SinoInsight 1
July 21
The Henan Banking and Insurance Regulatory Bureau and the Henan Provincial Financial Supervision Bureau announced that bank customers with deposits of up to 100,000 yuan (about $14,785) in the four troubled Henan banks (Yu Zhou Xin Min Sheng Village Bank, Shangcai Huimin Country Bank, Zhecheng Huanghuai Community Bank, Kaifeng New Oriental Rural Bank) will be repaid from July 25, 2022.
July 24
The PRC anti-corruption authorities announced an investigation into Li Huanting (age 60), a first-rank inspector of the Henan Banking and Insurance Regulatory Commission’s supervision bureau.
Li Huanting was a career financial regulator in Henan Province. From January 2012 to October 2018, he served as director of the second department of supervision of small- and medium-sized rural financial institutions at the Henan Banking and Insurance Regulatory Commission’s supervision bureau. Li also served as a Party Committee member and deputy director of the Henan Banking and Insurance Regulatory Commission’s supervision bureau from January 2012 to May 2020.
While the authorities did not explain why Li was being investigated, the period where he was in charge of supervising small- and medium-sized rural financial institutions in Henan coincides with the period (from 2011) in which the “criminal gang” headed by Henan New Fortune Group actual controller Lü Yi were carrying out illegal financial activities in the province.
July 25
Mainland media Beijing Business Today reported that Huatong Bank in Fujian Province has been quietly offering high-interest deposit products to customers from across the country through apps.
The report said that Huatong Bank uses intermediaries to recommend the aforementioned deposit products to prospective depositors. Those depositors would submit their personal information (name, cellphone number, etc.) to the intermediaries, who would then put those depositors on a “white list” to purchase the high-interest deposit products via an applet that does not interoperate with Huatong’s official mobile banking app. Beijing Business Today described the arrangement as a “yin-yang interest rates” (陰陽利率) situation.
According to regulations governing commercial bank deposit business conducted through the internet issued by the General Offices of the China Banking and Insurance Regulatory Commission and the People’s Bank of China in January 2021 (關於規範商業銀行通過互聯網開展個人存款業務有關事項的通知):
- Commercial banks conducting deposit business through the internet shall not use network technology or other means to violate regulatory provisions or evade regulatory requirements.
- The internet deposit business of local commercial banks shall be limited to servicing customers in their locality (i.e. local banks cannot accept deposits from people in areas where they do not have a physical presence).
Huatong Bank’s income and net profits both declined in 2021. The bank’s net profits fell 50.44 percent from a year ago to 517.41 million yuan, and its operating income dropped by over 36 percent year-on-year to 313 million yuan. Huatong Bank’s net profits were the least among private banks, and is the only private bank with net profits of less than 10 million yuan, according to Beijing Business Today.
July 26
Xinhua-ran China Securities Journal reported that local governments are issuing special bonds to replenish the capital of small- and medium-sized banks. Also, some local government special bond issuance plans would be approved in the near future, according to a “person-in-charge of the relevant department” at the China Banking and Insurance Regulatory Commission. The person-in-charge added that the entire 320 billion yuan special bond quota is expected to be completely allocated by the end of August.
According to the report, a State Council executive meeting on July 1, 2020 decided to allow local governments to issue special bonds to “reasonably support” small- and medium-sized banks in replenishing their capital. The China Banking and Insurance Regulatory Commission had earlier disclosed in January that it had jointly approved with the Ministry of Finance the issuance of 210 billion yuan worth of local government special bonds to replenish the capital of small- and medium-sized banks.
The China Securities Journal report added that the State Council had approved and allocated a special debt bond quota of 103 billion yuan in the first half of 2020 to the Liaoning Province, Gansu Province, Henan Province, and Dalian City. The Liaoning government also released a plan in April to issue 13.5 billion yuan worth of 10-year special bonds to replenish capital at Dandong Bank, Yingkou Bank, Fuxin Bank, Chaoyang Bank, and Huludao Bank.
