1 Pro-Jiang faction HK media uses historical drama to obliquely criticize Xi
HK01, an online Hong Kong media outlet with Jiang Zemin faction connections, recently published a series of commentaries (“神劇今解・大明王朝1566”) on a 2006 mainland television drama “Ming Dynasty in 1566” that make oblique criticism of the Xi Jinping leadership and its governance of China over the past decade. Issues raised in the commentaries include power struggles and the anti-corruption campaign, the weakening of the PRC State Council and the strengthening of Party Central, and the plundering of private enterprises to rescue the regime.
March 19
HK01 published the first commentary in the series titled, “The Struggle of Two Forces is a Protracted War” (兩股力量的鬥爭是一場持久戰). The commentary focused on the power struggle depicted in the TV drama “Ming Dynasty in 1566,” including between the Jiajing Emperor of the Ming Dynasty (representing the ruling class) and his minister Hai Rui (representing the grassroots), as well as the “clean” faction (清流派; representing upright officials) and the “strict party” (嚴黨; representing corrupt officials led by the Grand Secretary Yan Song)
The commentary mentioned the “Yangtze River and Yellow River discourse” brought up during a dialogue in the drama between the Jiajing Emperor and minister Hai Rui, and said, “As history reflects on reality, the ‘power of the people should not be underestimated. Many people may mistakenly believe that the leadership of a few visionary leaders led to China’s rise today. However, in this era of great changes, there are not only the highest leaders and rulers, but also a huge number of ordinary people.” The commentary then gave examples of how Mao Zedong and Deng Xiaoping’s successes were owed to the power of the people, and implied that the current CCP leadership faces external threats to China and the challenge of “vast numbers of people continuously pursuing a better life.”
The commentary said that the power struggle between the “clean” faction and the “strict party” ultimately harmed the common people. Also, both factions were being used by the Jiajing Emperor.
The commentary then turned to another mainland TV drama, “Awakening Era” (覺醒年代) from 2021, and quoted what the dramatized version of then-Party elder Chen Duxiu said about “reformists” and “conservatives.” The dramatized Chen said that the debate between “reformists” and “conservatives” is an “academic dispute, not a division of enemies.” He added that “reformists and conservatives are relative. Today’s conservatives may have been reformists before, and today’s reformists may become conservatives in the future.”
The commentary said, “History has always progressed amid a struggle between two forces” and “the fundamental stability of a country lies in being ‘people-centered,’ with the power of the people being the most fundamental force driving historical progress.”
The commentary picked out a quote from “Traditional Government in Imperial China” by Chinese historian Qian Mu: “The accumulated problems of traditional politics are both historical and the current reality. Appearances may change, but the substance has not changed.” In interpreting the quote, the commentary said, “We mistakenly thought that everything about political traditions of the past should be thrown out, and indeed everything was thrown out.” Also, “respect and confidence in all traditions and habits have been lost.” With regard to establishing central authority, however, “if we cannot produce something respectable and trusted by the entire country, this task will naturally feel difficult. Moreover, isn’t it even more difficult to establish central authority while also accounting for local interest?”
March 20
HK01 published the second commentary in the series titled, “The Other Side of a Powerful Central Authority” (強大中央的另一面). The commentary looked at how the eunuchs around the Jiajing Emperor gradually expanded and strengthened their influence, as well as mentioned that the founding emperor of the Ming Dynasty abolished the prime minister (grand chancellor) system.
The commentary first noted that the founding Ming emperor Zhu Yuanzhang did away with the prime minister system, which was part of China’s political culture since the Qin Dynasty, in order to establish a unified dynasty and a strong central authority. The commentary then quoted former Singaporean prime minister Lee Kuan Yew from his 2013 book “One Man’s View of the World”: “For 5,000 years, the Chinese have believed that the country is safe only when the center is strong. A weak center means confusion and chaos. A strong center leads to a peaceful and prosperous China. Every Chinese understands that. It is their cardinal principle, drawn from deep-seated historical lessons.”
The commentary noted that there were negatives to abolishing the prime minister system even though central authority was strengthened. For one, the emperor had to personally handle all sorts of matters and took on an incredibly heavy workload. While Zhu Yuanzhang later established a Great Secretariat system to divide up the duties, the new system would in time come to resemble the prime minister system. The eunuchs also gained influence and quickly became “true centers of power” after they were tasked with acting as the emperor’s “intermediaries” at cabinet (Grand Secretariat) meetings that the emperor did not attend in person.
