1 What articles commemorating Deng’s birthday say about Xi
Aug. 12
Qiushi, the CCP Central Committee ideological journal, published an article on its website titled, “The Historical Contributions of Deng Xiaoping’s Scientific and Technological Thoughts” (鄧小平科技思想的歷史貢獻).
The article opened by praising Deng for being a “distinguished leader of high prestige acknowledged by the Party, military, and people of all ethnic groups in China; the chief architect of China’s socialist reform, opening up, and modernization; the pioneer of the path of socialism with Chinese characteristics; and the principal founder of Deng Xiaoping Theory.” The article added that “Deng Xiaoping’s scientific and technological thoughts” are a crucial component of Deng Xiaoping Theory, and Deng introduced the significant concept that “science and technology are the primary productive forces.” Further, the article elaborated on the various reforms that Deng implemented to promote the development of science and technology in China.
The over 4,800-character article, which is slated to be published in the 15th issue of “Red Flag Manuscript” (a bi-weekly publication under Qiushi) for the year, mentions Xi Jinping just twice. Both mentions reference Xi’s emphasis on China’s scientific and technological endeavors, as well as his introduction of the concept of “new productive forces” to meet the development needs of the new era.
The article caught the attention of some Chinese commentators, who made the following observations:
- Qiushi’s commemoration of Deng Xiaoping is meant to highlight the correctness and continuity of Xi’s so-called “reform and opening up.”
- Qiushi is indirectly praising Xi’s concept of “new productive forces” by lauding Deng.
- Qiushi’s attempt to emphasize Deng’s policies and contributions reflects the Xi leadership’s current shortcomings.
- The Qiushi article, when viewed alongside Xinhua removing a lengthy “Xi Jinping the Reformer” special report and political rumors of trouble in Zhongnanhai, hints at possible “internal changes” in the CCP.
Aug. 16
Qiushi published an 8,200-character article in its 16th issue of the year by Central Institute of Party History and Literature titled, “Continuously Advancing the Great Cause of Socialism with Chinese Characteristics Initiated by Comrade Deng Xiaoping” (把鄧小平同志開創的中國特色社會主義偉大事業不斷推向前進).
In the first paragraph, the article calls upon the “entire Party, military, and people of all ethnic groups in the country” to remember Deng’s “great achievements” and learn from his “noble character.” Doing so is of great significance for “closely united around Party Central with Comrade Xi Jinping at the core, and comprehensively advancing the construction of a strong nation and the great cause of national rejuvenation through Chinese-style modernization.” Xi’s name is mentioned 10 times throughout the article.
The article praised Deng Xiaoping’s contributions to the “revolutionary” cause of the CCP regime, and citing Xi Jinping as hailing Deng’s “reform and opening up” and other political legacies as one of “three major milestones in achieving the great rejuvenation of the Chinese nation in modern times.”
While lauding Deng, the article also praises Xi’s achievements and his importance to the CCP regime. For instance, “Xi Jinping Thought” is hailed as the “inheritance and development” of Marxism-Leninism and the political theories of previous leaders. “Xi Jinping Thought” is further described as “contemporary Chinese Marxism” that has “achieved a new leap in the sinicization and modernization of Marxism.”
The article also stressed that since the 18th Party Congress, Party Central with Comrade Xi Jinping at the core has “comprehensively deepened reform” to address prominent contradictions and problems in the process of modernization, as well as successfully promoted and expanded Chinese-style modernization.
In the conclusion, the article reiterated the need to “more closely unite around Party Central with Comrade Xi Jinping at the core,” fully implement “Xi Jinping Thought,” and uphold Xi’s political theories like the “Two Establishes,” “four consciousnesses,” “four confidences,” and “two safeguards.”
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Some China watchers believe that the Qiushi piece is a sign that Xi Jinping has been forced to acknowledge the legitimacy of Deng Xiaoping’s policies as internal and external pressures on China’s economic and social development continue to intensify. They also believe that the article marks a significant ideological shift for Xi.
Meanwhile, other China watchers believe that the Qiushi piece is supportive of Xi because it selectively picks remarks from Deng that align with Xi’s views.
