1 Early observations about the CCP government work report
On March 5, premier Li Keqiang delivered the PRC’s government work report to the first session of the 14th National People’s Congress. The work report reviewed what the CCP authorities had done over the past five years and laid out expected main goals and work suggestions for the year ahead.
The report also hyped Xi’s political achievements and sought to spin his policy failures into “victory” (喪事當喜事報). For instance, the governance failures over the past year were described as “extremely hard-won new achievements,” while the situation that the authorities’ encountered over the previous five years was framed as “extremely unusual and extraordinary.” In the face of such adversity, the CCP regime was said to have “withstood multiple tests such as the accelerated evolution of global changes, the impact of the COVID-19 pandemic, and domestic economic downturn.” Further, the work report claimed that the CCP authorities “won the battle against poverty,” “built a moderately prosperous society” on schedule, as well as “achieved the first centenary goal” and “made significant achievements that have garnered attention worldwide.”
The report listed the following government work recommendations for 2023:
- GDP growth of around 5 percent.
- Create about 12 million new urban jobs.
- Keep consumer price inflation at around 3 percent.
- Keep grain output above 1.3 trillion catties (about 650 million tons).
The report listed the following work priorities for the year:
- Implement a prudent monetary policy, keeping the broad money supply in line with economic development.
- Adopt a proactive fiscal policy. Control the government deficit at 3 percent.
- Regarding the present tax cuts, tax rebates, and other measures, “continue those that should be continued, and optimize those that should be optimized.”
- Normalize the handling of COVID-19 as a “Class B” infectious disease.
- Prioritize the recovery and expansion of consumption.
- Local governments will issue 3.8 trillion yuan of new special bonds.
- Promote key core technologies in key manufacturing industrial chains.
- Vigorously develop the digital economy and support the development of the platform economy.
- Effectively implement the “two unwaverings” in developing the private economy.
- Steadily expand institutional opening up to attract foreign investments.
- Prevent the formation of regional and systemic financial risks. Prevent and resolve the risks associated with leading real estate companies, including their disorderly expansion. Prevent and defuse local government debt risks, and optimize the debt maturity structure.
- Resolutely prevent a large-scale return to poverty. Maintain the policy of extending the land contract period for another 30 years.
- Promote energy conservation and carbon reduction in key areas.
- Strengthen the construction of a housing security system to support rigid and improved housing demands. (Explainer: “Rigid” demand refers to people buying houses to live in rather than for investment or speculation. “Improved” demand refers to people upgrading to more expensive and better houses.)
- Vigorously develop vocational education and promote innovation in higher education.
- Promote the availability of high-quality medical resources at the grassroots and the balanced distribution of such resources between regions.
- Strengthen elderly care services guarantees and improve the maternity support policy system.
- Comprehensively strengthen military training and preparations, and coordinate the military struggle in all directions and fields.
- Implement the principles of “patriots governing Hong Kong” and “patriots governing Macau.”
- Adhere to the “one-China” principle and the “1992 Consensus.” Firmly oppose “Taiwan independence” and promote unification, promote the peaceful development of cross-strait relations, and advance the process of peacefully reunifying the motherland.
- Always be a builder of world peace, a contributor to global development, and a defender of the international order. Carry forward the common values of all humankind, and maintain world peace and regional stability.
Backdrop
In announcing their GDP targets for 2023 around mid-January, 27 out of China’s 31 provinces set growth at more than 5 percent. Two provinces (Jiangsu and Qinghai) set their annual GDP growth target at about 5 percent and two municipalities directly under the central government targeted growth at below 5 percent (Beijing: Over 4.5 percent; Tianjin: Around 4 percent).
A CNBC analysis found that the average estimate of China’s annual GDP growth by Western financial institutions was 5.24 percent. Reuters reported on March 2 that the CCP could aim for up to 6 percent GDP growth, citing sources involved in policy discussions.
