1 Purge of Miao Hua, possible probe of Dong Jun hints at political instability in the CCP
Miao Hua investigated
Admiral Miao Hua, a member of the Central Military Commission and director of the CMC Political Work Department, was suspended pending investigation for alleged serious disciplinary violations, according to a spokesman for the PRC Ministry of Defense on Nov. 28.
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Miao, 69, is regarded as a close associate of Xi Jinping. Miao’s years in People’s Liberation Army units based in Fujian, including the 31st Group Army (now 73rd Group Army), overlapped with Xi’s tenure in the province as a top local and regional official.
Miao swiftly climbed up the ranks after Xi took power. In December 2014, Miao, who had spent the bulk of his career in the PLA Ground Force, was promoted cross-branch from political commissar of the Lanzhou Military Region to political commissar of the PLA Navy. Miao became full general in July 2015, an exceptional promotion. In August 2017, Miao was promoted to director of the CMC Political Work Department and became a member of the CMC in October of the same year.
In early November 2024, rumors began circulating in overseas Chinese-speaking circles that Miao Hua was being probed.
Dong Jun probed?
On Nov. 27, the Financial Times reported that PRC defense minister Admiral Dong Jun was being investigated as part of a wider probe into corruption in the military, citing former and current U.S. officials.
When asked about the issue at a daily press briefing, PRC foreign ministry spokeswoman Mao Ning said that it was “chasing shadows” without elaborating further. PRC defense ministry spokesman Wu Qian also dismissed the issue at a press briefing the following day, criticizing the rumors as “malicious” and expressing strong dissatisfaction at the “slanderous acts.”
In a Nov. 28 report, Reuters cited a U.S. official saying that Beijing’s investigation into the PLA Rocket Force had expanded to other issues in the military and procurement, and the investigation into Dong Jun was significant because Xi had appointed Dong himself.
Reuters also cited another U.S. official as urging caution on reports about Dong’s investigation, but without offering details on the veracity of those reports.
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Dong Jun (age 63), the former PLA Navy commander, succeeded Li Shangfu as defense minister in December 2023 after the latter was abruptly dismissed after just seven months into his job due to what appears to be procurement-related corruption. Despite being defense minister for almost a year, Dong has yet to be appointed as a CMC member and State Councilor, which are customary positions held by those in his office.
Dong’s most recent public appearance was at the 11th ASEAN Defense Ministers’ Meeting-Plus in Laos on Nov. 21.
Our take
1. Beijing has kept a tight lid on the information it divulges about senior military leaders since the 19th Party Congress. It is therefore unusual to find somewhat reliable rumors circulating in both overseas Chinese and English-speaking circles regarding Miao Hua before investigations were formally announced, as well as information in the Western press about Dong Jun being allegedly probed.
We believe that conscientious individuals in the CCP system, the Party’s “Great External Propaganda Plan” (大外宣) network (previously influenced by the Jiang Zemin faction), or various “anti-Xi” elements could have leaked the rumors concerning Miao and Dong through their respective channels after affirming that the Xi leadership was indeed targeting them. It should be noted that the partial veracity of some of those leaks does not mean that future leaks and rumors about the PLA or factional struggle in the CCP elite are more likely to be true. On the contrary, observers should exercise even greater caution when coming across such information because Xi’s enemies will likely try to disseminate more disinformation than real information to further muddy the waters of public discourse and gin up even more hatred towards Xi.
2. We see several possible and overlapping reasons why Xi Jinping had Miao Hua investigated and made the probe public.
Per our Nov. 14, 2024 newsletter, Xi could have suspected Miao of having committed “particularly egregious offenses such as threatening Xi’s personal political security or badly undermining Xi’s political agenda.” For example:
- Xi could be wary that Miao had formed “cliques and factions” (團團伙伙) in the military, especially in the field of political work, that interfered with Xi’s control over the PLA.
- Xi could believe that Miao had not fully implemented his instructions and directives on political indoctrination of the military, thereby impacting the effectiveness of Xi’s policies and his control over the PLA, as well as worsening corruption in the military.
- Xi could be holding Miao accountable for the failure of the PLA’s “self-revolution” and massive corruption in the military, particularly the latter’s negligence or complicity in political oversight and personnel decisions.
- Xi could have found Miao to be guilty of abusing his position as a trusted ally to engage in selling ranks and positions like the former CMC vice chairmen Xu Caihou and Guo Boxiong. Such actions are greatly disruptive to Xi’s political agenda. On one level, it shows that the military men in the Xi camp are no different from those in the Jiang faction on the issue of corruption and Xi’s talk of using “self-revolution” to save the regime is unpersuasive. On another level, serious corruption in the senior military ranks sets back Xi’s effort to modernize and strengthen the PLA and have it ready to withstand strategic competition with the United States.
