1 Potential personnel reshuffles at the Two Sessions
With the opening of the Two Sessions, state media has been announcing the various meetings being held and the senior officials attending them.
March 4
The 14th National People’s Congress held its first session in the Great Hall of the People in Beijing. Zhao Leji, executive chairman of the session’s presidium, presided over the meeting, according to Xinhua.
Other executive chairmen in attendance include:
- Li Ganjie, Politburo member and secretary of the Central Secretariat.
- Li Hongzhong, Politburo member.
- Wang Dongming, Central Committee member and NPC vice chairman.
- Xiao Jie, Central Committee member, State Councilor, and secretary-general of the State Council.
- Zheng Jianbang, vice chairman of the National Committee of the Chinese People’s Political Consultative Conference.
- Ding Zhongli, NPC vice chairman.
- Hao Mingjin, NPC vice chairman.
- Cai Dafeng, NPC vice chairman.
- He Wei, vice chairman of the CPPCC National Committee.
- Wu Weihua, vice chairman of the NPC.
March 5
Wu Zhenglong, former Jiangsu Party secretary, attended the third plenary session of the Heilongjiang delegation to the first session of the 14th NPC in the capacity of deputy Party secretary of the Party leadership group of the State Council, according to state media reports. During the session, the Heilongjiang delegation reviewed the government work report.
Our take
1. Wu Zhenglong’s appointment as deputy Party secretary of the State Council Party leadership group indicates that he will take over Xiao Jie’s positions (State Councilor and State Council secretary-general) after the latter is appointed a vice chairman of the National CPPCC at the Two Sessions.
2. Assuming personnel appointment norms from the first session of the 13th NPC holds for the current NPC, Li Ganjie and Li Hongzhong are likely to be later formally appointed as head of the Central Organization Department and a vice chairman of the Standing Committee of the NPC respectively.
We previously forecasted in April and September of 2022 that Li Hongzhong could serve as an NPC Standing Committee vice chairman. We also wrote in December 2022 that Li Ganjie “stands a good chance of being appointed head of the Central Organization Department.”
If Li Ganjie does become Central Organization Department head, then this opens the door for the new CCP General Office director (if Ding Xuexiang is replaced) to be someone who is a secretary of the Central Secretariat but is not a Politburo member. From the current pool of Central Secretariat secretaries, this puts Wang Xiaohong in pole position to take over as General Office director (see item two in this newsletter).
3. In analyzing how Xi Jinping could possibly reshuffle his trusted ally and CCP General Office director Ding Xuexiang in November 2022, we floated a scenario where Xi could break reshuffle norms by “elevating the General Office director to the Politburo Standing Committee and downgrading the first-ranked vice premier to the Politburo.” Based on that scenario, we assessed that Li Hongzhong could potentially be picked as a vice premier at the Two Sessions. However, Li Ganjie and Li Hongzhong attending the first session of the 14th NPC now greatly lowers the probability that the latter becomes a vice premier.
If Xi sticks to reshuffle norms, Ding Xuexiang will be appointed first-rank vice premier at the Two Sessions. The new Central Organization Department head and the CCP General Office director will likely only be appointed after the completion of the upcoming round of Party and state institutional reforms.
2 Early analysis of the State Council reform plan
On March 7, the PRC State Council unveiled a plan to reform its institutions at the second plenary meeting of the first session of the 14th National People’s Congress. The plan is part of a broader effort to restructure Party and state institutions, and focus on “optimizing and adjusting the responsibilities of institutions in key areas such as science and technology, financial supervision, data management, rural revitalization, intellectual property rights, and elderly care,” according to an explanation by State Councilor and State Council secretary-general Xiao Jie.
The plan would establish three new departments:
- Ministry of Science and Technology
- Tasked with “mobilizing the nation to make technological breakthroughs, optimizing sci-tech innovation, facilitating the application of sci-tech advances, and coordinating science and technology with economic and social development.”
- National Financial Regulatory Administration
- Tasked with regulating the financial industry excluding the securities sector, as well as strengthening risk management and preventive disposal.
- The China Banking and Insurance Regulatory Commission’s functions will be transferred to the Administration and dissolved. Certain functions of the People’s Bank of China and the China Securities Regulatory Commission will also be transferred to the Administration.
- The Administration is directly subordinated to the State Council.
- National Data Bureau
- The Bureau will be administered by the National Development and Reform Commission.