Big picture
The PRC faces multiple internal and external crises, including sharp economic decline, falling exports, orders, and supply chain migration out of China, continued real estate sector problems, demographic issues, and escalating tensions with the U.S. and its allies.
Why it matters
1. The CCP’s 2023 GDP growth target of around 5 percent affirms our pessimism about the Chinese economy and Beijing’s ability to turn things around. It is particularly noteworthy that despite Western expectations and media leaks that China will set its GDP goal at over 5 percent or even up to 6 percent, as well as the optimistic growth targets set by local governments, the Xi leadership was not confident enough to go along with the higher projections. This suggests that Beijing does not believe that the regime can sustain the healthier-looking official economic data in January and February for the rest of the year, and has a far bleaker internal projection of how the economic situation could shape out than what external observers have assessed.
Nor has the CCP suddenly become more modest in rolling out a conservative GDP growth target. The Party has a tendency to exaggerate when things are going well for the regime, but downplay when things are going poorly in an effort to cover up the real situation. The Xi leadership could also be concerned about setting the bar too high for itself and suffering further loss of “quan wei” (authority and prestige) and other political consequences should the regime fall far short of its GDP target. In assessing the various domestic and foreign problems plaguing the PRC, we believe that it is likely that the Chinese economy will struggle to hit 5 percent in 2023 and the CCP could face a repeat of 2022 where it widely missed its target of “around 5.5 percent.”
2. Local government debt risks are set to climb even higher in 2023 as the central government tasks local governments with issuing more debt to finance infrastructure spending. In 2022, the central government originally allowed local governments to sell 3.65 trillion yuan in new special bonds. However, the central government eventually increased the limit and 4.76 trillion yuan worth of local government special bonds were actually sold in the whole year. Concurrently, local governments sold 2.61 trillion yuan worth of bonds to refinance their old debts in 2022; that year, interest paid on local government debt reached 1.1211 trillion yuan, breaking the 1 trillion yuan mark for the first time. A similar situation could unfold this year, which means that local governments could sell more than the 3.8 trillion yuan of special bonds that have currently been approved and incur even more interest payments.
Furthermore, local government financing vehicles (LGFV) have been technically defaulting on municipal investment bonds in recent years. For example, Zunyi Road and Bridge Construction Group, the largest municipal investment company in Zunyi City, Guizhou Province, reached an agreement to rollover nearly 15.6 billion yuan worth of bank loans for 20 years, as well as make low-interest payments on the loans for the first 10 years and repay the principal over the remaining decade. According to mainland media reports, the scale of municipal investment bonds is expected to reach 65 trillion yuan in 2022, compared with 56 trillion yuan in 2021. The year 2023 could see more technical defaults or even actual defaults by LGFVs.
Local government debt risks are also set to increase as the authorities look to keep functioning amid financial shortfalls.
3. We are skeptical about the CCP’s ability to control the regime’s fiscal deficit at 3 percent in 2023.
According to publicly available data, China’s fiscal expenditure was 24 trillion yuan in 2022, of which about a third (8 trillion) went towards financing epidemic prevention and control. And in the past three years, China’s fiscal deficit accounted for between 6 to 9 percent of the annual GDP, and was close to 9 percent in 2022.
It is unclear how the CCP plans to keep the fiscal deficit at 3 percent as government revenue shrinks. China’s real estate sector does not look like it is turning the corner anytime soon as the debt crisis persists, which means that local governments will see reduced revenue from land sales. The central and local authorities also have to deal with reduced global demand, supply chain migration out of China, declining exports, rising unemployment, and people cutting down on consumption and increasing precautionary savings. Barring a significant reversal of current trends, the PRC’s fiscal deficit is likely set to exceed Beijing’s target by a wide margin.
4. The other economic work priorities listed in Li Keqiang’s work report basically rehash recent policy measures with nothing new added. Unless Xi Jinping manages to make the officialdom more efficient and overcome the systemic deficiencies of the CCP’s authoritarian dictatorship with his latest round of Party and state institutional reforms, Beijing will not be able to turn around China’s bleak economic prospects. If anything, economic and financial risks could be further aggravated and new problems could emerge.
