SinoInsight 1
Xiao Jianhua sentenced
Aug. 19
Tomorrow Group founder Xiao Jianhua was sentenced to 13 years in prison and fined 6.5 million yuan (about $953,400) by the Shanghai No. 1 Intermediate People’s Court. The court also fined Tomorrow Group 55 billion yuan.
The Shanghai court said in its verdict that Xiao used Tomorrow Group to pay bribes totaling 680 million yuan to government officials over 20 years. The court also said, “Tomorrow Group and Xiao Jianhua’s criminal acts severely damaged the financial management order, which severely risked national financial safety, and severely encroached on the professional integrity of public servants.”
The court also noted that Tomorrow Group and Xiao Jianhua had “surrendered, admitted guilt, and accepted punishment,” as well as cooperated in the recovery of stolen funds. Given his “commendable actions,” Xiao was given a “mitigated punishment in accordance with the law.”
Alvin Chau’s associates prosecuted
Aug. 4
Macau Daily reported that Levo Chan (陳榮煉), the former CEO of Tak Chun Group (Macau’s second-largest junket operator) and former chairman of Macau Legend Development, had been formally charged by Macau’s Public Prosecutions Office. The Office said that it had completed its investigations of Chan’s case, which involved nine people. Chan and those in his case are accused of running illegal gambling operations and money laundering with the criminal organization of Suncity Group Holdings’s former CEO Alvin Chau. Levo Chan faces up to 20 years in jail.
Previously, mainland state media Economic Information Daily published a long article on July 8, 2019 accusing Tak Chun Group and Suncity Group of running various illegal gambling operations and raking in huge sums from mainland Chinese gamblers. Both companies were said to have operated online gambling platforms in the Philippines and Cambodia that allowed illegal betting and whose main customers were those from the mainland. The amount of money wagered on those online gambling platforms was in the excess of 1 trillion yuan a year, generating tens of billions of yuan in profits for those companies. The funds collected from the gambling operations were settled through many domestic bank cards before being channeled overseas through underground banks.
Aug. 12
The Wenzhou Intermediate Court in Zhejiang Province announced that it had tried Zhang Ningning and 34 others from Aug. 10 to Aug. 12 for operating casinos and running illegal gambling operations. All 35 defendants pleaded guilty to their charges.
The prosecution said that Zhang and the others were involved in Alvin Chau’s cross-border gambling crime syndicate. As of November 2021, Chau’s crime syndicate had “developed” more than 400 shareholder-level agents (283 of whom are Chinese nationals), over 60,000 gambling agents (38,307 of whom are Chinese nationals), and more than 60,000 gambling customers in mainland China. Chau’s gambling operations also involved “particularly large” sums.
The prosecution also accused Zhang Ningning of having disguised herself as a foreign exchange trader and committed illegal business operations, the circumstances of which were “particularly serious and seriously disrupted financial market order.”
OUR TAKE
1. Xiao Jianhua being praised for “commendable actions” by the Shanghai No. 1 Intermediate People’s Court indicates that he had cooperated very well with the Xi leadership during his investigation, including handing over valuable and incriminating information that Xi Jinping could use against the Jiang faction and other political rivals. In light of his cooperation, Xiao could receive better treatment in prison and his 13-year sentence could eventually be commuted (Xiao’s five years in detention before being sentenced would be counted as time served in most instances, and the remaining eight years could be reduced owing to “good behavior” or other reasons) or de facto commuted (e.g. allowed regular home “leave” while serving his sentence, allowed to serve time outside of prison due to “health” reasons, etc.). We previously wrote in June that Xiao could receive a “lenient” prison sentence of around 10 years if he was helpful when being investigated by the Xi leadership and because Xi likely “does not wish to completely destroy his rivals and other elites who engage in regime-imperiling financial activities if they are willing to correct their ways.”