Backdrop
Deng Xiaoping passed away in 1997 at the age of 92. Every 10 years, the PRC holds a major activity to commemorate his birthday on Aug. 22. This year is the 120th anniversary of Deng’s birth.
According to mainland media reports, various activities have been planned and carried out to mark Deng’s birthday this year, including:
- July: Two publishers in Jiangxi Province announced the publication of a documentary book about Deng Xiaoping and his exile during the Cultural Revolution.
- Aug. 9: Guizhou Satellite TV aired the television drama, “Deng Xiaoping at History’s Turning Point” (歷史轉折中的鄧小平).
- Aug.12: Jiefang Daily, the official newspaper of the Shanghai Municipal Party Committee, began serializing a book on Deng’s experiences during the Cultural Revolution.
- Aug. 13: An exhibition and research center in Deng’s hometown of Guang’an District in Sichuan Province held a commemorative calligraphy and painting exhibition.
- Aug. 16: A 20-episode micro-documentary titled, “Red Album: The Story of Deng Xiaoping” (紅相簿·鄧小平的故事) was released.
- Aug. 22: A set of four commemorative stamps to mark the 120th anniversary of Deng’s birth would be issued.
Big picture
China watchers have been trying to assess whether Xi Jinping’s increasing authoritarianism and political regression are signs that he wants to repudiate Deng Xiaoping’s “reform and opening up” and take China down a path of “isolationism.”
China watchers are also attempting to gauge the stability of Xi’s political position.
Our take
1. In examining the “The Historical Contributions of Deng Xiaoping’s Scientific and Technological Thoughts,” we found that contrary to what some Chinese commentators are saying, the article does not deviate from the CCP propaganda department’s narrative on Deng’s political legacy and the political positioning of Xi Jinping.
i) The assessment of Deng Xiaoping and his “reform and opening up” in “The Historical Contributions of Deng Xiaoping’s Scientific and Technological Thoughts” is consistent with that depicted in Xi Jinping’s “historical resolution” issued at the Sixth Plenum of the 19th Central Committee in November 2021. In analyzing the “historical resolution,” we noted that it downplayed the significance of Deng’s “reform and opening up” to CCP history and overall policies.
The Xi leadership subtly drew a greater distinction between Deng’s “reform and opening up” and Xi’s contributions to Party history at the Third Plenum of the 20th Central Committee. Xi called for “further comprehensively deepening reform in the new era,” which entails tackling the tough issues left unresolved by Xi’s predecessors and guiding the regime toward so-called “Chinese-style modernization.”
ii) The article is not particularly representative of thinking in the CCP’s top level. While the article was republished on the Qiushi website, it was meant to feature in “Red Flag Manuscript” and not in Qiushi itself. Moreover the authors of the article — He Qin, a researcher at the Institute of Marxism at the Chinese Academy of Social Sciences, and Yuan Ruonan, a lecturer at Beijing Information Vocation and Technical College — are not prominent CCP theorists or affiliated with important theoretical departments.
iii) The praise of Deng Xiaoping in the “Red Flag Manuscript” article is limited to his contributions to China’s scientific and technological development rather than being a broad, hagiographical piece meant to elevate Deng’s importance to Party history. And unlike the scrapped Xinhua piece on “Xi Jinping the Reformer,” the “Red Flag Manuscript” article does not depict Xi as the inheritor of Deng’s political legacy.
We believe that the “Red Flag Manuscript” article is part of the limited effort by the CCP propaganda department and local governments to commemorate Deng’s 120th birthday. This effort is consistent with the Third Plenum Decision’s call for the Party to adhere to Marxism-Leninism and the political theories of successive CCP leaders.
2. The “Red Flag Manuscript” article likely attracted the attention of Chinese commentators because it seemed to align with the misguided understanding that emerged in recent years of Deng Xiaoping representing a more “liberal” and “open” PRC due to his signature “reform and opening up” policy while Xi Jinping is moving China towards “isolationism” given the growing authoritarianism in the PRC, focus on national security, and attempts at greater self-sufficiency. Both notions are flawed; the CCP was very authoritarian and repressive under Deng and his successors who “inherited” his trademark policy and barely liberalized, while Xi has not closed up China even though he has markedly strengthened the CCP’s control over society and tightened national security. While Chinese commentators are becoming more careful in how they interpret the “Red Flag Manuscript” piece, they still believe that it somehow reflects current political dynamics in the CCP elite even though there is no evidence for it.