5. The CCP’s rhetoric about the military, cross-strait relations, and international relations in its work report suggests that it is more concerned about blundering into conflict and being prepared in case that happens than provoking conflict itself with aggressive action. Meanwhile, the PRC’s 7.2 percent increase in defense spending to 1.56 trillion yuan is modest and comparable with recent years (2019: 7.5 percent; 2020: 6.6 percent; 2021: 6.8 percent; 2022: 7.1 percent), and appears to account for inflation as well as growing internal and external threats more than reflect a desire to imminently invade Taiwan.
The U.S. and its allies, however, could interpret the exact opposite in reading the work report and step up efforts to guard against CCP aggression. This reaction would enhance the Party’s paranoia and make it take more actions that “confirm” its “revisionist” stance to the world, setting the PRC’s relations with the U.S. and the international community spiraling downwards in a vicious cycle.
2 Analyzing the Second Plenum communiqué
Feb. 28
State mouthpiece Xinhua published the communiqué of the Second Plenary Session of the 20th Central Committee held in Beijing from Feb. 26 to Feb. 28. The Second Plenum heard and discussed a work report presented by Xi Jinping, adopted a list of proposed candidates for leadership positions in the National People’s Congress and the Chinese People’s Political Consultative Conference, and approved a plan for Party and state institutional reforms. Xi also gave a speech at the meeting.
The communiqué contained the standard CCP propaganda and praises for Xi’s political achievements and political theory in developing the Party’s cause. The communiqué further “affirmed” the work of the Politburo since the First Plenum.
Noteworthy points in the communiqué include:
- The new CCP leadership faces a “severe and complex international environment,” as well as “difficult and arduous” tasks of domestic reform, development, and stability.
- In a paragraph on “fully affirming” the work of the new Politburo, the communiqué said that “solemn condolences” (隆重悼念) were made to the late CCP leader Jiang Zemin.
- The new CCP leadership further deepened the “strict governance of the Party” in a comprehensive manner.
- “Great changes unseen in a century in the world” are accelerating and the world is entering a new period of “turbulence and transformation.” Concurrently, China is entering a period in which “strategic opportunities, risks, and challenges co-exist” where “uncertainties and unforeseen factors are rising.” Therefore the PRC must be ready to “withstand high winds, choppy waters, and even dangerous storms.” At home, the PRC faces many “deep-seated problems” regarding reform, development, and stability, with the triple pressures of “shrinking demand, disrupted supply, and weakening expectations” being “relatively high.” Hence, the foundation for economic recovery is “still not strong” and “unexpected circumstances may occur anytime.”
- The entire Party must “strengthen its confidence” and work hard to achieve the goals and tasks for the year. Those include “implementing and executing” the “new development concept,” “expanding domestic demand,” “enhancing the resilience and security level of industrial and supply chains,” “preventing and defusing major economic and financial risks, and maintain a vigilant guard against systemic risks,” “guaranteeing and improving people’s livelihood,” “address shortcomings in health and medical services,” “improve the policy system for boosting birth rates,” and “prevent large-scale poverty from returning.”
- It is necessary to deepen reform and opening up, as well as make overall plans for reform in various fields.
- The strategic deployments on Party building made at the 20th Party Congress must be implemented.
- The CCP must “win the tough and protracted battle against corruption.”
March 1
The South China Morning Post reported that the Second Plenum approved adding the official title of “The Hong Kong and Macau Work Office of the Central Committee of the Chinese Communist Party” to the existing State Council’s Hong Kong and Macau Affairs Office (HKMAO), citing mainland insiders. The move would be a de facto promotion of the HKMAO.
“The new title indicates that the office will officially be an agency under direct management of the party’s Central Committee going forward,” a source based in Beijing told the Post. “Being an agency directly under supervision of Party Central carries significant political weight. Since 2018, the Party has ordered all its members to follow ‘The Two Safeguards,’ referring to safeguarding Xi’s core position on the Party’s Central Committee, and safeguarding Party Central’s authority.”