From the perspective of Xi Jinping’s factional struggle considerations, Xiao Jianhua’s sentence is unlikely to be reduced to below five years. Xiao served as a “white glove” (bagman) to members of the Jiang faction and other Party elite who may be opposed to Xi, and it is probable that he retains important networks in the financial sector. Beijing has a practical incentive to avoid giving Xiao and his political patrons any additional reason to cause mischief in the financial sector for at least another five years, or the duration of Xi’s third term (assuming his bid at the 20th Party Congress is successful). After that, Xi would likely be much less worried about Xiao’s ability to facilitate trouble against his leadership. For one, Xiao would have been disconnected from the financial sector and his networks for a whole decade if he is released in 2027. During that time, the Xi leadership would have likely rewired interests in the financial sector to be more in line with Xi’s policies while dismantling or disrupting lingering Jiang faction networks and the reckless financial operations of the Jiang-Hu era. Also, Xiao’s political patrons would theoretically be significantly less influential by 2027 as they become too old and as Xi consolidates power to an even greater degree, eliminating or at least greatly reducing the possibility of them wreaking havoc with Xiao’s assistance if the latter’s sentence is commuted.
We were off in assessing that the Xi camp could look to publicize and resolve the Xiao Jianhua case before Beidaihe for “maximum intimidation.” In hindsight, it appears that Xi Jinping deliberately left the Xiao case hanging while Beidaihe was ongoing to use as political leverage against the Party elite to secure their support and “consensus” for his third-term bid and other 20th Party Congress political agenda items. Had Xi’s rivals strongly opposed him at Beidaihe or taken action to undermine the Xi leadership around the Beidaihe period, then Xiao would have likely been subjected to harsher punishment regardless of whatever meritorious service he had provided to the Xi camp. Instead, Xiao was handed “mitigated punishment in accordance with the law,” which suggests that Xi was either unchallenged at Beidaihe or received only minor and inconsequential pushback, with most of the Party elite agreeing to go along with his political agenda.
2. The prosecution of Alvin Chau’s associates in Macau and mainland China appears to be part of the Xi leadership’s broader effort to crackdown on corruption, tighten control over the regime’s “money bags” (錢袋子), curb cross-border transactions, money laundering, and illicit capital flight, and put on notice the Party elites (notably the Zeng Qinghong clan) for whom Chau served as “white glove” to.
The recent developments in the Alvin Chau and Xiao Jianhua cases, as well as various Xi Jinping-related developments immediately after Beidaihe, indicate that Xi currently has the upper hand in the CCP factional struggle. If Xi’s political operations are allowed to progress unimpeded and crises do not boil over for the regime, then Xi will successfully extend his tenure and secure most, if not all, of his 20th Party Congress political agenda items (including key personnel reshuffles).
Yet Xi being presently on top in factional struggle does not mean that he is politically secure. Xi’s move to increasingly tighten his control over the Party elite (including regulating the behavior of veteran and retired Party cadres) and step up the censorship of speech (more and more terms referring to Xi are being scrubbed) in recent years have created a facade that there is little dissent towards Xi. But the root cause of factional strife in the Party elite has never been resolved; Xi’s rivals merely have fewer opportunities to express their dissatisfaction and mobilize politically as compared to earlier in his tenure. Also, Xi has made for himself more enemies with tighter control, particularly when the Party elite and regular officials juxtapose the harsh conditions of stricter Party discipline and leaner times under Xi with the lax environment and affluence of the Jiang faction’s era of dominance (1997 to 2012).
The Party elite and regular officials may struggle to politically mobilize against the Xi leadership, especially with the Party’s “gun” (military) and “knife handle” (public security system) firmly in his grasp. However, they can still deploy “weapons of the weak” like putting up passive resistance (inaction [不作爲], laying flat [躺平], etc.) that cripples Beijing’s ability to effectively tackle the many crises facing the CCP regime today. Xi’s failure to resolve crises and the worsening of those crises will erode his “quan wei” (authority and prestige) and leave him increasingly vulnerable to being suddenly ousted at crunch time. Opponents of Xi who feel like they are being pushed to the brink could even attempt desperate actions (“explosive” leaks about Xi and/or the regime’s corruption, assassination, etc.) to take him out.
