1 CCP applies propaganda spin as exports fall most in three years
China’s June trade data
According to data released by the PRC General Administration of Customs (GAC) on July 13:
1. China’s exports in U.S. dollars in June fell 12.4 percent from a year ago to $285.32 billion, the largest drop in three years. Imports decreased by 6.8 percent year-on-year in June to $214.70 billion. Meanwhile, the trade surplus in June was $70.62 billion, weaker than market expectations across the board. Economists polled by The Wall Street Journal expected China’s exports to fall 9.2 percent and imports to decline by 4 percent in June, with an estimated trade surplus of $74 billion. All in all, China’s exports and imports declined more steeply and for two consecutive months in June.
In the first half of 2023, the total value of China’s imports and exports decreased 4.7 percent from the previous year to $2.92 trillion; exports fell 3.2 percent to $1.66 trillion; and imports dropped 6.7 percent to $1.25 trillion. China’s trade surplus in the first half of the year was $408.69 billion.
2. China’s June exports in renminbi were down 8.3 percent year-on-year to 1.99 trillion yuan; imports fell 2.6 percent to 1.50 trillion yuan, and trade surplus was 491.25 billion yuan.
The total value of China’s imports and exports denominated in RMB in the first half of 2023 increased 2.1 percent year-on-year to 20.1 trillion yuan, the first time it exceeded 20 trillion yuan during the same period. Exports grew 3.7 percent to 11.46 trillion yuan and imports rose 0.1 percent to 8.64 trillion yuan.
3. China’s international trade fell across the board. Exports to developed countries like the United States (down 24 percent), Europe (down 13 percent), Japan, South Korea, and Canada plummeted by between 10 percent to 27 percent in June. Meanwhile, China’s exports to developing countries such as those in the ASEAN region (down 17 percent), Africa, and Latin America shrunk by seven percent to 17 percent.
The only area where China’s trade surged was with Russia, with exports growing by 41 percent and resulting in a $1.7 billion trade surplus.
Comparing changes in China’s exports
In July 2022, China’s exports grew by 18 percent year-on-year, imports increased by 2.3 percent, and the trade surplus reached $101.26 billion. Growth in China’s trade began to slow significantly in August 2022, and by October 2022, exports were down 0.3 percent year-on-year and imports fell by 0.7 percent year-on-year. November and December 2022 saw a further expansion of declines.
In March 2023, China’s exports unexpectedly surged 14.8 percent, ending months of negative growth starting in October 2022. Concurrently, the decline in imports narrowed significantly to 1.4 percent, while the trade surplus reached $88.19 billion.
CCP propaganda spin on the trade data
PRC state media deliberately avoided mentioning certain specific data in breaking down the trade data in June, including import and export data in dollar terms and for the first half of the year. Instead, media reports focused on RMB-denominated cumulative data for the first half of 2023, including hyping up China’s total value of imports and exports exceeding 20 trillion yuan in the first half of 2023. State media also publicized sub-item data that showed growth while barely covering other data that reflected decline.
State media tried to add a positive spin on China’s shrinking exports, describing the situation as “a period of ‘shifting gears’ between new and old kinetic energy.” First, the “shift” in export commodities to the “three new products” (new energy vehicles, lithium batteries, and solar cells) is a “new growth point” for China. Second, exporting countries are “shifting gears” and increasing trade with emerging markets, which have become a “bright spot” for growth in foreign trade. Third, the “gears are shifting” in trade methods, with cross-border e-commerce and other new forms of export momentum.
Lu Daliang, director of the GAC’s statistical analysis department, said at a press conference that “world economic recovery is currently weak, global trade and investment are slowing down, geopolitical risks are rising, and the direct impact of weakening foreign demand on Chinese foreign trade persists.” However, China’s economy has “strong resilience, great potential and vitality, and its long-term fundamentals remain unchanged,” according to Lu.
Our take
1. The CCP authorities have resorted to their usual propaganda technique of “spinning tragedy into victory” (喪事當喜事報) in reporting China’s dismal trade figures in June and for the first half of the year.
