1 PRC health insurance reform sparks protest
On Feb. 8, over ten thousand retirees staged a protest in front of government buildings in Wuhan over a new employee health insurance reform plan that took effect on Feb. 1. Some of the protesters parked their vehicles around the government buildings, blocking traffic in the area.
The authorities later dispatched a large number of armed police and special police to confront and attempt to disperse the protesters. The protesters said that they would hold an even larger demonstration on Feb. 15 if the local government does not address their problems.
Later, officials from the Wuhan municipal government invited some of the elderly protesters into an auditorium for negotiations. The Wuhan government then promised to suspend the implementation of the health insurance reform.
Aside from Wuhan, a large number of retirees in Guangzhou City also held protests outside government buildings in mid-January this year because their health insurance premiums had been cut by two-thirds.
Background
The employee health insurance reform was issued by the PRC National Healthcare Security Administration (established in January 2020 as part of Xi Jinping’s 2018 state and Party institutional reforms) in April 2021 (關於建立健全職工基本醫療保險門診共濟保障機制的指導意見).
Under the PRC healthcare system, people with urban hukou (household registration) and belonging to urban work units are eligible for basic health insurance for urban employees. Insurance fund payments are made into an integrated account and an individual’s personal account. Individuals can draw on their personal account to pay medical expenses for minor illnesses (typically illnesses that can be treated through outpatient services), while the integrated account is reserved to make payments for the treatment of major illnesses (typically illnesses that require hospitalization). Employers and employees make monthly contributions to the accounts based on a proportion of the employee’s salary, with individuals currently at two percent and employers at six percent.
Municipal-level governments manage the basic health insurance fund in most parts of China, while some funds are managed by county-level governments. Therefore, the amount of funds, contributions, and subsidies associated with local health insurance funds are typically pegged to a region’s economic level.
Before the 2021 employee health insurance reform, all employee health insurance premiums were paid to their personal account while employer contributions were split between an employee’s personal account and the integrated account. Each month, the employee receives a sum equivalent to about three to four percent of their monthly salary in their personal account.
The health insurance scheme at the time created several problems, including:
- People found it easier to claim insurance for hospital treatment instead of outpatient services. Hence, the hospitalization rate for those with employee health insurance reached 19 percent and 40 percent for the elderly. The high rate of hospitalizations drained the regime’s limited healthcare resources and capacity, which was already coming under increasing strain from China’s aging demographic.
- Hospitals and patients sometimes conspired to draw insurance funds by faking illnesses and treatments.
- Patients were turned away by hospitals because the illness they were suffering only qualified them to draw on a small amount of insurance funds or because they were short on insurance funds.
- Individuals could only tap funds in their personal account for their own use, and cannot transfer those funds to help more needy family members. This resulted in many fraud cases as people came up with all sorts of schemes to access personal account funds to pay their relatives’ medical expenses.
Reform troubles
After the employee health insurance plan was reformed,
- Individuals were allowed to use their personal account funds to foot the medical expenses of their family members, as well as purchase private health insurance in the future.
- The proportion of reimbursement for outpatient services was increased, a measure that theoretically reduces hospitalizations.
- Employer contributions go entirely to the integrated account.
- Retired employees can access monthly medical benefits from the integrated account based on a smaller proportion (about two percent) of their previous monthly salary.
The reforms, however, did not resolve some existing problems and even created fresh ones:
- While the proportion of outpatient and drug reimbursements for insured employees appeared to have increased, many primary hospitals (small hospitals with less than 100 beds) still struggled to access common drugs and pay for drugs out of their own pocket.
- Two million retirees in Wuhan who were on the employee health insurance scheme were affected by the reform. Some noted that they could only access 83 yuan per month in medical benefits from the integrated account, or significantly less than the 286 yuan pre-reform. Meanwhile, so-called “flexible employees” (靈活就業人員, that is, temporary workers) without personal accounts found themselves paying monthly insurance premiums of 414.70 yuan per month.