The commentary added that the other side of a powerful central authority is the complex and difficult to resolve relationship between the center and the localities. The commentary proceeded to cite academics, Mao Zedong, Deng Xiaoping, and the decision of the Fourth Plenum of the 19th Central Committee to make the point that a vast country like China requires a strong, unified leadership at the center while also fully mobilizing the initiative of the localities. However, much as the central government hopes that such is the case, the localities often engage in “inaction,” claim to be “waiting for instructions,” and are “unwilling to take responsibility.” The commentary said that the aforementioned problems have become “especially pronounced” in recent years since the outbreak of the COVID-19 pandemic.
March 22
HK01 published the commentary “From ‘Eliminating Capital’ to Giving Proper Status to Capital” (從「消滅資本」到為資本正名). The commentary focused on the rise and fall of businessmen and tycoons who served as “white gloves” of imperial power, as well as the government’s control over capital throughout Chinese history.
The commentary observed that the wealthy individuals who served as “white gloves” or “money bags” for the authorities in the drama “Ming Dynasty in 1566” were abandoned by those in power and faced a dead end. The commentary quoted a wealthy character’s testimony where he accused the imperial court of “emptying the national treasury” through excessive spending. The character said, “[The imperial court] plunders from the people; when the people rebel, [the imperial court] plunders from the merchants.” The commentary said that wealthy individuals in the drama had long anticipated this outcome.
The commentary then quoted the minister Hai Rui’s lament in the drama about how the imperial court made arbitrary accusations against the wealthy: “The imperial court squanders [money] recklessly, and corruption runs rampant in the officialdom. For the imperial court to resort to such means at this point leaves the state on (politically) shaky foundations. If the Great Ming does not rectify itself, its demise is imminent!”
The commentary went on to note that imperial China tended to prioritize agriculture over commerce, with even the Republican leader Sun Yat-sen advocating for “restraining capital.” The negative attitude towards capital would change under Mao Zedong with the CCP regime moving through the stages of “restraint, elimination, and cooperation” with regard to capital. The CCP regime sought further cooperation with capital under Deng Xiaoping with “reform and opening up.” The commentary then implied that Xi Jinping sought to rein in capital by noting that since the 18th Party Congress, Beijing has been promoting efforts to legalize capital operations and preventing the unregulated expansion of capital with the ultimate goal of ushering in “common prosperity” and so-called “three distributions” (三次分配; i.e. income distribution by the markets, by the government, and by voluntary donations by wealthy individuals).
The commentary said that based on historical cycles of “positive” and “negative,” China will inevitably “give proper status to capital” (資本正名, i.e. ensuring that capital is politically and legally protected in the PRC so that the CCP regime will not one day move to eliminate capital on ideological grounds) to address issues such as “the state advances while the private sector retreats” (國進民退) and capital flight. The commentary also believes that “giving proper status to capital” is a prerequisite for China becoming a financial powerhouse.
The commentary quoted Hu Deqiao, a former director and researcher at the National Development and Reform Commission, saying, “Giving private economy a reasonable status and a fair identity solves the problem of what the private economy is called at this stage.” The commentary added that the day where foreign capital has “proper status” in the PRC is “not far off” if private capital gains “proper status,” but “with everyone carrying a heavy historical baggage, how can rehabilitation be achieved?”
In concluding, the commentary said that the “Ming Dynasty in 1566” drama shows that merchants always come last in the “four occupations” (gentry scholars, peasant farmers, artisans and craftsmen, and merchants and traders) and this has never changed throughout Chinese history.
Background on the Jiajing Emperor and Hai Rui
Jiajing Emperor
The Jiajing Emperor (Reign: May 27, 1521 to Jan. 23, 1567) was the 12th emperor of the Ming Dynasty. During the early years of his reign, the Jiajing Emperor initiated reforms to improve governance and actively sought to eradicate the corrupt practices of previous courts. The Jiajing Emperor strictly governed the officialdom, executing some corrupt officials from previous courts and dismissing more than 170,000 others. For this, the Jiajing Emperor was once hailed as a “rejuvenator.” In 1542, the Jiajing Emperor narrowly escaped assassination in the incident known as the Palace plot of Renyin Year (壬寅宮變).
