1 Analyzing CCP diplomat Liu Jianchao’s US trip
Liu Jianchao, head of the CCP International Liaison Department, traveled to the United States for a series of diplomatic activities.
Jan. 8
1. Liu Jianchao and officials from the CCP’s Central Finance Office and Central Foreign Affairs Office attended a seminar hosted by Asia Society in New York for “Track 1.5” diplomacy. According to PRC state media reports, Liu met with Asia Society’s Board of Trustees co-chair John Thornton, former US Assistant Secretary of State for East Asian and Pacific Affairs Daniel Russel, former Acting Deputy U.S. Trade Representative Wendy Cutler, Asia Society Center for China Analysis co-founder Qian Jing, and Qiming Venture Partners co-founder Gary Rieschel.
Liu said at the symposium that the PRC and the U.S. “should implement the important consensus reached by the heads of state” at the Xi-Biden meeting in San Francisco. He added that both sides “should do more to enhance understanding and promote cooperation and continue the positive momentum created by the leaders’ meetings.”
Liu also said that the CCP International Liaison Department is willing to strengthen exchanges and cooperation with Asia Society, operate well the “Track 1.5 Dialogue” mechanism, and contribute to the “stable, healthy, and sustainable development of bilateral relations.”
2. Liu Jianchao met with Eurasia Group president Ian Bremmer and discussed global risks and challenges with him. According to a PRC statement, Liu and Bremmer agreed that the U.S. and China should “strengthen mutual trust and cooperation … encourage close interaction between all sectors of society, especially young people, and build bridges of long-term friendship and cooperation.”
Jan. 9
1. Liu Jianchao gave a speech at the Council on Foreign Relations in New York and answered some questions from the event participants.
Liu opened his speech by looking at PRC domestic issues. He promoted Beijing’s “modernization” drive and pursuit of “high-quality” economic development, and noted that the PRC is committed to “reform and opening up” and will “continue to expand institutional opening up.” Liu further sought to debunk the idea that “China’s economy is slowing down.”
On foreign issues, Liu claimed that the PRC “remains firm in pursuing an independent foreign policy of peace and is committed to peaceful development.” He added that Xi Jinping “reiterated during his recent visit to the United States that China will not fight a Cold War or a hot war with anyone” and that the PRC “does not seek to change the current international order, still less reinvent the wheel by creating a new international order.” Liu also said, “We are one of the builders of the current world order and have benefited from it. We’ll continue to uphold the international system, with the U.N. at its core, and the international order underpinned by international law and the basic norms governing international relations.” Liu, however, also brought up the “community with a shared future for mankind” and the CCP regime’s various measures for “building” it, including the “Global Development Initiative, the Global Security Initiative, and the Global Civilization Initiative as the strategic guidance, and the Belt and Road Initiative as a practicing platform.”
With regard to Taiwan, Liu said that “the Taiwan question is at the very core of the core interests” of the PRC and is a “red line that mustn’t be crossed.” He added that the PRC takes seriously “the statements of the United States not supporting Taiwan independence. And we hope that the U.S. side will honor this commitment.”
When asked about whether the PRC will see a return to “wolf warrior diplomacy,” Liu said, “I don’t really believe there has always been a kind of wolf warrior diplomacy. And there’s no talk about coming back to that diplomacy.”
2. Liu Jianchao met with United Nations Secretary General Antonio Guterres at the United Nations headquarters in New York. According to state media, Liu and Guterres exchanged views on cooperation between the PRC and the UN, the PRC’s Global Civilization Initiative, and “international and regional issues of common interest to both parties.”
Liu added that the PRC “faithfully fulfills its responsibilities and mission as a permanent member of the UN Security Council, actively participates in cooperation in various fields under the UN framework, practices true multilateralism, and promotes the building of a community with a shared future for mankind.”
3. Liu Jianchao met with News Corporation CEO Robert Thomson and other executives from Dow Jones, The Wall Street Journal, and Barron’s in New York. According to state media reports, they discussed the role of the media in Sino-U.S. relations, the impact of social media, trends in artificial intelligence, and China’s new energy policy.
4. Liu Jianchao met with former U.S. officials and representatives from the finance and business community in New York. Among those who met with Liu include former U.S. Treasury Secretaries Robert Rubin and former U.S. Under Secretary of State Robert Hormats Timothy Geithner, Bridgewater Associates founder Ray Dalio, and Harvard University professor Graham Allison.
Jan. 10
Liu Jianchao met with U.S. Principal Deputy National Security Advisor Jon Finer in Washington D.C. According to a White House readout, both sides discussed the ongoing implementation of key outcomes from the Biden-Xi summit in November 2023, global and regional security issues, and reaffirmed support for continued high-level diplomacy and interactions between both countries.