We have not been able to spot obvious public signs indicating that Miao was guilty of the above offenses. However, the Xi leadership’s ongoing and expanding investigations into military corruption could have uncovered hidden evidence of Miao’s wrongdoing, or “anti-Xi” elements could be feeding Xi “damaging information” about what Miao had allegedly done. After reviewing the information/misinformation/disinformation, Xi must have been convinced that Miao’s “transgressions” were severe enough to risk damaging his “quan wei” (authority and prestige) by officially targeting Miao, who is widely believed to be a longtime Xi ally and loyalist, instead of allowing the latter to retire quietly.
We believe that it is also possible that the purge of Miao Hua has more to do with Xi Jinping’s growing paranoia rather than any major wrongdoing by the former. After all, Xi has been engaging in intense factional struggle for more than a decade and, like Mao Zedong, could have come to be distrustful of even his closest allies. For example, Lin Biao helped Mao purge influential military leaders like Peng Dehuai and He Long, consolidating significant power in the military and eventually becoming Mao’s designated successor. However, Mao felt threatened by Lin’s growing influence, resulting in the “Lin Biao Incident” and the latter’s death. While Lin and Miao’s stature and political influence are not analogous, their positions and activities with regard to their respective political patrons are somewhat alike. Xi would certainly have relied on Miao to purge the Jiang faction’s influence in the military and rewarded the latter with rapid promotions. But in the process of advancing Xi’s political objectives, Miao could have inadvertently cultivated his own power base, or was perceived by Xi as having cultivated a power base that could threaten his interests. Xi’s paranoia about Miao’s network could have prompted him to act out of an abundance of precaution to classify the latter as a threat and launch an investigation.
3. The investigation of Miao Hua is likely to implicate Dong Jun. Dong was deputy chief of staff of the PLAN (December 2014 to January 2017) when Miao was the PLAN’s political commissar. After Miao became CMC Political Work Department director, he likely had some influence over Dong’s rapid rise up the ranks and eventual selection as defense minister. Therefore, the anti-corruption authorities are likely to question or probe Dong even if he had nothing to do with Miao’s alleged corruption.
It is possible that Dong was not appointed as a CMC member and State Councilor even though it is customary for PRC defense ministers to hold those positions because the Xi leadership already had suspicions about Miao and those he elevated after the PLA corruption scandal broke out around mid-2023. However, it is also possible that Dong survives questioning and a probe if the anti-corruption authorities find no connection between him and Miao’s alleged wrongdoing.
The investigation of Miao is also likely to lead to a fresh round of purges in the PLA. Miao oversaw political work and personnel matters for over seven years, and the promotion of senior military officials during that period, particularly those in the field of political work, is closely tied to him. Those suspected of belonging to Miao’s “cliques and factions” are at risk of being sidelined.
4. If the rumor that Xi ally Lieutenant General Zhong Shaojun, the director of the CMC General Office, had been appointed as political commissar of the PLA National Defense University is correct, then it is possible that Zhong could receive an exceptional promotion and replace Miao Hua as CMC Political Work Department director.
5. By going after Miao Hua, Dong Jun, and other perceived loyalists after having just removed those in his camp like Li Shangfu and Qin Gang, Xi Jinping is taking another grievous blow to his “quan wei” and opening himself up to pushback from “anti-Xi” elements in the CCP elite and the military. The Party elites who are opposed to Xi now have even greater reason to question his personnel selection, decision-making, and even fitness to rule. The military elites will become more distrustful of CMC chairman Xi for “turning the knife inward,” weakening his grip over the Party’s “gun.” Increasing political instability in the CCP regime will compromise the PLA’s efficacy and readiness, as well as affect Xi’s confidence in the military’s ability to undertake critical operations such as long-term strategic competition with the U.S., a potential invasion of Taiwan, and domestic “stability maintenance” issues.
Meanwhile, Chinese observers in general could count the ousting of Miao and other Xi loyalists among Xi’s many recent governance failures, and grow firmer in believing that Xi and the CCP are losing political legitimacy (“mandate of heaven”).
Xi’s targeting of Miao also reflects the limits and problems of political indoctrination. Indoctrination can only go so far in boosting loyalty towards Xi and the Party, and appears to be ineffective as a tool in combating corruption. The corruption situation in the PLA must be very dire if the person in charge of political indoctrination and promoting “self-revolution” is himself allegedly guilty of corruption and disloyalty. Xi is likely discovering through ongoing corruption probes in the military that he has merely replaced a batch of rotten eggs (Jiang faction military officials) with another bad batch, and has failed to root out systemic corruption in the PLA and the civilian bureaucracy at large.