The report noted that the capital adequacy ratio of commercial banks at the end of the first quarter of 2022 was 15.02 percent, down 0.11 percent from the end of the previous quarter. By institution type, the capital adequacy ratios of joint stock banks, city commercial banks, and rural commercial banks all decreased from the end of the previous quarter; only large banks saw an increase.
OUR TAKE
The various developments above are signs of small- and medium-sized bank financial risks bubbling to the surface.
1. The financial problems of small- and medium-sized banks are closely linked to the rapidly worsening Chinese economy, the real estate debt crisis, and the impact of the COVID-19 pandemic and “zero-COVID” measures. The pandemic and “zero-COVID” in particular exacerbated China’s economic decline and China Evergrande’s debt issues. Despite government efforts (debt-to-equity swaps, etc.) to help Evergrande, the company’s debt crisis erupted full-scale in June 2021, affecting the property sector in general and spreading financial contagion to small- and medium-sized banks who were heavily reliant on the real estate business.
The malaise of real estate debt crisis and economic deterioration has led to the merger of bankrupt or poorly performing small- and medium-sized banks in recent years, including:
- May 2020: Baoshang Bank went bankrupt and was taken over by Mengshang Bank.
- April 2021: Datong Bank, Changzhi Bank, Jincheng Bank, Jinzhong Bank, and Yangquan Commercial Bank were merged and reorganized into Shanxi Bank.
- September 2021: Liaoshen Bank merged with 12 of 15 commercial banks in Liaoning Province.
- October 2021: Zhongyuan Bank merged with Luoyang Bank, Pingdingshan Bank, and Jiaozuo China Travel Service Bank.
Problems for small- and medium-sized banks will likely become more obvious and serious going forward, particularly as the global economy slides into recession and as mortgage boycotts over unfinished projects pile up. We previously estimated that banks could find themselves with 1.4 trillion yuan worth of non-performing loans due to mortgage boycotts, while other analysts estimated that 2 trillion yuan in mortgage loans could be impacted. The CCP authorities would also be afraid of increasing public distrust towards the banks and the government. Bank runs could be triggered when deposits are being transferred on a large scale from small- and medium-sized banks to large state-owned banks. The 320 billion yuan special bond quota set aside by the CCP authorities to replenish the capital of small- and medium-sized banks will likely come as a drop in the bucket for small- and medium-sized banks facing huge financial risks.
2. Beijing’s moves in Henan after the trouble with rural banks broke out and thousands flocked to the province to protest indirectly exposed the severity of the problem facing small- and medium-sized banks in China.
The brewing trouble in Henan appeared serious enough to warrant the “parachuting” of a central government official to clean up the mess and take control of the situation. On June 30, Liu Rong, a deputy director of the China Banking and Insurance Regulatory Commission’s urban banking department, was dispatched to Henan to serve as deputy secretary-general in the Henan local government. Liu was also appointed as Party secretary and deputy director of the Henan Provincial Financial Supervision Bureau, and was made the overall in charge of financial supervision work in the province. If the problems with rural banks in Henan were not very serious, the central government would not need to get involved with local supervision by sending a central official to the province.
The trouble in Henan and with small- and medium-sized banks in general also saw the authorities adopt a “carrot-and-stick” approach to “maintaining stability.” On the one hand, the Henan authorities felt the need to mobilize local public security forces to violently suppress protests outside the provincial branch of the People’s Bank of China on July 10. Yet the very next day, the authorities announced “advance payments” from July 15 to depositors with 50,000 yuan or less in the troubled banks. On July 21, the Henan authorities announced repayments to depositors with up to 100,000 yuan in their account. By alternating between suppression and payouts, the CCP authorities are looking to divide and weaken affected depositors in the hopes that fewer show up to protest, either because they have already gotten their money or they fear being beaten and arrested.