- The Bureau is responsible for “advancing the development of data-related fundamental institutions, coordinating the integration, sharing, development and application of data resources, and pushing forward the planning and building of ‘digital China,’ the digital economy and a digital society, among others.”
The plan made two institutions directly subordinated to the State Council:
- China Securities Regulatory Commission
- National Public Complaints and Proposals Administration
The plan made four reforms to the financial system:
- People’s Bank of China
- Establish branches in all 31 provincial administrations, as well as city branches in Shenzhen, Dalian, Ningbo, Qingdao, and Xiamen.
- County-level sub-branches are no longer retained, with the relevant functions transferred to prefecture-level branches.
- Local financial supervision system
- Establish a local financial regulatory system based on local agencies dispatched by the central financial administration.
- Financial regulatory agencies set up by local governments are responsible for regulatory duties.
- State-owned financial capital management system to be “improved”
- Staffing administration (編製) adjustments at financial management departments
- The People’s Bank of China, National Financial Regulatory Administration, China Securities Regulatory Commission, and State Administration of Foreign Exchange, as well as their branches and agencies, are to adopt the staffing administration system. (Note: This means that the staff at those institutions will be paid on par with civil servants, which amounts to steep pay cuts for some officials).
Other institutional reforms mentioned in the plan include:
- Optimize the responsibilities of the Ministry of Agriculture and Rural Affairs
- Improve the aging population work system
- Implement a national strategy of actively responding to the aging population and promoting the realization of basic elderly services for all elderly people.
- Improve the intellectual property rights management system
- Adjust staffing administration at central and state agencies
- Uniformly reduce by 5 percent the staffing administration (i.e. employee quota and budget) of each department in central and state agencies and reassign it elsewhere to “strengthen key areas and important work.”
Our take
1. The State Council reform plan does not make any mention of changes concerning the Ministry of Public Security and the Ministry of State Security. This indicates that both institutions are still under the State Council’s control, in contrast to a Hong Kong media report about how the institutions would be placed under the jurisdiction of a new Central Internal Affairs Commission (中央內部委員會) that is directly subordinated to Party Central as part of Party and state institutional reforms. As Party reforms have not been announced, however, it cannot be ruled out that a Central Internal Affairs Commission, or an institution akin to it, could be unveiled later.
If there is still to be a Central Internal Affairs Commission or similar institution, then it could more closely resemble the Central Political and Legal Affairs Commission in function rather than an expanded version of the Soviet Committee for State Security (KGB) as we earlier hypothesized based on publicly available information at the time. Such an institution could coordinate the public security and state security functions of the Central Political and Legal Affairs Commission plus other internal security functions, and would be a way for the CCP to strengthen its control over the public security and state security systems without changing the State Council structure.
To avoid work duplication, the Central Political and Legal Affairs Commission could even be folded into a Central Internal Affairs Commission or similar institution, or a restructuring that resembles what was done to create the National Financial Regulatory Administration. Xi Jinping could head the new internal security institution and his trusted ally Wang Xiaohong could be put in charge of running its administrative office and implementing Xi’s decisions.
2. Wang Xiaohong potentially being tasked with an expanded internal security portfolio does not quite justify his appointment as a secretary of the Central Secretariat at the 20th Party Congress, an important position that qualifies an official to hold certain other key posts. In considering the posts that Li Ganjie and Ding Xuexiang are likely to assume at the Two Sessions (see item one of this newsletter) and the portfolios of the other Central Secretariat secretaries, Wang looks the most likely candidate to replace Ding as CCP General Office director after Party and state institutional reforms are done.
If Xi Jinping was indeed planning to make Wang the General Office director, then he had to find a way to grant the latter the necessary qualifications without having him join the Politburo (the public security minister is typically excluded from that elite body). Wang’s appointment as a secretary of the Central Secretariat elevates him to the sub-national rank and qualifies him to serve as General Office director.
Xi could be intending to more fully consolidate domestic security functions under Wang (and by extension, himself) by putting the latter in charge of the General Office. After all, the General Office oversees the Central Guard Corps that is responsible for the security of PRC national leaders. And if our assessment (see here and here) that Xi is planning deeper “rectifications” and purges is correct, then he would have the need for an internal security czar with sufficient authority to advance that agenda. Of course, Xi will likely find ways to keep Wang’s power in check should he appoint the latter as General Office director along with his current and rumored positions.
Xi could also appoint others as General Office director, including other secretaries in the Central Secretariat, officials who are not Central Secretariat secretaries, and even Ding Xuexiang after the latter becomes the first-rank vice premier. However, Xi would have to break multiple personnel reshuffle norms in doing so, and this could even create a degree of operational confusion.
