1 Financial sector probes, personnel changes hint at Beijing’s search for scapegoats
Financial sector corruption and personnel reshuffles
July 30
The PRC State Council said in a statement that Fang Xinghai, vice chairman and Party Committee member of the China Securities Regulatory Commission, was removed from his positions. Fang, who has reached the retirement age of vice-ministerial level officials, was replaced by Li Ming, the chief of the CSRC’s enforcement bureau.
A day after the personnel adjustment, the Shanghai index rose by 2.06 percent to cross 2,900 points, while the Shenzhen index and ChiNext index climbed by more than 3 percent.
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Fang Xinghai, 60, pursued a master’s degree and a PhD degree at Stanford University and previously worked as an economist and investment official at the World Bank’s headquarter in Washington, D.C. In 1998, Fang was recruited back to China’s financial industry (director of the China Construction Bank’s coordination department) by then-China Construction Bank president Zhou Xiaochun. After Xi Jinping took office, Fang joined the Office of the Central Financial and Economic Affairs Commission in 2013 and later joined the CSRC in 2015 after the stock market turbulence that year. At the CSRC, Fang was the architect and promoter of so-called “turn trading” (轉融通, a type of margin trading), “institutional quantitative trading” (機構量化交易), and many other short-selling tools.
Li Ming, 55, spent the bulk of his career in the CSRC and in local securities regulatory bureaus. Before becoming head of the CSRC enforcement bureau, he previously served as general manager of the National Equities Exchange and Quotations, Party secretary and director of the Jiangsu Securities Regulatory Bureau, director of the CSRC’s listed companies department, and chief inspector of the CSRC.
July 31
Haitong Securities, the largest brokerage in Shanghai, announced that its board of directors had received a resignation letter from deputy general manager Jiang Chengjun. Jiang wrote that he was retiring for personal reasons, according to Haitong Securities.
Mainland media reported that Jiang Chengjun was taken away for investigation in the week of July 29. Also, a few other department heads at Haitong Securities were cooperating with the investigation.
Mainland media added that Jiang was considered a “helmsman” of Haitong Securities’ investment banking business, with over 20 years of experience in the field. Data from the Securities Association of China showed that Jiang handled 12 listings of which Haitong Securities was the lead sponsor. In June 2023, Jiang was promoted to deputy general manager at the company.
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Haitong Securities and CITIC Securities announced in April 2024 that their “related entities” were suspected of illegally violating restrictive regulations during the transfer of non-publicly issued shares of CNNC Hua Yuan Titanium Dioxide Co. Ltd. in 2023.
Aug. 1
Mainland media reported that Dong Guoqun, the executive vice president of the Shanghai Stock Exchange, was taken away during working hours on July 29. The following day, the anti-corruption authorities announced an investigation into Dong.
Dong, 59, will reach retirement age in 2025. According to publicly available information, Dong previously served as a deputy director, director, disciplinary committee member, deputy director of market development, and a member of the service professional committee at the SSE. At the time that Dong was taken away, he was serving as the SSE’s executive vice president, as well as the co-chairman of the investor education and protection special committee of the SSE board of directors.
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The investigation of Dong Guoqun followed several developments:
1. The Central Eighth Inspection Team began a three-month inspection of the SSE Party Committee in April 2024.
2. During the 31 trading days between June 21 and August 2, there were four trading days (July 25 to July 30, or after the Third Plenum of the 20th Central Committee) when the index closed below 2,900 points. The SSE also fluctuated between 2,900 points and 3,000 points for the rest of the 27 days during that period.
3. Yields on Chinese government bonds continued to decline. A new low was reached on Aug. 2, with the 10-year government bond falling to 2.1277 percent and the 30-year bond falling to 2.3465 percent.
Aug. 2
The Central Commission for Discipline Inspection announced on its website that Chen Xiaopeng, the former Party secretary and director of the Shenzhen Supervisory Bureau of the CSRC, and Yuan Fei, the former Party secretary and director of the Dalian Banking Regulatory Bureau, were placed under investigation.
Ministerial-level officials purged
July 25
Luo Baoming, the former Party secretary of Hainan Province and vice chairman of the 13th National People’s Congress overseas Chinese committee, voluntarily surrendered himself to the authorities for investigation.
Luo is the second former provincial-level Party secretary after former Yunnan Party secretary Qin Guangrong to self-surrender since the 18th Party Congress in 2012.