Anger over civil servant perks
The negative aspects of their employee health insurance aside, the protesting Wuhan retirees were also unhappy that active civil servants and staff in public institutions did not appear to be affected by the reform. For one, civil servants and public institution staff are still entitled to subsidized medical assistance insurance on top of the employee health insurance scheme.
On a related note, senior and retired CCP cadres have long had access to generous medical treatments at public expense and without having to pay for basic healthcare insurance. For example, former vice health minister Yin Dakui disclosed at a health forum in 2006 that 80 percent of public healthcare expenses had benefited 8.5 million people, the bulk of whom were CCP cadres and government officials, according to a Chinese Academy of Sciences report.
Meanwhile, investigations by the supervisory and organizational authorities during the Jiang-Hu era found that 2 million cadres at all levels of Party organization and government nationwide had taken long-term sick leave. Also, 400,000 of the 2 million were staying for lengthy periods in cadre wards, cadre medical guesthouses, and health resorts, costing the regime about 50 billion yuan annually.
Why it matters
The success or failure of the CCP’s health insurance reform, and whether or not it will trigger protests on an even larger scale, are important indicators for gauging the state of the PRC’s finances, its ability to carry out “stability maintenance” work, and how severe the CCP’s domestic crises are.
Our take
1. The CCP’s health insurance reform appeared to be aimed at addressing a host of issues currently plaguing the regime, including financial shortages, China’s aging demographic, the uneven allocation of health insurance funds, health insurance fraud, official corruption, and escalating social tensions.
The reform also seemed to address a problem that emerged during the three pandemic years. To help businesses during the lockdowns, the CCP authorities gave eligible micro, small, and medium-sized enterprises a moratorium on making employee health insurance payments. Because the moratorium increased the pressure on health insurance funds in making payments, the authorities soon rolled out the health insurance reform to “fix” the issue.
On paper, Beijing’s reform is a well-intentioned move to help cover some of the medical expenses of those on the employee health insurance scheme and their family members during a time of rapid economic deterioration and stagnant or declining wages that were caused in part by the pandemic. The reform would also resolve some systemic problems with the PRC healthcare system (increased ability to deploy integrated account funds, etc.), at least in theory.
In practice, the reform appears to be failing because “the top has policies, but the bottom has countermeasures” (上有政策, 下有對策). For instance, hospitals can choose not to purchase cheaper drugs when it does not benefit their interests to do so (even if they can be reimbursed for the purchase), leaving patients without access to certain treatments or having to source expensive drugs from the hospital or elsewhere at their own expense. Low-income earners may also not be able to pay for drugs or hospitalization bills out of their own pocket even if the authorities improve the reimbursement rate. Meanwhile, the reduction of contributions to individual accounts will increase the financial burden of medical expenses for some patients.
The health insurance reform issue is ultimately a “stability maintenance” issue for the CCP. If Beijing cannot implement the reform properly, it could end up aggravating instead of lowering social tensions and anger toward the regime.
2. The Xi leadership’s recent health insurance reform also appears to be part of Xi Jinping’s campaign to fix the “number of prominent issues and problems” that occurred under his predecessors that require “urgent action.” For instance, it was common knowledge during the Jiang-Hu era, when the Jiang Zemin faction was dominant, that the CCP elite was using up a significant portion of the regime’s healthcare resources.
Health sector corruption issues have continued into the Xi years despite the Xi leadership’s efforts to tackle graft. During the “zero-COVID” years, local governments and pharmaceutical companies turned the public health insurance fund into their personal “piggy bank” of sorts to pay for mass testing and other “epidemic prevention and control” measures. Eventually, the profits of testing companies doubled and local government payments to those companies fell in arrears in some cases.
Mainland media noted that there were at least seven reported cases of nucleic acid fraud in 2022 and 250 third-party testing companies were ordered to make “rectifications.” The central government also conducted a retroactive investigation of the public health insurance fund in May 2022.
