1 Defense ministry spokesman does not explicitly deny reports of He Weidong probe
Defense ministry spokesman ‘unaware’ of He Weidong probe reports
March 27
Wu Qian, a spokesman for the PRC defense ministry, was asked at a regular press conference about reports from Western media claiming that He Weidong was being investigated. Wu replied, “I have no information on this matter and am not aware of the situation.”
Separately, Asahi Shimbun asked Wu about the progress in the case involving Miao Hua, the former director of the Central Military Commission’s Political Work Department. Wu replied, “I have no information to release.”
The above exchanges were not included in the official transcript of the defense ministry press conference.
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The Financial Times reported on Nov. 26, 2024 that PRC defense minister Dong Jun was allegedly under investigation. When asked whether that was the case on Nov. 28, Wu said that media reports were “pure fabrication” by “rumor-mongers with ulterior motives.” He added that the PRC side expresses “strong dissatisfaction with such slanderous behavior.”
More PLA purge rumors
March 25
Zhao Lanjian, a former Chinese citizen journalist currently residing in the United States, wrote in a post on X that half a dozen officials were reportedly being investigated:
- Wang Haijiang, commander of the Western Theater Command.
- Wang Peng, head of the CMC Training and Administration Department.
- Wang Zhongcai, commander of the Eastern Theater Command Navy.
- Ding Laifu, commander of the 73rd Group Army.
- Xiao Pei, deputy secretary of the Central Commission for Discipline Inspection and deputy director of the National Supervisory Commission.
- Wang Huimin, head of the CCDI inspection team at the China Securities Regulatory Commission. (The anti-corruption authorities had announced on March 21 that Wang was being investigated).
Military personnel changes
March 26
The 34th chairman’s meeting of the 14th National Committee of the Chinese People’s Political Consultative Conference was held in Beijing. The meeting reviewed and approved the decision to revoke the membership of Tang Yong, Dang Yanbao, and Li Minji from the 14th National Committee of the CPPCC, and the decision would be submitted to the 12th meeting of the Standing Committee of the 14th CPPCC National Committee.
Public records show that Tang Yong, a specially invited member of the CPPCC and a lieutenant general, previously served as deputy secretary of the CMC’s discipline inspection commission.
Our take
1. PRC defense ministry spokesman Wu Qian not outright denying a question about whether CMC vice chairman He Weidong was under investigation leaves open the possibility that the latter is presently in an unfavorable political situation.
We see three likely scenarios as to why Wu would respond the way he had about He:
- Wu Qian was indeed entirely unaware of any investigation into He Weidong or He’s political situation, and thus gave a relatively cautious and noncommittal response.
- Wu Qian could have privately heard rumors that He Weidong was being probed, but had no official confirmation through formal channels. To avoid accidentally crossing political red lines, Wu responded in a way that was sufficiently noncommittal and ambiguous.
- The CCP authorities had already informed officials about an investigation into He Weidong, but a decision has not yet been made to publicly disclose the probe. If so, then Wu Qian’s response was prepared in advance by the defense ministry to deflect media inquiries.
Regardless, the fact that Wu Qian did not explicitly reject the rumors that He Weidong was being investigated unlikely in the Dong Jun case in November 2024 suggests that the possibility that He is being probed cannot be completely ruled out.
2. We have not been able to independently verify that He Weidong is being investigated per the rumors and reports in Western media, or Zhao Lanjian’s claim that multiple senior generals are in trouble. Publicly available information also offers few clues that shed light on the investigation claims. However, the dismissal of Lieutenant General Tang Yong indicates that the sweeping anti-corruption effort that was launched in the wake of former defense minister Li Shangfu’s removal in mid-2023 is still ongoing.
We have the following takeaways about the Xi leadership’s current “rectification” of the military:
i) If the rumors and reports about the investigation of He Weidong and multiple senior military officers are accurate, then it is likely that their being targeted is connected with the investigation into former CMC Political Work Department director Miao Hua. He and Miao both served in the 31st Group Army for over three decades and likely had some association during that period. He was also Miao’s direct superior at the CMC, being the CMC vice chairman overseeing political affairs.
We believe that more military officials could be implicated in the Miao Hua case as he makes more “confessions” and the CCP authorities expand their investigation. However, not all the officials who are being looked into will necessarily find themselves on the chopping block.
ii) He Weidong and some of the officials who are rumored to be investigated have not made public appearances since the end of the Two Sessions. However, He’s biography is still up on the PRC Ministry of National Defense website and past reports in official media where He and the other officials are mentioned have not been scrubbed. This suggests that the rumors may not be accurate, or the central government is not done with investigations and formally categorized their respective cases, so no official action has been taken against them.