For instance, state media almost certainly focused on the total value of China’s RMB-denominated imports and exports for the first half of 2023 because it broke a record and was one of very few “bright spots” among the data released. Yet the total value was able to exceed 20 trillion yuan likely due to currency depreciation and an increase in the broad money supply. In the first six months of 2023, China’s M2 increased by 20.87 trillion yuan and the M2 balance at the end of June grew by 11.3 percent from a year ago to 287.3 trillion yuan. During the same period, the RMB depreciated by 3.61 percent against the U.S. dollar. As such, China’s total trade value in RMB would appear to be growing as compared to its dollar-denominated trade.
China’s imports and exports, however, both fell in May and June regardless of whether it was denominated in RMB or dollars. With the contraction deepening further in June and global economic conditions set to worsen later this year, the prospect for China’s exports looks especially bleak for the second half of 2023.
2. The CCP’s hamfisted effort to spin its latest trade data appears to be in line with earlier instructions from Beijing to boost “confidence” in China’s economic development. For instance, the CCP Central Committee ideological journal Qiushi published in February 2023 Xi’s speech to the Central Economic Work Conference in December 2022 where the latter called for “improving society’s psychological expectations and boosting confidence in development.” State mouthpiece Xinhua also published a series of articles in early February to promote “strong confidence,” including urging the Chinese people to “vigorously boost [their] confidence” in “promoting the overall improvement of the economy” and claiming that “confidence is power, and confidence is more important than gold.”
Beijing’s effort to talk up the very few positive data points in its latest official trade figures, however, reveals the limited ability of propaganda to cover up clear signs of declining trade and China’s worsening economic situation. Such “all’s well” propaganda also stands to rapidly drop in effectiveness as the bulk of the people in mainland China find it increasingly difficult to maintain their livelihoods amidst the economic downturn.
Moreover, foreign investors appear to be losing confidence in China. A July 13 report by The Wall Street Journal noted that foreign direct investment in China dropped to $20 billion in the first quarter of 2023 as compared with $100 billion over the same period in 2022, citing an analysis of government figures by Rhodium Group analyst Mark Witzke. Economists at Goldman Sachs also predicted that outflows from China in 2023 will cancel out investments entering the country, a remarkable change considering that more money has been going into China than leaving over the past forty years.
The Journal report further gave examples of PRC local officials struggling to court foreign investments, including a trade official in Chengdu returning empty-handed from an investment promotion trip to Europe. The official said, “In my 20 years of trying to get investments from Europe, this was the first time we didn’t get to sign even one memorandum of understanding.”
3. China’s persistent and escalating economic troubles are undoubtedly one of the reasons why Beijing sought to improve relations with the U.S. after the 20th Party Congress and is willing to “engage” with Biden administration officials even after the diplomatic fallout from the PRC spy balloon incident, imposition of restrictions on the PRC’s access to advanced technologies, greater support for Taiwan, and other episodes have greatly increased the Xi leadership’s wariness towards America. Meanwhile, the Biden administration has demonstrated a willingness to “thaw” the Sino-U.S. relationship and improve bilateral ties with the PRC.
The current Sino-U.S. dynamic, however, could change quickly should a critical mass of foreign governments and countries take steps to “de-risk” and diversify from China due to concerns about geopolitical risks and China’s rapidly deteriorating economy; if social problems in China visibly translate into political problems for the Xi leadership; or in the event Russia gains a significant upper hand in the Russia-Ukraine war. Escalation of Sino-U.S. tensions would worsen the PRC’s already-severe internal and external crises, and trigger political Black Swans in China.
2 Beijing’s efforts to revive the ‘platform economy’ may be too late
On July 12, PRC premier Li Qiang presided over a symposium on platform companies to hear the opinions and suggestions for top executives and promote the “healthy and sustainable development of the platform economy,” according to mainland media reports. Vice premier Ding Xuexiang also attended the symposium.
During the symposium, the heads of Meituan, Xiaohongshu, Haizol, Lalamove, Alibaba Cloud, XCMG Hanyun Technologies, Douyin (ByteDance), Zhaopin, and other platform companies delivered speeches. Meanwhile, the heads of Pinduoduo, JD.com, Ouyeel, BOSS Zhipin, CASICloud, Haier COSMOplat, and other companies submitted written speeches.