3. The establishment of three new departments and the four financial system reforms appear to be aimed at solving some of the CCP regime’s more pressing problems.
The technology-related reforms are likely intended to improve the CCP’s effort to develop self-sufficiency in tech and drive breakthroughs to help the regime escape the tech “containment” imposed by the U.S. and its allies. The CCP is also likely looking to better create new economic growth points and industries, as well as advance “Chinese-style modernization.” Meanwhile, the financial reforms appear to be geared towards strengthening the regime’s ability to scrutinize financial matters and curb financial risks. For example, the creation of the National Financial Regulatory Administration would ideally close down regulatory loopholes and forestall the emergence of so-called “savagely growing” financial holding entities like Tomorrow Group, thereby preventing the formation of serious systemic risks in the financial system. The upgrading of the China Securities Regulatory Commission to a government agency under the State Council and the expansion of its power to unify the regulation of corporate bond issuance is likely intended to better handle the corporate debt crisis in the regime, especially risks pertaining to the real estate sector.
The adoption of the staffing administration system at financial regulators appears to be aimed at advancing “common prosperity” and easing social tensions by reducing the high salaries earned by those staff. According to a Bloomberg report, staff at the regulators could see their pay reduced by more than 50 percent; previously, those at the China Securities Regulatory Commission and China Banking and Insurance Commission were paid significantly more than civil servants. Bloomberg noted that junior employees at the securities regulator made about 20,000 yuan per month (including benefits), but could see their pay drop to below 10,000 yuan after the reform. The flipside of Beijing’s move is that those staff could become demoralized and could be more prone to “lying flat” or corruption.
The other institutional reforms also address issues contributing to regime crisis:
- The CCP wants to become more self-sufficient in food supply in the face of Western “containment” and other “great changes unseen in a century in the world.”
- The CCP needs to get ready for various problems associated with an aging society like maintaining sufficient pension funds and providing adequate health insurance lest mounting social anger becomes intractable political problems further down the road.
- The CCP must strengthen intellectual property protection to create a more conducive environment for scientific and technological innovation.
- The CCP is streamlining institutions to reduce unnecessary fiscal expenditures and reallocate scarce funds to crucial areas connected with regime survival.
Ultimately, the CCP wants to eliminate its financial risks, survive the “tech war” with the U.S., and triumph in “great power” competition to emerge as the global hegemon.
3 Deciphering Xi’s ‘Western containment’ remarks
On March 6, Xi Jinping and three other Politburo Standing Committee members participated in a joint group meeting of national political advisors from the China National Democratic Construction Association and the All-China Federation of Industry and Commerce.
Xi later delivered some remarks at the meeting. He noted that the “results” (i.e. political achievements) of 2022 were “really not easy” to come by because “the international environment was turbulent and the country was impacted by multiple factors that were beyond expectations.” Xi added that the past five years were “extremely unusual and extraordinary,” with “dramatic changes in the external environment, as well as significant increases in uncertain and unpredictable factors,” including “Western countries—led by the U.S.—having implemented all-round containment, encirclement, and suppression against us, bringing unprecedentedly severe challenges to our country’s development.”
“In the coming period of time, the risks and challenges that we face will only increase and intensify ever more,” Xi said, according to state mouthpiece Xinhua.
Next, Xi stressed that the private sector is an “important force in the endeavor to realize the two centenary goals and the Chinese Dream of national rejuvenation.” He added that Party Central will always stick to the “two unwaverings” and the “three must not changes,” and will always regard the private sector and private entrepreneurs as “our own people.” Xi also pointed out that the private sector and private entrepreneurs should be guided to correctly understand Party Central’s principles and policies on the “two unwaverings” and “two healthies,” eliminate worries, let go of burdens, and “develop boldly.”
Xi further called upon private entrepreneurs to strengthen their feelings for their “family and country” and shoulder the responsibility of promoting “common prosperity.”
Parsing Party lexicon
The “two unwaverings” (兩個毫不動搖) refer to unwaveringly consolidating and developing the public economy, and unwaveringly encouraging, supporting, and guiding the development of the private economy. This slogan first appeared in the 18th Party Congress work report.
The “three must not changes” (三個沒有變) were first mentioned by Xi Jinping at the 2016 Two Sessions. They refer to “not changing” the status and role of the private economy in China’s economic and social development, “not changing” the policy and guidelines for unwaveringly encouraging, supporting, and guiding the development of the private economy, and “not changing” the policy and guidelines dedicated to creating a favorable environment and providing more opportunities for the development of the private economy.
