1 Li Shangfu probe, other negative political rumors haunt the Xi leadership
News of Li Shangfu probe
Sept. 7
U.S. Ambassador to Japan Rahm Emanuel implied in a post on X that PRC defense minister Li Shangfu was being investigated (see our previous analysis).
Sept. 13
Zhao Lanjian, a Chinese citizen journalist living in the United States, claimed in a post on X that the Central Commission for Discipline Inspection had subjected Li Shangfu to “shuanggui” (雙規, a CCP internal disciplinary measure) on Sept. 6 over his son taking bribes from foreigners.
Zhao also claimed in another post that eight officials at the Central Military Commission’s Equipment Development Department, including six cadres at the deputy ministerial level and two cadres at the bureau level, had been arrested after being fingered by Li.
On Sept. 14, Zhao claimed that Li had been taken away on Sept. 1, not Sept. 6.
Sept. 14
1. The Financial Times reported that the U.S. government believes Li Shangfu has been placed under investigation and has been removed of his responsibilities, citing three U.S. officials and two people briefed on the intelligence.
The people briefed on the intelligence did not say what led the Biden administration to reach their conclusion on Li.
2. Reuters reported that Li Shangfu suddenly withdrew from a meeting with Vietnamese defense leaders at an annual gather on defense cooperation hosted by Vietnam on Sept. 7 and Sept. 8. Two Vietnamese officials told Reuters that the meeting was postponed after Beijing informed Hanoi days before the event that Li had a “health condition.”
3. Ambassador Rahm Emanuel posted on X, “As Shakespeare wrote in Hamlet, “Something is rotten in the state of Denmark.” 1st: Defense Minister Li Shangfu hasn’t been seen or heard from in 3 weeks. 2nd: He was a no-show for his trip to Vietnam. Now: He’s absent from his scheduled meeting with the Singaporean Chief of Navy because he was placed on house arrest???… Might be getting crowded in there. Good news is I heard he’s paid off his mortgage with the Country Garden real estate developers. #MysteryInBeijingBuilding”
Sept. 15
1. The Wall Street Journal reported that Li Shangfu was taken away for questioning by the authorities in the week of Sept. 4, citing a person close to decision making in Beijing.
The U.S. official told the Journal, “Some of the PLA’s enduring problems may be too big for Xi to solve, and they have a real impact on the PLA’s ability to achieve what he wants them to. We know that corruption in the PLA runs deep enough for this to be a factor. And we know it’s had a profound effect on what they’re able to do, and how they do it.”
2. The Washington Post reported two U.S. officials as saying that Li Shangfu is under “serious” investigation for corruption and will likely be removed. One of the officials said, “it could be even worse than that” in alluding to the potential for more purges.
The Post also cited a Chinese official as saying that Li’s dismissal was “imminent” and would be for “health issues,” not corruption. Two people involved in the PRC defense industry said there is broad consensus that Li’s absence is “related to corruption charges relating to his previous position as head of military procurement.”
An adviser to the PRC government in Beijing told the Post that there is “fresh scrutiny of the country’s security apparatus, including the military, intelligence agencies and internal security forces.”
3. Reuters reported that Li Shangfu is being investigated by the authorities, citing 10 people familiar with the matter.
A regional security official and three people in direct contact with the People’s Liberation Army said that the probe of Li is related to military equipment procurement. Two people in direct contact with the PLA said that eight senior officials from the military’s procurement unit are also under investigation. The two people also said that the PLA’s discipline inspection commission is carrying out the investigation.
Reuters said its reporting on Li is based on interviews with sources who “interact regularly with senior Chinese political and defense leaders, and regional officials with close knowledge of Chinese politics.”
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At the time this newsletter was published, Li Shangfu was still listed as defense minister and state councilor on the official websites of the PRC Ministry of National Defense and State Council respectively.
