SinoInsight 1
On Sept. 30, The Wall Street Journal reported that the China Securities Regulatory Commission told Western investment banks operating in the mainland like Goldman Sachs and JPMorgan to avoid publishing politically sensitive research ahead of the 20th Party Congress.
It is unclear whether Western investment banks are heeding the PRC’s orders. But Western legacy media and think-tanks most certainly have not been adverse to issuing what the CCP would consider to be “politically sensitive” material during a “politically sensitive” period (before the Seventh Plenum on Oct. 9 and the 20th Party Congress on Oct. 16). Since early October, Western media outlets and think-tanks have published a string of unflattering articles about the Chinese economy and/or Xi Jinping. Notable pieces include:
Chinese economy
Oct. 3
“China Is Suffering A Major Financial Crisis,” Milton Ezrati, Forbes
- Ezrati laid out the PRC’s problems in the real estate sector and the banks before noting that the regime’s financial crisis, “though underplayed by both Beijing and western media, has had a profound effect.” He then faulted Beijing for not acting sooner or doing enough to resolve the crisis.
Oct. 4
1. “Five Reasons Why China’s Economy is in Trouble,” BBC
- The BBC listed “zero-COVID,” Beijing “not doing enough,” China’s property crisis, climate change, and China’s tech giants losing investors as reasons why the Chinese economy is not doing well. In concluding, BBC wrote, “The world is becoming accustomed to the fact that Beijing may not be as open for business as it used to be — but Mr. Xi is risking the economic success that has powered China in recent decades.”
2. “China’s Property Crash: ‘A Slow-motion Financial Crisis’” and “Xi Jinping’s Last Chance to Revive the Chinese Economy” (Oct. 5), Financial Times
- In a two-part series, the Financial Times looked at how China’s property crisis is affecting government finances and the economy, as well as how Beijing might need to “relinquish some political control” to spur consumer spending.
- The first article is the bleaker of the two. Analysts quoted in the piece noted that “China’s growth model has run its course”; that “pessimism that is starting to infect multinational companies operating in the country and investors — both foreign and domestic — in its stock markets” and “among foreign portfolio investors, the enthusiasm for the Chinese stock market of a few years back has turned to dust”; that Beijing’s policies to support the property market “do not represent a solution to China’s structural slowdown”; and that “the returning to the go-go growth of a decade ago no longer appears a priority for China” because the “leadership of Xi appears much more concerned with security and control than it does with wealth creation and economic growth.”
Oct. 5
1. “What’s Happened to China’s Economy?”, Zhang Jun, Project Syndicate
- Zhang, Dean of the School of Economics at Fudan University, argued that China’s economy is suffering because local governments are disincentivized to innovate as “local officials fear the political consequences” of doing so and the central government’s “strengthened anti-corruption drive has exacerbated their anxiety.” He noted also that “China has usually managed to strike a dynamic balance between local-government accountability and local policy innovation” after Deng Xiaoping launched his “reform and opening up” policy in 1978, “thereby maximizing the benefits and minimizing the costs of both.” Zhang then argues that “unless China commits to pursuing comprehensive structural reforms and building a more complete market system, a move away from the regionally decentralized system of the past will expose the flaws in its economic system. Those flaws – which local-government competition under a regionally decentralized system at least partly mitigated – will become obstacles to economic dynamism and sustained growth.”
2. “How China Trapped Itself,” Michael Pettis, Foreign Affairs
- Pettis, a senior fellow at the Carnegie Endowment for International Peace, noted that much of the PRC’s investments over the past three decades are directed “by necessity, to projects that create economic activity (and debt) but that do not create real economic value.” Given that China is unlikely to be able to “still productively continue to invest anywhere near the same amount every year,” Beijing’s only options are to “bring down investment rapidly and accept the consequences of much lower growth or to maintain high levels of growth by forcing continued high rates of investment until the resulting surge in its debt burden makes it difficult or impossible to stay on that path.” This means that “Chinese growth will slow sharply, and the way in which it does will have profound consequences for the country, the CCP, and the global economy.”
Xi Jinping
Oct. 2
“Think Putin is a Global Threat? Then We Need to Talk About Xi Jinping,” Simon Tisdall, The Guardian
- Tisdall, The Guardian’s foreign affairs commentator, rehashes key arguments in former Central Party School professor Cai Xia’s Sept. 6 Foreign Affairs article attacking Xi Jinping while going easy on his predecessors and the CCP.