The “two healthies” (兩個健康) refer to the healthy development of the private economy and the healthy growth of private entrepreneurs. Xi first mentioned this at a symposium for private enterprises in November 2018.
Big picture
The United States has been escalating its “tech war” against the PRC, including tightening tech restrictions. Meanwhile, China is seeing shrinking exports and orders, as well as supply chains moving out of the mainland.
Our take
1. Xi Jinping directly rebuking the U.S. for “containing, encircling, and suppressing” the regime, as well as his reassurances about the private sector, indicate that China’s economic situation is very bleak. As such, Xi is looking to boost the confidence of private entrepreneurs and restore confidence in China’s business and economic environment; Chinese businessmen and financial elites were previously shaken by the CCP’s crackdown on the “disorderly expansion of capital” as the Xi leadership moved against factional rivals and other interest groups in the financial sector. Concurrently, Xi is shifting the blame for China’s precipitous economic decline away from his disastrous policies in recent years and the CCP’s long-time misgovernment and on to America.
2. While Xi has sought to reassure private entrepreneurs, he has also signaled that the regime is mainly interested in supporting certain industries and technologies that are crucial for regime survival and dominance.
According to mainland media reports, 81 of the millionaires who were invited to the Two Sessions this year are worth more than $1 billion, and 31 of those 81 are new delegates or committee members. Many of the newcomers hail from industries that the CCP wants to focus on like artificial intelligence, new energy vehicles, and medicine. Meanwhile, there were 47 millionaires with personal wealth of more than $1 billion who attended the 2018 Two Sessions but were left off the delegate list this round, including Tencent’s Pony Ma, Evergrande Group’s Hui Ka Yan, and New Oriental Education & Technology Group’s Michael Yu Minhong.
The current Two Sessions delegate list also includes 100 experts from the fields of advanced materials, aerospace technology, and advanced manufacturing.
3. The CCP will struggle to restore confidence in private entrepreneurs going forward as it moves to tighten its control over financial and economic work with the upcoming Party and state institutional reforms, deepens its crackdown on corruption in the financial sector, and with the U.S. and its allies stepping up efforts to counter the CCP threat. Instead, the exodus of private entrepreneurs and other wealthy Chinese to destinations that appear to be less politically risky like Singapore is likely to continue and could even accelerate. Put another way, Xi Jinping’s effort to reassure the private sector and private entrepreneurs will have a limited impact at best, if at all.
What’s next
The CCP will sacrifice the private economy to save the public sector as the economy progressively deteriorates. Local officials will also likely disregard Xi’s appeal to treat private enterprises and private entrepreneurs as “our own people” as the scramble to make up for fiscal shortfalls presses down on them, leaving the central government and the Xi leadership to deal with the political risk.
4 Qin Gang shows ‘wolf warrior’ fangs at Two Sessions press conference
PRC foreign minister Qin Gang issued strong remarks defending the CCP’s foreign policy and criticizing the United States during a press conference on the sidelines of the Two Sessions on March 7.
Highlights of Qin’s statements include:
1. When asked by NBC whether he considered the core interests of America besides those of China, Qin Gang brought up the PRC spy balloon incident and said that the U.S. “acted with a presumption of guilt … overreacted, abused force, and dramatized the accident, creating a diplomatic crisis that could have been avoided.” He then said that U.S. “competition” is a means to “contain and suppress China in all respects and get the two countries locked in a zero-sum game.”
Qin added that Washington’s call to “establish guardrails” in China-U.S. relations and “not seeking conflict” actually means that “China should not respond in words or action when slandered or attacked. That is just impossible!” He continued, “If the United States does not hit the brake but continues to speed down the wrong path, no amount of guardrails can prevent derailing, and there will surely be conflict and confrontation.”
2. When asked by Phoenix Television about the Taiwan issue, Qin Gang pulled out a copy of the PRC constitution and read out the portions about the CCP’s claim over Taiwan and accomplishing the “great task of reunifying the motherland.” He later said that “the U.S. has unshirkable responsibility for causing the Taiwan question” before linking the issue with Ukraine.
“Why does the U.S. talk at length about respecting sovereignty and territorial integrity on Ukraine, while disrespecting China’s sovereignty and territorial integrity on China’s Taiwan question?” Qin asked. “Why does the U.S. ask China not to provide weapons to Russia, while it keeps selling arms to Taiwan in violation of the August 17 Communiqué? Why does the U.S. keep on professing the maintenance of regional peace and stability, while covertly formulating a ‘plan for the destruction of Taiwan?’”