Other political rumors
Sept. 11
1. Some mainland media outlets reported that Yuan Renguo, the former chairman of Kweichow Moutai Group, passed away in a hospital in Guizhou Province on Sept. 9 at the age of 66. Yuan had previously been investigated in 2019 and sentenced to life imprisonment in 2021 for accepting 112.9 million yuan in bribes.
Some Chinese self-media outlets claimed that Yuan suddenly suffered from a cerebral hemorrhage on Aug. 26 and was moved from the prison to a hospital for treatment. Information circulating on X obliquely claimed that Yuan had been silenced for spreading rumors about Xi Jinping’s alleged addiction to Maotai liquor, and that some officials being probed as part of the anti-corruption effort targeting the healthcare sector were targeted because of reasons pertaining to Xi’s health.
2. Zhao Lanjian claimed in a post on X that several senior executives in the PRC’s central military industry enterprises had been arrested, including:
- Liu Shiquan, chairman of China North Industries Group Corporation (Norinco).
- Yuan Jie, chairman of China Aerospace Science and Industry Corporation.
- Chen Guoying, general manager of China South Industries Group.
- Tan Ruisong, former chairman and Party secretary (removed in March 2023) of the Aviation Industry Corporation of China.
Zhao also claimed that it is “unusual” for the CCDI to move against key personnel involved in national defense and military enterprises, especially during a period in which the PRC is supposedly preparing to invade Taiwan. He added that personnel upstream and downstream from the aforementioned individuals could be implicated, and speculated that “perhaps there could be an extremely brutal purge of military enterprises.”
Sept. 12
U.S.-based China pro-democracy activist Han Lianchao posted on X that an “old friend” claimed in a message to him that PRC State Council secretary-general Wu Zhenglong had accompanied premier Li Qiang to G20 instead of foreign minister Wang Yi because Wang was allegedly “writing a self-criticism at home” over mistakes he made during a trip with Xi Jinping.
Han’s “old friend” added that it is “extremely unusual” for a PRC foreign minister to not accompany other top leaders for important foreign events. The “old friend” also wrote that the fact that former foreign minister (2003 to 2007) Li Zhaoxing was seen “back in uniform” attending important foreign affairs activities is a sign that Xi trusts no one in the foreign ministry.
The political rumor about Wang Yi being made to write a self-criticism received a lot of attention and discussion in overseas Chinese language media and social media.
On Sept. 13, Russian media reported Russian foreign ministry spokeswoman Maria Zakharova as saying that Wang Yi would visit Russia on Sept. 18 to hold talks with Russia foreign minister Sergey Lavrov. When asked about the news during a regular press conference, PRC foreign ministry spokeswoman Mao Ning said, “China and Russia have been in close communication. Please stay tuned for updates.”
Our take
1. We previously expressed skepticism over the news that Li Shangfu’s recent lack of public appearances meant that he was being investigated because it is not unusual for PRC defense ministers to make relatively few of them. The wave of Western media reports about Li’s situation, however, strongly suggests that the PRC defense minister is in trouble.
How seriously Li is in trouble depends on whether he makes future public appearances, especially attending the PRC National Day reception on Sept. 30.
2. The U.S. government and PRC sources of Western media outlets believe that Li Shangfu is being investigated for corruption, and especially corruption pertaining to military equipment procurement when Li headed the CMC’s Equipment Development Department. And should the CCP authorities announce that Li is in trouble, they would very likely cite corruption as the official reason.
Based on our understanding of CCP elite politics and operations, however, the corruption explanation is unlikely to be the actual reason behind the removal of Li:
- First, Xi Jinping would have been aware of any significant corruption issues involving Li Shangfu when “personnel preparation work” was undertaken before the 20th Party Congress to determine the latter’s eligibility to serve as defense minister. Xi’s appointment of Li suggests that the personnel review showed no serious issues.