Oct. 4
“Xi Jinping’s Third Term is a Tragic Error,” Martin Wolf, Financial Times
- Wolf criticized Xi’s decade at the helm of the CCP regime, with a focus on his economic performance. He also hailed Deng Xiaoping as a “genius of common sense” and his “brilliant eclecticism” of mixing “Marxist political ideals” with economic development. In concluding, Wolf wrote, “But reimposition of the old Leninist orthodoxies on today’s highly complex China must be a dead end at best. At worst, as Xi stays indefinitely in office, it could prove something even more dangerous than that, for China itself and the rest of the world.” Wolf’s article was widely shared in Western China watching circles.
Oct. 5
1. “Xi Jinping’s Quest for Total Control of China is Just Getting Started,” The Washington Post
- The article said that Xi Jinping was “brought in to clean up the mess” of “rampant corruption, factionalism and mounting social discontent” that were undermining the Party’s legitimacy under the “lax leadership of Xi’s predecessor, Hu Jintao.” The article then noted that “it is increasingly unclear when Xi will consider his role as savior of the Party completed,” especially seeing how he “must contend with a severe economic slowdown and spiraling tensions with the United States and its allies” in his third term, or challenges that “are related to his choices.”
2. “The Chinese Communist Party’s Ride-or-Die Moment,” Tyler Roylance, The Diplomat
- Roylance, a staff editor at Freedom House, noted that the Party is renewing its commitment to Xi Jinping at the 20th Party Congress “when the Chinese government faces a daunting array of foreign and domestic challenges, most of which have been prodigiously exacerbated by Xi’s own policy choices. In effect, the CCP appears to be succumbing to the authoritarian curse of one-man rule, binding itself to the flawed judgment of a single personality and potentially dragging the entire country down with it.”
Oct. 7
1. “What Xi Jinping’s Third Term Means for the World,” Michael Schuman, Atlantic Council
- Schuman, an Atlantic Council nonresident senior fellow, likens Xi to Mao Zedong and notes the “trauma of one-man rule,” while praising Deng Xiaoping and “reformers” for promoting “a more collective form of governance.” He also believes that Xi is “more ideologue than pragmatist,” and hence would retain “zero-COVID,” sacrifice economic growth for political objectives, “decide [on] a military solution to the Taiwan problem,” and increase conflict with “many of the world’s major economic and military powers,” including the U.S. and its allies, India, and Vietnam. Schuman added that Xi’s third term “will likely see rising nationalism and [China’s] continued decoupling from the world in business, information, culture, education, and even personal exchanges.”
2. “Xi Jinping Is the Second Coming of Mao Zedong,” Peter Coy, The New York Times
- Coy wrote, “It’s past time to consider seriously that Xi Jinping is the second coming of Mao Zedong,” and added that Mao “is widely regarded today in the West as, at best, a flawed patriot and, at worst, a brutal dictator.” He also wrote, “The implicit bargain in modern China is that its leaders will deliver prosperity and, in exchange, the people will deliver their unwavering support. But Xi’s policies jeopardize that bargain by threatening China’s prosperity.”
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On Oct. 5, Taiwan defense minister Chiu Kuo-cheng told Taiwanese lawmakers that the ministry would view any warplane’s violation of Taiwan’s airspace as a first strike.
“In the past, we said we won’t be the first to strike, which meant we won’t do it without them firing artillery shells or missiles, etc., first,” Chiu said. “But now the definition has obviously changed, as China used means like drones. So we have adjusted, and will view any crossing of aircraft or vessels as a first strike.”
Chiu did not elaborate on what Taiwan’s response would be to a “first strike.”
Chiu also said, “First strike or not, as long as any China’s aircraft or vessel crosses the [Taiwan strait median] line, we will destroy it. We have made the adjustment now.”
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Oct. 7
1. The Biden administration introduced measures aimed at preventing foreign firms from selling advanced chips to China or supplying Chinese companies with tools to manufacture their own advanced chips. Senior administration officials told reporters in a briefing on Oct. 6 that companies will require a special license to supply China with advanced chips, chip-making equipment, and other products, but added that most of those licenses will be denied. Certain shipments to facilities operated by U.S. firms or allied countries will be evaluated on a case-by-case basis.
The Biden administration also applied the expanded export restrictions to China’s IFLYTEK, Dahua Technology, and Megvii Technology, while adding China’s top memory chipmaker Yangtze Memory Technologies Co and 30 other Chinese entities to the “entity list.”
Administration officials and some commentators say that how effective the new chip measures will depend on whether other countries cooperate with the U.S. on the restrictions and in imposing similar controls. Critics say that the licensing requirement opens a loophole that allows U.S. companies to continue selling sensitive technology to China.