Chinese commentators are becoming increasingly prone to latch onto normal developments and read them as signs of power struggle. This could be due to the prevalence of political rumors circulating about Xi’s alleged poor health and brewing “trouble” in Zhongnanhai. We previously analyzed that “anti-Xi” forces both inside and outside China are “likely to continue shaping the narrative environment against Xi to exploit public dissatisfaction towards him,” and also likely have plans to “eventually weaponize political rumors against Xi at critical junctures to destabilize him.”
3. The depiction of Deng Xiaoping in the lengthy Qiushi article by the Central Institute of Party History and Literature, a key Party theoretical department, is fully aligned with that found in Xi Jinping’s “historical resolution.” For example, in lauding Deng’s historical contributions to the CCP regime, the article subtly downplays “reform and opening up” and other Deng political legacies as being merely the product of the Party’s past efforts in pursuing “modernization” (i.e. addressing problems of the Mao era). Meanwhile, Xi’s “comprehensive deepening of reform,” which addresses “prominent contradictions and problems in the process of modernization” (i.e. difficult problems left by Xi’s predecessors), is implied to be the CCP’s present and future.
The Central Institute of Party History and Literature’s efforts to bolster the legitimacy of “Xi Jinping Thought” and Xi’s other political theories in a piece that is ostensibly about commemorating Deng’s contributions to the CCP’s “revolutionary” cause makes it clear that safeguarding Xi and his legacy is why Deng is being remembered. The framing of the article and its publication in Qiushi means that it cannot be interpreted as “evidence” of Xi’s political instability or a shift in his policy direction.
2 Beijing’s targeting of local financial organizations hints at rising risks
Aug. 14
1. Mainland media reported that the National Financial Regulatory Administration, the China Securities Regulatory Commission, and the State Administration for Market Regulation jointly issued a Notice on further strengthening the supervision of local financial organizations (關於進一步加強地方金融組織監管的通知).
The Notice said that the three departments will further clean up and strengthen supervision over 11 types of local financial organizations, of which there are over 30,000 nationwide. The organizations are:
- Microfinance companies
- Financing guarantee companies
- Regional equity markets
- Pawnshops
- Financial leasing companies
- Commercial factoring companies
- Local asset management companies
- Investment companies
- Farmers’ professional cooperatives
- Social crowdfunding institutions
- Local financial asset exchanges
Mainland media reported insiders as saying that the Notice stressed the need to orderly reduce the number of local financial organizations and outlined a series of specific requirements, including:
- Accelerate the clearance of non-compliant existing institutions, including shutting down “lost contact,” “shell,” and local financial organizations that operate in severe violation of regulations within three years.
- Strictly control the approval of new institutions, with no new local financial organizations to be established in principle during the rectification period.
- The cleanup process will not adopt a “one-size-fits-all” approach. The deadline may be appropriately extended for institutions where cleanup is difficult. Applications can still be submitted if it is truly necessary to establish new institutions in some areas.
- All existing financial asset exchanges must be closed and “pseudo asset exchanges” must be resolutely cleared.
- Strictly limit the cross-provincial expansion of local financial organizations.
- Strictly prohibit local exchanges from exceeding their designated role as spot markets by engaging in continuous centralized bidding transactions and illegal securities futures activities. Also, strictly prohibit any form of service for non-standard debt financing activities, and prevent business activities from becoming overly financialized, overly securitized, or overly futures-oriented (泛金融化、泛證券化、泛期貨化).
Mainland media added that several central enterprises had successively divested their equity in microfinance companies before the issuance of the Notice.
2. Financial Times (金融時報), the mainland media publication managed by the People’s Bank of China, published statistics showing that at least 50 small and medium-sized banks have closed since the start of 2024. With the exception of one city commercial bank (Bank of Korla), the rest were rural banks.
