official. The PRC foreign ministry is also now without a foreign vice minister in charge of daily operations; Ma Zhaoxu, who ranked just behind Le Yucheng among the foreign vice ministers, will likely be tasked to handle daily operations in the interim.
We see four possible explanations for why Le Yucheng was reshuffled at this time.
Sacrificial scapegoat
The Xi leadership has been under increased pressure from the United States and its allies in recent months over the PRC’s friendship with Russia and pro-Russian stance on the Russia-Ukraine war. Before Secretary of State Antony Blinken delivered the Biden administration’s China policy speech, Beijing would have tracked the tougher rhetoric from Washington towards China and would be concerned that the effort to pass the AXIS Act in Congress could be a prelude to the sanctioning of senior PRC officials. Beijing was likely also worried that outflows could accelerate as foreign investors increasingly accounted for political risk in China as Sino-U.S. tensions appeared to worsen over Ukraine.
Beijing is wary enough about being penalized by the U.S. and its allies to have held a “stress test” with government organs and banks earlier in the year to figure out responses if the PRC was hit with sanctions similar to those imposed on Russia. Meanwhile, an April 22 meeting with domestic and foreign banks on how to protect China’s overseas assets from hypothetical U.S.-led sanctions drew blanks. “No one on site could think of a good solution to the problem,” a person briefed on the meeting told the Financial Times. “China’s banking system isn’t prepared for a freeze of its dollar assets or exclusion from the Swift messaging system as the U.S. has done to Russia.” Efforts by Beijing to minimize the impact of foreign sanctions were also a factor behind a CCP Organization Department directive in March banning spouses and children of ministerial-level officials from directly or indirectly holding any real estate overseas or shares in entities registered abroad, according to a May 19 report in The Wall Street Journal.
The Xi leadership’s effort to curb geopolitical risks saw CCP propaganda outlets eventually inject a little more “neutrality” in its reporting of the Russia-Ukraine war. Notably, a media outlet under Xinhua published on May 3 an article titled, “How Zelensky Governs the Country in the Bunker” (澤連斯基如何在地堡中治理國家) that repeated the Ukrainian government’s line on not compromising to Russia and recovering conquered territory.
If Beijing is deathly afraid of sanctions and is looking to avoid them where possible, then the reshuffling of Le Yucheng could be an attempt at a more tangible step at appeasing Washington. Le is the perfect scapegoat to sacrifice to convince the U.S. of the PRC’s sincerity on the Russia-Ukraine issue given his previous hawkish remarks in favor of Russia. For instance, Le noted during a press conference after the Xi-Putin summit in February that there is “no ceiling in Sino-Russian relations” and “no terminals, only gas stations.”
Le also accused the U.S. of using the Russian-Ukrainian war to “make money from war” during an online security forum on May 6. “Obviously, what they care about is not peace talks to end the war, not the lives of the Ukrainian people, but to use Ukraine as consumables and cannon fodder to bring down Russia, and use the lives of Ukrainians to satisfy their own great power ambitions and achieve their own geostrategic goals,” he said.
In the scenario where Le Yucheng is sacrificed solely to appease the U.S. and the CCP gets no benefit, his career progression would be permanently halted, with no chance for rehabilitation. We believe that this scenario is less likely.
Strategic ‘sacrifice’
The CCP would have noticed that Sino-U.S. relations appear to be moving towards détente as opposed to greater confrontation since Secretary Blinken’s China speech at the end of May. The Biden administration has been steadily chipping away at the Trump administration’s tough China policies, including giving U.S. investors the “green light” to hold on to securities of companies officially linked with the PLA, pausing new solar tariffs for two years (to the PRC’s benefit), and planning a rollback of Trump’s China tariffs. Meanwhile, U.S. Ambassador to China Nicholas Burns recently posted several tweets (here, here, and here for example) that build on Blinken’s framing of the PRC as a normal state (as opposed to a brutal Marxist-Leninist regime as correctly identified by Trump administration officials) and hints at a stealth return to the pre-Trump era of “engagement.”