On the same day, the Biden administration unveiled its national strategy for the Arctic region. A White House fact sheet said that the strategy, “accounts for increasing strategic competition in the Arctic, exacerbated by Russia’s unprovoked war in Ukraine and the People’s Republic of China’s increased efforts to garner influence in the region, and seeks to position the United States to both effectively compete and manage tensions.”
2. Bloomberg News noted in a report that the Biden administration is carrying out “contingency planning” for a potential PRC assault on Taiwan, citing people familiar with the administration’s deliberations.
In the event of a full invasion, the U.S. could consider evacuating TSMC workers to America “on the last planes out.” And “at the extreme ends of the spectrum,” the U.S. would make clear to China that it would “destroy TSMC facilities” if Taiwan was occupied “in an attempt to deter military actions or, ultimately, deprive Beijing of the production plants.”
Bloomberg added that the destruction of TSMC facilities is not under consideration by the Biden administration, but “some former officials with ties to the Pentagon want the Biden administration to devise such a plan, arguing that there would be no other option in an invasion scenario.”
OUR TAKE
1. Legacy Western media and think-tanks are increasingly beginning to acknowledge the troubles and crises facing the CCP regime that we have been constantly calling attention to in our newsletters and articles. This is a positive and welcome sign; businesses, investors, and governments need all the help they can get to better recognize and handle political risk in China, as well as avoid being trapped by the CCP’s “Red Matrix” influence operations.
However, the emergence of several uncomplimentary articles about China’s economy and Xi Jinping in the lead-up to the 20th Party Congress is a little suspicious. On the one hand, it is normal for media outlets and pundits to do a review of a country leader’s rule before a major election (in the PRC’s case, a major political reshuffle). On the other hand, most of the articles critical of Xi tend to cast him as a “unique evil” in CCP history and fail to assess his predecessors and the Party with an equally critical eye. Also just several years back, Western media and commenters would mostly talk up the Chinese economy even though it had obvious problems, and there were far fewer and less scathing criticisms of Xi.
While perhaps not intentional on the part of the various authors and news outlets, singling out Xi for censure, selectively praising some of his predecessors, and failing to point out that the “Xi Jinping problem” stems from a deeper “CCP problem” conveniently leaves both Xi and the Party with an “off-ramp” that they can take to survive growing external pressure on the regime while “delaying and waiting for change” (以拖待變) to advance the CCP’s domination agenda further down the road. When its survival and ability to dominate are at stake, the CCP has no qualms with enacting strategies and tactics that embrace contradictions and subvert expectations of how it should behave.
To deny Beijing — whether the actor be Xi or his rivals — any chance of deceiving the world about the CCP’s intentions and ambitions, media outlets and commentators should also expose the Party’s pernicious ideology and decades-long subjugation of the Chinese people. Xi and all his predecessors are responsible for maintaining the CCP’s brutal dictatorship over the Chinese people; those who champion Deng Xiaoping and his “reform and opening up” tend to gloss over the fact that he is also the “butcher of Beijing” who signed off on the Tiananmen Square massacre, and those who look back with nostalgia at Jiang Zemin “forget” that he ordered the persecution of Falun Gong, advanced the CCP’s techno-totalitarian capabilities, and deeply entrenched corruption in China. Journalists, pundits, and scholars can also make Xi and the CCP feel real concern by following the strategy of former Secretary of State Mike Pompeo to denounce the CCP’s ideology and differentiate between the Party and the Chinese people.
2. Xi’s factional rivals and the “anti-Xi” crowd in China and abroad could seek to leverage mounting “anti-Xi” rhetoric and pressure (including capital outflows, sanctions, and other financial measures) to undermine the Xi leadership and work towards ousting him. Xi may be able to secure a third term at the 20th Party Congress, but he is not immune to political pressure should the regime’s various crises sharply escalate. In the event that Xi is successfully eased out of power but the international community does not follow up on addressing the CCP threat (with the world under the impression that the “China problem” is solved by the elimination of the “unique evil” that is Xi), then Xi’s factional enemies would be handed a free pass to continue hoodwinking the world and perpetuate the Party’s domination agenda in a stealthier and likely more insidious fashion.
It cannot be ruled out that those advocating an “anti-Xi, not anti-CCP” strategy could have a hand in coordinating or influencing the recent spurt of negative press and commentary about Xi and “Xi’s China.” For instance, Project Syndicate receives funding from George Soros’s Open Society Foundations, and Soros has very publicly stated his opposition to Xi Jinping. Meanwhile, the Atlantic Council published “The Longer Telegram” in 2021, which advocates that America adopt an “anti-Xi, not anti-CCP” approach to dealing with China. Even if “anti-Xi, not anti-CCP” advocates have no role whatsoever in the recent Western media and think-tank articles critical of Xi and the economic failures under his leadership, those articles ultimately buttress their arguments about Xi and serve to advance their agenda.