Our take
The communiqué of the Second Plenum affirms our assessment that the CCP regime is facing serious internal and external crises. The communiqué also indicates that the Xi leadership plans to use the upcoming Party and state institutional reforms, as well as other policies, to extricate the regime from its troubles.
1. The communiqué acknowledges the many domestic and foreign problems plaguing the regime by rolling out the usual propaganda that alludes to the problems, such as “great changes unseen in a century in the world” and “severe and complex international environment.”
The communiqué then signals that there is a silver lining for the regime, noting that “strategic opportunities, risks, and challenges co-exist” even when “uncertainties and unforeseen factors are rising.” If the Party “strengthens its confidence” (channeling the “strong confidence” Xinhua series from early February), it will be ready to “withstand high winds, choppy waters, and even dangerous storms.”
However, the fact that the Xi leadership is urging the Party to “strengthen its confidence” indicates that officials and cadres are currently lacking confidence and are unstable. The various descriptive phrases used to allude to the regime’s problems also suggest that they represent a real and existential threat to regime survival.
2. The communiqué indicates that the Xi leadership is looking to tackle many issues at once in its effort to shore up the regime. Notably, Beijing wants to encourage domestic demand and consumption, repair and strengthen industrial and supply chain problems, defuse economic and financial risks, and stabilize society by “improving people’s livelihood.” Beijing also wants to lower recent social anger over a health insurance reform and tackle long-term healthcare system problems by “addressing shortcomings in health and medical services,” mitigate China’s demographic crisis by boosting pro-natalist policies, and “deepen reform” in various fields to resolve other issues.
To ensure that Party Central’s “strategic deployments” are properly and promptly executed while avoiding the “orders not leaving Zhongnanhai” problem, Xi Jinping is likely looking to the upcoming round of Party and state institutional reforms to further centralize power in his leadership and better exert his “quan wei” (authority and prestige) to get ensure that things actually get done. Resorting to more Party orthodoxy, however, will not help Xi much in overcoming the systemic deficiencies of the CCP’s authoritarian dictatorship. Rather, officials and cadres steeped in Party culture could worsen the CCP’s problems and crises by defaulting to approaches like “preferring left rather than right,” “one-size-fits-all,” and “lying flat.”
3. The communiqué mentioning that the new Politburo made “solemn condolences” to Jiang Zemin indicates that the remnant Jiang faction retains a notable degree of influence in the regime. Hence, Xi Jinping had to include that line in the communiqué either as a form of appeasement or a concession to secure his leadership appointments and reforms at the Two Sessions.
4. The South China Morning Post’s information about the upgrading of the HKMAO is credible in considering Xi Jinping’s present political priorities. The establishment of a Hong Kong and Macau work office under Party Central allows Xi to tighten his grip over the Hong Kong and Macau apparatus and both autonomous territories, directly oversee efforts to revive the Hong Kong economy, and better coordinate “stability maintenance” matters to prevent his factional rivals from causing mischief to undermine Beijing during a crucial period for the regime.
Bringing Hong Kong directly under Party Central’s control also enables Xi to more easily play the “Falun Gong card” if needed against the remnant Jiang faction and the “anti-Xi coalition” more broadly, leaving Xi with an exit strategy in the event that he decides to escape being held accountable for Jiang Zemin’s political legacy of persecuting Falun Gong. As we analyzed previously, however, the anti-Falun Gong campaign and its resultant crimes against humanity are a third-rail issue that threatens the political legitimacy of the CCP.
3 CCP advances digital development and TCM to break Western ‘containment’
Feb. 27
1. The CCP Central Committee and the State Council unveiled a plan to promote the PRC’s digital development (數字中國建設整體佈局規劃). All regions and departments were instructed to “conscientiously” implement the “construction of a digital China” in light of actual conditions.
Highlights of the plan include:
- The “construction of a digital China” is an important “engine” in promoting “Chinese-style modernization” and “powerful support” in building “new national competitive advantages.”