3. The Wuhan authorities likely decided to give ground to the protesters due to the potentially troublesome “stability maintenance” problems it could encounter unless it suspended implementing the health insurance reform.
There were 354 million people on the employee health insurance scheme in 2021, of which 93.24 million are retirees, according to PRC Ministry of Human Resources and Social Security figures. Even if only a fraction of those retirees stepped out to protest like in Wuhan and Guangzhou, then the CCP authorities could have a serious social stability problem on their hands. The authorities would have also considered that the retirees who are in their 60s now went through the Cultural Revolution and many could have once been Red Guards. Thus, local governments would rather compromise and meet protester demands early than be forced to engage in prolonged “stability maintenance” operations against retirees from the generation that “dare to struggle and are good at struggling.”
As we noted in our 2023 China Outlook: “Protests over various demands could crop up in many parts of China. The protests could spread like wildfire and the CCP authorities will be increasingly hard-pressed to maintain stability.”
What’s next
The Xi leadership is not likely to succeed in overcoming the problems with the PRC’s health insurance system due to the systemic deficiencies of the CCP’s authoritarian dictatorship. The botched health insurance reform will also worsen Xi Jinping’s “Tacitus Trap” problem as increasing numbers of people find fault with the CCP. Growing distrust and anger towards the Party authorities will result in more protests and further destabilize Chinese society.
2 Signs of local government fiscal shortfalls continue to emerge
Feb. 1
Loufan County in Shanxi Province announced more institutional reforms. The county’s Party Committee organizations would be reduced from nine to six, government departments from 26 to 16, and public institutions from 133 to 104.
Loufan is part of a second batch of counties with small populations in Shanxi where institutional reforms were piloted in 2022. The Shanxi provincial Party Committee Office noted in a document issued last year that there are a large number of small counties with less than 150,000 people in the province. The document added that these small counties generally have prominent problems like overstaffing and having more civil servants than their governments can financially support.
Feb. 5 to Feb. 9
Some civil servants from Jiangsu Province disclosed on Chinese social media that local Commissions for Discipline Inspection in the central and northern regions of the province had sent work groups to major public institutions in the area around the middle of 2022 to investigate the “illegal part-time employment of civil servants.”
The local CDIs made those inspections because the local governments of those areas had reported financial shortages, and allegedly issued fines of between 600,000 yuan to 1 million yuan per guilty person at the conclusion of their investigations. The amount of fines to be paid was determined after the local CDIs went through an individual’s bank records and electronic transactions over 20 years, as well as their family assets. The Jiangsu civil servants who disclosed the probe said that the anti-corruption authorities collected as much as 2.5 billion yuan in fines in one city.
The Jiangsu civil servants said that many of the civil servants who were outed during the investigations tended to be older and did not hold an official position despite being capable at their job. The local government’s actions sparked heated discussions on the Chinese internet, with some believing that the local government was essentially “raiding” civil servants because it had run out of money.
Feb. 10
Mainland media Guancha reported that Yichun City and Qiqihar City in the northeastern province of Heilongjiang had recently carried out the “removal of streets and establishment of towns” (撤街設鎮). In December 2022 and January 2023, Yichun City “removed” six sub-district offices and “established” four towns, while a street in Qiqihar City was subjected to “removal of streets and establishment of towns.”
The “removal of streets and establishment of towns” refers to the conversion of “streets” at the border of cities (a street falls under the city’s administration) back to “townships” that lie outside city administration. This is typically done after a “street’s” local population declines, development stagnates, shows poor economic indicators, and other factors that do not allow it to remain a “street” and be incorporated into the city’s urban planning and development. After the “removal of streets and establishment of towns” is done, the city’s local government will no longer be responsible for its finances, the number of government agencies will be reduced to that of a “township,” and the number of civil servants will be cut accordingly.