Alternatively, Xi Jinping is able to keep his rivals at bay, he could move to swiftly “rehabilitate” his negative image after securing his political agenda items at the 20th Party Congress to allow himself and the Party to survive its current crises and rework pathways to dominate in the future. For instance, Xi could conceivably get rid of “zero-COVID” or modify it to the point where it no longer entails draconian lockdowns and control measures; open up China’s markets and economy to a greater degree; tone down the PRC’s belligerence towards Taiwan; dial down “wolf warrior” diplomacy even more, and make other moves that would shock his critics. Already, the CCP authorities’ approval of mass sporting events (Beijing marathon in November, badminton World Tour finals in December, etc.) after the 20th Party Congress hint that Beijing could really do the unthinkable when it comes to lifting COVID-19 restrictions once Xi’s third term bid and key personnel reshuffles are in the bag. Xi could also look to de-escalate tensions and improve ties with the U.S. and its neighbors. Of course, Xi’s ability to effectively pull off a policy “about-face” will be restricted by the degree to which he can overcome systemic problems in the CCP regime like “orders not leaving Zhongnanhai” and officials sticking to “prefer left rather than right,” “one-size-fits-all,” and “campaign-style” approaches, as well as other Party culture-derived habits.
Naturally, Xi will consider his political agenda and necessities first before deciding on what to do with “zero-COVID” and other policies. Xi’s domestic and foreign enemies are undoubtedly aware of his need to prioritize political considerations above all and could work to exploit this weakness. It cannot be ruled out that Xi, acting on faulty intelligence (the Jiang faction could still have lingering influence over the intelligence apparatus despite Xi’s efforts at “rectifying” it) and advice, would maintain the “zero-COVID” policy as it is for an extended period after the 20th Party Congress because he genuinely believes that it is the best way forward (keeping the virus at bay, “stability maintenance” purposes, etc.) for himself and the regime. Further, the U.S. and its allies, as well as Taiwan, could keep taking actions that lock Beijing into a spiral of escalating confrontation and belligerence, denying the Xi leadership any opportunity to take an “off-ramp”; deliberate provocation on the part of Washington, its allies, and even the ROC cannot be ruled out if the Biden administration has adopted the “anti-Xi, not anti-CCP” strategy and Xi’s external enemies believe that the “only viable way” of undermining Xi and securing his ouster is “a humiliating defeat in a war” fought over Taiwan.
3. Xi Jinping is unlikely to be badly impacted by external negative press about himself and China under his rule, as well as the growing external pressure towards the PRC, before the 20th Party Congress as long as he maintains a tight grip on the Party and the regime, restricts the circulation of “problematic” information, and keeps Chinese society tightly suppressed.
Currently, Beijing appears to be taking advantage of its “zero-COVID” policy to “maintain stability” before the 20th Party Congress. According to overseas Chinese media reports from early October, a CCP internal directive warned local officials that they should be prepared to lose their job “if large-scale [COVID-19] outbreaks occur” and if “mass group incidents break out.” This directive appeared to be the reason why very strict lockdowns and “zero-COVID” measures were enacted in places like Chengdu in Sichuan Province, the Xishuangbanna Dai Autonomous Prefecture in Yunnan Province, Inner Mongolia, and parts of Xinjiang.
Overseas Chinese-language media reported that a month-and-a-half-long lockdown in Xinjiang’s Yining City allegedly led to hundreds starving to death in their homes. City officials confirmed that at least 22 people had starved to death on Sept. 15. The lockdown led to a protest by more than 600 people, but the protesters were all arrested by the authorities. Meanwhile, Sun Shaocheng, the Party secretary of Inner Mongolia, reportedly demanded that all measures, including those that “take a sledgehammer to a nut” (殺雞用牛刀), must be taken to contain the transmission of COVID-19 in the region and stop the virus from spreading to Beijing. And in Yunnan’s Xishuangbanna, armed police dressed in white-colored “anti-epidemic” hazmat suits and equipped with submachine guns and riot shields were videoed “maintaining stability” at the local airport after a lockdown was suddenly imposed on Oct. 4, stranding an estimated 1,500 people.
4. Xi may successfully extend his tenure at the 20th Party Congress and secure other political objectives, but he may not find himself more politically secure should he face a sharp squeeze of internal and external “great changes unseen in a century” around the Party Congress period and after, with little or no time to catch his breath.
Businesses, investors, and governments must account for surging political risks in China and make contingencies for political “Black Swans.”
