1 Analyzing Politico’s piece about Xi going ‘full Stalin’
On Dec. 6, Politico Europe published a piece with no byline titled, “China’s Xi goes full Stalin with purge.” The article was the lead article on the Politico Europe site for a period.
Notable points in the article include:
- The article claims that “a Stalin-like purge is sweeping through China’s ultra-secretive political system, with profound implications for the global economy and even the prospects for peace in the region.”
- The article alleges that several of Xi Jinping’s former “acolytes have apparently died in custody.” Much later in the piece, Politico cited two people “with access to top officials” as claiming that former foreign minister Qin Gang had “died, either from suicide or torture, in late July in the military hospital in Beijing that treats China’s top leaders.”
- The article claimed that Russian deputy foreign minister Andrey Rudenko’s “real mission in Beijing” on June 25, 2023 when he met with Qin Gang “was to inform Xi that his foreign minister and several top officers in the PLA had been compromised by Western intelligence agencies,” citing “several people with access to high-level Chinese officials.” Politico then repeated rumors about the supposed relationship between Qin and Phoenix TV reporter Fu Xiaotian. The “people with access to top Chinese officials” also told Politico that Rudenko’s message to Xi included “allegations that Qin and relatives of top rocket force officers had helped pass Chinese nuclear secrets to Western intelligence agencies.”
- The article implied that Xi was behind the death of Li Keqiang and described Li as Xi’s “former rival.”
- The article claimed that the “officials being neutralized” today under Xi’s anti-corruption campaign are “not members of hostile political factions but loyalists from the inner ring of Xi’s own clique, leading to serious questions over the regime’s stability.” The article continued, “With such a febrile atmosphere in the celestial capital of Beijing, there are fears that an isolated and paranoid Chairman Xi could miscalculate, provoke armed conflict with one of its weaker neighbors or even launch a full-scale invasion of democratic Taiwan in order to distract from his domestic troubles.”
- Politico wrote that “One senior Chinese finance official who speaks fluent English and is a regular fixture on the international conference circuit told POLITICO by email that he could no longer attend an upcoming event outside China and was unable to speak on the phone.” Politico then cited an associate of this official as saying he was presently being investigated for being “too close to America” and “possibly a spy.” Politico added, “This seems to be the inevitable fate of anyone who engages too eagerly with foreigners and should serve as a warning to those who still believe China is open for business with the West.”
Our take
1. We are deeply skeptical of the information in Politico Europe’s piece on CCP elite politics. Some of the things that we found to be problematic include:
- The article has no byline and does not present information like a regular news report. Rather, the article reads more like a more polished account of rumors of CCP elite politics that circulate in Chinese-speaking circles, filled with “story-telling” elements, sweeping speculations, misrepresentations of dynamics in CCP elite politics, and a clear “anti-Xi” bias (i.e. blaming Xi for virtually all of the PRC’s ills without holding Xi’s predecessors or the CCP accountable); we previously observed similar issues with Nikkei Asia’s columns on Party elite politics.
- The citing of “several people with access to high-level Chinese officials” by Politico Europe does not say much about the credibility of their claims. Many high-level PRC officials are in the dark about the on-goings in the CCP elite and do not necessarily have a clear understanding of elite factional allegiances and dynamics. These high-level PRC officials could also be biased by their respective factional interests and alignments.
- With the exception of the bits about Russian deputy foreign minister Andrey Rudenko’s “real mission in Beijing” and the alleged death of Qin Gang, the rest of the information in the article has already been circulating in Chinese-speaking spheres as rumors and speculation for some time (we previously identified some of the rumors concerning Qin Gang, Li Shangfu, and the PLA Rocket Force here, here, and here).
- The claim that Rudenko informed Xi that Qin and other top PLA officials had allegedly been compromised by Western intelligence agencies may or may not be accurate, but is challenged by reporting in Hong Kong media as early as May 2023 that senior PLA Rocket Force officials were already being investigated. Then in early July, overseas Chinese language outlets reported that Qin was probed over his mistress and illegitimate child, that is, “lifestyle issues,” and not intelligence matters; Western media outlets would report similar information in September.
- Qin is highly unlikely to have passed on nuclear secrets to Western intelligence agencies because he would not be able to obtain them in his capacity as foreign minister and is very unlikely to have ample opportunities in the foreign service to cross paths with senior PLA officials who would be privy to such classified information.