Meanwhile, the investigation of Li Huanting appears to be an attempt to pin the problem with the troubled Henan banks on scapegoats and cover up the larger problems affecting small- and medium-sized banks. Li was only a deputy director of the Henan Banking and Insurance Regulatory Commission who did supervisory work during the period in which illegal activities involving the rural banks were said to have commenced. While Li was later promoted to first-rank inspector, he did not serve in a leadership position in the Henan regulator’s supervisory department. Put another way, there were almost certainly more senior officials who were responsible for the lax supervision that led to the banking crisis, but they are not currently being implicated. If no other Henan officials are subsequently probed over the rural bank trouble after Li Huanting, then it is very likely that he is being scapegoated. Indeed, Li’s relatively minor position (a sign of weak political backing) and age (near retirement) make him the ideal sacrifice as the CCP authorities look to shift blame and absolve itself of accountability over the rural bank crisis; that the authorities are doing so also indirectly hints at the seriousness of the issue.
3. Huatong Bank’s stealth and illegal offering of high-interest deposit products reflects the difficulties and risks of small- and medium-sized banks in China. These banks appear to be struggling to attract deposits from their localities. To survive, some like Huatong Bank have risked breaking regulations by offering high-interest deposit products over the internet to get sufficient funds. Yet those products leave small- and medium-sized banks with a smaller profit margin space (a situation made worse when the property market gets increasingly sluggish) and increase their non-performing loan risks.
The CCP authorities have tried to downplay the risks of small- and medium-sized banks. On July 13, Sun Tianqi, director of the People’s Bank of China’s financial stability bureau, said that the regime’s financial risks are “restrained and generally controllable.” He added that 99 percent of China’s banking assets are “within the safe range,” as reflected by the central bank’s ratings for most small- and medium-sized banks.
Sun noted that the total assets of China’s banking institutions were 345 trillion yuan at the end of 2021, accounting for 90 percent of the financial industry’s total assets. Of the 4,398 banking institutions reviewed by the PBoC in the first quarter of 2021, 93 percent of them (4,082) were rated between the safety margin of 1 to 7 (on a scale of 1 to 10 [1 being the safest and 10 the least safe] and “D” [financial institutions that have shuttered or been taken over]) safety margin, and their assets were 99 percent of total held by banking institutions that were reviewed.
Sun said that the ratings of the 24 large banks being reviewed were in the excellent range (1 to 5), and their assets accounted for 70 percent of the total assets held by the banks participating in the review; Sun described them as the “ballast of the entire financial industry.” Of the 4,398 banking institutions reviewed, 316 were classified as high risk (8 to D); high-risk institutions made up 7 percent of those being reviewed and held 1 percent of the total assets held by the participating banking institutions.
From Sun Tianqi’s remarks, the financial risks of small- and medium-sized banks in China are relatively trivial. However, the scale of risky assets is as high as 3.45 trillion yuan if they are indeed just 1 percent of the total as claimed by CCP officials. In the case of China Evergrande and the real estate sector, many problems with non-performing assets were temporarily obscured in better times (higher asset prices, increased leverage, etc.), but became increasingly exposed as the Chinese economy deteriorated in recent years. This led to defaults and significantly increased non-performing assets. Small- and medium-sized banks are facing a similar plight; a worsening of the current situation could result in more bank mergers and bankruptcies.
In a July article promoting the “Two Establishes,” Qu Qingshan, dean of the Central Party History and Documentation Research Institute, warned that risks often do not exist in isolation and are likely to “overlap, intertwine, transform, interact, and form a risk complex.” This is currently happening with financial contagion spreading from the property sector to small- and medium-sized banks. Trouble with small- and medium-sized banks will in time lead to trouble with the big banks; as Qu warned, the CCP regime needs to guard against “small risks developing into large risks,” “external risks turning into internal risks,” and “economic risks transforming into political risks.”
The CCP is clear about what metastasizing financial risks entail. Qu called for high vigilance to the “overall risk that delays or interrupts the process of the great rejuvenation of the Chinese nation,” or the emergence of risks that could trigger regime collapse.
SinoInsight 2
Official appointments
July 21
The official WeChat account wrote in a post that Zheng Guangzhao was appointed as a member of the Inner Mongolia Autonomous Region Party group, secretary of the Inner Mongolia Public Security Bureau (PSB), and deputy secretary of the Inner Mongolia Political and Legal Affairs Committee (PLAC) at a meeting of the Inner Mongolia Public Security Bureau on July 19. Zheng was also nominated to serve as director and chief inspector of the Inner Mongolia PSB.