After listening to the speeches, Li Qiang affirmed the status and the role of the platform economy in the “overall situation of development.” He also expressed hope that the majority of the platform companies would “look forward with firm confidence,” “work harder,” and strive to solve “growing pains” so as to make a great show of their abilities in leading development, creating employment, and competing in the international arena.
Li further stressed that governments at all levels should create a “level playing field” market environment for the platform economy, improve policies (investment access, safety assessment of new technologies and businesses, etc.), perfect the “transparent and predictable” normalized regulatory system, reduce the cost of compliance for enterprises, and promote the healthy development of the industry.
Beijing’s crackdown and ‘rehabilitation’ of the platform industry
Beijing launched a two-year crackdown on leading platform companies after Alibaba co-founder Jack Ma criticized the CCP authorities’ regulation of the financial sector. Ma’s Ant Group was forced to scrap what would have been the largest initial public offering in history and the CCP would go after major internet platforms and giants like in the name of anti-monopoly action. News reports at the time indicated that CCP elite factional politics was a key reason why Ant was targeted. Alibaba would later be split into six business units, with Ma relinquishing control over his company in January 2023 as part of the overhaul.
When Alibaba and Ant were coming under government scrutiny, rumors circulated that Beijing had placed Jack Ma under some form of control. Eventually, Ma moved out of China and was spotted traveling in several countries.
After the PRC ended “zero-COVID,” Beijing sought to revive business confidence by signaling that its crackdown on the platform economy was nearly over. In January 2023, China Banking and Insurance Regulatory Commission head Guo Shuqing announced that the “special rectification” of the financial businesses of 14 platform companies had been “basically completely.” In March, Jack Ma returned to mainland China.
On June 20, Alibaba announced major personnel changes, including Joe Tsai replacing Daniel Zhang as head of Alibaba Group. The appointment of Tsai, a close ally of Jack Ma’s, appeared to be a sign that the CCP authorities were comfortable with allowing Ma to have a degree of control over Alibaba.
On July 7, the China Securities Regulatory Commission announced that it had fined several fintech companies for violating consumer protection laws and corporate governance, among other charges. Ant Group and its affiliates were fined 7.123 billion yuan, Alipay was fined 3.06 billion yuan, and Tencent Holdings’ Tenpay was fined 2.99 billion yuan. In a statement about the fines, the People’s Bank of China said, “At present, most of the apparent problems in the financial business of platform enterprises have been rectified. The work focus of the financial management department has shifted from pushing centralized rectification to normal supervision.” Observers widely believe that the CCP authorities had signaled the conclusion of investigation into Ant Group and the crackdown on the industry more broadly with the fines.
Big picture
Beijing promoting the development of platform enterprises and easing up on an earlier crackdown comes amid the release of official data which suggest that China is experiencing deflation, has entered into a recession, and is seeing rapid economic deterioration.
Meanwhile, countries are becoming increasingly wary of the PRC’s anti-espionage law, chip material export controls, and an increasingly illiberal environment in China as the CCP tightens its control over Chinese society.
Our take
1. Li Qiang’s symposium on platform companies and Beijing bookending its crackdown on fintech enterprises appear to be part of the CCP’s “pragmatic” effort to “appease” the private sector and boost business confidence.
After Xi Jinping consolidated power to an even greater degree at the 20th Party Congress, the Xi leadership has repeatedly signaled that the CCP will support the private economy and private entrepreneurs, including:
- At a joint group meeting of national political advisors from the China National Democratic Construction Association and the All-China Federation of Industry and Commerce on March 6, Xi emphasized that the private sector is an “important force in the endeavor to realize the two centenary goals and the Chinese Dream of national rejuvenation.” Xi 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.”
- When asked about the private economy in his maiden press conference as PRC premier, Li Qiang mentioned the “two unwaverings” and said that “this is a long-term policy that did not change in the past and will not change in the future.” Li added that there were “incorrect discussions about private entrepreneurs last year, which made them feel concerned,” but expressed confidence that private entrepreneurs would “continue to write their exciting entrepreneurship stories in the new era and on the new journey.”