- It has been normal practice for senior CCP officials who are being investigated by the Central Commission for Discipline Inspection to “vanish” for periods of between six months to a year and for no information about them to be released.
- The CCDI’s priority is to extract information and confessions from the officials under investigation. This means that they are unlikely to subject the latter to overtly brutal torture, unlike prisoners of conscience and other persecuted groups in China; officials are more likely to suffer relatively “non-violent” abuses, such as sleep deprivation, rather than harrowing medieval torture methods. Official media has also previously reported that the CCDI has protocols in place to prevent officials from committing suicide. This makes the “death” of Qin Gang by torture or suicide while in CCDI custody to be very unlikely.
- The article characterizes Li Keqiang as Xi’s “former rival,” a misnomer that we have pointed out on several occasions.
- The article characterizes Xi’s anti-corruption campaign as Xi going “full Stalin,” but Xi’s removal of a handful of political cronies in 2023 is nothing like Stalin’s “Great Terror” campaign in 1937, which resulted in the mass executions of an estimated 700,000 people. Further, Xi’s anti-corruption effort is partly a genuine attempt to improve CCP governance as it is partly a way to greatly weaken the Jiang Zemin faction and sideline Xi’s other factional enemies.
- The article speculates that an “isolated and paranoid” Xi could invade Taiwan, but this depiction runs counter to the clearly lucid Xi who assured President Joe Biden in their meeting in California that he has no plans to take military action against the ROC. Even taking into account the habitual deceptiveness of the CCP and its leaders, we have previously analyzed on numerous occasions why the PRC is unlikely to mount an invasion of Taiwan in the near future.
2. We believe that Politico Europe’s piece, like the recent political rumors about Xi Jinping published by Western media outlets, could be a form of political mobilization by elements of the “anti-Xi coalition.”
The “laundering” of CCP elite politics rumors and speculation in Western media gives them a veneer of “credibility” that could convince the average reader that they should be concerned about the “unstable” political situation in “Stalinist” China and what an “isolated and paranoid Chairman Xi” could do to Taiwan and the world. Meanwhile, Chinese language media outlets are bound to report on the Politico Europe piece and its claims, allowing the “news” to spread in one form or another inside China and potentially create problems for Xi.
The “anti-Xi” elements in the Party elite and abroad could be looking to shape the external information environment to become even more unfavorable to Xi Jinping and create opportunities to force leadership change in the PRC. Such a move by Xi’s enemies could eventually lead to serious political instability in the CCP elite even if there is only minimal instability at the present.
As we wrote in the Sept. 21, 2023 newsletter: “If Xi suspects or believes that his being forced to order probes into his own allies and loyalists is the work of the remnant Jiang Zemin faction or other ‘anti-Xi’ forces in the Party elite, then Xi could decide to play hardball and ‘perish together’ (同歸於盡) with his enemies by expanding the anti-corruption campaign to target previously ‘untouchable’ groups like the princelings, CCP elders like Zeng Qinghong, and lingering ‘anti-Xi’ elements in the military (including princeling-controlled military industrial enterprises like China Poly Group). By taking out both his factional enemies and allies, however, Xi would be generating immense political instability in the regime and would undermine the CCP’s own political legitimacy to the point that preserving the Party’s rule becomes untenable. We assess that Xi will only pursue ‘perish together’ anti-corruption investigations if he has decided that the task of saving the CCP from its crises is inimical to his personal future.”
3. It cannot be ruled out that the “anti-Xi coalition” has stepped up political mobilization against Xi Jinping and is trying to cast Xi as a Stalin figure because the Xi leadership is presently intensifying efforts to purge them rather than his own allies.
For instance, a Dec. 1 article by semi-official mainland media The Paper noted that the anti-corruption authorities has punished at least 13 cadres in the financial system in November 2023, including two cadres under central management, seven cadres from central-level Party and state agencies, SOEs, and financial institutions, as well as four cadres under provincial management. The financial system was influenced by the Jiang faction during the latter’s era of dominance and a good portion of the cadres currently in the system could still have sympathies for the Jiang faction or continue to operate in ways that were acceptable before Xi took office but have since been recognized as corruption.