Our take
1. The various news items above are signs that local governments in China are experiencing serious financial shortfall. This is likely the result of several factors, including the continued and rapid deterioration of the Chinese economy in recent years, property sector woes, decreasing land sales, and the “zero-COVID” policy (recently lifted, but with lingering impact).
According to the PRC Ministry of Finance data, China’s budget deficit was 8.96 trillion yuan ($1.3 trillion) in 2022, or 51 percent higher than in 2021 and larger than the previous record of 8.72 trillion yuan in 2020.
Meanwhile, local government financing vehicles are struggling to repay maturing commercial papers and are in danger of default. Local governments and municipal investment groups are also increasingly at risk of defaulting on their debt.
2. Local governments have likely resorted to shutting government agencies, laying off and fining civil servants, and “removing streets and establishing towns” to cut costs and not let problems resulting from financial shortages affect the performance of local officials.
While such measures may indeed benefit some officials, their placing their own interests above those of the CCP regime will likely destabilize Chinese society further and endanger regime security. Civil servants who have been fired, fined, or received pay cuts will become increasingly angry with the CCP and will become more prone to protesting or “laying flat” instead of working hard to preserve the regime. Some civil servants could even engage in greater corruption to make up for their lost income, thereby worsening the financial shortfall problem and the broader corruption problem in the PRC.
3. The imposition of massive fines on “illegal part-time employment of civil servants” in Jiangsu Province hints at a deeper problem. Local governments are known instead to hit local enterprises with fines when they are short on funds. The extreme measure of targeting of “illegal” civil servants now suggests that the Jiangsu government has either run out of local companies to fine or that there are not many local companies left (due to mass business closures as a result of “zero-COVID,” etc.) that can be exploited. The latter explanation is more worrisome for the CCP regime.
4. Severe local fiscal shortfalls, especially in economically less developed areas, will affect the CCP’s ability to govern, sustain grassroots operations, and maintain stability at a time of worsening internal and external crises for the regime. The CCP’s domestic problems are set to increase as local governments cope with reduced capacity and are forced to turn a blind eye to certain operations due to a lack of personnel and cash. The Xi leadership’s “various risks, challenges, and even turbulent waves” are also set to compound.
3 CCP attempts to better cross-strait ties
The CCP recently took steps to improve cross-strait relations with Taiwan:
Feb. 5
The CCP Taiwan Affairs Office and the State Council Taiwan Affairs Office held their annual symposium for Taiwanese businessmen at the Diaoyutai State Guesthouse in Beijing. More than 50 representatives of Taiwanese businesses attended the symposium.
Song Tao, head of both Taiwan Affairs Offices, said at the symposium that the PRC hopes to restore the “normalization of cross-strait exchanges and dialogue.” He added that the PRC is willing to conduct “extensive and in-depth consultations” on “cross-strait relations and national reunification” with all sectors in Taiwan on the basis of the “one-China principle” and “1992 Consensus.”
Song further said that cross-strait business negotiations “can recover” as long as the ROC government “acknowledges” and “embodies” the “one-China principle” and “1992 Consensus.”
Feb. 8
Zhu Fenglian, a spokeswoman of the State Council Taiwan Affairs Office, said during a regular press briefing that both Offices had carried out a series of visits and greetings to “Taiwanese compatriots” during the Lunar New Year and Lantern Festival period.
Zhu said, “Everyone has seen our actions and sincerity in promoting the peaceful development of cross-strait relations since the beginning of the year. I hope that compatriots on both sides of the [Taiwan] Strait will work together to create a bright future for the great rejuvenation of the Chinese nation.”
Zhu also answered questions about PRC policies on Taiwanese welfare matters on the mainland, including students studying there, health insurance, and housing.
Feb. 9
Song Tao met with the Kuomintang vice chairman Andrew Hsia Li-yan and his delegation in Beijing.
