1 CCP makes contingencies for potential conflict with the US
PRC makes conflict preparations
Nov. 28
The CCP authorities held a meeting to commemorate the 70th anniversary of the All-China Federation of Supply and Marketing Cooperatives in Beijing. Important instructions from Xi Jinping and directives from premier Li Qiang were conveyed at the meeting.
In his instructions, Xi emphasized that Party Committees and governments at all levels should further strengthen their leadership and support for the work of supply and marketing cooperatives and make full use of this force on the new journey of the new era.
Li Qiang said in his directives that supply and marketing cooperatives must deeply implement the spirit of Xi’s important instructions, as well as the decisions and deployments of Party Central.
Dec. 1
The Wall Street Journal reported that the PRC had set up an interagency group in the months after Russia invaded Ukraine to study the impact of sanctions and produce regular reports for the CCP leadership, citing people familiar with the matter. The people said that the goal is to learn lessons about how to mitigate sanctions, particularly should the U.S. and its allies impose similar penalties in the event of a conflict over Taiwan. As part of the effort, PRC officials periodically visit Moscow to meet with the Russian central bank, the finance ministry, and other agencies involved in countering sanctions, according to the people.
People close to Beijing’s decision-making said that the study group does not mean that the PRC is preparing for an invasion, but rather, Beijing is getting ready for the “extreme scenario” of an armed conflict and its economic repercussions.
Alexander Gabuev, the director of the Carnegie Russia Eurasia Center, told the Journal, “For the Chinese, Russia is really a sandbox on how sanctions work and how to manage them. They know that if there is a Taiwan contingency, the tool kit that will be applied against them will be similar.”
Dec. 2
The fourth symposium on promoting the high-quality development of the Belt and Road Initiative was held in Beijing. Director of the National Development and Reform Commission Zheng Shanjie, vice foreign minister Ma Zhaoxu, Beijing municipal Party secretary Yin Li, Hubei provincial Party secretary Wang Menghui, China Baowu Steel Group Corporation chairman Hu Wangming, YXE Trade and Service Group chairman Feng Xubin, and Chinese Academy of Social Sciences’ Institute of Chinese Borderland Studies director Xing Guangcheng spoke in succession, offering opinions and suggestions.
Following those remarks, Xi Jinping delivered an important speech. Xi stressed that in the face of the current severe and complex international environment, promoting the high-quality development of the BRI presents both opportunities and challenges, with opportunities outweighing challenges on the whole. He urged officials to maintain strategic confidence, stay strategically resolute, and demonstrate courage and responsibility.
Xi further pointed out that the world has entered a new period of turbulence and transformation in recent years, marked by a significant rise in unilateralism and protectionism, as well as frequent local conflicts and unrest. He added that under these circumstances, advancing the high-quality development of the BRI requires effectively addressing various risks and challenges, mitigating the impact of geopolitical conflicts, appropriately balancing the sense of gain for participating countries with China’s interests, and ensuring the safety of China’s overseas interests.
When presiding over the meeting, vice premier Ding Xuexiang said Xi’s speech had high strategic vision, profound thoughts, incisive analysis, and rich content. Ding added that Xi’s speech provides crucial guidance and direction for driving the BRI’s high-quality development in the next golden decade, and encouraged officials to study and understand the speech thoroughly and implement its directives resolutely.
Biden administration imposes new chip restrictions
Dec. 2
The U.S. Commerce Department’s Bureau of Industry and Security imposed curbs on China-bound shipments of high bandwidth memory chips (vital for AI systems and other advanced computing tasks), new export restrictions on 24 types of chipmaking equipment and three software tools, and new export curbs on chipmaking equipment made in countries such as Malaysia and Singapore.
The BIS also issued revisions to the foreign direct product rule, including one rule targeting semiconductor manufacturing equipment headed for mainland China or Macau and another rule restricting foreign-made goods that can be sent to companies on the Commerce Department’s entity list.
The BIS further blacklisted 140 organizations, including semiconductor factories, equipment manufacturers, and investment firms linked to the PRC’s military modernization. The mainland organizations include several of Huawei’s suppliers such as Pengxinxu Technology, SiCarrier Technology, and SwaySure Technology. Chip equipment maker Naura Technology Group and semiconductor design company Empyrean Technology and their subsidiaries are also on the list.
Our take
1. The CCP authorities appear to be making advance preparations for the worst-case scenario in great power competition in view of worsening Sino-U.S. tensions in recent years and the prospect of those tensions worsening further under the incoming Trump administration.
President-elect Donald Trump has talked publicly about revoking China’s most-favored-nation trading status and reportedly had private discussions with advisers about the possibility of imposing a flat 60 percent tariff on all Chinese imports. Speaking to The Wall Street Journal before the election, Trump threatened to raise China tariffs “at 150 percent to 200 percent” and even shut down trade altogether should the PRC invade Taiwan. In a post on Truth Social on Nov. 25, Trump also pledged to raise tariffs by an additional 10 percent on all Chinese goods unless China stops sending “massive amounts of drugs, in particular Fentanyl” into the United States. In another Truth Social post on Nov. 30, Trump threatened to impose 100 percent tariffs on BRICS nations should they create a new BRICS currency or back another currency to replace the U.S. dollar. Meanwhile, Trump’s picks for top foreign policy positions are all hawkish on China.