July 29
Li Weiwei, vice chairman of the population, resources, and environment committee of the 14th National Committee of the Chinese People’s Political Consultative Conference, was placed under investigation. Li became the first female provincial-level official to be purged since the 19th Party Congress in 2017.
Our take
1. The personnel changes at the CSRC and probes into officials at the SSE and Haitong Securities are signs of the Xi Jinping leadership taking the anti-corruption sweep of the financial system into so-called “deep water territory.” The personnel developments also reflect the growing influence of ideology on the financial sector and Beijing’s search for scapegoats amid poor market performance.
i) Fang Xinghai was likely removed from his position because he had hit the retirement age for officials at his level. Unless Fang is being probed or has run into other trouble with the authorities, he could be later appointed to a “second-line” position in the National People’s Congress or the Chinese People’s Political Consultative Conference.
Fang’s “timely” retirement could be partly related to him no longer being welcome in the eyes of Xi Jinping and Chinese individual investors. The Xi leadership made it clear in the Decision issued at the Third Plenum of the 20th Party Congress that the CCP regime views financial investors as “financial consumers,” which suggests that the regime frowns upon people (retail investors and the Party elites) making money from the markets and prefers that the markets serve “socialist construction.” In contrast, the Western-educated Fang promoted short-selling tools and other measures more commonly used in Western markets to activate the mainland markets while he was at the CSRC, which clashed with what the Xi leadership wanted. Fang’s measures, which enabled the Party and business elites to tap the markets as their personal “cash machine,” also led Chinese retail investors to blame him for enabling a “big short” and the market downturn.
ii) The investigation of executives at Haitong Securities and the SSE’s Dong Guoqun could be partly an attempt by Beijing to shift blame for China’s stock market slump.
The regulatory agencies and corrupt individuals bear some responsibility for the poor performance of the equity markets. However, the Xi leadership’s governance failures in recent years, including “zero-COVID” and growing adherence to ideology, appear to be central to the stock market struggles. While Beijing’s deepening anti-corruption efforts targeting the financial system and the Party’s tightening control over financial work could address some problems, those measures will likely end up exacerbating the market downturn.
2. Investigations by the anti-corruption authorities into Luo Baoming and Li Weiwei suggest that the Xi leadership is moving to “settle scores” with officials who rose up the ranks during the Jiang Zemin faction’s era of dominance (roughly 1997 to 2012).
i) Luo Baoming, 71, has clear Jiang faction ties.
A review of Luo’s official career shows that he participated in one of Jiang Zemin’s key political legacy projects — the persecution of Falun Gong — and was rewarded for it:
- Luo served as propaganda head in Tianjin Municipality (December 1997 to July 2001) during the period when Jiang’s anti-Falun Gong campaign was at its peak. Tianjin was the epicenter of the persecution campaign and the Jiang faction-controlled propaganda apparatus was a significant tool in the persecution effort.
- Luo was transferred to Hainan Province after Tianjin where he served as provincial deputy Party secretary (2001 to 2007), governor (February 2007 to August 2011), and provincial Party secretary (August 2011 to April 2017). Hainan was a Jiang faction stronghold and several provincial-level Jiang faction officials were subsequently purged after Xi Jinping took office.
In 2015 when factional struggle between the Jiang faction and the Xi camp was particularly intense, mainland media reported that Luo Baoming, who was then Hainan Party boss, had accompanied Jiang Zemin and his family to climb Dongshan Ridge in Hainan Province. However, those reports were quickly scrubbed. At the time, Chinese observers believed that Jiang Zemin was signaling to Jiang faction officials that the faction was due for a return to power.
ii) Li Weiwei, 66, climbed the official ranks during the Jiang faction’s era of dominance but has less clear ties to the Jiang faction.
During the Jiang-Hu period, Li served as head of the United Front Work Department in Hunan Province (November 2006 to August 2015), secretary of the Hunan Political and Legal Affairs Commission (August 2015 to January 2016), and chairman of the Hunan CPPCC (January 2016 to January 2023). Li also serves as a member of the 11th, 12th, and 13th National Committees of the CPPCC and vice chairman of the population, resources, and environment committee of the 14th CPPCC.
Hunan Province had long been dominated by officials affiliated with the Jiang faction like Zhang Chunxian (Hunan Party secretary from 2005 to 2010), Zhou Qiang (Hunan Party secretary from 2010 to 2013), and Xu Shousheng (Hunan Party secretary from 2013 to 2016). Xi Jinping only started to change the political landscape in Hunan after he more or less consolidated his control over the military through military reforms in 2016.
iii) Since the 20th Party Congress, the Xi leadership appears to be going after officials who won promotions during the Jiang faction’s era of dominance but are now holding less influential positions in the NPC or the CPPCC, or who have retired.