During the later years of his reign, the Jiajing Emperor’s lax governance led to rampant corruption, severe financial problems, and numerous peasant uprisings. Concurrently, China saw incursions and disturbances from foreign invaders from the north and south.
Hai Rui
Hai Rui is a famous official of the Ming Dynasty who is known for being honest and upright. He is best known for submitting a memorial in 1565 where he essentially criticized the Jiajing Emperor for neglecting state affairs and bringing disaster upon the country. While Hai was sentenced to death for his memorial in 1566, the Jiajing Emperor relented after some deliberation.
Hai Rui was released and pardoned in 1567 after the death of the Jiajing Emperor.
Why it matters
1. HK01 has published several commentaries critical of Xi Jinping and his leadership. We previously analyzed that the media outlet appears to have “inherited” Duowei New’s role as a “channel for Xi Jinping’s opposition to vent their dissatisfaction with his rule and conduct political mobilization” after the latter ceased operations and was folded into HK01 in April 2022.
Interestingly, the Hong Kong High Court issued a bankruptcy order against Nan Hai Corporation majority shareholder and board chairman Yu Pun-hoi on March 26 after he defaulted on a HK$470 million debt owed to a mainland Chinese investment bank. Nan Hai is the parent company of HK01. However, a senior editorial worker at HK01 told the South China Morning Post that the bankruptcy order is unlikely to affect HK01 because it was financially independent. HK01 also said that Yu does not hold any positions with it and it would operate per normal.
2. The criticism of historical figures came to be seen as a prelude to and means of attacking political opponents since the Mao era. Notably, Mao Zedong used criticism of the play “Hai Rui Dismissed from Office” to go after then-CCP vice chairman Liu Shaoqi and his political allies before launching the Cultural Revolution.
3. “Anti-Xi” forces have repeatedly criticized the Chongzhen Emperor, the last Ming ruler, during Xi Jinping’s tenure as a means of obliquely attacking the latter.
Our take
1. HK01’s commentary series on “Ming Dynasty in 1566” is not so much a nostalgic look back at an old television drama as it is an attempt to use historical analogies to criticize Xi Jinping and his leadership.
Coincidentally or otherwise, the first article in the series was published on March 19, or the day that the Hong Kong Legislative Council passed Article 23 of the Basic Law. We previously analyzed that the passage of Article 23 was being accelerated at this time because Xi Jinping believes that he faces elevated political risks from both domestic and foreign enemies. We also analyzed that Beijing passed the Hong Kong National Security Law in 2020 to prevent the city from becoming not only a hotbed of anti-CCP activity, but an anti-Xi base as well.
2. The HK01 commentary series appears to make the following attacks and insinuations against Xi Jinping and his leadership:
- The commentary series appears to imply that Xi Jinping, like the Jiajing Emperor, “rejuvenated” the CCP regime early on in his tenure with some of his reforms and the anti-corruption campaign. However, Xi’s increasing centralization of authority also negatively impacted the regime.
- The mentioning of the “Yangtze River and Yellow River discourse” is likely meant to recall the late PRC premier Li Keqiang saying, “the Yangtze River and Yellow River will not flow backward.” Likewise, the reference to the abolition of the prime minister system is likely meant to be an oblique critique of Xi Jinping downgrading the status of the PRC State Council and the role of the premier.
- The commentary series indirectly warns Xi that the downgrading of the State Council and strengthening of Xi’s central authority does not mean that the prime minister system is actually done away with. Also, Xi faces the problems of “eunuchs” subverting his power and “inaction” from the officialdom and localities.
- The description of the power struggle between the “clean” faction and “strict party” as a “protracted war” that harms the common people, as well as references to the “power of the people,” appear to indirectly hold Xi responsible for destabilizing the regime with his anti-corruption campaign and eroding the Chinese people’s support for the CCP. The commentaries further suggest that Xi and the Party risk losing popular support if Xi continues with his factional struggle and anti-corruption efforts.
- The reference to the dramatized version of Party elder Chen Duxiu’s “reformists” and “conservatives” comment appears to criticize Xi for overturning the policies of his predecessors and warn that Xi’s enemies could very well return to power and turn the tables.