Zheng Guangzhao (age 56), a native official of Shaanxi Province, previously served in various official positions in several prefecture-level cities in Shaanxi, including as Party secretary of Shangluo City (June 2021 to July 2022). Zheng has no previous experience working in the political and legal affairs apparatus.
July 23
1. Yin Bai (53), deputy Party secretary of Qinghai Province, was transferred to the Central PLAC to serve as deputy secretary-general.
Yin is a native Yunnan official who served in various posts in the Yunnan local government and provincial political and legal affairs apparatus. He was previously appointed president of the Yunnan Chuxiong Yi Autonomous Prefecture and Kunming Intermediate Court (Feb. 2006 to Jan. 2013), deputy secretary of the Yunnan PLAC, and provincial stability maintenance office director (Jan. 2013 to May 2014).
In January 2016, Yin was transferred to Qinghai Province to serve as Party group secretary and chief prosecutor of the Qinghai Provincial Procuratorate (Jan. 2016 to Aug. 2018). He was later promoted and served on the Standing Committee of the Qinghai provincial Party Committee, as secretary of the Qinghai PLAC (Aug. 2018 to May 2022), and as head of the Qinghai Organization Department (Nov. 2021 to April 2022). In May 2022, Yin Bai was promoted to deputy Party secretary of Qinghai.
2. Hebei Daily reported that Dong Xiaoyu attended a seminar on strengthening political construction for political and legal affairs leading cadres in Hebei Province and delivered a speech in the capacity of Standing Committee member of the Hebei provincial Party Committee, secretary of the Hebei PLAC, and secretary of the Hebei provincial PSB. The Hebei Daily report meant that Dong will soon become director of the Hebei PSB.
Mainland and Hong Kong media outlets reported in early July that former Hebei PLAC secretary Zhao Ge and Hebei PSB secretary Liu Wenxi had passed away.
July 25
Sun Maoli (58), director of the Ministry of Public Security’s legal affairs bureau, was introduced as a member of the ministry’s Party Committee during a press conference organized by the Central Propaganda Department.
July 28
1. The Standing Committee of the Hebei Provincial People’s Congress officially appointed Dong Xiaoyu as director of the Hebei PSB.
2. The Standing Committee of the Inner Mongolia Autonomous Region People’s Congress officially appointed Zheng Guangzhao as Inner Mongolia vice chairman and director of the Inner Mongolia PSB.
3. The Standing Committee of the Guangxi Autonomous Region People’s Congress appointed Ling Zhifeng as Guangxi vice chairman and director of the Guangxi PSB.
Ling (54) is a native of Zhejiang Province. He spent the bulk of his career in the local government of several counties in Zhejiang and Shaoxing City, and had served as PLAC secretary and PSB director of lower level local governments. In October 2018, Ling was promoted to Party secretary and director of the Zhejiang Provincial Emergency Management Department. Three years later, he was transferred to Jinhua Municipality in Zhejiang to serve as Party secretary (Oct. 2021 to July 2022).
Official purges
July 22
The Zhejiang Provincial Commission for Discipline Inspection and Supervision announced the investigation of Lin Xiaofeng (57), a deputy Party secretary of Wenzhou Municipality and secretary of the Wenzhou PLAC.
When Zhou Jiangyong, the former Hangzhou Party secretary with links to Alibaba and Ant Group who was officially probed in August 2021, was Party secretary of Wenzhou (Feb. 2017 to May 2018), Lin Xiaofeng was deputy secretary-general of the Wenzhou Municipal Party Committee (Nov. 2016 to April 2017) and vice mayor (April 2017 to Aug. 2018).
July 27
Bian Junxing (59), former Standing Committee member of the Ninghe District Party Committee in Tianjin and secretary of the Ninghe PLAC, was investigated. Bian was a former deputy inspector of the Tianjin Municipal Social Management Comprehensive Control Committee.