- Second, virtually all CCP officials are corrupt or have engaged in corruption in some form given the characteristics and deficiencies of the regime’s authoritarian system. Corruption in the Equipment Development Department almost certainly preceded Li Shangfu (department head from September 2017 to October 2022), especially when corruption in the military was very severe during the Jiang-Hu era and before Xi consolidated power in his first term. Unless Li was involved in significant corruption, and especially corrupt activities that undermine Xi or his political objectives, Xi has no reason to remove Li on corruption grounds.
- Third, purging Li over corruption is incredibly damaging to Xi Jinping politically. Li is a Xi loyalist and political ally, and Xi would have likely vouched for him to take the defense minister job knowing full well that there would be diplomatic and geopolitical blowback as Li had been sanctioned by the U.S. government in 2018 over the PRC’s purchase of Russian weapons. Further, Xi would almost certainly be aware of the steep political consequences of abruptly purging another political ally and senior official for corruption so soon after one had already been controversially removed. Officials will likely interpret Xi’s “sacrifice” of Li and Qin Gang as a sign that Xi is extremely paranoid and nobody is truly safe from the excesses of the anti-corruption campaign. Officials could also draw parallels between the purge of Li and Qin with the “Lin Biao incident” during the Mao era, and become alienated from Xi. Meanwhile, Xi himself would be guilty of being “negligent in using people,” a charge that has been levied against some purged officials. Over time, Xi’s “quan wei” (authority and prestige) would sharply decline, similar to how Mao Zedong’s “quan wei” took a hit after Lin Biao’s death and the Party’s subsequent denunciation campaign. Xi’s anti-corruption campaign would also increasingly become discredited. The erosion of Xi’s “quan wei” would in turn raise his personal political risk levels and seriously threaten regime stability.
However, it is also not entirely implausible that corruption is the real reason behind the take down of Li Shangfu. It cannot be ruled out that the Xi leadership only lately uncovered or received intelligence and evidence that Li and others were involved in corruption that severely undermined Xi Jinping’s “strong military” and “rejuvenation of the Chinese nation” agendas. This would include corruption on par with or exceeding that of the semiconductor “great leap forward,” costing the CCP regime immense sums of money and yielding next to nothing in return. Assuming this is the case, Xi has no choice but to proceed with the immensely self-defeating move of probing Li Shangfu and salvaging what is left of another ruined political legacy. Xi would also eventually have to purge personnel both upstream and downstream from Li to clean up the corruption “network”; if so, then even Zhang Youxia, the CMC vice chairman and Li’s predecessor at the CMC Equipment Development Department, could potentially be implicated.
3. As with the Qin Gang case, we believe that the remnant Jiang Zemin faction and other “anti-Xi” elements in the regime could have been responsible for providing Xi Jinping with information and intelligence about Li Shangfu that was so incriminating that Xi had no choice but to remove another political ally within months after appointing him to a top post.
The PRC foreign affairs apparatus and intelligence apparatus would be more closely aligned with the Jiang faction or Jiang faction interests as opposed to the interests of the Xi leadership by virtue of the Jiang faction’s nearly two decades of dominance in the CCP regime. In particular, Jiang faction number two Zeng Qinghong likely retains a degree of influence over the intelligence apparatus owing to his family’s connection with it (see here and here). With the Xi leadership moving to “rectify” the “hidden front” (see here and here) and more thoroughly carry out “self-revolution” work after the 20th Party Congress, the officials in regime apparatuses that hewed closer to the Jiang faction would naturally feel threatened and be more inclined to move against Xi and his political allies to avoid being purged.
As we wrote previously, if “Beijing moves too aggressively with its ‘rectification’ work, it risks alarming ‘anti-Xi’ elements within the intelligence apparatus into taking ‘perish together’ actions … in trying to fix existing problems within the intelligence apparatus, the Xi leadership could end up exacerbating them and triggering worse problems.” We also wrote earlier that “Xi Jinping’s remaining factional rivals and the ‘anti-Xi coalition,’ including elements opposed to Xi in the military or the CCP intelligence apparatus’s ‘hidden front,’” could have exploited “the Xi leadership’s prioritization of national security matters to ‘manipulate’ the PRC leader into taking out his own allies and ultimately undermining his own interests.”
