1 Xi and the CCP face increasing risks and challenges
The Xi Jinping leadership has been stepping up political indoctrination to emphasize the “thorough implementation of the spirit of the 20th Party Congress and the Third Plenum of the 20th Central Committee,” guide officials and cadres in “further comprehensively deepening reforms,” and build intra-Party consensus in the face of severe regime crises. Recent developments suggest that the risks and challenges threatening Xi and the CCP regime are rapidly escalating.
Economic prospects
Sharp decline in marriage registrations
Nov. 1
The PRC Ministry of Civil Affairs released data showing that 4.747 million couples had registered to get married in the first three quarters of the year and 1.967 million couples had filed for divorce. This meant a year-on-year decrease of 943,000 marriage registrations and a decrease of 6,000 divorce registrations from a year ago.
Marriage registrations had already decreased by 498,000 in the first half of the year to hit a record low. The official figure for the first nine months of 2024 meant that marriage registrations plunged by 445,000 in the third quarter alone.
Declining employment conditions
Oct. 18
The National Bureau of Statistics released data showing that the average surveyed urban employment rate was down 0.2 percentage points from a year ago to 5.1 percent in the first three quarters of the year.
In September 2024, the unemployment rate for the urban labor force (aged 16 to 24, excluding students) was 17.6 percent, compared with 18.8 percent in August, 17.1 percent in July, and 13.2 percent in June. Mainland media estimated that there are over 30 million individuals in the unemployed youth group.
The youth unemployment rate in China reached a record high of 21.3 percent in June 2023. Afterward, the CCP authorities stopped publishing this specific statistic and released a modified figure that excluded students in December 2023.
Nov. 1
Qiushi, the CCP Central Committee ideological journal, published key portions of Xi Jinping’s May 27, 2024 speech at the 14th collective study session of the 20th Politburo under the title, “Promoting High-quality and Sufficient Employment” (促進高品質充分就業).
In his speech, Xi called on “Party Committees and governments at all levels to treat employment as the top priority in livelihood issues.” He also emphasized the need to “actively tell the story of China’s employment and effectively enhance our country’s discourse and influence in the employment sector internationally.”
Bureaucracy troubles
Number of disciplined officials up nearly 50%
Oct. 26
The Central Commission for Discipline Inspection and the National Supervisory Commission released a report on the status of investigations and reviews conducted by the anti-corruption authorities during the first nine months of 2024.
The report showed that 642,000 disciplinary cases were filed, including the investigation of 58 provincial- and ministerial-level officials, 3,263 department-level officials, 26,000 county-level officials, and 89,000 township-level officials. Additionally, cases were filed for 77,000 current or former village Party branch secretaries and village committee directors.
The report also showed that 589,000 individuals were disciplined, including 53 provincial-level and ministerial-level officials, 2,779 department-level officials, 21,000 county-level officials, 74,000 township-level officials, 84,000 general cadres, and 407,000 other personnel, including those in rural and enterprise roles.
In comparing the data in the report to that of the same period in 2023, the number of cases filed increased by 36.6 percent and the number of disciplinary actions rose by 45.4 percent. Meanwhile, the number of disciplined provincial- and ministerial-level officials increased by 55.9 percent, department-level officials by 55.9 percent, county-level officials by 31.2 percent, township-level officials by 37 percent, general cadres by 50 percent, and other personnel, including those in rural and enterprise roles, by 46.9 percent.
Construction of prisons for corrupt officials
Oct. 23
Overseas Chinese language media New Tang Dynasty Television reported that specialized secret prisons have been constructed across mainland China over the past two years to detain purged officials, citing a CCP insider.
The insider said that the jails are internally referred to as “prisons for corrupt officials” (貪官監獄), and added that those being imprisoned are at the sub-section level or higher.
The insider believes that the detained officials may possess information that is sensitive and unfavorable to the CCP. Therefore, those officials have to be held in centralized facilities to prevent them from making public their information.
The insider added that anti-corruption efforts have become a “revenue-generating” measure as the CCP authorities’ financial situation deteriorates. The confiscated assets of purged officials are used to “replenish the state treasury” and alleviate some of the CCP’s financial pressure. The insider described the situation as a “black-on-black” game (i.e. evildoers going after evildoers).
Officials secretly read banned books
Oct. 25
Several Western media outlets reported that at least 15 Party cadres have been accused by anti-corruption agencies of illicit reading or possessing forbidden materials so far in 2024, up from eight in 2023.
Tax audits unsettle the wealthy
Oct. 14
Bloomberg News reported that the CCP authorities have begun enforcing a tax on overseas investment gains by the ultra-rich in China, citing people familiar with the matter. The people said that some wealthy individuals in major Chinese cities were instructed in recent months to conduct self-assessments or were summoned by the tax authorities for meetings to assess potential payments, including those in arrears from previous years.