- On July 10, global consulting company Bain posted on its official WeChat account that Yu Yong, the Party secretary of Shanghai’s Jing’an District, had visited their office in the city. According to Bain, Yu said that the district has always pursued international development and worked to become a hub for professional services, and would continue to “create a premier business environment and escort the development of enterprises.”
- CCP propaganda continues to assert that the private sector contributes more than 50 percent of the tax revenue, over 60 percent of the GDP, more than 70 percent of technological innovations, over 80 percent of urban employment, and accounts for more than 90 percent of market entities in China.
The CCP is likely counting on private sector growth to turn around China’s economic deterioration and stabilize the regime. However, there are limits to what reviving the platform economy can do to rescue the Chinese economy at large under deflationary conditions; the technological innovations of internet companies could provide more services and better aid the ability of residents to consume, but will struggle to grow residents’ desire for consumption amid an economic downturn.
2. Beijing’s latest efforts to end regulatory crackdown (which Li Qiang euphemistically described as “growing pains”), boost private sector confidence, and spur growth, looks like another case of “too little, too late.” For one, China’s latest economic data clearly indicates that growth has stalled and recession has arrived. Private businesses and entrepreneurs will naturally hold back on spending and investing when times are bad, and CCP propaganda will not have much effect in restoring business confidence in the face of economic realities.
Platform companies and investors who suffered heavy losses after failing to account for the “unpredictable” political moves of Beijing and other political risks are also now less likely to trust Li Qiang’s claim that governments at all levels will help to create a good business environment for the platform economy to thrive. They could further assess that the CCP is being unrealistic in expecting them to invest resources towards growing their innovation capabilities and stimulate the economy when everyone is presently struggling through very tough times.
The Xi leadership’s constant strengthening of the Party’s control over society since Xi Jinping took office in 2012, plus the crackdown on the platform economy and fintech over the past two years, have also contributed to worsening the business environment in China and giving pause to private entrepreneurs at home and abroad.
In a July 13 article titled “Xi Jinping Chokes Off Crucial Engine of China’s Economy,” The Wall Street Journal noted that Beijing’s effort to woo Western investments is “running headlong into President Xi Jinping’s national-security agenda, with its focus on fending off perceived foreign threats. That has made any Chinese investment a potential minefield for foreign firms.”
Meanwhile, the Chinese markets remained wary of regulatory crackdowns even after former People’s Bank of China adviser Li Daokui told the UOB Private Bank forum in early June 2022 that “the political influence of internet companies is now nil,” that senior officials were no longer concerned, and that he believed that investor confidence would be restored. The markets only showed signs of relief after Ant Group and other fintech companies were fined on July 7.
Political priorities were likely a factor in why the Xi leadership took more than a year after Li Daokui’s remarks to send a clear signal that it was relaxing its “rectification” of the platform economy. First, Xi Jinping likely needed to keep the internet giants in check until after the 20th Party Congress so that there was no possibility of them undermining his power consolidation (in case Xi’s lingering factional rivals had ideas of exerting their influence over fintech companies to cause mischief) at the key political conclave. Second, Xi likely had to wait until his allies like Li Qiang were officially installed in key positions as part of major personnel reshuffles at the 20th Party Congress and the 2023 Two Sessions before he felt secure enough to reverse the “rectification” policy. Finally, the Xi leadership could not move too quickly after Xi’s allies took office to turn things around lest it sparked potentially risky speculation about whether Xi had lost power.
3. In speaking to 100,000 officials from across the country during a State Council teleconference on stabilizing the economy in May 2022, then-PRC premier Li Keqiang observed that China’s economic growth was in danger of slipping out of a “reasonable range,” and that it would be difficult for a large economy to return growth to within that “reasonable range” without paying a huge price and taking a lot of time.
China’s economic data this year suggests that economic growth has already fallen out of the “reasonable range.” Poor economic conditions are in turn affecting the CCP’s ability to sustain governing operations. For instance, mainland media Yicai reported on July 7 that only Beijing and Hangzhou had land sales of more than 100 billion yuan in the first half of the year, citing data from China Index Academy. Yicai added that many cities had struggled to reach 10 billion yuan in land sales. On July 9, rumors circulating on mainland social media platforms noted that civil servants in Guangdong, the province with the best GDP growth in China, would collectively receive a pay cut of 25 percent. Several provinces had previously reduced civil servant salaries, including Zhejiang (less 25 percent), Jiangsu (less 15 percent), and Fujian (less 20 percent).