- By 2025, there will be “important progress” in the “construction of a digital China,” with “effective interconnectivity in digital infrastructure, a significantly improved digital economy, and major breakthroughs achieved in digital technology innovation.”
- By 2035, China will be at the “global forefront in terms of digital development,” and its “digital progress in the economic, political, cultural, social and ecological fields will be more coordinated and sufficient.”
- The overall framework of “digital China” is as follows:
- Strengthen the “two foundations” of digital infrastructure and data resource systems.
- Promote the “five-in-one” integration of digital technology and the real economy, politics, culture, society, and ecological civilization construction.
- Strengthen the “two major capabilities” of the digital technology innovation system and digital security barrier.
- Optimize the “two environments” of domestic and international digital development.
- Overall planning, as well as coordination and advancement, must be strengthened for the “construction of a digital China.” The various tasks should also be implemented:
- Party Central provides overall leadership, and the Central Cyberspace Affairs Commission is in charge of overall planning and coordination.
- An overall planning and coordination mechanism will be established. Relevant Party and government leadership cadres will be assessed and evaluated on their work in constructing a “digital China.”
- Guarantee financial investment (for projects). Support the funding of innovation, get the national industry cooperation platform to guide financial resource support, and secure social capital participation.
- Strengthen talent support.
- Establish a number of “digital China” research bases.
2. Vice premier Liu He investigated the development of integrated circuit enterprises in Beijing and chaired a symposium.
During the symposium, Liu said that General Secretary Xi Jinping attaches great importance to the development of the integrated circuit industry and made important instructions on the subject on many occasions.
Liu added that integrated circuits are the “core hub” of a modern industrial system, and are connected to regime security and the process of “Chinese-style modernization.” He said that China has formed a “relatively complete” integrated circuit industrial chain, with “strong capabilities” locally formed. Liu noted that China has a huge consumption market for chips and rich application scenarios, which are the “most precious resources in a market economy and a strategic advantage in promoting the development of the integrated circuit industry.”
Liu He stressed that the development of the integrated circuit industry must give full play to the advantages of the new nationwide system, and make good use of both government and market forces.
Feb. 28
The State Council General Office issued a plan regarding major projects in the revitalization and development of traditional Chinese medicine (中醫藥振興發展重大工程實施方案).
The plan coordinates the deployment of eight key projects:
- High-quality development of TCM health services.
- Optimize coordination of TCM and Western medicine.
- TCM inheritance innovation and modernization.
- TCM-characteristics talent training.
- TCM quality improvement and industry promotion.
- TCM culture promotion.
- TCM open development.
- TCM comprehensive reform pilot.
The eight key projects are further subdivided into 26 construction projects, including:
- TCM capacity building for the preventive treatment of diseases.
- TCM capacity building for elderly health services.
- Innovative construction of a medical model for the coordination of TCM and Western medicine.
- Clinical cooperation of TCM and Western medicine for the treatment of intractable diseases.
- Inheritance of ancient Chinese medical literature.
- Inheritance and innovation of TCM processing technology.
- TCM international influence enhancement.
- TCM international anti-epidemic cooperation.
March 2
Bloomberg News reported that the CCP is investing an additional $1.9 billion (12.9 billion yuan) in Yangtze Memory Technologies through its secretive “Big Fund.”
Backdrop
The U.S. and its allies have tightened tech restrictions on the PRC, including blocking the export of advanced chips and chip making tools to China. The Biden administration is also planning to restrict American companies from investing in Chinese technology.
Our take
1. The CCP’s “digital China” and TCM projects are aimed at breaking the PRC out of Western “containment” and advancing its agenda of survival and domination.
By investing in technological and medicinal development, as well as leveraging on a “whole-of-society” strategy and China’s so-called “vast markets,” the CCP is looking to grow its own tech and medical treatment capabilities to “innovate” its way out of trouble. On paper, the successful progress of those projects will boost domestic demand, attract foreign investments, strengthen the confidence of Party members in the regime, restore the people’s faith in the CCP and its political legitimacy, and allow the CCP to survive its current crises and lay the foundation for its future push for world hegemony.