Purging the financial system of disloyal and corruption elements aside, Xi also appears to be placing his allies in important central-owned financial institutions to better bring it under his control. For example, Xi Guohua was promoted to Party secretary of CITIC Group on Dec. 6. Xi was previously transferred from a leadership position in an automobile SOE to CITIC to serve as deputy Party secretary in June 2020. Chinese observers believe that CITIC was involved in the “financial coup” against Xi Jinping during the 2015 stock market turbulence; CITIC Securities, whose vice chairman at the time was Jiang faction member Liu Yunshan’s son Liu Lefei, appeared to have participated in shorting the market and channeling benefits to companies with vested interests as part of the “national team” effort to rescue the market.
2 Xi’s tightening of financial control spooks wealthy Chinese and Wall Street
Ideology to drive financial development in the PRC
Dec. 1
The office of the CCP Central Financial Commission and the Central Financial Work Commission published an article in Qiushi, the CCP Central Committee ideological journal, titled “Unswervingly Follow the Path of Financial Development with Chinese Characteristics” (堅定不移中國特色金融發展之路).
The article hailed Xi Jinping’s speech at the 2023 Central Financial Work Conference as a “major innovation and theoretical elevation” and “an important innovative achievement of Marxist political economics on financial issues.” The article further praised Xi’s speech as an “inheritance and innovation of Marxist political economy theory on finance” and a “profound answer” to the “many major theoretical and practical problems that have not been addressed by classical Marxist writers, have not been encountered by our predecessors, and have always remained unsolved by Western financial theories.”
The article listed “eight adherences” (八個堅持) that the PRC should follow in pursuing “financial development with Chinese characteristics”:
- Adhere to the centralized and unified leadership of Party Central over financial work.
- Adhere to people-centric value orientation.
- Adhere to the fundamental purpose of having finance serve the real economy.
- Adhere to risk prevention and control as the eternal theme of financial work.
- Adhere to promoting financial innovation and development on the track of marketization and the rule of law.
- Adhere to deepening financial supply-side structural reform.
- Adhere to coordinating financial openness and security.
- Adhere to the general tone of seeking progress while maintaining stability.
The article also rehashed some of the key content discussed at the Central Financial Work Conference.
Dec. 5
The New York Times published a piece on the Qiushi article promoting “financial development with Chinese characteristics” titled, “Xi Jinping Is Asserting Tighter Control of Finance in China.”
In summarizing the Qiushi article, the Times noted that it “made clear that it expected banks, pension funds, insurers and other financial organizations in China to follow Marxist principles and pay obedience to Mr. Xi,” and that the article could “cut against efforts by Beijing to show that the economy is open to investment even as it places a heavier hand on business.”
University of California, San Diego economist Barry Naughton told the Times, “The financial sector will not be expected to push for market-oriented reforms or even necessarily maximize profit. As a program for the financial sector, it is ambitious, disappointing and somewhat ominous.”
Zhu Tian, an economics professor at the China Europe International Business School in Shanghai, told the Times that the Qiushi piece should be viewed primarily as a political statement and not a political prescription. “Politics affects all important areas, and economic or financial issues are themselves political issues,” he said.
MSS refutes impact of counterespionage law on business environment
Dec. 6
The PRC Ministry of State Security published an article on its official WeChat account titled, “Facts Cannot Be Discredited! Four Fallacies About the Counterespionage Law ‘Destroying the Business Environment’ (Part 1).”
The article noted that the PRC’s revised counterespionage law received close attention at home and abroad after it was issued in April 2023. The article added that the law was subjected to “malicious attacks and smears,” with some “foreign forces with ulterior motives” fanning the flames by spreading “absurd arguments” that the law was “damaging the business environment,” that the PRC was “expanding national security,” and claiming that regular business activities in China could be regarded as “espionage.”
The article then listed and sought to refute two fallacies:
- The counterespionage law has worsened the business environment and has a “chilling effect” on foreign companies investing in China.
- The counterespionage law considers commercial data to be “state secrets” and regular access to commercial information as “espionage.”
Wealthy Chinese flee the mainland
Dec. 6
Vesternews.com, a Singapore-based Chinese language media outlet, reported that 699 wealthy mainland Chinese have set up family offices in Singapore as of August 2023, citing data from Singapore database company Amicus.