- The reference to historian Qian Mu’s observations that “appearances may change, but the substance has not changed” and how the “respect and confidence in all traditions and habits have been lost” with the throwing out of political traditions appears to be a warning to Xi against moving too harshly against his political enemies and doing away with the Party lest he loses “quan wei” and cannot sustain “centralized and unified leadership” over the regime.
- The commentary about “eliminating capital and giving proper status to capital” appears to obliquely imply that Xi risks emptying the government’s coffers and dooming the regime if he continues “arbitrarily” going after private entrepreneurs in stamping out corruption and pursuing agendas like “common prosperity.” In noting that “giving proper status to capital” carries a “heavy historical baggage” and that China will inevitably “give proper status to capital,” the commentary is subtly pointing out the CCP faces the contradiction of embracing capital to rescue the regime while still clinging to the communist ideology.
- The commentary series in general suggests that “anti-Xi” forces in the CCP are very concerned about Xi Jinping’s anti-corruption campaign and efforts to more strictly govern the Party. These “anti-Xi” forces appear to be hoping that Xi exercises some restraint and not take his campaigns too far lest the Party loses popular support and both the CCP elites and Xi find themselves on the tail end of another dynastic cycle in Chinese history.
2 Closure of financial asset exchanges in China points to mounting financial risks
March 25
The local financial regulators in the Chinese provinces of Hunan and Liaoning, and the cities of Xi’an and Chongqing, posted statements on their websites that they were canceling business licenses for financial asset exchanges in their respective localities to strengthen financial regulation and resolve financial risks. The statements added that entities that provide registration and filing services for non-standard debt financing activities without approval from the central financial regulator will be considered “pseudo asset exchanges.”
State run mainland media Securities Times reported that the announcement by the four provinces and cities of the closure of financial asset exchanges was not coincidental but marks the beginning of the end of all such markets, citing industry insiders and authoritative figures close to the regulators. Securities Times sources add that the four provinces and cities were first in shutting down financial asset exchanges because they had imposed relatively strict risk controls earlier and there were “no longer residual risks” in taking the action.
A source close to the regulatory authorities told Securities Times that while some financial asset exchanges that are being asked to close in the country outside of the four provinces and cities still have outstanding business, the local authorities in those areas had already required those exchanges to communicate with investors and financing parties to resolve outstanding issues prudently and orderly. Also, financial asset exchanges whose licenses have been or will be revoked are still required to resolve their outstanding business as civil entities and cannot simply be deregistered.
Securities Times said that there were almost 30 financial asset exchanges in China before the four provinces and cities made their announcement. Securities Times added that some actions to shut down local exchanges were already underway before the March 25 announcement.
Background on financial asset exchanges
Financial asset exchanges in China are a type of over-the-counter exchange. The PRC government initially established those exchanges to create a market for the transfer of state-owned assets and the trading of non-performing and illiquid assets. Financial asset exchanges carry out four types of operations, namely, basic asset trading, equity asset trading, financing-related businesses, and intermediary services. The bulk of financial assets traded on those exchanges are non-standard assets, including accounts receivable, equity and debt investments, trust beneficiary rights, financing lease income rights, and commercial paper income rights. Currently, the main businesses of financial asset exchanges are providing registration and custody services for targeted financing and investment plans, as well as conducting due diligence and getting information on issuers of various financial products.
The first financial asset exchanges were established in the 2010s and were operated mostly by state-owned enterprises with the approval of provincial governments. These exchanges quickly became a sought after business because it was assumed that they had the implicit credit backing of local governments. The poorer provinces with less established financial markets and fewer financial resources also scrambled to establish financial asset exchanges. For example, there were about a half dozen exchanges in Guizhou Province at one point.
Private companies, including peer-to-peer (P2P) lending platforms, later established or controlled several financial asset exchanges. For instance, Xiao Jianhua’s Tomorrow Holdings once controlled Tian-An Financial Asset Exchange Center. At the peak, there were close to 80 financial asset exchanges in China.
With the rise of private equity financing and P2P lending in China, financial asset exchanges began working together with P2P platforms and wealth management companies as all parties sought to expand their business scope and profits. This led to financial asset exchanges becoming important trading platforms and financing channels in China’s non-standard wealth management market.