2. The “digital China” plan indicates that the CCP is looking to take advantage of its construction to build infrastructure and drive demand in China over the short term. Over time, technological innovations and the development of various applications could allow the PRC to establish its own digital technology norms and industry standards (at least on paper). This will in turn enable the CCP to promote its “Chinese-style modernization” (or rather, CCP-style techno-totalitarian government) to developing countries and advance its global domination agenda.
The successful implementation of “digital China” will enhance the CCP’s current techno-totalitarianism and control over both government and society. For instance, the central government will eventually have the means to detect data falsification by local officials and figure out what the actual local government financial and debt situation is. The central government will also be able to better track property and business data to more effectively clamp down on tax evasion and curb corruption. “Digital China” could be used to more effectively enforce the social credit system, “maintain stability,” and even redistribute benefits to people at the grassroots through the rural supply cooperative and the digital yuan to reduce public grievances. Finally, in the event of conflict with the West or other powers, the CCP can tap “digital China” to run a planned wartime economy, oversee more efficient rationing, and boost its military capabilities through artificial intelligence and other technologically advanced weaponry.
3. The “digital China” plan designates Party Central (with Comrade Xi Jinping at the core) to provide “overall leadership.” The plan also explicitly calls for accountability from Party and government leadership cadres in implementing the project. This is likely the result of the Xi leadership learning its lessons from the semiconductor “great leap forward” debacle (officials appeared to focus only on capital-related operations while hyping up the concept to profit from financing, but produced no technological breakthroughs) and the abortive “Made in China 2025” project.
The upcoming round of Party and state institutional reforms, as well as the seemingly reinvigorated anti-corruption campaign, are likely intended to complement Beijing’s “digital China” push. However, we are very skeptical about whether the Xi leadership’s best efforts can effectively shift the bureaucratic culture away from adherence to the Jiang-era habit of “ruling the country through corruption” (以貪治國) and properly channel funding towards making the national strategy a success.
4. The idea behind the CCP’s TCM “revitalization and development” project seems to be the same as that of “digital China.” If Beijing can produce medical breakthroughs through TCM treatment, it can reduce its dependence on Western medicine and imported drugs. Concurrently, Beijing is hoping to generate new economic growth points and industries by advancing a “core technology” at home and later exporting while promoting “Chinese-style modernization.” Finally, Beijing is looking to improve its healthcare system, lower medical costs, broaden the Chinese people’s access to treatments, and reduce social anger towards the regime.
5. The CCP could win some battles with its latest “strategic deployments,” but it cannot win the war for survival and dominance given the systemic deficiencies of its authoritarian dictatorship. Beijing’s naked display of ambition through those projects could even invite early and immense pressure from the U.S. and its allies to nip the CCP problem in the bud before the regime inevitably scores some victories. Ironically, Xi Jinping could again find himself “catalyzing” the CCP’s demise in his efforts to forestall that outcome.
4 US prepares to turn up the heat on China
Washington made several moves last week that laid the groundwork to put more pressure on the PRC:
Russia-Ukraine conflict
Feb. 28
James Rubin, a coordinator for the State Department’s Global Engagement Center, said during a European tour that “the well has been poisoned by Chinese and Russian disinformation – it’s pernicious.”
Rubin added that Russia and the PRC were spending billions of dollars to manipulate information, and Beijing was spending more than Moscow and operating globally.
“We as a nation and the West have been slow to respond and it is a fair judgment that we are facing a very, very large challenge. In the communication space, the alignment between China and Russia is near complete,” he told reporters. China was “repeating and promulgating the arguments of Russia about the war, that it was started by NATO,” Rubin said.
March 1
Reuters reported that the United States is consulting with close allies, and especially those in the Group of 7 (G7), about the possibility of imposing new sanctions on China if Beijing provides military support to Russia in Ukraine, citing four U.S. officials and other sources.