Finer also “stressed the importance of peace and stability across the Taiwan Strait and in the South China Sea.”
Jan. 12
Liu Jianchao met with U.S. Secretary of State Antony Blinken in Washington D.C. According to a State Department readout, the two sides had “a constructive discussion on a range of bilateral, regional, and global issues, including areas of potential cooperation and areas of difference.”
Secretary Blinken also “emphasized the importance of resolving the cases of American citizens who are wrongfully detained or subject to exit bans in China and raised U.S. concerns about PRC human rights abuses.”
Brief CV of Liu Jianchao
Liu Jianchao spent the bulk of his career at the PRC Ministry of Foreign Affairs.
After Xi Jinping came to power in 2012, Liu went from being a diplomat (PRC ambassador to Indonesia [Jan. 2012 to Feb. 2014]) to serving in provincial-level administrations from September 2015 to April 2018 (Party secretary of the Hunan Commission for Discipline Inspection, as well as Party secretary of the Zhejiang CDI and director of the provincial supervisory commission). Liu’s transfer to the provinces suggests that he was being groomed for higher office.
In April 2018, Liu returned to the central government and served in the office of the Central Foreign Affairs Commission as deputy director and then executive deputy director. In June 2022, Liu was transferred to his current position.
Backdrop
Jan. 10
Party mouthpiece People’s Daily published a “Zhong Sheng” commentary (鐘聲: 美方構築「小院高牆」終將作繭自縛) criticizing the U.S.’s technological containment of China.
Jan. 13
Taiwan held its presidential and legislative elections.
- The Democratic Progressive Party’s Willaim Lai Ching-te won the presidential election with more than 40 percent of the vote.
- No party secured the 57 seats needed to form a majority in Taiwan’s 113-seat Legislative Yuan. The Kuomintang won 52 seats (up 14 seats), the DPP 51 won 51 seats (down 10 seats), the Taiwan People’s Party won eight seats (up by 3 seats) and independents won the remaining two seats.
Our take
1. Xi Jinping likely dispatched Liu Jianchao to the United States to signal to Washington that he is still keen on fulfilling his commitments to President Joe Biden made during their summit in California. Xi has a strong incentive to lower Sino-U.S. tensions at this time so that he can focus his energies on defusing pressing domestic crises, including a rapidly declining economy, worsening property sector woes, severe corruption in the military, and mounting political problems.
Xi could also be hoping that Liu can buy goodwill with the Biden administration and perhaps secure some U.S. “help” in “restraining” the so-called “Taiwan independence” inclinations of new Taiwan leader William Lai and the Democratic Progressive Party. Liu might too be tasked with further reassuring Washington that Beijing has no plans to invade Taiwan and convincing the Biden administration to back away from the “red lines” concerning the Taiwan issue.
Xi could further have wanted Liu to touch base with the business community in the U.S. (including media outlets) to convince them about his commitment to “reform and opening up” and boost their confidence in China. Xi needs to reverse the trend of foreign investments leaving the mainland and attract more investments to help sustain the Chinese economy and mitigate the impact of economic deterioration.
Xi does seem to be sincere in improving Sino-U.S. ties and rehabilitating the PRC’s international image, at least for the present. The PRC’s “wolf warriors” have gradually grown quieter since the 20th Party Congress and especially with foreign ministry spokesman Zhao Lijian’s transfer to the foreign ministry’s Boundary and Ocean Affairs Department to serve as deputy director. Meanwhile, notable “wolf warrior” Lu Shaye, the PRC ambassador to France, has not made controversial remarks since his comment about ex-Soviet states in April 2023.
That being said, Xi and the CCP clearly have not abandoned their long-term plans for global hegemony. Notably, Liu Jianchao continued to promote the “community with a shared future for mankind” and the CCP’s various “global initiatives” (including the Belt and Road) during his U.S. trip. Given that the realization of the Party’s global agenda essentially entails the replacement of the current world order, Liu was somewhat duplicitous in his speech to the Council on Foreign Relations when he brought up the “community with a shared future” immediately after claiming that the PRC “does not seek to change the current international order.”
2. A number of commentators believe that Liu Jianchao is a “strong contender” to succeed Qin Gang as foreign minister. This cannot be ruled out given Liu’s diplomatic background and experience.