July 28
1. Xiao Yaqing, minister of industry and information technology, was investigated. The notice of his probe by the Central Commission for Discipline Inspection (CCDI) and the National Supervisory Commission (NSC) referred to Xiao as “comrade” and said that he had “violated discipline and the law” instead of the usual “serious violations of discipline and the law.”
Xiao was not named among the representatives to the 20th Party Congress when the list was announced in official media on July 27.
Xiao (63) spent his formative years in the local aluminum state-owned enterprises. In April 2004, he succeeded Guo Shengkun (now CPLAC secretary) as Party secretary, general manager, and chairman of the Aluminum Corporation of China (Chalco). Xiao overseeing Chalco’s acquisition of equity in Rio Tinto Group in 2008 led to him being promoted in 2009 to State Council deputy secretary-general (Feb. 2009 to Feb. 2016), where he served vice premiers Zhang Dejiang (2009 to 2013) and Ma Kai (2013 to 2016). After that, Xiao Yaqing enjoyed smooth career progression, serving as director of the State-owned Assets Supervision and Administration Commission (Jan. 2016 to May 2019), State Administration for Market Regulation director (May 2019 to July 2020), and minister of the Ministry of Industry and Information Technology (Aug. 2020 to July 2022).
2. Mainland media Caixin reported that Ding Wenwu, president of China Integrated Circuit Industry Investment Fund Co. Ltd., was recently investigated by relevant departments and is no longer contactable, citing several people familiar with the matter. Caixin added that Ding’s last public event was the 6th Jiwei Semiconductor Summit in Xiamen on July 16. Ding was formerly an official in the Ministry of Industry and Information Technology, where he eventually became director of the ministry’s electronic information department.
Earlier on July 15, the CCDI and NSC announced the investigation of Lu Jun, the deputy director of China Development Bank’s CDB Development Fund. Lu also happened to serve as president of Huaxin Investment Management Co. Ltd. (Aug. 2014 to Dec. 2020), which manages China Integrated Circuit Industry Investment Fund.
Discipline inspection and supervisory reshuffles
July 26
Li Jinying (58, female), head of the discipline inspection team of the All-China Federation of Supply and Marketing Cooperatives, was appointed head and Party group member of the discipline inspection and supervisory group in the All-China Federation of Trade Unions. Li’s predecessor Ren Fang Jianmeng (61) had reached retirement age.
Several discipline inspection and supervisory groups in various departments and ministries have been reshuffled since June:
- Ren Hongbin (59), former deputy director of the State-owned Assets Supervision and Administration Commission, was appointed head and Party group member of the discipline inspection and supervisory group in the National Audit Office
- Yang Shaojun (54), former director of the organization department and personnel department of the China Banking and Insurance Regulatory Commission, was appointed head and Party Group member of the discipline inspection and supervisory group in the Industrial and Commercial Bank of China.
- Li Jianming (60), former deputy director of the General Administration of Sport, was appointed head and Party group member of the discipline inspection and supervisory group in the State Taxation Administration.
- Liu Junchuan (59), former deputy director of the Taiwan Affairs Offices of the Central Committee and the State Council, was appointed head of the discipline inspection and supervisory group in the Central United Front Work Department.
- Wei Shanzhong (59), former deputy minister and Party group member of the Ministry of Water Resources, was appointed head and Party Group member of the discipline inspection and supervisory group in the Ministry of Natural Resources.
- Liu Hao (59), former deputy minister and Party Group member of the Ministry of Justice, was appointed head of the discipline inspection and supervisory group in the Supreme People’s Procuratorate.
- Hang Yuanxiang (58), former executive vice chairman of the Soong Ching Ling Foundation, was appointed head and Party Group member of the discipline inspection and supervisory group in the Chinese Academy of Social Sciences.
Official deaths
July 24
Zhou Wei, a Standing Committee member of the Gansu Provincial Party Committee and secretary-general, died of illness at 7:43 p.m. on July 21 at the age of 56, according to a report in Gansu Daily.