In reviewing publicly available information, eight of the 10 ministerial-level officials that were investigated since the 20th Party Congress are either current or former officials of the NPC or CPPCC. And of the 59 vice ministerial-level officials investigated, 36 are either current or former officials of the national or provincial NPC or CPPCC. This means that over the last 22 months, 63.8 percent of the probed ministerial and vice ministerial officials are current or former officials of the NPC or CPPCC. In contrast, just 42 out of 108 (38.9 percent) ministerial and vice ministerial officials who were investigated in the five years after the 19th Party Congress were in the national or provincial NPC or CPPCC.
We see several reasons for the uptick in investigations against retired or “second line” officials:
- Xi Jinping is more or less truly in charge of the CCP regime after consolidating power to an even higher degree at the 20th Party Congress. In contrast, many Jiang faction officials have moved to the “second line” or are reaching retirement age.
- Xi faces less political risk in targeting “second line” or retired officials because most of these officials have been removed from their original bases of power and their influence has diminished over time.
- The investigation of corrupt officials and the confiscation of their wealth helps the CCP regime with its fiscal shortages. Given that mid-level corrupt officials are frequently found to have hundreds of millions of yuan worth of cash in their homes in reports of their being probed, we estimate that the authorities could potentially seize between 1 to 10 billion yuan from each vice ministerial or ministerial official they investigate. This means that the downfall of 69 such officials since the 20th Party Congress could potentially yield a “windfall” of between 69 billion yuan to 690 billion yuan for the CCP regime. Additionally, taking out senior officials means a reduction in the fiscal burden of the regime with the stripping of their privileges (housing, security, dedicated staff, premium healthcare, etc.)
2 Xi’s seeming lack of public appearances spurs political rumors
Recent political rumors about Xi
Political rumors about Xi Jinping continued to swirl after the Third Plenum of the 20th Central Committee, including:
- A faction of generals led by CMC vice chairman Zhang Youxia seized the opportunity to stage a coup and control Xi after the latter allegedly suffered a stroke at the Third Plenum.
- Personnel changes in the Central and Northern Theater Commands are indicative of a military coup in Beijing.
- The Xi Jinping who is making public appearances is a body double and the real Xi is being held in an underground medical center in Beijing’s Xishan area.
- Some observers believe that the “Xi Jinping” who met with the president of Timor-Leste and prime minister of Italy on July 29 is taller, which suggests that Xi might be having health issues.
- The number of articles about Xi Jinping on the front page of People’s Daily has reportedly decreased after the Third Plenum.
PLA 97th anniversary reception
July 31
The PRC Ministry of Defense held a reception at the Great Hall of the People in Beijing to celebrate the 97th anniversary of the founding of the People’s Liberation Army. Defense minister Dong Jun delivered a speech at the reception.
Xi Jinping and the two vice chairs of the CMC did not attend the reception. The other three CMC members — Liu Zhenli, Miao Hua, and Zhang Shengmin — were in attendance.
Theater command personnel changes
July 31
Official PRC reports of exchanges between local officials and garrison troops indicate that former Central Theater Command commander General Huang Ming had been transferred to the Northern Theater Command to serve as commander. Meanwhile, General Wu Yanan was appointed commander of the Southern Theater Command.
Huang Ming (age 61) and Wu Yanan (62) were promoted to major general during Xi’s first term (July 2014). Wu and Huang were two of more than 50 generals selected to lead model unit formations that were inspected by Xi during the latter’s grand military parade in September 2015.
Xi’s recent activities
Xi Jinping attended the following meetings:
- July 25: A Politburo Standing Committee meeting on researching and deploying flood prevention and disaster relief efforts.
- July 30: A Politburo meeting to analyze and study the current economic situation and economic work.
- July 30: A Central Committee symposium with non-Party individuals on the current economic situation and economic work for the second half of 2024.
- July 31: The 16th collective study session of the Politburo.
Recent propaganda promoting Xi
The CCP authorities established several propaganda teams nationwide after the Third Plenum to promote the “spirit of the Third Plenum.” Official mainland media outlets also published a series of articles to promote and interpret from various angles the Decision issued at the Third Plenum.