Xi, however, would have to bypass several personnel appointment “hurdles” should he insist on making Liu the next PRC foreign minister. For one, Liu is already 59 years old and is neither a member nor an alternate member of the Central Committee. To become foreign minister (and then a state councilor), Liu would have to be promoted up three levels in a very short period. Unless Xi is willing to break more personnel reshuffle norms to elevate Liu, it is more likely that the latter was temporarily serving as a “special envoy” on his trip to the United States and will remain as head of the International Liaison Department.
Xi Jinping has limited options for foreign minister candidates. In terms of qualifications, there are currently only three foreign ministry officials at the ministerial level, including Wang Yi, foreign ministry Party Committee secretary Qi Yu, and foreign ministry executive vice minister Ma Zhaoxu. The latter two, however, are not members or alternate members of the Central Committee.
2 China’s gloomy economic data hints at negative growth in 2023
Jan. 11
The China Association of Automobile Manufacturers released the following data:
- In December 2023, China’s auto industry produced 3.079 million units and sold 3.156 million units, a year-on-year increase of 29.2 percent and 23.5 percent respectively. Domestic car sales increased by 19 percent year-on-year to 2.657 million units, while car exports increased by 54.3 percent to 499,000 units.
- In 2023, China’s auto industry produced 30.161 million units and sold 30.09 million units, a year-on-year increase of 11.6 percent and 12 percent respectively. Car exports increased 57.9 percent year-on-year to 4.91 million units, and exports amounted to 55.7 percent of the growth in total car sales.
The CAAM said that China has entered a “new era” with over 30 million in vehicles produced and sold in a year. The CAAM predicted that China’s total car sales will exceed 31 million units in 2024, or a year-on-year increase of more than 3 percent. The CAAM also expects China to sell 11.5 million units of new energy vehicles, of which 5.5 million units will be exported.
Jan. 12
1. Data from the National Bureau of Statistics showed:
- China’s consumer price index fell 0.3 percent in December from a year earlier (the third straight month of declines) and increased 0.1 percent from a month ago. All in all, China’s CPI in 2023 was negative for three months and flat for two months.
- China’s producer price index fell 2.7 percent year-on-year (the 15th straight month of declines) and 0.3 percent month-on-month. The PPI of 20 of the 30 major industries contracted for the full year in 2023, including the auto manufacturing industry (down 1.2 percent).
2. The PRC General Administration of Customs published the following data (in U.S. dollars):
December 2023
- China’s total trade (imports and exports) increased by 1.4 percent year-on-year to $531.90 billion. (Total trade declined by 0.4 percent when compared with official PRC data from 2022.)
- China’s exports increased by 2.3 percent year-on-year to $303.62 billion. (Exports declined by 0.8 percent when compared with official PRC data from 2022. This represents eight consecutive months of declines for China’s exports.)
- China’s imports increased by 0.2 percent year-on-year to $228.278 billion. (Imports declined by 0.1 percent when compared with official PRC data from 2022.)
- China’s trade surplus was $75.3403 billion. This reflects a year-on-year decrease of 3.4 percent when calculated against 2022 data.
Full year 2023
- China’s total trade decreased by 5 percent from a year ago to $5.94 trillion. (Down 5.9 percent when compared to official PRC data from 2022.)
- China’s exports decreased by 4.6 percent from a year ago to $3.38 trillion. (Down 5.9 percent when compared to official PRC data from 2022.)
- China’s imports decreased by 5.5 percent from a year ago to $2.56 trillion. (Down 5.9 percent when compared to official PRC data from 2022.)
- China’s trade surplus was $823.22 billion, or a year-on-year decrease of 6.2 percent when calculated against 2022 data.
Foreign trade in 2023
- China’s exports fell by 10.8 percent and trade surplus fell by 20.7 percent to the EU region.
- China’s exports fell by 14 percent and trade surplus fell by 16.8 percent to the United States.
- China’s exports fell by 7.7 percent and trade surplus fell by 14.8 percent to the ASEAN region.
- China’s exports increased by 5 percent and trade surplus increased by 35.1 percent to Africa.
- China’s exports increased by 45.8 percent and trade deficit decreased by 52.2 percent to Russia.
3. The People’s Bank of China released the following financial data:
- The cumulative increase in the scale of total social financing in 2023 was 35.59 trillion yuan, or 3.41 trillion yuan more than in 2022. Of the total:
- Renminbi loans issued by the real economy increased by 22.22 trillion yuan, or up 1.18 trillion yuan from a year ago.
- Net financing from government bonds was 9.6 trillion yuan, or 2.48 trillion yuan more as compared to the same period in the previous year.
- At the end of December 2023, the balance of broad money (M2) increased by 9.7 percent year-on-year to 292.27 trillion yuan. The balance of narrow money (M1) increased by 1.3 percent to 68.05 trillion yuan.