March 2
The U.S. added 37 Chinese and Russian entities to its Entity List for contributing to Russia’s military and/or defense industrial base, supporting PRC military modernization, and engaging in human rights abuses in Myanmar and China.
‘Tech war’
Feb. 28
1. The Wall Street Journal reported that the Biden administration is considering revoking export licenses issued to U.S. suppliers for sales to Huawei. The action would prevent the sale of 5G and older 4G products to Huawei by companies such as Intel and Qualcomm
A former senior official familiar with the Biden administration’s policy deliberations told the Journal, “The policy that had allowed exports to Huawei, notwithstanding the entity listing, is being wound down. The White House is now telling Commerce, ‘Cut off the 4G sales, the time has come to do more pain to Huawei, to try to finish their demise.’”
2. The White House gave all federal agencies 30 days to purge TikTok from their devices and systems, according to news reports.
March 4
The Wall Street Journal reported that the Biden administration is readying a new program to bar U.S. investment in certain sectors in China that pose national security risks “while not placing an undue burden on U.S. investors and businesses.” Sectors include those that could advance the military capabilities of rivals.
Reports by the Treasury and Commerce departments to lawmakers said that the program may block some investments and potentially collect information about other investments to guide future action. People with knowledge of the work on the new program told the Journal that it is expected to cover private-equity and venture-capital investments in advanced semiconductors, quantum computing, and some forms of artificial intelligence.
COVID-19 origins
Feb. 26
The U.S. Department of Energy assessed with “low confidence” in a classified report that the COVID-19 pandemic most likely came from a laboratory leak, according to an exclusive report by The Wall Street Journal. The Energy Department was previously undecided on the pandemic’s origins, and made the shift in an update to a 2021 document by the office of the Director of National Intelligence.
Feb. 28
Christopher Wray, the director of the Federal Bureau of Investigation, told Fox News that his agency “has for quite some time now assessed that the origins of the pandemic are most likely a potential lab incident in Wuhan. Here you are talking about a potential leak from a Chinese government-controlled lab.”
Wray added, “I will just make the observation that the Chinese government, it seems to me, has been doing its best to try to thwart and obfuscate the work here, the work that we’re doing, the work that our U.S. government and close foreign partners are doing. And that’s unfortunate for everybody.”
Taiwan
March 1
The American Institute in Taiwan (AIT) announced that Laura Rosenberger, the senior director for China and Taiwan at the National Security Council, will take over as AIT chairperson after James Moriarty retires on March 20. Four people familiar with the Biden administration’s thinking told Reuters that Rosenberger will “take a more hands-on approach to unofficial ties with Taiwan than her immediate two predecessors.”
Bonnie Glaser, an Asia expert at the German Marshall Fund of the United States, told Reuters that placing a Washington-based political appointment in the position of AIT chairperson “would be a different model from the past 17 years” and Rosenberger will likely “redefine the role and be a more proactive player in policy than her predecessors.”
Legislation
Feb. 28
The U.S. House Foreign Affairs Committee and House Financial Services Committee collectively advanced 18 bills related to China or Taiwan. The approval of those bills moves them toward a debate and possible vote by the House floor.
Among the bills that were approved unanimously or near-unanimously include:
- H.R. 510 (“Chinese Currency Accountability Act”, which would pressure the International Monetary Fund to oppose an increase of the yuan in Special Drawing Rights.
- H.R. 540 (“Taiwan Non-Discrimination Act”), which directs U.S. officials to back Taiwan’s membership in the IMF.
- H.R. 554 (“Taiwan Conflict Deterrence Act”), which would publicize the assets of top CCP leaders and allows the Treasury secretary to block PRC officials and their families from accessing services from U.S. financial institutions if Beijing moves against Taiwan.
- H.R. 803 (“PROTECT Taiwan Act”), which would direct U.S. officials to exclude PRC officials from the proceedings of various international financial groups and organizations following an invasion of Taiwan.