Xi’s political position becomes increasingly precarious as China’s economy deteriorates rapidly and Beijing runs out of funds and options to “right the ship.” Mounting economic problems will eventually lead to social instability as the Chinese people (including civil servants whose wages are being cut) grow angrier with Xi Jinping, lose faith in the Party, and begin to seriously question the CCP and Xi’s political legitimacy. Political Black Swans could emerge when China reaches a watershed moment; Xi’s factional rivals could sense an opportune moment to strike, or Xi could decide to take drastic action against his enemies first.
SinoInsight 2
Since mid-June, parts of northern China started seeing high temperatures of 35 degrees Celsius and above, affecting more than 600 million people over 343.9 square kilometers according to information from mainland media reports. On June 22, Jiyuan City in Henan Province logged a record surface temperature of 74.1 degrees celsius. Around the same period where temperatures were up in northern China, several places in southern China, including the provinces of Guizhou, Jiangxi, and Guangxi, were receiving record-breaking precipitation and encountering floods.In early July, northwestern and northern China, as well as the Yellow River, Huai River and Yangtze River areas, experienced high temperatures, affecting over 900 million people. On July 13, a total of 71 national meteorological centers across China reported record temperatures.
Several parts of China continued to log extremely high temperatures in August. The PRC’s National Meteorological Center issued its first high temperature red warning of the year on Aug. 12 and a drought yellow warning on Aug. 18. By Aug. 21, the Center had issued 10 consecutive high temperature red warnings.
On Aug. 17, the national meteorological center in Chongqing’s Beibei District logged a temperature of 44.6 degrees Celsius, the highest at the time since Chongqing began keeping meteorological records; the record was broken again on Aug. 18 with a temperature of 45 degrees. High temperatures in Chongqing also led to the outbreak of several wildfires.
Extreme weather in China has caused drought in several areas, with some Yangtze River tributaries running dry, according to various media reports. On Aug. 6, the water level at the Xingzi water measuring point of Poyang Lake, the largest freshwater lake in China that is connected to the Yangtze River, dropped to 11.99 meters, the lowest on record at this time historically and the first earliest time the lake entered a dry period since records were kept in 1951. On Aug. 13, the water level of the section of Yangtze that runs through Wuhan City was about 6 meters lower than normal as compared to previous lowest recorded levels at that period since 1865. On Aug. 17, Gu Binjie, an inspector at the Ministry of Water Resources’ (MWR) department of flood and drought disaster prevention, said at a press conference that the Yangtze basin was experiencing the worst drought since 1961.
According to data disclosed by the MWR in several press conferences in mid-August, rainfall in the Yangtze basin has been 40 percent of the normal since July as compared to the same period in previous years and the lowest on record since 1961. The water level on the main trunk of the Yangtze River and the flood basin lakes of Dongting and Poyang are between 4.85 meters to 6.13 meters lower now as compared to the same period a year ago, also the lowest on record. Meanwhile, the surface area of Dongting Lake and Poyang Lake have decreased by about three-quarters when compared to June.
Impact of high temperatures
Soaring temperatures in China are straining power grids in many provinces, with some areas seeing record loads. Local governments have instituted power rationing in several places, and factories have been required to stagger production to ensure sufficient electricity for residential consumption.
In Sichuan and places in southwestern China that are dependent on hydropower, many factories have been forced to suspend operations for several days while rolling blackouts were imposed in cities. The Chongqing municipal government issued an emergency notice ordering factories to shut from Aug. 17 to Aug. 24 to conserve energy and “leave power to the people.” Meanwhile, the local government of Pengzhou County in Sichuan Province put into effect power rationing for commercial users from Aug. 17 to an unspecified end date that would be separately announced.
The Wuhan local government imposed restrictions on commercial power usage from Aug. 14, including the shutting down of central air conditioning and escalators at large shopping malls for intervals at night.
Local governments in Zhejiang Province launched “C-level” power restriction measures from Aug. 8, including the suspension of production between 6:00 p.m. to 12:00 a.m. at night. Companies in the cities of Ningbo, Wenzhou, Quzhou, and other parts of Zhejiang were ordered to implement a “stop three open four” policy (停三開四; work for four days, suspend operations for three days), while some “enterprises above designated size” (companies with annual revenue of 20 million yuan or more) in Taizhou had to suspend production for five consecutive days.