- At the end of December 2023, the balance of RMB loans increased by 10.6 percent year-on-year to 237.59 trillion yuan.
- At the end of December 2023, the balance of RMB deposits increased by 10 percent to 284.26 trillion yuan.
- At the end December 2023, Chinese household savings increased by 16.67 trillion yuan to 137.01 trillion yuan, a record high.
Our take
1. China’s CPI and PPI figures, which have fallen into negative territory for consecutive months in 2023, indicate that deflation is deepening in China.
Notably, the auto industry, which was one of the better performing sectors of the economy, saw a PPI contraction of 1.2 percent in 2023. This is likely one of the outcomes of the car “price wars” that began around March 2023. We analyzed at the time, “The cost of car companies reducing prices will be passed on to the entire supply chain, and the PPI will inevitably fall. Continuous PPI declines could eventually result in deflation.”
2. The PBoC’s M2 and M1 data suggest that the central bank’s monetary easing in support of the economy in 2023 did not produce satisfactory results. Meanwhile, companies appear to be unwilling to invest and instead prefer conservative fund management strategies, including putting funds in time deposits, and purchasing low-risk government bonds.
The disparity between the M2 and M1 money supply suggests that there are large amounts of idle funds. The National People’s Congress had earlier noted this in November 2023 in its opinions and suggestions on the financial work situation report (對金融工作狀況報告的意見和建議): “The M2 growth rate is high and the M1 growth rate is low. One of the reasons why the two do not match is that funds are idling in banks. Also, funds [could be mainly] rotating between banks and large enterprises while small and medium-sized enterprises have poor access to funds and credit.”
The phenomenon of idling funds has grown more prominent recently. On Jan. 9, the yield on China’s 10-year government bond fell to 2.49 percent (a new low since April 2020), or lower than the 1-year medium-term lending facility interest rate of 2.5 percent. This indicates that SOEs with preferential access to large amounts of funds are not investing in production but have instead used those funds to purchase government bonds, causing yields to fall.
Meanwhile, Chinese household savings reaching a record high reflects the Chinese people’s unwillingness to spend. This indicates that the PRC’s consumption and recovery problems are set to continue and worsen this year.
3. China’s economic difficulties and growth struggles are reflected in the sluggish export figures:
- China’s exports to key markets, namely the European Union, the United States, and the ASEAN region (comprising 45.1 percent of total exports), experienced double-digit declines.
- Contrary to the official figures’ indication that China saw marginal growth in exports in November and December 2022, a comparison of the data with the CCP’s earlier figures reveals that exports had declined for eight consecutive months.
- China’s trade surplus for the year fell by 6.2 percent. After adjusting for the deficit in trading services, China’s forex earnings for 2024 are poised to see further declines.
- Data from the State Administration of Foreign Exchange indicates that China’s trade surplus in goods and services decreased by 35 percent from January to November 2023, hinting at a more pronounced annual contraction.
4. A closer look at the official PRC data, as well as various economic and financial indicators, suggests that China likely saw negative growth in 2023. Here, we look at the example of how the CCP’s attempt at manipulating the official figures for the country’s investment in fixed assets in 2022 and 2023 reveals that growth for the past two years was more likely negative than positive.
NBS data shows that China’s investment in fixed assets increased by 2.9 percent from a year ago from January to November 2023 to 46.1 trillion yuan. However, NBS data from last year showed that China’s investment in fixed assets from January to November 2022 was 52 trillion yuan. Put another way, national fixed assets investment for the first 11 months of 2023 actually decreased by 11.4 percent (5.9 trillion yuan) instead of increasing.
The NBS attempted to explain the discrepancies in the data in April 2023 by claiming that there are “incomparable factors between the data of the same period and they cannot be directly compared to calculate the growth rate.” Assuming the NBS’s explanation is sound and the figure for China’s investment in fixed assets for the first 11 months of 2023 is accurate, then the national fixed assets investment figure for the first 11 months of 2022 should be 44.7 trillion yuan, or 7.3 trillion yuan lower than the official data. A reduction in the 2022 national fixed assets investment figure means a corresponding decrease in the 2022 GDP, which yields a growth rate of negative 2 percent in 2022 instead of the reported positive 3 percent growth. And if China’s GDP was negative in 2022, it is therefore reasonable to assume that the 2023 GDP would be negative given that the economic indicators for that year were worse than those in 2022.
Regardless, the CCP authorities will almost certainly manipulate the official data to magically produce an official GDP figure that is in the ballpark of the growth target (“around 5 percent”) that Beijing had earlier announced. Whether or not savvy investors and the international community can be persuaded that the official figure is accurate is another story altogether.