In defending his “zero-COVID” policy in July 2022, Xi Jinping said during a Politburo meeting that “the relationship between epidemic prevention and control and economic and social development should be viewed comprehensively, systematically, and over the long run. In particular, [the relationship] should be seen from a political point of view and a political account should be calculated.” Xi’s decision to prioritize politics over the economy in dealing with the COVID-19 pandemic appears to be now returning to haunt him and the CCP regime with a vengeance.
3 Analyzing recent purges and political rumors
Investigation of anti-corruption officials
July 10
The Central Commission for Discipline Inspection and the National Supervisory Commission announced the investigation of five “moles” (內鬼), namely:
- Lu Zuoquan (age 63, retired in June 2019), former head of Jiangxi Provincial Party Committee’s inspection team.
- Chen Haiming (46), secretary of the commission for discipline inspection and supervisory commissioner of Western Mining Group and former member of the 14th disciplinary committee of Qinghai Province.
- Liu Yongwu, former secretary of the commission for discipline inspection of China Energy Investment and Shenhua Shendong Coal Group.
- Sun Guanghui (59), deputy secretary of the Party Committee of Guangzhou Maritime University and former member of the 10th disciplinary committee of Guangdong Province.
- Fu Jiacai (45), former leader of the discipline inspection and supervisory team of the Hegang Municipal Public Security Bureau.
***
More than 20 anti-corruption officials have been investigated so far in 2023, according to official announcements and academic analyzes.
Investigation of Shanghai officials
July 12
Dong Yunhu, Party secretary and chairman of the Standing Committee of the Shanghai People’s Congress, was investigated on suspicion of “serious violation of law and discipline,” according to a statement by the CCDI. Dong was previously head of the Shanghai Municipal Propaganda Department.
July 13
Cheng Feng, deputy general manager of Shanghai United Media Group and chairman of the semi-official mainland media The Paper, was investigated on suspicion of corruption.
According to mainland media reports, Cheng and Dong were two of three senior members in the Shanghai propaganda system who had been arrested over the past eight months. The third member, former eastday.com (Dongfang Web) president Xu Shiping, was investigated in November 2022. Xu was a mainland media veteran who had been retired for two years at the time he was officially investigated.
Investigation of financial SOE official
July 15
Tang Shuangning, former Party chief and chairman of China Everbright Group, was officially placed under investigation, according to a statement by the anti-corruption authorities. Days earlier, mainland media reported that Tang had been out of reach and was rumored to have been taken away by the CCP authorities with his wife on July 12.
Tang served as chairman of China Everbright Group for 10 years and was a heavyweight in China’s financial circles. China Everbright Group was established by the PRC Ministry of Finance and Central Huijin Investment, and is one of three major state-owned financial holding companies.
Military purge rumors
According to rumors circulating on social media and overseas Chinese language media, several senior generals of the People’s Liberation Army Rocket Force were implicated in corruption cases or for leaking secrets. Ju Gansheng, commander of the PLA Strategic Support Force, was also implicated in the rumors.
The PLA Rocket Force rumors started to gain traction after observers noted the absence of the armed service branch’s commander Li Yuchao from a promotion ceremony at the end of June.
Qin Gang rumors
July 11
The PRC foreign ministry said that foreign minister Qin Gang would not attend ASEAN meetings in Indonesia that week due to “health reasons.” Qin’s last public activities were on June 25 when he met with Russian deputy foreign minister Andrey Rudenko in Beijing, Vietnamese foreign minister Bui Thanh Son, and Sri Lankan foreign minister Ali Sabry.
Qin’s lengthy public absence sparked much speculation and rumors in China watching circles, including speculation that he was suffering from serious illness, was purged, or was in trouble he was implicated in a case involving a woman with whom he reportedly had an affair and a child. The speculation about what could have possibly happened to Qin Gang was further inflamed when the outspoken wife of Zhao Lijian, the former “wolf warrior” foreign ministry spokesman and current deputy director of the foreign ministry’s boundary and ocean affairs department, wrote on Chinese social media out of the blue that it was a “good day” a day before it was announced that Qin would not be attending the ASEAN meetings.