Aug. 15
Pan Gongsheng, the Party secretary and governor of the PBoC, discussed the current progress in preventing and defusing systemic financial risks with state mouthpiece Xinhua.
Pan said that the Chinese financial system is relatively stable on the whole, and the number and total debt scale of local government financing platforms are also decreasing. He added that the cost burden level of local government debt has significantly decreased as well.
In discussing the risks of small and medium-sized financial institutions, Pan said that the number of high-risk small and medium-sized banks has almost halved from the peak period.
Aug. 16
The National Financial Regulatory Administration issued draft measures for the compliance management of financial institutions (金融機構合規管理辦法 [徵求意見稿]) for public comment.
Backdrop
1. Local governments across China have been “rectifying” and closing local financial asset exchanges since earlier this year.
Publicly available information shows there were as many as over 70 financial asset exchanges in China at the peak, including 13 local financial asset exchanges and 57 local financial asset trading centers. These local financial asset exchanges are the main trading venues for fixed-income products issued by LGFVs.
2. On May 21, the PRC regulatory authorities held a national meeting with the directors of local financial offices from various Party Committees. The meeting emphasized the need to “comprehensively strengthen the supervision of local financial organizations.”
3. The CCP authorities have been looking to advance a financial stability law that was issued as a draft legislation on April 6, 2022. The Standing Committee of the National People’s Congress recently made the financial stability law a top priority legislative project in September 2023.
Our take
1. The PRC financial regulatory authorities’ effort to further clean up and strengthen supervision over 11 types of local financial organizations appears to be part of the Xi Jinping leadership’s broader campaign to rectify the financial sector and mitigate risks.
i) The Jiang Zemin faction’s era of dominance (1997 to 2012) saw a lack of mutual checks and balances in the CCP system under the rule by “collective leadership” and so-called “governance through corruption” (以貪治國). This led to a situation where obtaining a license to establish a financial institution in China became very difficult without strong political connections or backing. The CCP elites abused this situation to collude with financial elites and exploit the markets to reap enormous profits.
Political and financial elite collusion, coupled with financial sector “chaos” and the prevalence of rapid wealth accumulation schemes in the country, saw the emphasis in China’s economy shift from the real towards the financialized over time. By the time Xi Jinping took office in 2012, large amounts of capital had moved from the industries to the financial markets, depriving the manufacturing sector of funding necessary for developing core technologies or expanding. Excessive financialization also led to problems like idle capital in the financial system and increased financial risks (e.g. China Evergrande’s massive debt problems and crisis at Zhongzhi Enterprise Group).
The Xi leadership did not make much headway with rectifying the financial sector in the previous decade because Xi Jinping had not yet consolidated power to a point where he felt comfortable enough to undertake rectification operations and deal with the political backlash given the powerful elite elements involved in finance. But with financial risks increasingly imperiling the regime, Xi has no choice but to forge ahead with the financial sector clean up and wrest control over the sector from influential Party and financial elites.
ii) The Xi leadership’s attempt to clean up and strengthen supervision over local financial organizations represents an effort to use administrative means to shut down problematic local financial organizations, mitigate financial risks, and consolidate the Party’s control over the financial sector. We will look at what Beijing’s move means for two of the 11 types of local financial organizations being targeted.
The CCP authorities initially allowed the establishment of microfinance companies to give individuals and small businesses (who may not have the credit rating to secure bank loans) easier access to financing channels, with the aim of boosting the economy. At the peak, there were over 10,000 microfinance companies in China. However, Beijing moved to clamp down on microfinance in the wake of the Ant Group’s high-profile listing in the fourth quarter of 2020. CCP officials expressed concern that Ant was using asset-backed securities (ABS) to grow 3 billion in funds to 300 billion in a few short years, creating immense leverage while leaving the risk to the banks. For instance, Ant disclosed in a 2020 prospectus that it issued loans totaling 1.8 trillion yuan in conjunction with banks with just 36 billion yuan in assets, which meant that it only assumed 1 to 2 percent of the risk. Later, The Wall Street Journal reported that one of the main reasons why the Xi leadership halted Ant’s IPO was Xi Jinping’s concern that it would enrich his political rivals; put another way, Beijing recognized that what was going on with Ant was collusion between financial and political elites, and moved to rectify the situation.