Liu Weiping, vice minister of water resources, said at an Aug. 17 press conference that the drought situation in the Yangtze basin is “developing rapidly.” Drought has resulted in 12.32 million mu (about 2 million acres) of arable land in Sichuan, Chongqing, Hubei, Hunan, Jiangxi, and Anhui suffering damages, and has affected 830,000 people and 160,000 head of livestock.
Mainland media also report that cases of people suffering heat stroke are on the rise in many parts of China, with several deaths reported in Zhejiang, Sichuan, Shanghai, and Shaanxi.
Floods
August saw heavy rain in western, northern, and northeastern regions in China, resulting in floods in several areas. This led the State Flood Control and Drought Relief Headquarters to order Beijing, Tianjin, Hebei, Shanxi, Inner Mongolia, Liaoning, Heilongjiang, Shaanxi, and Gansu to enact level-four flood control emergency response on Aug. 17.
On Aug. 18, heavy and sudden rain in the Datong Hui and Tu Autonomous County of Qinghai Province resulted in flooding in the mountains and triggered landslides that killed 16 people and left 18 people missing.
Typhoons
On Aug. 10, Typhoon Mulan made landfall in Xuwen County in Guangdong Province. Typhoon Mulan was the seventh typhoon of the year. On Aug. 18, mainland media reported that Typhoon Ma-on (馬鞍), the ninth of the year, is forming and expected to make landfall in Guangdong or Fujian.
OUR TAKE
Disease, extreme weather, and natural disasters appear to be increasingly taking their toll on the Chinese economy and food production. The outbreak of COVID-19 in Wuhan in 2020 and subsequent “zero-COVID” lockdowns at the time and in the first half of this year led to the suspension of production and business operations, as well as affected crop harvesting and planting in some areas. Zhengzhou City in Henan Province was hit by a massive flood in July 2021. From August to September 2021, local governments in several areas imposed “dual energy consumption control” (能耗雙控, or the control of energy consumption intensity and volume), resulting in brownouts and production halts.
Now China is seeing floods in the north and droughts in the south just as the CCP authorities are looking to revive an economy impacted by Beijing’s “zero-COVID” measures imposed in the first half of the year. We look at three case studies to show how extreme climate in China could affect the economy and food supply.
Yangtze cargo transport
Historic low water levels in the Yangtze River will inevitably affect cargo shipment, as well as economic operations and production that rely on the river for transportation.
The drying of the Yangtze basin has already led the CCP authorities to close off some waterways. The Yangtze River Maritime Safety Administration announced the closure of the Anqing Jiyangji to Wuhan Yangtze River Bridge sea vessel segment of the river’s main trunk from Aug. 13, and the closure of the Wuhan Yangtze River Bridge to Yueyang Chenglingji segment of the Yangtze River from Aug. 14. On Aug. 18, the Yangtze River Maritime Safety Administration announced that the water level of the Hankou section and Jiujiang sections of the Yangtze River was 4.77 meters and 4.02 meters respectively, or less than half of the level during normal times in the historical record. Sea vessels typically require water levels in the Yangtze to be between 6 to 8 meters if they are to pass through.
The closure of the two waterways in the Yangtze River came much earlier than scheduled. The Yangtze River Waterway Bureau had earlier announced that the Anqing Jiyangji to Wuhan Yangtze River Bridge sea vessel segment would be opened from April 1 to Nov. 15 this year, while the Wuhan Yangtze River Bridge to Yueyang Chenglingji segment would be opened from May 1 to the end of September.
The early closure of direct river-sea waterways in the Yangtze will inconvenience the transportation of cargo inland. Sea vessels will have to offload their cargo further downstream on the Yangtze or the Shanghai Waigaoqiao Port Area and rely on river vessels with smaller tonnage to transport their cargo the rest of the way. This arrangement could see cargo take up to seven days to reach their inland destination as opposed to just 48 hours, and the cost of transportation would be significantly increased, according to mainland financial media Caixin. Higher transportation fees and longer wait times for cargo would in turn affect business operations and costs, further burdening companies that are already being impacted by the “zero-COVID” policy, power outages, and the gloomy economic environment.