Our take
1. The continued purging of officials in Xi Jinping’s third term affirms our earlier observations (for e.g., see here and here) that the anti-corruption campaign would persist even after Xi’s power consolidation at the 20th Party Congress because the latter still has unfinished business with rival factions and with genuinely eliminating corruption in the regime to improve the CCP’s governing effectiveness. Xi is likely also looking to maintain a tremendous amount of political pressure on cadres and officials to ensure their loyalty to him and prevent the formation of new political “cliques and gangs.”
With Xi’s ongoing political indoctrination campaign, there is a possibility that some of the recently purged officials were actually taken out for being disloyal to Xi more so than for partaking in serious corruption.
2. The “rectification” of the anti-corruption authorities appears to both be a natural progression of the anti-corruption campaign and the Xi leadership sharpening the blade so to speak for the final thrust to eradicate remnant factional rivals in the Party elite.
From Beijing’s perspective, the anti-corruption authorities are long due for a “self-rectification.” When Wang Qishan was in charge of the CCDI, his pressing objectives were to get officials whose loyalties were less suspect (i.e. retired or retiring officials, officials who rose up the ranks slowly during the Jiang-Hu era, etc.) into key positions so that the anti-corruption authorities could move swiftly in executing Xi’s campaign and put pressure on the Jiang Zemin faction during a period when Xi lacked power. The appointment of Jiang faction associate Zhao Leji to replace Wang resulted in a relaxation of the anti-corruption campaign for most of Xi’s second term. With Xi ally Li Xi now serving as CCDI head, the Xi leadership appears to be looking to have the anti-corruption authorities clean up its own house first, eliminate disloyal elements, and take stock of the situation before taking on more important tasks.
As we wrote earlier in analyzing the anti-corruption authorities’ own “education and rectification” campaign, “Xi has urgent need for the anti-corruption apparatus to be fully loyal and obedient if he is ultimately aiming to denounce Jiang Zemin and completely eliminate the Jiang faction remnant as a threat to his rule.”
3. The purge of China Everbright Group’s Tang Shuangning appears to be part of Beijing’s broader effort to rectify SOEs that was launched in April. In particular, the Xi leadership needs to clean up financial SOEs to tighten its control over the regime’s financial sector, remove the lingering influence of factional rivals, and allow the CCP authorities to help the regime better navigate its economic and financial crises.
4. The rumors of corruption in the military and high level probes cannot be completely discounted, but whether senior military officials were purged will be hard to immediately verify given that the CCP authorities stopped announcing military-related corruption cases since the 19th Party Congress. Whether or not the generals named in the rumors are indeed in trouble could become clearer around the PLA Day (August 1) period when key personnel changes are sometimes announced.
Regardless of the situation, speculations about a possible coup or mutiny can mostly be ruled out given the immense difficulties of military generals attempting such a feat given the structure of the CCP authoritarian regime.
5. Illness currently appears to be the most probable explanation for Qin Gang’s absence.
Rumors that Qin was implicated over a corrupt mistress or had an illegitimate child cannot be ruled out, but neither count is serious enough for Xi Jinping to use against an ally that he had just installed in a key position. Xi would likely only purge Qin should the latter exhibit disloyalty; otherwise, Xi can come up with various reasons (Qin’s importance in handling tense Sino-U.S. relations, etc.) to keep Qin around even if the latter is guilty of the rumored “crimes” or embarrassing misdemeanors.
6. The PRC’s governance system and Party culture make it conducive for factions and power networks to form over time. Xi Jinping may have greatly weakened the Jiang Zemin faction and other power networks from the Jiang-Hu era with his anti-corruption campaign, but the crop of officials who rose up the ranks under Xi are bound to form new factions and power networks as they compete for power and profit. Thus, it cannot be ruled out that the rumors about corruption in the PLA Rocket Force and Qin Gang’s “troubles” could be linked to new factional fighting inside the CCP.