We believe that Xi Jinping’s purge of Miao Hua and other political allies is potentially as consequential as the “Lin Biao Incident” was to Mao Zedong and the CCP regime. Xi’s move at once exposes the shallowness and limitations of political indoctrination, calls into question his mental state and paranoia, leaves political allies and loyalists fearful of Xi and concerned about their own political safety, emboldens “anti-Xi” elements to more vigorously attack him, and risks having an important organ of state power and suppression (military or police) turn against a leadership that they suspect is losing control. Xi may appear to have a firm grip on power, but growing political instability in the regime and the escalation of serious crises (particularly economic and financial problems) would subject his control to severe tests and could imperil both himself and the Party.
2 Local gov’ts shift from selling land to ‘selling sky’ to generate revenue
Local gov’t finds funding exploit?
Nov. 26
The Jinan Public Resource Trading Center in Shandong Province announced that Shandong Jinyu General Aviation Co., Ltd. won 30-year franchise rights to operate services like flight training and aerial logistics in the low-altitude airspace of Pingyin County with a bid of 924 million yuan. Pingyin County has two airports and supporting facilities.
Mainland media reported that Jinyu General Aviation was a company funded by the Pingyin County Finance Bureau. The company was established with a registered capital of 200 million yuan on Nov. 5, or the same day that the Pingyin County Development and Reform Bureau issued the tender notice for the low-altitude economy (低空經濟) project.
Song Yong, director of the Pingying Country Development and Reform Bureau, said that the development of China’s low-altitude economy is not short of “hot money,” but requires larger-scale “patient capital” (耐心資本) investments, according to a Nov. 28 Xinhua report. Song added that this aligns with the general principle of developing “new productive forces.”
Low-altitude economy
The low-altitude economy in China generally refers to manned or unmanned aviation services at low levels (airspace below 1,000 meters), including the use of electronic vertical take-off and landing aircraft (eVTOL) and the transportation of goods by drones. Its industrial chain is as follows:
- Upstream: Industries involved in the research, development, manufacturing, and supply of raw materials and components (chips, batteries, and other related technologies) of manned and unmanned aerial vehicles.
- Midstream: Industries involved in the design and manufacturing of aerial vehicles, including drones, helicopters, eVTOLs, and flying cars, along with related products, infrastructure, and support services.
- Downstream: Industries involved in the application of the low-altitude economy, like goods delivery platforms, fire-fighting, crop fertilization, sight-seeing, etc.
The CCP authorities have incorporated the low-altitude economy as part of its “new productive forces” planning and support framework. Related key policies include:
- February 2021: The CCP Central Committee and State Council included the low-altitude economy in its outline of the “national comprehensive transportation network” plan (國家綜合立體交通網規劃綱要), elevating it to the national strategic level.
- December 2023: The Central Economic Work Conference identified the low-altitude economy as a strategic emerging industry.
- March 2024: The PRC government work report called for actively fostering new growth engines, including biomanufacturing, commercial aerospace, and the low-altitude economy.
- July 2024: The Third Plenum of the 20th Central Committee laid out clear requirements for developing the low-altitude economy.
Citing projections from the Civil Aviation Administration of China, mainland media estimated that the market size of China’s low-altitude economy will reach 1.5 trillion yuan by 2025 and 3.5 trillion yuan by 2035.
October gov’t fiscal and revenue data
Nov. 18
The PRC Ministry of Finance released China’s fiscal revenue and expenditure data for October 2024.
Fiscal revenue
- October 2024: Government fiscal revenue decreased by 4.99 percent year-on-year to reach 2.1922 trillion yuan.
- Jan-Oct. 2024: Government fiscal revenue decreased by 1.3 percent year-on-year to reach 18.4981 trillion yuan.
Fiscal deficit
- October 2024: Government month surplus decreased by 26.6 percent year-on-year to reach 223.6 billion yuan.
- Jan-Oct. 2024: Government deficit increased by 29.2 percent year-on-year to reach 3.6484 trillion yuan.
National tax revenue
- October 2024: The national tax revenue increased by 1.8 percent year-on-year to reach 1.9067 trillion yuan.
- Jan-Oct. 2024: The national tax revenue decreased by 4.5 percent year-on-year to reach 15.0782 trillion yuan.
National non-tax revenue
- October 2024: The national non-tax revenue increased by 39.6 percent year-on-year to reach 285.5 billion yuan.