Song said that he would fully implement the spirit of Xi Jinping’s instructions regarding Taiwan work and “strengthen relations” with the KMT, on the basis of adherence to the “1992 Consensus” and opposition to “Taiwan independence,” for “peace in the Taiwan Strait” and “the rejuvenation of the nation.” He added that the PRC continues to adhere to the concept of “one family across the Taiwan Strait” in treating “Taiwanese compatriots,” and will “deepen cross-strait exchanges and cooperation in various fields.”
Andrew Hsia said that in the face of the evolving situation in the Taiwan Strait, he hopes that the KMT and the CCP will maintain cross-strait peace and stability, as well as promote cross-strait relations and peaceful development on the basis of the “1992 Consensus” and opposition to “Taiwan independence.”
Hsia also raised “three major demands and concerns” to Song Tao:
- Find ways to implement and maintain the people’s livelihood agreement that was previously reached between both sides.
- Reduce the cost of and find ways to overcome difficulties in cross-strait exchanges.
- Find ways to ease tensions in the Taiwan Strait and do the utmost to pursue cross-strait peace.
Feb. 10
Politburo Standing Committee member Wang Huning met with Andrew Hsia in Beijing.
Wang told Hsia that the CCP and the KMT should “deepen political trust, maintain interaction in a constructive manner, and strengthen cooperation and exchanges” on the basis of “reinforcing the political foundation of the ‘1992 Consensus’ and opposing ‘Taiwan independence.’”
Wang added that “Taiwan independence” is incompatible with peace and runs counter to the well-being of Taiwanese compatriots. He also welcomes and supports the participation of more Taiwanese in the process of “Chinese-style modernization” and “national rejuvenation” so that the Taiwanese can “share” the “development achievements” and the “glory of national rejuvenation” of mainland China.
Backdrop
The CCP’s Taiwan moves come amid:
- Escalating pressure against the PRC by the U.S. and its allies, including a “tech war” and increased cooperation between allies on military and intelligence matters.
- Increased support for Taiwan from the U.S. and its allies, including lawmaker visits, legislation (members of the House Financial Services Committee proposed pieces of three Taiwan-related bills in the week of Feb. 6), trade, military matters, calls to strengthen Taiwan’s international standing, and even calls to end the “one-China” policy and recognize “Taiwan independence.”
- William Lai Ching-te, the chairman of Taiwan’s Democratic Progressive Party and the frontrunner DPP candidate for the 2024 Taiwanese presidential election, is known to be anti-CCP and had previously condemned the CCP for conducting organ harvesting from living prisoners of conscience.
Our take
The CCP’s cross-strait moves indicate that it is currently still prioritizing peaceful and diplomatic means to achieve “reunification” with Taiwan instead of invasion. Its goals appear to be two-fold:
One, restore friendly relations with Taiwan, “recover” cross-strait trade and economic affairs (tourism, mainland imports, etc.), boost cross-strait exchanges, and deepen “united front” work with political parties in the ROC like the KMT. In the short term, the CCP wants to show Taiwan and the world that cross-strait relations can be good, if not excellent, should the KMT take charge instead of the DPP, and in so doing sway the Taiwanese people into electing a KMT leader at the 2024 Taiwanese presidential election. The CCP can also take the opportunity to attract Taiwanese investments and rescue the Chinese economy. In the long term, the CCP is hoping that closer cross-strait ties and economic relations will gradually lower tensions and pave the way to “peaceful reunification.”
Two, the CCP is likely hoping that improved cross-strait ties and reduced tensions will shift the international community’s perception that a PRC invasion of Taiwan is imminent. The CCP can then turn around and play the victim card, accusing the U.S. and its allies of attempting to “militarize” Taiwan, “weaponizing” cross-strait affairs against the PRC, forming a modern day “Eight-Nation Alliance” to “bully” China and the Chinese people (including “Taiwanese compatriots”), and expanding U.S. hegemony. In doing so, the CCP will be looking to deny the U.S. and its allies an excuse to “interfere” in cross-strait affairs and block its “reunification” efforts.