Information circulating on Chinese social media, however, noted that Zhou had fallen to his death from the No. 1 office building of the Gansu Party Committee at night on July 21. That morning, he had accompanied Gansu Party secretary Yin Hong to inspect Lanzhou City and attended a meeting of the Gansu Party Committee in the evening.
Zhou Wei became a member of the Gansu Party Committee Standing Committee on May 30, and was appointed secretary-general on June 1.
July 25
Zeng Bing, deputy general manager of Sinopharm, died in Dalian City at 7:55 p.m. on July 23 at the age of 52, according to Dalian Daily.
Since June this year, Zeng also served as a Standing Committee member of the Dalian Municipal Party Committee, Dalian vice mayor, Dalian municipal government Party group member, and director of the Dalian Municipal Military-Civil Integration Office (Municipal Defense Science and Technology Office).
OUR TAKE
1. The recent reshuffles of middle- to lower-level political and legal affairs officials show that the Xi leadership’s “rectification” of the political and legal affairs apparatus is very much a work in progress.
Meanwhile, the mass appointment of new discipline inspection and supervisory group heads in various departments and ministries is almost certainly aimed at strengthening the Xi leadership’s control over those departments and ministries ahead of the 20th Party Congress. Those new anti-corruption leaders are not likely to have many connections or networks in their new workplace and will be eager to prove themselves to Xi Jinping to secure their respective careers. Officials in those departments and ministries could be subjected to extra pressure for a period of time before and after the 20th Party Congress.
The Xi leadership will likely step up “rectification” efforts and carry out more personnel reshuffles in the political and legal affairs apparatus to better bring it to heel ahead of the 20th Party Congress and avoid serious “stability maintenance” incidents ahead of the political conclave.
2. Xi Jinping’s distrust of the political and legal affairs apparatus can be further observed from recent adjustments to the PSB directors of Hebei and Inner Mongolia.
Neither Zheng Guangzhao in Inner Mongolia and Dong Xiaoyu in Hebei have prior experience working in the political and legal affairs apparatus before taking over as provincial PSB director. Nor does either official have outstanding career credentials. As such, neither Zheng nor Dong are likely to form “political gangs” or “judicial mafia” like Liu Xinyun in Shanxi or Wang Like (pronounced “lee kuh”) in Jiangsu any time soon. Not being familiar with the local situation, Zheng and Dong are less likely to serve as “protective umbrellas” for local triad activity or partake in activities that interfere with the local economy, at least in the short term. In contrast, a professional public security or political and legal affairs official would be able to abuse the office of provincial PSB director to swiftly create political and social trouble for Beijing. On the flipside, Dong Xiaoyu and Zheng Guangzhao may encounter difficulties in mobilizing public security forces to carry out “stability maintenance” operations well given their unfamiliarity with local officials and political and legal affairs work in general.
The appointment of Dong Xiaoyu to serve as both Hebei PLAC secretary and PSB director is very unusual and represents a reversal of recent personnel reshuffle trends. Since the 19th Party Congress, the Xi leadership has gradually been assigning the position of provincial PSB chief to the provincial vice governor instead of the provincial PLAC secretary or a Standing Committee member of the provincial Party Committee. This is undoubtedly meant to weaken provincial PLAC secretaries, who were very powerful during the Jiang faction’s era of dominance in part because of such personnel arrangements.
Currently, Hebei is the only province where a PLAC secretary jointly serves as the PSB director. If the Tangshan restaurant incident and the death of the two leading political and legal affairs cadres in Hebei are linked with factional struggle in the Party elite as we previously analyzed, then it is possible that the unusual personnel arrangement is also the result of factional struggle. The Xi leadership could be looking to boost Dong Xiaoyu’s power to enable him to better “rectify” the Hebei political and legal affairs apparatus. At the very least, allowing a non-career political and legal affairs official to head the Hebei PLAC and PSB will block off professional, and most likely compromised, Hebei political and legal affairs officials from taking those positions and abusing them to the Xi leadership’s detriment.