“Re-normalizing” Sino-U.S. relations aside, the Biden administration could be seeking Beijing’s help in negotiating a favorable, or at least less embarrassing, conclusion to the Russia-Ukraine war. Despite Ukraine receiving substantial support from the U.S. and its allies while putting up determined resistance, Russia looks poised to capture the entire Donbas region sooner rather than later. Imposing additional impactful sanctions on Russia also do not seem very feasible at this stage given Europe’s dependence on Russian energy and the global inflation crisis. Therefore, Washington’s best option may be to cut losses and quietly encourage Ukraine to reach a peace deal with Russia. To bring Russia to the negotiation table and hopefully secure reasonable peace terms for Ukraine (and by extension, the U.S. and its allies), the Biden administration has incentive to improve ties with the PRC and leverage the latter’s “no limits” friendship with Russia.
Washington’s need for Beijing’s assistance with Moscow as the Ukraine situation grows bleak could be a key reason behind the June 13 meeting between White House National Security Advisor Jake Sullivan and CCP Central Foreign Affairs Commission director Yang Jiechi. The “productive” 4.5 hour meeting, which was not announced prior to its taking place, is part of the Biden administration’s efforts at “managing the competitive dynamic” with Beijing and “reducing risks” by communicating its intentions and priorities, a senior U.S. official told reporters.
It is unclear whether the Sullivan-Yang meeting had any bearing on Xi Jinping’s phone call with Russia’s Vladimir Putin on June 15. According to an official PRC readout, Xi said that “Chinese-Russian relations have maintained a healthy momentum of development in the face of global turbulence and change.” On Ukraine, Xi repeated the official PRC line that “all parties should push for a proper settlement of the Ukraine crisis in a responsible manner” and that “China is willing to continue playing its due role in this regard.” Per the Russian readout, Xi “noted the legitimacy of Russia’s actions to protect fundamental national interests in the face of challenges to its security created by external forces.” The Xi-Putin phone call was described as being “held in a traditionally warm and friendly atmosphere.”
The CCP appears to have responded to the Biden administration’s retreat from Trump-era China policies by showing willingness (at least on paper) to go along with the latter’s climate agenda. On June 13, or the same day as the latest Sullivan-Yang meeting, the PRC Ministry of Ecology and Environment and 16 other departments jointly issued a national climate change adaptation strategy stating the PRC’s goal to “basically build a climate-resilient society by 2035.” The report also pledged to bring greenhouse gasses to a peak before 2030 and make China carbon neutral by 2060. On June 14, ecology and environment minister Huang Runqiu announced that the PRC had achieved “remarkable results” in environmental governance over the past decade, including reducing the average concentration of PM2.5 to 30 micrograms per cubic meter in cities at the prefectural level and above in 2021.
If Beijing is looking to reciprocate Washington’s goodwill, go along with the Biden administration’s effort to de-escalate tensions in the Sino-U.S. relationship, and signal readiness to help out on Russia, then the transfer of senior diplomat Le Yucheng to the propaganda apparatus at this time is a strategic “sacrifice.” By “sidelining” the “pro-Russia” and “anti-America” Le, the Xi leadership would be telegraphing to the Biden administration that the PRC is open to working with the U.S. in bringing Ukraine and Russia to a peace settlement.
As Le is not actually being scapegoated or sacrificed, he could eventually find himself back in the foreign affairs apparatus or see further career progression some time after a Russia-Ukraine deal that is to the Biden administration’s liking is reached. It cannot be ruled out in this scenario that Le Yucheng could still become the next PRC foreign minister or be promoted to other key positions when personnel reshuffles are made at the 2023 Two Sessions.
Propaganda needs
Le Yucheng’s redeployment could be part of Xi Jinping’s recent effort to consolidate his control over the propaganda apparatus through leading cadre reshuffles ahead of the 20th Party Congress. Having a former diplomat with experience working in Russia serve as deputy head of an important propaganda body could also signal the Xi leadership’s desire to roll out pro-Russia propaganda (films, television programs, etc.) and strengthen relations with Moscow, as well as further boycott Western culture (the PRC is already moving away from English).
We believe that this scenario, while not implausible, is unlikely under the circumstances. Xi already has a trusted official helming the National Radio and Television Administration in Xu Lin, and does not need another ally there to strengthen his grip over the agency. Beijing is also unlikely to promote pro-Russia propaganda at a time when it is fearful of courting international sanctions over its friendship with Moscow.
Retirement or purge
The transfer of Le Yucheng and Xu Lin from more prestigious positions to the less renowned National Radio and Television Administration could signal that they are being prepared for retirement. Alternatively, Le and Xu are suspected of having discipline problems and they were transferred to facilitate investigations.