The CCP’s cross-strait plan, however, needs time to bear fruit. Yet time is luxury the CCP does not have as internal and external crises compound for its regime. The U.S. and its allies could also make moves in the lead-up to the Taiwanese presidential election to derail the CCP’s plan and ruin the latter’s attempt to “delay and wait for change” on Taiwan and its “reunification” agenda.
What’s next
The CCP is likely to curb its “wolf warrior” approach to Taiwan even further and strengthen propaganda about the so-called “one family across the Taiwan Strait.” However, the CCP can still be expected to carry out military maneuvers in the Taiwan Strait to assert its dominance and intimidate the Taiwanese people when it feels such moves are necessary.
Beijing will also continue getting the People’s Liberation Army ready to take Taiwan in 2027 or thereabouts in the case that “peaceful reunification” is utterly out of reach and as part of its plan to have a “world-class” military by 2050.
4 US and allies prepare to get tougher on China post-balloon
The U.S. and its allies signaled their intention to get tougher on the PRC after the downing of a high-altitude surveillance balloon belonging to Communist China that entered U.S. airspace at the end of January.
Feb. 8
1. NATO Secretary General Jens Stoltenberg said at a joint press conference with Secretary of State Antony Blinken that “the Chinese balloon over United States confirms a pattern of Chinese behavior, where we see that China over the last years has invested heavily in new military capabilities, including different types of surveillance and intelligence platforms.”
He added, “We’ve also seen increased Chinese intelligence activities in Europe – again, different platforms. They use satellites, they use cyber, and as we’ve seen over the United States, also balloons.”
Stoltenberg also said, “We need to be aware of the constant risk of Chinese intelligence, and then step up what we do to protect ourself. And we need also to react in a prudent, responsible, and vigilant way, as we have seen the United States has reacted to this specific balloon over North America and the United States.”
He further said, “I think it also highlights that security is not regional; security is global. What happens in Asia matters for Europe, and what happens in Europe matters for Asia and also, of course, for North America.”
2. In an interview with PBS, President Joe Biden said, “Can you think of any other world leader who would trade places with Xi Jinping? … I can’t think of one.” Biden made a similar remark earlier in his State of the Union address, but it was not included in the official transcript.
Biden added that Xi has “enormous problems,” including “an economy that’s not functioning very well.”
Xi, Biden said, is “in a situation where he is — for example, you know, everybody assumed that China would be all in with Russia and Ukraine. But they’re not all in it. As a matter of fact I called him this summer to say this is not a threat, just an observation: Look what’s happened to Russia. Six hundred American corporations have pulled out of Russia. From McDonald’s to Exxon. And I said, You’ve told me all along that the reason why you need a relationship with the United States in Europe is so they invest in China. So who’s going to invest in China if you engage in the same kind of deal? You notice there’s not been much going on there.”
Feb. 9
1. The State Department issued a document about the PRC surveillance balloon that mentioned many details that were previously reported in the press (see here and here), including U2 spy planes tracking the balloon before it was shot down and its likely capacity to collect and geo-locate communications.
The document also said that the U.S. will “explore taking action against PRC entities linked to the PLA that supported the balloon’s incursion into U.S. airspace.” The U.S. will also “look at broader efforts to expose and address the PRC’s larger surveillance activities that pose a threat to our national security, and to our allies and partners.”
2. Deputy Secretary of State Wendy Sherman told a Senate Foreign Relations Committee hearing that the PRC’s “irresponsible act put on full display what we’ve long recognized: that the PRC has become more repressive at home and more aggressive abroad.”
3. The U.S. House of Representatives voted 419 – 0 to pass a resolution condemning the PRC for its “brazen violation of United States sovereignty.”
Rep. Michael McCaul (R-TX), House Foreign Affairs Committee chair, said Beijing only understands “one thing and that is force and that’s projecting power and we need to project power and force and strength against the Chinese Communist Party.”