If Xi’s lingering factional enemies are indeed pushing back against him, then they are likely exploiting the Xi leadership’s preoccupation with national security and Xi Jinping’s heightened fears of attempts against his life to leave Xi no choice but to oust his own political allies. It is suspicious that rumors circulating about Li Shangfu and former PLA Rocket Force commander Li Yuchao allege that both their sons had sold sensitive information to foreign countries. If there is truth to the rumors, it cannot be ruled out that the sons could have been set up by the CCP “hidden front” (possibly even working with foreign governments who are interested in leadership change in China) to secure “evidence” of their endangering national security and implicate their respective fathers. Another scenario could see Li Shangfu’s accusers (who are likely to be of the “anti-Xi” persuasion) producing “evidence” to Xi of Li’s involvement in or knowledge of plots that directly threaten Xi’s personal safety.
Meanwhile, the leaking of intelligence and information about the corruption probe into Li Shangfu to the U.S. government and the Western press could have been the work of elements associated with Xi’s factional rivals. In analyzing the PRC spy balloon incident, we noted that “it cannot be ruled out that ‘anti-Xi’ elements in the PRC with knowledge of the balloon confirmed exactly what it was to the Biden administration when it was spotted in U.S. airspace early on, giving the administration time to formulate a response and create a diplomatic incident.”
4. Moving on to other political speculation, the only part of the “Wang Yi writing self-criticism” rumor that is more believable is him being made to write a self-criticism, or a measure that CCP cadres are often tasked to do after committing errors. However, it is not unusual for Wang to not attend the G20 in India given that Xi Jinping was also not in attendance. And if Wang is indeed going to Russia on Sept. 18, then his political position is still very much intact.
The rumor about Li Zhaoxing being involved in foreign affairs matters on Xi’s behalf is difficult to verify given the lack of publicly available information on his public activities. That being said, it is unlikely that Xi would trust or assign Li Zhaoxing to undertake foreign affairs activities given that the latter belongs to the Jiang faction.
5. There does not appear to be much credibility to the rumors that Xi Jinping silenced former Kweichow Moutai chairman Yuan Renguo or that he was probing the healthcare industry over the leaking of information pertaining to his health. Particularly in the case of Yuan, there is no rationale as to why Xi would allow Yuan to live for another four years after being investigated if he wanted him dead in the first place.
What’s next
Xi Jinping’s “quan wei” will be seriously impacted if he takes too long to officially explain what happened to Li Shangfu, the PLARF leadership, and Qin Gang. While the Xi leadership stays silent, CCP officials and the general public will become more inclined to believe the various political rumors, including the less credible and wild stories. Over time, even Xi’s loyalists in the senior leadership could come to question Xi’s “quan wei,” health, and ability to govern the regime.
Meanwhile, Xi could view the Li Shangfu incident (regardless of whether or not there was an investigation) as a sign that the remnant Jiang faction and other lingering factional foes are fully committed to taking him out. This could lead Xi to sharply escalate the anti-corruption campaign and arrest the remaining “big tigers” as he strives to regain the initiative in “you die, I live” factional struggle.
Xi’s mounting political troubles at home could see foreign “anti-Xi” elements, including national governments, step up efforts to embarrass and put pressure on the PRC as they seek to exploit “internal fault lines” in the CCP elite to bring about leadership change in the regime.
Businesses, investors, and governments should prepare contingencies for elevated political instability in the PRC and the emergence of political Black Swans.
2 CCP signals ‘peaceful reunification,’ not invasion, is preferred method of ‘integrating’ with Taiwan
Sept. 12
The CCP Central Committee and the PRC State Council issued an opinion on creating a “cross-strait integrated development demonstration zone” in Fujian Province (關於支持福建探索海峽兩岸融合發展新路 建設兩岸融合發展示範區的意見) in a bid to advance “peaceful unification” with Taiwan.