We believe that this scenario is mostly out of the question unless Xi Jinping recently suffered a massive loss of “quan wei” (authority and prestige) and is facing very serious intra-Party challenges. Indeed, recent Party propaganda and official messaging indicate that Xi has more or less preserved his “quan wei” despite the “zero-COVID” failures in Shanghai and the sharp economic deterioration. Xi is also unlikely to purge his own cronies over discipline-related problems (if so, the CCP regime would very quickly be without officials because most have Party discipline issues), and especially not during the crucial period before the 20th Party Congress.
That being said, we are not ruling out this scenario entirely because Xi did previously sacrifice a political client. Former securities regulator Liu Shiyu was subjected to discipline investigations in May 2019, likely due to the escalation of the Sino-U.S. trade war at the time affecting Xi’s “quan wei” and resulting in pushback from rival factions. Even so, Liu was shown leniency: He voluntarily “turned himself in” to the discipline authorities, was “cooperating with investigation” instead of being “placed under investigation,” and was given a two-year probation and demoted after a five-month probe instead of being expelled from the Party and his government positions (雙開, shuangkai).
SinoInsight 2
On June 13, Xi Jinping signed an order allowing for “non-war” uses of the military (軍隊非戰爭軍事行動綱要 [試行]). The order takes effect on June 15, 2022.
The order is guided by “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” and is an in-depth implementation of “Xi Thought on strengthening the military,” according to official mainland media reports. The goal of the order is “effectively preventing and defusing risks and challenges, responding and dealing with emergencies,” and maintaining regime security and regional stability. The order is also said to be an “innovative way of using military power,” and can provide the “legal basis for troops to carry out non-war military operations.”
According to a PRC white paper on the diversified use of the armed forces (中國武裝力量的多樣化運用) published in 2013, “non-war military operations” are defined as emergency rescue and disaster relief, anti-terrorism and stability maintenance, rights protection, security alerts, international peacekeeping, and international relief.
International observers have raised concerns that the order could give Beijing pretext to invade Taiwan as a “special operation” and not war, similar to Russia’s official designation of its Ukraine invasion.
OUR TAKE
1. In assessing the PRC’s current political, economic, and social situation, we believe that the Xi leadership is chiefly interested in using the “non-war” military order to legalize and standardize the deployment of the PLA for domestic stability maintenance operations, with an eye on dealing with regime crises.
Politics
“Anti-Xi, not anti-CCP” voices have grown louder in Chinese-speaking spheres this year, notably after the “Fang Zhou” article was published around mid-January. Xi Jinping has endeavored to shut down channels that his factional rivals and elites who oppose him have used to carry out political mobilization against his leadership, including the closure of Duowei News in late April. Recent key personnel reshuffles in Xinhua and the propaganda apparatus are almost certainly part of Xi’s effort to tightly control public discourse and deny his enemies any opportunities to cause mischief before the 20th Party Congress.
Xi, however, likely believes that controlling the Party’s “pen” and public discourse is not enough to preserve his leadership and the regime should political crises boil over. CCP factional struggle always contains an element of unpredictability, and Xi’s enemies will still find ways to spread their “anti-Xi” messaging and mobilize despite strict censorship. Xi’s own policies like “zero-COVID” are also doing him no favors as they cause the Chinese people great hardship and worsen the various crises facing the regime. In particular, severe economic deterioration will badly undermine the CCP’s political legitimacy and will impact Xi’s “quan wei,” opening the door for the emergence of political Black Swans.
Mao Zedong and Deng Xiaoping previously turned to the Party’s “gun” to resolve regime-threatening political crises (Mao, Cultural Revolution; Deng, Tiananmen). Like his predecessors, Xi is preparing to mobilize PLA troops to deal with contingencies stemming from political crises that could arise from mounting social instability and challenges from factional rivals. The passage of the “non-war” order gives Xi firmer legal ground than his predecessors should he need to deploy the military for “stability maintenance” operations, and helps to insulate him from being criticized for acting in dictatorial fashion. The standardization of troop mobilization also prevents so-called “ambitionists and conspirators” (野心家、陰謀家) from seizing opportunities to carry out military actions unfavorable to the Xi leadership.
Economics and society
As we have noted in several newsletters this year, China is seeing sharp economic deterioration and is heading towards a recession. This section focuses on the latest developments at the time of writing.