Since the crackdown on Ant Group, the CCP authorities have cleaned up more than a third of the microfinance companies in China. According to PBoC data, the number of microfinance companies dropped from 7,333 (with a loan balance of 884.1 billion yuan) in June 2020 to 5,428 (with a loan balance of 758.1 billion yuan) in June 2024.
Local financial asset exchanges are also another problematic source of financial risk for the CCP regime. Previously, the regime greenlit many provinces with underdeveloped financial markets and limited financial resources to establish multiple financial asset exchanges and generate funds. For instance, Guizhou, a relatively backwater province, had six or seven financial asset exchanges at one point. Private capital, including P2P companies, later moved to establish or control multiple financial asset exchanges. For example, Xiao Jianhua’s Tomorrow Group once controlled Tianan Financial Exchange Center and Cedar Holdings Group controlled Dalian Financial Exchange. At the peak, there were 70 financial asset exchanges in China.
Financial asset exchanges eventually became important trading platforms and financing channels in the non-standard wealth management market. Over the years, many distressed real estate companies, large corporate groups, third-party wealth management companies, and other financial entities exploited financial asset exchanges to enhance the “credibility” of their products, generating massive risks. The risks were compounded with the emergence of “pseudo asset exchanges” that mimicked legitimate exchanges and carried illegal financial products. While the Xi leadership eventually strengthened financial risk regulation, many real estate companies and LGFVs continued to issue and sell non-standard debt financing products directly or indirectly on various “pseudo asset exchanges,” thereby expanding the CCP regime’s financial risks.
The Xi leadership’s call to strictly prohibit local exchanges from engaging in continuous centralized bidding transactions and illegal securities futures activities appears to be an attempt to curb financial risks in the spot market. With low returns on investment in the real economy and a sluggish capital market in recent years along with China’s economic decline, various Ponzi schemes have reemerged in the spot market as fraudsters look to make a quick buck. For example, several “financial tea” (金融茶) Ponzi schemes that used tea futures trading as a cover were exposed in Guangzhou, including one in August 2024 that potentially involved over 1 billion yuan.
2. The CCP authorities’ attempt to clean up local financial organizations over three years could prevent the further expansion of financial risks. However, existing risks in those organizations are unlikely to be fully resolved given the downward trajectory of China’s economy. Existing risks could lead to large-scale defaults as enterprises are increasingly cut off from sources of funding. Rather than effectively curbing financial contagion, Beijing’s efforts at regulation could end up triggering more of it.
The cleanup of local financial organizations could also potentially provide opportunities for local officials to deliberately evade debts or shirk debt repayment. Local officials’ prioritization of personal interests over regime interests would leave their successors or Beijing to deal with the resulting financial risks. Given the political culture in the CCP regime, we believe that Xi Jinping’s attempt to rectify the situation will more likely fail to defuse China’s financial risks and will instead speed up the exposure of long-standing financial crises in the regime.
3. Pan Gongsheng’s recent interview with Xinhua appears to be an attempt by the Xi leadership to boost confidence in the financial system amid the economic downturn and signs of worsening financial risks.
By claiming that the number of high-risk small and medium-sized banks has almost halved from the peak period, Pan is trying to send reassuring signals that the situation with such financial institutions is improving and not severe. However, Pan’s remarks are challenged by the closure of at least 50 small and medium-sized banks since the start of the year, declining banking sector profits (the net interest margin of banks has fallen below 1.8 percent), the ongoing real estate sector contraction, the growing fiscal shortages of local governments, and the expanding scale of local debt.
As local governments struggle to make debt repayments, small and medium-sized banks will not see reduced risks even if certain operations are adjusted and “improved.” For instance, local government bond swaps, debt transfers to state-owned enterprises, and banks and debtors offering discounts on debt repayment merely reflect a technical shifting, and not resolution, of debt risks. Also, the merger of high-risk small and medium-sized banks does not mean a decrease of their debt, but instead the hiding of such debt under other state-owned banks.