Real estate companies, third-party wealth management companies, local government financing vehicles, and other entities in the non-standard financial market also turned to financial asset exchanges to enhance their financial credibility and issue hundreds of billions of yuan worth of non-standard wealth management products to the public. Many of these non-standard products were self-financed, but the entities selling them would often emphasize the implicit government backing of the financial asset exchanges to give their products more credibility. In the eyes of many investors and from the mouths of salespersons, the investment products sold on financial asset exchanges were those that guaranteed profits and did not suffer losses.
Over time, the scale of non-standard wealth products sold on financial asset exchanges grew to be very large, and the scale of those products sold on “pseudo financial asset exchanges” was even larger. However, the default of real estate companies or entities like third-party wealth management companies running into trouble led to an eruption of financial risks, which mainland media described as having “seriously infringed upon the interests of the public, greatly disrupted the financial market order, and caused significant social harm and risk.”
In 2020, PRC regulators launched a round of special rectifications targeting financial asset exchanges. However, market intermediaries took advantage of government investment needs and regulatory gaps in the economically underdeveloped central and western parts of China to run “pseudo financial asset exchanges” and fulfill a huge demand for non-standard financing. Securities Times later published an exclusive investigative report in September 2021 exposing “pseudo financial asset exchanges” and regulators directed various regions to carry out special rectification activities that led to the deregistration or renaming of over a hundred “pseudo financial asset exchanges.”
Big picture
Financial risks in China are on the rise as troubled areas show no sign of improvement. China’s real estate sector crisis continues to worsen, with several leading property developers either undergoing liquidation or facing liquidation petitions. Meanwhile, local governments and LGFVs are still struggling to make bond repayments. The amount of idle funds circulating within the financial sector also continues to grow.
Our take
1. The closure of financial asset exchanges in China appears to be part of Xi Jinping’s long-term effort to combat financial corruption, mitigate financial risks, and consolidate his control over the regime.
Financial asset exchanges and the risks they generated are a legacy of the Jiang Zemin faction-dominated regime that preceded the Xi leadership. When Xi Jinping took office, he was unable to rein in financial asset exchanges and curb financial risks effectively due to the outsized influence of the Jiang faction and its associates (including Xiao Jianhua and Tomorrow Group, as well as China Evergrande), as well as other Party elites with influence over the financial system. Consequently, the Xi leadership struggled to execute policies to mitigate financial risks and those risks kept compounding.
Xi Jinping began making more vigorous moves to clean up the financial sector and system only in his third term after spending a decade gradually centralizing power (including appointing allies and loyalists to key positions at the 20th Party Congress and 2023 Two Sessions), bringing key regime apparatuses (i.e. the PLA, PLAC, etc.) to heel, and strengthening Party Central’s control over the financial regulatory agencies (see here and here).
The Xi leadership faces many challenges in reining in and shutting down financial asset exchanges. For one, local governments and property developers have long relied on financial asset exchanges as a channel to acquire much-needed but non-standard financing. Closing too many financial asset exchanges too quickly could negatively impact struggling local governments and property developers, which could in turn spike up China’s financial risks and cause financial contagion to spread more quickly.
The Xi leadership also risks ruffling feathers and destabilizing the political situation in moving against financial asset exchanges as their operators are likely to have the backing of CCP and financial elites (ordinary businessmen will likely find it difficult to obtain a license to run a financial asset exchange without political connections) who could be opposed to Xi Jinping. Because Xi appears to be determined to curb financial risks, the Xi leadership could next intensify efforts to combat corruption in the financial sector to better clean up or close financial asset exchanges.
2. The closure of financial asset exchanges also signals a worsening of financial risks in China:
- There could be a potential surge in defaults of various financing products given China’s economic downturn, the worsening real estate crisis, and the massive scale of financial products (both legal and illegal) issued by financial asset exchanges and “pseudo financial asset exchanges.” While mainland media reports suggest that financial asset exchanges whose licenses will be or have been revoked still have to resolve their outstanding business, these compromised entities are likely to leave their problems unresolved.
- More implicit debt crises could be exposed as Party and business elites, as well as local governments, are cut off from financing channels like financial asset exchanges.
- The systemic deficiencies of the CCP authoritarian dictatorship could churn up new risks even as Beijing works to rectify the financial risks posed by financial asset exchanges and “pseudo financial asset exchanges.” Xi Jinping’s heavy-handed approach and increased authoritarianism also mean that his efforts to mitigate risks could end up escalating an outbreak of risks instead.