The opinion called for building “cross-strait integration” in Fujian on the concepts of “both sides of the Taiwan Strait are one family, and Fujian and Taiwan are one family” (兩岸一家親、閩台親上親), as well as “promoting integration with communication, benefits, and affection” (以通促融、以惠促融、以情促融).
The opinion lists 21 specific measures for building “cross-strait integration,” including building homes for visiting Taiwanese compatriots and enterprises, promoting deep integration of Fujian and Taiwan’s economy and trade, promoting the integrated development of Fujian, deepening social and cultural exchanges between Fujian and Taiwan, and strengthening organizational guarantees.
Other noteworthy measures include:
- Facilitate Taiwanese compatriots in traveling, studying, finding employment, participating in society, as well as living and developing in Fujian.
- Encourage Taiwanese compatriots and enterprises to develop closer economic and trade cooperation with Fujian.
- Support the deepening integration and development of different regions in Fujian with Taiwan. Examples of regions include Xiamen and Kinmen, Fuzhou and Matsu, and the Pingtan Comprehensive Experimental Zone.
- Expand social and cultural exchanges and cooperation [between Taiwan and Fujian], and strengthen cross-strait social and cultural exchanges.
- Emphasize the Party’s overall leadership, establish mechanisms, and provide financial support to ensure the implementation of the policies and measures in the opinion.
Sept. 13
State mouthpiece Xinhua published a commentary titled, “Major Initiatives to Deepen Cross-strait Integration and Development Are ‘Full of Gold’ and ‘Love’” (“含金量”“含情量”十足的深化兩岸融合發展重大舉措).
The article said that the PRC authorities’ recent major measures to promote cross-strait integration will “produce many benefits” and “create more development opportunities and broaden the development space for Taiwanese compatriots.” The article added that the mainland will “always adhere to the philosophy of people-centered development” regardless of how the situation in the Taiwan Strait changes, and Taiwanese compatriots will be serviced akin to how the mainlanders are serviced.
The article also stated that “peace, development, exchanges, and cooperation” are the common aspiration of Taiwanese compatriots, and the “peaceful and integrated development of cross-strait relations” will be a broad path that “benefits compatriots on both sides.”
Sept. 14
Pan Xianzhang, deputy director of the Taiwan Affairs Office of the Central Committee, Cong Liang, deputy director of the National Development and Reform Commission, and Luo Dongchuan, deputy Party secretary of Fujian Province, held a joint press conference to introduce the “cross-strait integration” opinion and answer questions from the press.
The officials said that the building of the “cross-strait integrated development demonstration zone” in Fujian is a major measure to “deepen cross-strait integrated development and consolidate the foundation for peaceful reunification.” They add that the opinion is a “major policy proposition” stemming from Xi Jinping’s “Message to Compatriots in Taiwan” (告台灣同胞書) in January 2019 and further emphasized in Xi’s 20th Party Congress report.
The officials added that the opinion confirms to the “mainstream public opinion” that those on both sides of the Taiwan Strait want “peace, development, exchanges, and cooperation.”
Backdrop
The international community has become increasingly concerned over the prospect of the PRC invading Taiwan since the outbreak of the Russo-Ukrainian war. Western observers worry that China’s economic deterioration, as well as Xi’s power consolidation at the 20th Party Congress and need for major political achievements, is weakening Beijing’s desire for “peaceful reunification” with Taiwan and accelerating the regime’s timeline for invasion. This has prompted the United States and Taiwan’s neighbors to step up support for Taipei, including arms sales, in recent years.
Meanwhile, the Xi leadership is facing worse internal and external crises, with severe economic decline and real estate sector troubles making international headlines. The CCP regime’s worsening crises appear to have resulted in Xi experiencing political blowback, as glimpsed from his abrupt removal of political allies from senior positions and absence from international meetings.