The PRC will see more outflows as the U.S. Federal Reserve adjusts policy to curb inflation. On June 15, the Fed raised interest rates by 75 basis points, the largest increase since 1994. The Fed’s rate increase also saw the China-U.S. 10-year interest rate spread invert by more than 50 basis points (-52.8 as of June 15), a development that would lead to increased outflows and affect Chinese exports. Reduced exports and accelerated outflows would in turn result in more business closures, higher unemployment, and increased social instability.
Another factor impacting economic and social stability is contracting real estate sales. According to the National Bureau of Statistics, sales of commercial housing from January to May fell 31.5 percent from a year ago to 4.8337 trillion yuan; of the total, sales of residential buildings declined by 34.5 percent year-on-year to 4.2317 trillion yuan. Reduced sales in turn hits the revenue of developers, makes it harder for them to secure financing, and worsens the property sector debt crisis. For instance, data from China Index Academy showed that developers issued just 334.47 billion yuan worth of bonds in the first five months of the year, down 30 percent from a year ago. Developers also issued zero offshore bonds in May. More and more housing projects will be left unfinished as property company defaults go up, and this could trigger protests from disgruntled home buyers.
As we previously analyzed, real estate sector woes and sharp economic slowdown will diminish local government revenue and force local governments to significantly cut civil servant salaries. Recent information circulating on Chinese social media indicates that local governments in the Jiangsu Province, Zhejiang Province, and Shanghai have already set up so-called “salary reduction offices” (降薪辦公室) to determine pay cuts, including maximum cuts of up to 40 percent of a civil servant’s annual salary, as they strive to make up shortfalls in epidemic funds. Chinese netizens also reported on social media that hundreds of teachers at the Yantai Development Zone Senior High School in Shandong Province went on strike on June 15 after their salaries were cut by half (or down to the level from a decade ago) and were also asked to return between 50,000 yuan to 150,000 yuan in paid salary. The local authorities dispatched large numbers of police and SWAT teams to suppress the protesting teachers and pacify the situation. Reduced civil servant pay would negatively affect the Chinese people’s consumption power and ability to make mortgage payments, resulting in a vicious cycle that further deteriorates the economy and social stability.
China’s worsening economic problems will trigger serious financial problems. Small- and medium-sized banks that engage in risky financial practices are already being impacted, notably four small rural banks in Henan. Those troubled banks likely represent only the tip of the iceberg. The China Financial Stability Report 2021 released by the People’s Bank of China (PBoC) in September 2021 noted that 89 banks (84 of which are small- and medium-sized banks) had taken in 550 billion yuan in deposits through third-party fintech platforms. Close to half of the 550 billion yuan in deposits were held by banks rated 8 (on a scale of 1 to 10, with financial institutions in the 8-10 range being classified as “high-risk”) or higher by the PBoC. And of those banks, 70 percent of the deposits in one of those banks came from fintech platforms. Earlier in January 2021, the China Banking and Insurance Regulatory Commission and the PBoC had banned all banks from offering new long-term fixed deposits on third-party fintech platforms.
According to mainland media reports and information circulating on Chinese social media, six rural banks in Henan and Anhui had frozen the accounts of more than 400,000 depositors from around mid-April, and those accounts are estimated to hold over 40 billion yuan. Many depositors, including those from other provinces, have traveled to Henan in an attempt to retrieve their deposits from those banks and stage protests. Recently, those arriving from out of town found that their health codes turned red in Henan, preventing them from taking public transport and accessing public services to reach those banks. We previously noted that the authorities could abuse “zero-COVID” control measures in carrying out “stability maintenance.” However, the health code system may not be sufficient to restrict the mobility of Chinese residents if a sufficient mass emerges to make their voices heard over the rural banks issue or other social problems. This is where the Xi leadership may have to deploy PLA troops for “non-war” purposes to keep order.
Economic problems aside, Beijing has to contend with a host of other issues that could trigger great public resentment and serious social unrest. This includes “zero-COVID” excesses, long-standing official-civilian conflicts, food crisis, natural disasters, etc. Having the “non-war” order gives the Xi leadership a leg up in preparing for the worst-case scenario.
2. It is highly unlikely that the Xi leadership issued the “non-war” order to allow the PLA to invade Taiwan without declaring war. The Russian example shows that attempts to designate an invasion as something else (“special military operation”) deceive no one, and will not stop the international community from imposing sanctions and issuing strong condemnation. Further, the PRC already has, in the form of “reunification,” a ready-made pretext for invading the ROC.