According to publicly available information, water transportation is one of the cheapest ways to move cargo in China and has the highest share of cargo turnover. The Yangtze River is also the world’s busiest inland waterways. Data from the Yangtze River Navigation Administration under the Ministry of Transport shows that the freight volume of the Yangtze’s main trunk in 2021 reached 3.53 billion tons, ranking the river first in the world for inland shipping for over 10 consecutive years.
According to official regime data, the freight volume and freight turnover of the Yangtze River transportation system accounted for 20 percent and 60 percent of the regime’s total respectively. Also, 85 percent of iron ore, 83 percent of coal, and 85 percent of foreign cargo required for economic and social development along the Yangtze basin is transported via the river. The Yangtze River transportation system also employs more than 2 million people and indirectly supports over 10 million jobs; the system annually contributes more than 200 billion yuan directly and 4.3 trillion yuan indirectly to economic development along the Yangtze.
Yangtze Delta
Transportation hurdles over low water levels in the Yangtze and production halts over power problems could have a huge impact on the economy of the important Yangtze Delta region, as well as the global supply chain.
Official data shows that the Yangtze Delta had a GDP of 27.6 trillion yuan in 2021, or 24.1 percent of China’s total. Meanwhile, the Yangtze Delta’s industrial added value, total retail sales of consumer goods, and local general public budget revenue in 2021 accounted for more than a quarter of the national total, or 25.6 percent, 25.3 percent, and 26.6 percent respectively.
Meanwhile, the scale of integrated circuit and biomedicine and artificial intelligence industries in the Yangtze Delta make up 60 percent and a third of the regime’s total respectively. Jiangsu Province, which is in the Yangtze Delta, is a main producer of wafers and solar cells in China, and holds more than a third of the world’s solar panel manufacturing capacity.
The Yangtze Delta is also a key automobile manufacturing hub in China. In 2021, automobile and new energy vehicle output in the Yangtze Delta was 25 percent and 38 percent of China’s total respectively. Shanghai is an important automobile manufacturing region in China, and Kunshan City in Jiangsu Province has more than 500 companies making auto parts and providing support services for 25 vehicle plants across China. Auto manufacturing in the Yangtze Delta region was previously affected by the COVID lockdowns in Shanghai and nearby areas in April. With hot weather likely to continue until September, the auto industry in the Yangtze Delta can expect to be negatively affected by brownouts and cargo woes for at least the next several weeks.
Food
Extreme weather will impact the autumn grain harvest in China, which accounts for 75 percent of the country’s annual grain output. Heat waves during the autumn grain growth, development, and yield formation period (July to September) will also damage crops and affect the yield. According to mainland media, optimal temperatures for wheat, rice, and corn cultivation in China are 26 degrees Celsius, 34 degrees, and 38 degrees respectively. Excessively high temperatures will impact the flowering and grain filling stages of grain groups, resulting in lower yields and a decline in quality.
On Aug. 11, the MWR announced that Sichuan Province, Chongqing City, Hubei Province, Hunan Province, Anhui Province, and Jiangxi Province should take level-four drought precautions. The ministry noted that 9.67 million mu (about 1.6 million acres) of arable land will be affected in the five provinces and one city, or 2.6 percent of total arable land in those areas. According to data from the National Bureau of Statistics, the total grain output of the five provinces and one city in 2021 was 168 million tons, or 24.6 percent of the country’s total output.
Meanwhile, Caijing Magazine reported on Aug. 17 that the corn crop planted this May in Sichuan’s Yaodu Town that was supposed to be ready for harvest in August had all died in July due to high temperatures. Also, the autumn corn crop sown in mid-July grew very poorly as extreme temperatures and little rainfall took their toll.
All in all, extreme weather in China is adding to the many crises facing the Xi leadership and the CCP regime. Increasing problems with the economy and food supply will impact social stability, and rising social tensions could transform into political problems for Xi Jinping this year.