The people said that the individuals contacted are facing up to 20 percent levies on investment gains and some are subject to penalties on overdue payments, with the final amount subject to negotiation.
Nov. 4
The Financial Times reported that the CCP authorities are asking wealthy individuals and companies to carry out “self-inspections” of their tax payments and pay any deficiencies as “local governments hunt for revenue to refill coffers depleted by a property slump.”
A notice in one city seen by the Times said that companies that do not find anything wrong during their self-inspections have to send stamped attestations and “retain their evidence for inspection.” People familiar with the matter said that the authorities have asked individuals to start paying back-taxes, including from their personal overseas investment gains, citing a sparsely-used legal provision from 2019.
A lawyer told the Times that his wealthy Chinese clients were able to negotiate with tax officials and that there was some “wriggle room” on their potential tax liabilities.
Second Trump administration
On Nov. 6, Donald Trump was elected as president after securing more than 270 electoral college votes. The Republicans also won control of the Senate (at least 52 seats secured at the time of writing) and are on track to keep the House (205 to 189 seats at the time of writing).
Our take
1. Beijing has recently been promoting and implementing some monetary easing policies and has hinted at “bazooka” stimulus measures, likely because China’s economic prospects and situation are bleak. The dismal economic situation is reflected in the marriage registration and unemployment figures.
i) Marriage registrations in China have been declining annually since hitting a peak in 2013 (13.469 million), falling to 6.833 million registrations in 2022 before rebounding slightly to 7.68 million in 2023. Assuming that marriage registrations in the first three quarters of the year account for 75 percent of the annual total, then China could see just 6.33 million marriage registrations in 2024 — the lowest number on record since 1980. Even a fluctuation of 3 percent in the figure means there would be 6.59 million marriage registrations, or much lower than in 2022 when “zero-COVID” lockdown measures were in place.
Plummeting marriage registrations also likely means a decrease in births in 2025. Births and marriages will likely keep declining as long as China’s economy fails to turn around. This phenomenon would signal to investors that economic growth in China is rapidly, and possibly irreversibly, losing momentum.
ii) The CCP authorities’ focus on the employment situation reflects both the worsening state of China’s economy and Beijing’s concerns about rising social instability stemming from unemployment.
CCP propaganda outlets have been working hard to downplay the unemployment situation, claiming that the “employment situation is generally stable” and excluding students from the urban labor force count. However, various signs indirectly suggest that the unemployment situation is severe, including rising complaints on social media, wage arrears in various government departments, an increasing number of highly educated individuals taking up low-skilled jobs, and ongoing incidents of individuals who have been out of employment for a long time lashing out at society.
China’s unemployment problem is related to some extent to Xi Jinping’s approach of sacrificing economic growth while shoring up political and national security. For instance, the Xi leadership’s targeting of large technology companies, the gaming industry, and the private tutoring industry led to layoffs among high-income workers. Beijing appears to have acknowledged the impact it has had on the employment situation and has been working to rectify at least some areas. Reuters reported on Oct. 27, 2024 that the CCP authorities have been quietly easing regulatory pressure on private tutoring operators and allowing the tutoring industry to grow to support job creation, citing industry figures, analysts, data, and Chinese parents.
In his May 27, 2024 speech to the Politburo, Xi Jinping urged “Party Committees and governments at all levels to treat employment as the top priority in livelihood issues” and “actively tell the story of China’s employment and effectively enhance our country’s discourse and influence in the employment sector internationally.” There are likely two main reasons behind Xi’s request:
- The CCP authorities are concerned that rising unemployment would lead to weak consumer spending and persistent deflation, which would erode foreign investors’ confidence in China’s economic recovery and reduce investment in the country.
- Beijing is concerned that rising unemployment, especially among the youth, could lead to social instability if it accumulates beyond certain levels. For instance, the “blank paper revolution” in late 2022 was primarily driven by young people. Youths are also cohesive to an unexpected degree. Mainland media reported that nearly 10,000 university students from Zhengzhou City in Henan Province rode shared bicycles for nearly 50 kilometers to Kaifeng City to enjoy local soup dumplings on Nov. 2. The bicycle procession stretched for tens of kilometers, causing traffic congestion and requiring traffic police escorts. Naturally, the CCP authorities would be concerned that unemployed youths would turn their energies and ability to network into large-scale anti-government protests, and are working to reduce youth unemployment to prevent such developments.
2. Corruption in the CCP officialdom remains severe and endemic despite Xi Jinping having run his anti-corruption campaign for more than a decade.
i) The sharp uptick in cases and disciplinary actions against officials in the first nine months of the year indicate that Xi’s anti-corruption campaign is still going strong in his third term, contrary to the assessment of some observers before the 20th Party Congress that Xi was going to wind down the campaign. The increase in cases and disciplinary actions also indicate that the Xi leadership is still struggling to overcome corruption, bureaucratism, and other serious deficiencies of the CCP authoritarian system.