- Jan-Oct. 2024: The national non-tax revenue increased by 15.3 percent year-on-year to reach 3.4199 trillion yuan.
Revenue from state-owned land use rights sales
- October 2024: Revenue decreased by 10.5 percent year-on-year to reach 368.4 billion yuan.
- Jan-Oct. 2024: Revenue decreased by 22.9 percent year-on-year to reach 2.6971 trillion yuan.
Our take
1. At first glance, the Pingyin County government granting Jinyu General Aviation 30-year franchise rights to operate low-altitude economy services is aligned with the central government’s directives to utilize so-called “patient capital” to develop “new productive forces.” The move, however, is a reckless bid by a local government to boost revenue at the cost of growing regional hidden debt and increasing financial risks.
The Pingyin government has essentially engaged in a disguised form of “self-buying and self-selling” (自買自賣) by awarding Jinyu General Aviation the 30-year franchise rights, with no real benefit to the local economy. Below is a breakdown of what likely happened and what could happen:
- Jinyu General Aviation, which had a registered capital of 200 million yuan, likely borrowed at least 724 million yuan from local banks (probably small or medium-sized banks) to make the bid.
- The local government registers the winning bid amount of 924 million yuan as fiscal revenue. This increases the local government’s liquidity by at least 724 million yuan after subtracting the Pingyin County Finance Bureau’s capital injection (up to 200 million yuan).
- On paper, the Pingyin government adhered to the central government’s directives to develop the low-altitude economy, infuse “patient capital” into companies, and foster “new productive forces.” But the local officials will in effect “generate” GDP figures without actually growing the economy through “self-buying and self-selling.” The Pingyin officials will also have likely created new hidden debt and shifted the burden of debt resolution to their successors and partly to Beijing.
- Those local banks could fulfill their loan quotas but likely at the cost of heightened financial risk. Jinyu General Aviation will pay loan interest in the short term, but may not be able to repay the loan when it matures. Eventually, the central government would need to step in again to help restructure hidden bad debts by issuing more special treasury bonds.
The franchise rights granted to Jinyu General Aviation cover routine airport operations such as landing fees and flight training, but does not include activities like aircraft manufacturing or airport infrastructure development. This means that it is unlikely the franchise will generate over 900 million yuan in value over a 30-year period given the high cost of airspace route investment, limited applicability of low-altitude economy services in smaller cities, and various challenges in marketization and profitability.
2. Before the bursting of the property bubble and the COVID-19 pandemic, local governments mainly relied on land sales to cover fiscal deficits as well as finance the implementation of central government policies and hit performance metrics. But as land sales decline and economic conditions deteriorate in recent years, local governments have resorted to other means to fill up their coffers, including auctioning off franchise operating rights, “revitalizing” state-owned assets, and “smashing pots and selling iron.” Now local governments like the one in Pingyin County are getting “creative” in generating revenue under the guise of implementing central government directives. Such “creative” endeavors, however, will likely heighten financial risks and leave a mess for the central government to clean up.
Local governments may feel that they are somewhat “entitled” to adopt “creative” means to secure funds at the expense of the central government given the mismatch in revenue and expenditure. Per official fiscal data, central government revenue accounted for 44.59 percent of the national general public budget revenue while local government revenue accounted for the remaining 55.41 percent during the January-October 2024 period. However, central government expenditure only accounted for 14.75 percent of the national general public expenditure, compared to 85.25 percent for local governments. In other words, local governments have less revenue but more administrative matters that require funding and therefore far greater expenses.
3. Mainland media has reported that the Pingyin County government had received numerous inquiries about its low-altitude economy initiative, including from those looking to learn from it. This suggests that other local governments with similar conditions as Pingyin are thinking about emulating what the county government has done in “selling sky” (as opposed to selling land) to raise funds. But given the uncertain actual profitability of the venture, it is more likely that Pingyin County and other local governments will end up impacting the PRC’s long-term financial stability even as they make short-term gains.
Data from the PRC transport ministry shows 449 registered general airports in China as of the end of 2023. If the local governments in areas where the airports are situated followed Pingyin County’s lead and sold franchise rights in the name of developing the low-altitude economy, they could potentially raise 220 billion yuan (assuming an average winning bid of 500 million yuan). Correspondingly, local small and medium-sized banks could see their debt levels and associated risks go up by a similar amount.
Meanwhile, if just 50 percent of China’s 2,844 counties decided to implement “creative” low-altitude economy development and other development schemes to engage in “self-buying and self-selling,” they could potentially generate between about 700 billion yuan to over 1 trillion yuan worth of hidden debt and financial risks for Beijing.