Our take
1. Beijing’s introduction of the so-called “cross-strait integrated development demonstration zone” in Fujian is consistent with Xi Jinping’s stance on Taiwan as stated in the 20th Party Congress work report, i.e. the PRC will “continue to strive for peaceful reunification” with Taiwan “with the greatest sincerity and the utmost effort,” but will “never promise to renounce the use of force” and will “reserve the option of taking all measures necessary.” The Xi leadership would be hoping that greater mainland-Taiwan integration would lower cross-strait tensions and eventually pave the way forward on “peaceful reunification.”
The Xi leadership is likely also looking to convince the international community with the Fujian “cross-strait integrated development” plan that Beijing does not have the intention of invading Taiwan, or at least not imminently. In a similar vein, CCP officials who met with U.S. Commerce Secretary Gina Raimondo when she visited the mainland in late August did not mention Taiwan at all to her. This is in line with Xi’s rejection of the more hawkish agenda held by some in the Party elite and military like Liu Yazhou, i.e. that the PRC should engage in “decisive battle” to take Taiwan and be more confrontational towards the United States.
China’s slowing economy is another reason for Beijing’s elevated efforts to woo Taiwan. Having Taiwanese people study, work, and even buy homes in Fujian, and eventually other parts of mainland China, would boost local government revenues to a degree and help property developers move some inventory.
Going forward, and especially in the lead up to the 2024 Taiwanese presidential election, the Xi leadership could further tone down its rhetoric on Taiwan and roll out more “Taiwan-friendly” policies as it makes tactical adjustments to secure its “peaceful reunification” agenda. Beijing’s efforts to be more “Taiwan-friendly,” however, does not mean that it would abandon military drills near Taiwan or cease preparing for an invasion if needed. The PRC’s military actions and growing wariness towards the CCP regime in Taiwan could greatly cancel out the effectiveness of Beijing’s “Taiwan-friendly” policies.
2. The Taiwan issue is increasingly becoming a political dilemma for the Xi leadership.
On the one hand, Xi Jinping needs to keep working towards and talking about the CCP’s desire to achieve “reunification” with Taiwan, as well as emphasize the Party’s “red lines” on “Taiwan independence” and other related matters, so as to stay consistent with his predecessors on the topic. Yet the PRC currently lacks the conditions, the preparation, and the means to take Taiwan through military measures over the next couple of years; the odds of a successful invasion are vanishingly low and the economic impact (including international sanctions and boycotts) of the conflict would almost certainly lead to regime collapse.
On the other hand, Xi and the CCP’s constant harping on the Taiwan issue is reinforcing concerns in the international community that the PRC will invade Taiwan, and sooner rather than later given China’s worsening economic and demographic situation and Xi’s personal ambitions. However, some have also acknowledged that China’s economic situation actually lowers the likelihood of an invasion; during a press conference in Vietnam on Sept. 10, President Joe Biden observed that the PRC was suffering from economic crisis and said, “I don’t think it’s going to cause China to invade Taiwan. And matter of fact, the opposite — it probably doesn’t have the same capacity that it had before.”
Xi’s Taiwan dilemma could embolden those abroad who seek his ouster to exploit the Taiwan issue to heap pressure on him. Notably, former Central Party School professor Cai Xia wrote in a Foreign Affairs piece in September 2022 that the “only viable way” of undermining Xi is “a humiliating defeat in a war,” and particularly in a failed invasion of Taiwan. Those in the international “anti-Xi, not anti-CCP” crowd could have greater incentive to provoke Xi Jinping into invading Taiwan over the short term (one to four years) knowing full well that Xi is simply unable to do so—Xi faces personal dangers and regime collapse if he orders an invasion, and critical loss of “quan wei” and political legitimacy if the PRC does nothing in response to the international community crossing the CCP’s “red lines” on Taiwan.