Vesternews.com also cited data from London-based investment migration consultancy Henley & Partners as showing that 10,000 millionaires had left China and moved to other countries in 2022. Each of these millionaires was estimated to have taken about SGD 6 million (about $4.483 million) when exiting China, which meant a total outflow of SGD 66 billion for the 10,000 millionaires.
Henley & Partners also noted that the top destinations of the wealthy Chinese by order were the United States, Canada, Australia, the United Kingdom, and Singapore. Henley & Partners further estimated that 500 of the 10,000 millionaires who left China in 2022 migrated to Singapore, and brought an estimated SGD 3.3 billion to the island nation.
Wall Street cuts China investments
Dec. 7
The Wall Street Journal reported that “some of Wall Street’s best-known financiers” told U.S. House Select Committee on the Chinese Communist Party Mike Gallagher in closed-door meetings at the Council on Foreign Relations in New York in mid-September that they were already “ratcheting back their investments” in China due to the country’s economic problems, real estate sector crisis, and Xi Jinping’s emphasis on national security.
The Journal noted that official PRC data shows that the money that foreign institutional investors have in Chinese stocks and bonds has fallen by more than $31 billion in 2023 through October, or the best net outflow since China joined the World Trade Organization in 2001.
The Journal wrote that hedge funds, including Ray Dalio’s Bridgewater Associates, have “significantly reduced their holdings of Chinese securities.” Private equity firms like Carlyle have “slashed fundraising targets for their Asia funds or stopped raising China-oriented funds altogether.” Also, private equity funds targeting China have raised just $4.35 billion so far in 2023, compared to the average of nearly $100 billion each year over the past decade, according to data firm Preqin. Meanwhile, mutual fund managers such as Vanguard and Van Eck Associates have “either pulled out or aborted their China plans.”
Josh Wolfe, managing partner of venture capital firm Lux Capital, told the Journal that the company decided not to invest in China five years ago because the PRC authorities’ growing use of technology for social surveillance “seemed like an omen of intensified state control.” Wolfe believes that capital will continue to leave China, and that “this is a secular shift that can last a long time.”
Backdrop
In the week of Dec. 4, Moody’s Investors Service downgraded its outlook on the credit ratings of China, Hong Kong and Macau, some of the PRC’s state-owned firms and banks, 22 local government financing vehicles, 18 mainland companies including Alibaba and Tencent, and 10 insurance companies, from stable to negative. Moody’s also put 26 LGFVs and four SOEs on downgrade watch.
After Moody’s downgrade, the Shanghai Composite Index traded below the psychologically important level of 3,000 points for several days.
Our take
The Qiushi article promoting “financial development with Chinese characteristics” is part of the propaganda and ideological component of Xi Jinping’s push to strengthen his control over the financial system and sector. Xi had started to more seriously “rectify” the financial system and sector in 2017, but only stepped up consolidation and control efforts this year (see here and here for our more recent analysis on such developments) after boosting his “quan wei” (authority and prestige) at the 20th Party Congress in 2022. We believe that Xi likely did not move aggressively to clean up the financial system and sector in his first two terms because he did not have sufficient political strength for the undertaking until near the end of his second term and did not want to add to his political problems by harming the interests of Party elites and expanding his pool of enemies.
Xi likely does not believe that he has enough “quan wei” to accelerate financial “rectification” and break up the financial sector “independent kingdoms” of Party elites even after having centralized power to a very high degree. Therefore, Xi is creating political “legitimacy” for himself by adhering to CCP political tradition and elevating his “rectification” of the financial sector into an ideology (“financial development with Chinese characteristics”) that is part of the broader Marxist framework (“inheritance and innovation of Marxist political economy theory on finance”).
Xi almost certainly believes that his only solution for resolving the existential domestic and external problems plaguing the CCP regime is to strengthen his and the Party’s authoritarian control and improve its “governance capacity.” On financial matters, this means elevating financial security to the level of national security, and taking steps to curb short-selling and other financial activities (including collusion between CCP elites and foreigners opposed to Xi) that could undermine the regime. However, it is also becoming increasingly clear that Xi is shooting himself in the foot with his pursuit of absolute control, with the business environment in China souring as Chinese entrepreneurs fear running afoul of the counterespionage law, while Wall Street becomes disillusioned about the PRC “economic miracle” and pulls investments. By accelerating his “rectification” of the financial sector, Xi is also accelerating the deterioration of the Chinese economy.