Economists believe that the U.S. could kick off a new trade war with China as soon as Trump’s first year in office. A survey of more than 50 economists by Reuters from Nov. 13 to Nov. 20 expected Trump to impose tariffs by early 2025, with a median estimate of 38 percent and projections ranging from 15 percent to 60 percent. Most respondents do not expect Trump to impose blanket 60 percent tariffs on Chinese exports in early 2025 as the move could accelerate inflation in the United States. The respondents estimate the new U.S. tariffs will reduce China’s economic growth in 2025 by around 0.5 to 1.0 percentage points.
The prospect of fresh trade tensions prompted American companies to stockpile goods ahead of Trump’s inauguration. This led to a surge in China’s exports in October (up 12.7 percent year-on-year). However, front-loading by U.S. businesses also entails fewer future orders, which likely contributed to the contraction in China’s October imports (down 2.3 percent year-on-year).
Beijing could have fewer avenues for mitigating the impact of the trade war this time as countries begin to take steps that appear to address the issue of rerouting Chinese goods:
- President-elect Trump spoke with Mexican president Claudia Sheinbaum by telephone on Nov. 27. On Nov. 29, the Mexican authorities raided a building known as “Mexico Mart” and seized around 90,000 counterfeit name-brand products, as well as over 262,000 products with no receipts, import documents, or labels. “Mexico Mart,” whose entire facade is labeled in Chinese characters, is known for carrying goods from China, Malaysia, Indonesia, Bangladesh, and Vietnam.
- On Nov. 29, the Mexican tax authorities announced that a 16 percent value-added tax would be imposed on all foreign companies selling products through e-commerce platforms starting Jan. 1, 2025. The move appeared to be primarily aimed at platforms such as Shein, Temu, and Amazon.
- Speaking at a forum on Dec. 2, Malaysia’s deputy trade minister Liew Chin Tong said, “Over the past year or so … I have been advising many businesses from China not to invest in Malaysia if they were merely thinking of rebadging their products via Malaysia to avoid U.S. tariffs.” Liew did not specify which types of businesses he was referring to.
The PRC’s trade contraction will undoubtedly exacerbate China’s unemployment troubles. Chinese legal research company CIB Research estimated that exports account for 15.2 percent of overall employment in China. Domestic employment opportunities would be further reduced when Chinese companies set up shop abroad to circumvent tariffs; mainland media have reported that some Chinese photovoltaic firms have already begun establishing factories in the U.S. to avoid potential anti-subsidy tariffs.
2. The CCP is promoting the “high-quality development of the BRI” as it seeks to get ahead in great power competition by promoting its brand of “multilateralism” and making more efforts to court the “Global South.” Beijing has greater incentive now to become more proactive in its global ambitions instead of merely “delaying and waiting for change” given the Trump administration’s determination to counter the CCP threat.
The CCP has long anticipated the worsening of Sino-U.S. relations and has made the case to be prepared for worst-case scenarios. Qu Qingshan, dean of the Central Party History and Documentation Research Institute, previously laid this out in a lengthy article published on July 7, 2022 explaining the necessity of Xi Jinping’s “Two Establishes.” Notable points in Qu’s piece on the topic include:
- Qu argued that the essence of “great changes in the world unseen in a century” is the division and integration of international forces, the struggle between national powers, the struggle between systems, and the struggle of ideas.
- Qu wrote that the need for change in the international structure and global governance system is “unavoidable.” Further, the “direction of change in the international system will not change” (i.e. change from a U.S.-led world order to a CCP-led world order) and “the democratization of international relations has become an unstoppable trend of the times” (i.e. U.S. hegemony making way for CCP-dominated “multipolarism”).
- Qu believes that China is the “biggest variable” in the “great changes.”
- Qu wrote that “Western countries headed by the United States” do not want to see “the emergence of a strong China, let alone a strong socialist China.” He also argued that the “strategic game” between the U.S. and China is a “struggle between two social systems and two ideologies.”
- Qu argued that Xi Jinping’s “great power diplomacy,” the “innovative concept” of “building a community with a shared future for mankind,” and the “Belt and Road Initiative” (China’s “best international public product to the world”) are countermeasures to deal with “great changes in the world unseen in a century.”
In analyzing Qu’s piece, we wrote at the time, “The CCP’s desire for world domination is clearly reflected in the first segment of Qu Qingshan’s article. Despite using language that is seemingly supportive of globalism, Qu essentially stated that the CCP is looking forward to vanquishing the U.S. and replacing the latter as global hegemon.”
3. Beijing is likely readying its supply and marketing cooperatives system to address domestic supply issues that could arise in the event of severe deterioration in Sino-U.S. relations.
Back in January 2019, we analyzed that the CCP was likely shoring up its supply and marketing cooperatives system, which has its roots in the PRC’s planned economy era, in preparation for the worst should there be a severe breakdown in U.S.-China relations. While our analysis was geared towards the Sino-U.S. trade talks during Trump’s first term, we believe that it is still pertinent for what could await the bilateral relationship in the future. We wrote: “In the event of a complete breakdown in trade talks between the U.S. and the Chinese regime, the situation in China could deteriorate rapidly and social tensions will escalate. The CCP could be forced to mobilize the military and utilize its Orwellian surveillance systems (the ‘social credit system,’ facial recognition technology, etc.) to strictly control the flow of people in the country. The (supply and marketing cooperatives system) would be tasked with guaranteeing the supply of emergency rations in the countryside. The Party’s goal would be preventing unemployed people in the rural areas (the so-called ‘low-end population’) from assembling in the big cities to trigger a ‘color revolution.’”