An examination of the corruption data reveals extensive malfeasance in the grassroot administrations. In the first three quarters of the year, there were cases filed against 77,000 current or former village Party branch secretaries and village committee directors, compared with 61,000 cases for the whole of 2023. Given that China has 621,000 village administrations and assuming that the investigated grassroots officials come from different villages, then 22.4 percent of village administrations have had corruption cases in the past 21 months.
Meanwhile, if the information about the construction of “prisons for corrupt officials” across mainland China is accurate, then it suggests that the CCP authorities have detained so many officials that they need to invest scarce funds to build dedicated prisons for them.
ii) The fact that PRC officials are secretly reading illicit materials, which includes books and articles on CCP elite politics, reflects a lack of “loyalty” to the Party and growing political instability in the officialdom.
It is almost certain that the number of officials accessing banned material is much higher than reported. Officials could be reading those material to understand the state of power struggle in the CCP elite to avoid aligning with the “wrong” faction and becoming targets of investigation. Officials could also want to glean information on the various CCP elite networks and seek opportunities to build connections with powerful political backers.
iii) Serious corruption problems in the officialdom means that local officials are unlikely to be diligently implementing the central government’s policies and could even be creating greater problems for Beijing through their actions. This makes it exceedingly difficult for Xi and the CCP to resolve deep-rooted problems in the regime even after ruthlessly cracking down on corruption.
3. The tax investigations targeting wealthy Chinese likely stem from directives issued by the PRC State Tax Administration. It is almost certain that local tax officials, in pursuing political achievements, may broaden and arbitrarily enforce the collection of taxes. This would in turn increase panic among the wealthy and compel some to migrate. Some local tax officials could also abuse their authority for rent-seeking or covertly help some of the wealthy to reduce their taxes, thereby undermining the central government’s interests.
4. The outcome of the 2024 U.S. election is likely to compound Xi and the CCP’s problems and negatively impact the PRC.
i) In economics, the second Trump administration will very likely continue and even expand many of the China policies introduced during President Trump’s first term, including high tariffs, technology restrictions, and efforts to reshore manufacturing to America and “friendshoring.” The new Trump administration could also take broad measures to address the PRC’s exporting of excess capacity, including the moving of manufacturing capacities outside of China to escape tariffs.
Trump’s U.S.-focused economic policies are also likely to be detrimental to the PRC. The Trump administration is likely to boost U.S. oil and gas production, potentially readjust focus on clean energy, and cut taxes. In the short term, those policies could keep inflation up and lead to the sustaining of high interest rates, high Treasury yields, and a strong dollar. This would in turn put depreciationary pressure on the renminbi and facilitate capital outflows from China.
To mitigate the impact of Trump’s policies, the CCP authorities could issue 2 to 3 trillion yuan in special treasury bonds in 2025 and lower the yuan exchange rate to 7.3 to 7.5 to hedge against risks. Meanwhile, Chinese companies could cut prices to keep up export levels even if it means taking in reduced profits and even suffering losses. Price cuts would likely intensify deflationary pressures, increase the risk of the PRC having trade conflicts with other countries, incentivize capital outflows, and further weaken investor confidence.
ii) In geopolitics, the new Trump administration is likely to take action on the Russia-Ukraine war, conflicts in the Middle East, and Taiwan that would reshape the international landscape and undermine the CCP’s effort to promote “multilateralism” and reshape the world order.
President Trump has been reticent about how he would resolve the Russia-Ukraine war and the situation in the Middle East. But if Trump is successful, he could potentially achieve détente with Russia, bring peace to the Middle East (at least over the short term), and refocus America’s attention on the Indo-Pacific and dealing with the CCP threat (while working with allies). Such changes would lessen the appeal of Beijing’s “multilateral” vision for the world and greatly heighten geopolitical pressures on the PRC.
Trump said in several interviews that Taiwan should pay more for its defense and U.S. protection, but has not indicated that he would abandon the island in the case of mainland aggression. Trump’s victory could see Taipei boost its defense spending and even pay a “protection fee” to be included under the U.S. security umbrella. Such developments would further deter the CCP from considering an invasion and could have a minimal impact on cross-Strait and U.S.-China tensions given the optics (i.e. U.S. strategic ambiguity over Taiwan is preserved, and the CCP would not “lose face” because the sovereignty issue is not raised).
iii) Republican control over Congress would allow the Trump administration to pass more China policies with ease, including those concerning CCP-related national security issues and the outbreak of COVID-19 in China (Trump believes that China and COVID at least partially contributed to his losing the White House in 2020). This sets the stage for sustained and heightened Sino-U.S. tensions during the second Trump presidency.
The Trump administration’s recognition of the CCP as the biggest threat to the U.S. and the world will likely lead to increased awareness globally about the dangers of Communist China. This would in turn worsen the many risks and challenges facing Xi Jinping and the CCP.