- H.R. 1154 (“Stop Forced Organ Harvesting Act”), which would require the U.S. to issue reports on forced organ harvesting and trafficking in persons for the purposes of organ removal in foreign countries, and hold accountable people implicated in such acts, including CCP members.
- H.R. 1156 (“China Financial Threat Mitigation Act”), which requires the Treasury to report on global economic risks stemming from China’s financial sector.
March 1
The House Foreign Affairs Committee passed three bills aimed at countering the PRC, namely, the Upholding Sovereignty of Airspace Act (H.R. 1151), the Deterring America’s Technological Adversaries Act (H.R. 1153), and the Countering the PRC Malign Influence Fund Authorization Act.
The upholding sovereignty of airspace act bill contained a provision supporting Taiwan’s inclusion in the International Civil Aviation Organization, while the deterring technological adversaries act would grant the Biden administration power to ban TikTok.
Backdrop
The raft of U.S. measures targeting the PRC follow a tightening of tech restrictions on China, a worsening of Sino-U.S. tensions over a PRC spy balloon’s incursion into U.S. airspace and journey across the continental United States, and the U.S. and its European allies warning Beijing over arming Russia.
Our take
1. The three reasons that we gave in analyzing why the Biden administration escalated tensions with the PRC over the spy balloon appear to also explain why Washington is preparing to ratchet up pressure against Beijing. In brief, the reasons include: getting the PRC to drop or sharply curb supporting Russia and its war effort in Ukraine; squeezing Xi Jinping and the CCP amid worsening internal and external crises for the PRC to secure concessions or even leadership change; and using China policy to divert public and political pressure away from the U.S. government over various troubling domestic issues and scandals. Other motives, such as deterring a PRC invasion of Taiwan or establishing necessary “guardrails” in the Sino-U.S. relationship are possible but seem less urgent under the current circumstances and do not entirely justify Washington’s rush to lean on Beijing.
Unless there is a drastic change concerning one or more of the three aforementioned reasons, or if the CCP concretely abandons its “revisionist” stance with regard to Taiwan, the Russia-Ukraine conflict, and displacing the U.S.-led global order, Washington will likely maintain or steadily ramp up pressure on the PRC going forward. Increasing pressure could take the form of strengthening U.S.-Taiwan, calling out the PRC’s balloon surveillance program, countering CCP propaganda and influence operations, sanctioning the PRC over supporting (militarily or otherwise) Russia, sanctioning CCP officials over human rights violations, holding Beijing accountable for the origin of the COVID-19 pandemic, and so on.
2. The more firmly Washington pushes the PRC, the harder it will be for Xi Jinping to make tangible concessions on the various issues concerning U.S. interests because doing so would seriously erode his and the CCP’s political legitimacy. Beijing will at best offer minor concessions and pay lip service to the demands of the U.S. and its allies while pursuing the strategy of “delaying and waiting for change” (以拖待變). This sets up the PRC and the U.S. on a collision course as neither side is able to give ground in the existential contest.
3. A potential breakthrough in the Sino-U.S. impasse can be found in Washington’s recent drawing of battlelines against Beijing even though it received virtually no coverage by legacy media. The passage of the “Stop Forced Organ Harvesting Act” to the House floor does not seem as significant as the bills backing Taiwan that were advanced, but deals with a core issue in the CCP factional struggle between the Xi camp and remnant Jiang faction. Xi Jinping may have granted his late arch rival Jiang Zemin a glowing send off (apparently grudgingly, as we analyzed here and here), but will unlikely want to be held wholly accountable for the latter’s political legacy of targeting Falun Gong and harvesting the organs of Falun Gong practitioners as part of the brutal persecution campaign.
Should the “Stop Forced Organ Harvesting Act” make it through both the House and Senate and is eventually signed into law, it could force the CCP elite factions to take drastic action to preserve themselves. A factional struggle showdown could compel Xi to choose between a course of action that defends Party rule, or one that secures his personal legacy.