3. The appointment of Yin Bai as CPLAC deputy secretary-general follows the trend of Xi Jinping replacing senior officials in the political and legal affairs apparatus who are less likely to have Jiang faction associations. Yin had an average career in the remote provinces of Qinghai and Yunnan during the Jiang faction’s era of dominance, which indicates that he was not favored by Xi’s rivals.
The CPLAC typically appoints four deputy secretary-generals to handle specific portfolios. Given the nature of their work, these secretary-generals usually have rich working experience in the political and legal affairs apparatus.
Of the four current deputy secretary-generals, Bai Shaokang (61) and Wang Hongxiang (60) have reached retirement age and will likely be replaced by officials trusted by Xi or those who do not have obvious Jiang faction associations.
Lin Rui, who was appointed CPLAC deputy secretary-general in May, is a former colleague of Xi’s in Fujian Province. Lin enjoyed smooth career progression after Xi took office in 2012. In October 2013, Lin succeeded Xi ally Wang Xiaohong as director of the Xiamen Municipal PSB. Less than five years later (June 2018), he was transferred to the Ministry of Public Security to serve as a Party Committee member and assistant to the minister, while concurrently serving as Party secretary and director of the ministry’s cybersecurity bureau. In November 2018, Lin was promoted to deputy minister of public security.
4. The investigation of Xiao Yaqing, Ding Wenwu, and Lu Jun is likely linked with corruption at the China Integrated Circuit Industry Investment Fund and the failure of Beijing’s semiconductor “great leap forward” (芯片大躍進) to take off.
The China Integrated Circuit Industry Investment Fund was established in September 2014 to support the manufacture of semiconductors and China’s chip self-sufficiency under the “Made in China 2025” plan. At the time, the Fund released a 15-year plan consisting of an investment period (2015 to 2019), an exit period (2019 to 2024), and an extension period (2025 to 2030). In February 2015, the Fund invested 10 billion yuan in Tsinghua Unigroup’s chip business. However, Tsinghua Unigroup, which had total assets of nearly 300 billion yuan, later declared bankruptcy and underwent reorganization on July 9, 2021. Zhao Weiguo, the former chairman of Tsinghua Unigroup, was taken away for investigation in early July 2022 and is no longer contactable.
The Xi leadership would be looking to hold officials accountable for setbacks to the semiconductor “great leap forward” and the broader “rejuvenation of the Chinese nation” agenda. Investigating Xiao Yaqing and the others would serve to put other officials overseeing chip development on notice, and shock them into performing better. Concurrently, the reference to Xiao as “comrade” in the official notice of the probe into him and absence of the word “serious” before “violations of discipline” suggest that the authorities could be planning to impose a relatively lenient punishment on him. This is likely intended to signal to officials that the Xi leadership is willing to show “mercy” to their purged comrades (with the exception of those with obvious Jiang faction affiliation), which would in turn influence officials to support Xi and properly carry out his agenda instead of turning opposing his harsh disciplinary standards through passive resistance (inaction, laying flat, etc.).
5. The sudden deaths of senior provincial officials shortly after they took office is also unusual. We have already noted the cases of Liu Wenxi and Zhao Ge in Hebei Province in early July. On April 27, the CCP authorities announced that Liao Guoxun, deputy secretary and mayor of Tianjin, had died after suddenly coming down with an illness.
Senior provincial officials usually have access to better medical treatment than most ordinary civil servants. An official’s age and health are also important considerations for the Organization Department in making appointments. Thus, the nearly half-dozen deaths of senior provincial officials recently are cause for suspicion.
In the case of suicides, the official in question had likely found out that he is about to be investigated, or that his political backer or someone whom he previously bribed was arrested. Fear of punishment could drive an official to suicide.
Factional struggle-related murder is another possible factor explaining the recent deaths of senior provincial officials. As we have noted on numerous occasions, factional struggle in the CCP is “you die, I live,” and sometimes manifests in a literal sense. For instance, desperate factional forces in the Hebei political and legal affairs apparatus who are looking to dissuade the Xi camp from carrying out “rectification” could have killed the late Hebei PSB director Liu Wenxi while publicly passing off his death as “sudden illness.”