4. The New York Times reported that the Biden administration is preparing to curb American investment in Chinese technology. The administration’s measures are “now largely complete and could be issued within two months,” the Times said. People familiar with discussions said that the Treasury Department is contacting the European Union and other governments, to ensure that “they do not rush in to provide similar financing to China after the United States cuts it off.”
5. The U.S., the UK, and Australia carried out joint air drills focused on China over the Nevada desert.
6. Japan and the Philippines pledged to form closer security ties, including strengthening joint military exercises.
7. The U.S. test-fired an unarmed Minuteman III intercontinental ballistic missile from California into the Pacific Ocean waters.
Feb. 10
1. The U.S. blacklisted six companies that it claimed were involved in the PRC’s spy balloon program.
The companies are:
- Beijing Nanjiang Aerospace Technology Co., Ltd.
- China Electronics Technology Group Corporation 48th Research Institute
- Dongguan Lingkong Remote Sensing Technology Co., Ltd.
- Eagles Men Aviation Science and Technology Group Co., Ltd.
- Guangzhou Tian-Hai-Xiang Aviation Technology Co., Ltd.
- Shanxi Eagles Men Aviation Science and Technology Group Co., Ltd.
2. Reuters reported that the Biden administration is planning to ban outright American investments in some Chinese companies and increase scrutiny of others, citing three sources. The ban is expected to hit chip production investments and will be unveiled in an executive order in the coming months.
3. The U.S. signed a memorandum of understanding with the Federated States of Micronesia.
Feb. 11
The State Department said that the U.S. and Papua New Guinea have made “substantial progress” in negotiating a defense cooperation agreement that lays the groundwork for closer military relations between the two countries.
Feb. 12
The U.S. Navy and Marines Corps held an “integrated expeditionary strike force operations” in the South China Sea.
Our take
1. Washington’s continued attention to the PRC surveillance balloon and PRC technology matters, President Biden’s interview with PBS, various U.S. military operations, as well as the U.S. and its allies’ growing efforts to counter the CCP threat, appear to validate our earlier analysis (see here and here) of why the Biden administration is playing up the balloon incident.
To briefly reiterate, we believe that the Biden administration is looking to pressure Beijing into abandoning Russia and taking the side of the U.S. and the rules-based international order in the Russia-Ukraine conflict, lean in on Xi Jinping as he struggles with worsening internal and external crises, and divert public and political attention away from various issues and scandals plaguing the administration.
The U.S. and its allies could further escalate their respective efforts to deal with the CCP threat if they determine that Xi’s push for “Chinese-style modernization” is a thinly veiled declaration of systems competition with the West. Technology sanctions and increased military cooperation with allies and partner nations aside, Washington could possibly next target the PRC over its gross human rights abuses, including the persecution of the Uyghurs and other ethnic minorities in Xinjiang and the live organ harvesting of Falun Gong practitioners and other prisoners of conscience.
2. Xi Jinping could offer up some careful, piecemeal concessions in the hopes of appeasing the U.S. and staying in the spirit of his latest foreign policy adjustment to improve diplomatic ties with other countries. But Xi is unlikely to abandon the CCP’s ideologically-driven policies and policies aimed at advancing the regime’s domination agenda over the long term, including “reunification” with Taiwan.
The CCP and its leaders can be very pragmatic and deceptively flexible when the situation calls for it. But there are hard limits to how much they can bend to accommodate the U.S. and its allies; going along with the agenda of the rules-based international order undermines the CCP’s own plans to subvert that order and become the global hegemon. The U.S. and its allies are currently pushing up against the CCP’s hard limits, leaving Xi with no good options to de-escalate tensions and resume “business as usual” with the international community.
Get smart
Businesses, investors, and governments must account for the PRC’s growing geopolitical risks and the impact that would have on CCP elite politics. Political Black Swans could emerge in China when Xi Jinping is pressured to a point where he is forced to choose between preserving the CCP regime or saving his own skin.