Qin added, “Mishandling the Taiwan question will shake the very foundation of China-U.S. relations.”
3. When asked by Global Times about the Russia-Ukraine conflict and Western countries urging China not to provide lethal assistance to Russia, Qin Gang said, “China did not create the crisis. It is not a party to the crisis, and has not provided weapons to either side of the conflict. Why on earth the blame, sanctions and threats against China? This is absolutely unacceptable.”
4. When asked by the Associated Press of Pakistan about the Belt and Road Initiative and debt traps, Qin Gang said, “Data show that multilateral financial institutions and commercial creditors account for over 80 percent of the sovereign debt of developing countries. They are the biggest source of debt burden on developing countries. Particularly since last year, the unprecedented, rapid interest hikes by the United States have led to capital outflows in many countries and worsened the debt problems in the countries concerned.”
5. When asked by Xinhua about the U.S. Indo-Pacific Strategy, Qin Gang said that it is an “attempt to gang up to form exclusive blocs, to provoke confrontation by plotting an Asia-Pacific version of NATO, and to undermine regional integration through decoupling and cutting chains … The U.S. claim to ‘shape the strategic environment in which China operates’ actually reveals the real purpose of its Indo-Pacific Strategy, that is, to encircle China.”
He added, “As for who to rely on in terms of security and economy, I believe it is necessary to stand together in face of difficulties, jointly pursue security and development, and work together to build a closer community with a shared future in the neighborhood.”
6. When asked by The Straits Times about whether China is pivoting away from “wolf warrior diplomacy,” Qin Gang said, “The truth is, ‘wolf warrior diplomacy’ is a narrative trap. Those who coined the term and set the trap either know little about China and its diplomacy, or have a hidden agenda in disregard of facts.”
He added, “In China’s diplomacy, there is no shortage of goodwill and kindness. But if faced with jackals or wolves, Chinese diplomats would have no choice but to confront them head-on and protect our motherland.”
7. When asked by AFP about whether China plans to strengthen its ties with the European Union, Qin Gang said, “No matter how the situation may evolve, China all along sees the European Union as a comprehensive strategic partner and supports European integration. We hope that Europe, with the painful Ukraine crisis in mind, will truly realize strategic autonomy and long-term peace and stability.”
***
When asked about Qin Gang’s remarks, White House national security spokesperson John Kirby said, “We seek a strategic competition with China. We do not seek conflict. We aim to compete and we aim to win that competition with China but we absolutely want to keep it at that level.”
Our take
1. The CCP toned down its “wolf warrior” approach somewhat after the 20th Party Congress as the Xi leadership sought to repair diplomatic relations and attract foreign investments. Qin Gang’s performance and Xi Jinping’s remarks about Western “containment” (see item three in this newsletter) at the Two Sessions, however, indicate that the CCP has decided to revive the “wolf warrior” in the face of mounting external pressure.
The Xi leadership likely assessed that it was in a “Catch-22” situation on the diplomatic front, that is, the U.S. and its allies would target the PRC regardless of whether the latter cooperated with them on various key global issues or not. Beijing then likely decided that the only way forward was to act the victim of “U.S. imperialism” and double standards, fault Washington for worsening Sino-U.S. relations, and play the nationalism card at home to deflect responsibility for the PRC’s serious internal and external crises away from the Xi leadership and on to America.
Going forward, we can expect the CCP to continue blending facts, disinformation, and propaganda in answering its critics as its rhetoric and actions come under increasing international scrutiny.
2. While the “wolf warrior” approach appears to be making a comeback, we assess that the CCP’s approach will generally prove to be more bark than bite and it will still embrace opportunities to improve relations with other countries.
The CCP is also not likely to be provoked into invading Taiwan before it is ready and deems an invasion the only option left for “reunification” unless one of the three “red lines” that we previously identified is crossed.
3. The U.S. and its allies are likely to interpret Qin Gang’s blunt remarks as evidence that the CCP is unwilling to abandon its aggressive stance and “revisionism,” and could dial up pressure in an effort to compel the PRC to change its attitude. This would in turn convince the CCP to cling to its “wolf warrior” approach in the face of a more “turbulent” international environment. This trend would send the PRC’s relations with the U.S. and the international community spiraling downward in a vicious cycle, as we previously analyzed.