On Aug. 1, the CCP Central Committee ideological journal Qiushi published excerpts from Xi’s report at the 20th Party Congress delivered on Oct. 16, 2022 under the title, “Achieving the Centenary Goals of the Military and Creating a New Situation in National Defense and Military Modernization” (實現建軍一百年奮鬥目標，開創國防與軍隊現代化新局面).
Our take
1. We believe that the recent political rumors about Xi Jinping are extremely lacking in credibility.
i) Xi did not attend the PLA reception in Beijing or embark on inspection tours in the localities after the Third Plenum. Meanwhile, the number of articles about Xi appears to have dropped off. At a glance, these developments could suggest that Xi is in some sort of trouble and there is some credence to the political rumors being circulated. However, there are more plausible explanations for those developments in considering the situation in China.
For one, the late July to mid August period is the time when the CCP’s top leaders head to Beidaihe for their annual summer work retreat. Because the top leaders are gathered at Beidaihe, their public activities and reports about them naturally trickle off. It is possible that Xi Jinping and the two CMC vice chairs did not attend the PLA 97th anniversary founding reception because they are already at Beidaihe.
Beidaihe aside, Xi could be putting off provincial inspections until local authorities get a handle on various natural disasters, including heavy rain and floods in southern China and heat waves in the northern regions. Xi would not receive any propaganda boost by touring crisis-stricken localities at this time. On the contrary, the Xi leadership’s governance failures would become even more pronounced when attention is called to the problems of severe bureaucratism in the localities, local government fiscal shortages, inadequate disaster relief, and a lack of relief supplies.
ii) Many of the political rumors about a coup against Xi or his alleged poor health are inconsistent with CCP political operations and political culture.
The history of CCP elite politics is one of “you die, I live” factional struggles. Were Xi truly incapacitated, his rivals in the Party elite would not hesitate to publicize his health issues and governance failures, and have him swiftly replaced. They also would not allow Xi’s “body doubles” to meet with foreign leaders and attend Politburo meetings. Moreover, Xi’s enemies would purge many of his loyalists to ensure their safety.
None of the aforementioned developments have happened. The recent military personnel changes appear to be part of regular reshuffling to give theater commanders Huang Ming and Wu Yanan more experience. Both generals are below the retirement age of 65 and could still be transferred to other positions or into the CMC; the CCP’s increased secrecy about military personnel adjustments after the 19th Party Congress means that changes could be hard to verify. Meanwhile, there has been no large-scale replacement of Xi’s allies and loyalists.
The continued promotion of Xi’s political theories and the “spirit of the Third Plenum” in official propaganda outlets is another clear indication that Xi has not suffered a stroke or any other debilitating illnesses that require his hospitalization as the political rumors claim. There is also no unusual market volatility; the incapacitation of Xi could see a surge in the markets as the Party and business elites who are prominent market actors could look to shape the environment to signal that “positive” personnel change at the helm is coming.
2. The persistent spread of political rumors about Xi Jinping’s health and personal safety could be partly the work of “anti-Xi” forces both inside and outside China who are looking to shape the narrative environment against Xi. When circulated long enough across a broad audience, the “anti-Xi” forces could eventually weaponize the political rumors against Xi Jinping at crucial moments to undermine his “quan wei” (authority and prestige) and possibly destabilize him.
The political rumors about Xi also reflect widespread dissatisfaction towards the Xi leadership’s governance and growing pessimism about China’s economic prospects. The Third Plenum Decision did not offer any of the liberal reforms or stimulus that observers were looking for but instead doubled down on adhering to communist ideology as the guide for policies and societal control. Recent factory activity data also reflected economic weakness. The official manufacturing purchasing managers’ index (PMI) came in at 49.4 in July, which meant that factory activity has been in a state of contraction in China for all but two months (March and April) this year. The Caixin PMI, which tracks export-oriented firms and better reflects China’s export situation, dropped to 49.8 in July and entered the contraction zone for the first time since November 2023. Meanwhile, the PRC continues to meet with “containment and suppression” from the U.S. and its allies, and faces the prospect of increased tariffs if former president Donald Trump takes the White House in November. As China’s situation grows more bleak and Xi Jinping insists on using ideology and control to solve crises instead of pursuing liberal reforms, more people are hoping for Xi’s ill health or death so that he can be replaced with leaders better able to improve China’s prospects.
What’s next
Barring unexpected developments, Xi Jinping and other top PRC leaders should return to making regular public appearances around late August after the Beidaihe work retreat concludes.