But if the aforementioned officials are absent from the public eye for an extended period, the likelihood that they are being probed will increase.
iii) Regardless of the veracity of the recent rumors concerning the purge of senior military officials, “anti-Xi” forces will likely strive to disseminate them as much as possible to discredit Xi Jinping and strengthen unfavorable narratives about Xi (i.e. Xi has “lost power,” is “losing control over the military,” has his authority “divided up,” etc.)
iv) Shortly after the 20th Party Congress, Xi Jinping signaled that his “self-revolution” campaign would be a “Yan’an style” movement to purge the Party of lingering factional rivals, disloyal elements, and others opposed to his rule. The sweeping anti-corruption effort in the People’s Liberation Army that was launched in mid-2023 is in line with the “Yan’an style” rectification that Xi has hinted at. If the military anti-corruption effort is meant to be part of the “Yan’an style” rectification movement, then it would suggest that Xi is very much in control of the military probes, and they are not due to Xi being “sidelined” or having “lost power” as some overseas Chinese commentators and media outlets have speculated.
Xi has three key reasons for “rectifying” the military:
- Xi needs to keep the “Party’s gun” constantly loyal to him. Therefore, it is natural for him to cultivate new forces and replace old factions in the military that might have accumulated too much power and are suspected of disloyalty.
- Xi needs to eliminate corruption in the military and modernize it to ensure that the PLA is combat-ready and up to scratch. This is especially important for the PRC in light of rising geopolitical tensions and the international community’s growing wariness of the CCP threat.
- Xi needs to further consolidate his control over the military to lay the foundation for securing a fourth term at the 21st Party Congress.
2 Shanghai’s worsening economic performance bodes ill for China’s other regions
Shanghai’s migrant permanent population falls below 10 million
March 25
The Shanghai Municipal Bureau of Statistics released its 2024 statistical bulletin on the economic and social development of the city. The bulletin showed that Shanghai’s permanent resident population in 2024 was 24.8026 million (growth rate of negative 1.53 per thousand), down 72,000 people from 2023. Meanwhile, Shanghai’s migrant permanent population decreased by 247,900 people from a year ago to 9.8349 million people, marking the first time the city’s migrant population had fallen below 10 million since the PRC kept records.
Shanghai’s migrant population peaked at 10.48 million in 2020, but gradually declined each year during the pandemic (10.32 million in 2021, 10.06 million in 2022, and 10.07 million in 2023). The migrant population includes workers, white-collar professionals, and expatriates who reside in Shanghai.
Consumption in Shanghai drops sharply in real terms
March 18
The Shanghai Municipal Bureau of Statistics announced that Shanghai’s total retail sales of consumer goods in the January-February 2025 period declined by 1.0 percent year-on-year to 277.74 billion yuan. Compared to the officially reported figure for the same period in 2024 (312.349 billion yuan), Shanghai’s total retail sales of consumer goods in the January-February 2025 period fell by 11.1 percent.
In contrast, the nationwide retail sales of consumer goods for the January-February 2025 period increased by 4.0 percent year-on-year to reach 8.37 trillion yuan.
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Shanghai’s total retail sales of consumer goods decreased by 3.1 percent year-on-year to reach 1.79 trillion yuan for the full year of 2024. Meanwhile, the nationwide retail sales of consumer goods in 2024 grew by 3.5 percent year-on-year to reach 48.79 trillion yuan.
Deflationary pressures in Shanghai
March 10
The Shanghai Municipal Bureau of Statistics announced that Shanghai’s consumer price index fell by 0.7 percent year-on-year in February 2025 and 0.3 percent month-on-month.
In comparison, the national CPI for February 2025 declined by 0.7 percent year-on-year and 0.2 percent month-on-month.
March 11
The Shanghai Municipal Bureau of Statistics reported that Shanghai’s producer price index fell by 0.3 percent year-on-year in February 2025, compared to a 2.8 percent decline in the previous month. Purchasing prices for industrial producers (PPIRM) decreased by 0.3 percent year-on-year, improving from a 0.8 percent decline in the previous month.
In comparison, the national PPI for February 2025 fell by 2.2 percent year-on-year, following a 2.3 percent drop in the previous month. The national PPIRM declined by 2.3 percent year-on-year, remaining unchanged from January.
Backdrop
BlackRock gives up Shanghai office complex
Bloomberg News reported on Feb. 12 that a BlackRock fund forfeited two towers at Waterfront Place in Shanghai to Standard Chartered after it opted not to make payment for a syndicated loan led by Standard Chartered due at the end of September, citing people familiar with the matter. The BlackRock fund took out a loan of about 780 million yuan for the properties back in 2018.
On March 28, various news outlets reported that BlackRock was selling its last major asset in Shanghai, Trinity Place in Putuo District, for 900 million yuan. BlackRock’s asking price was 34 percent lower than what it paid for in 2017 to acquire the property.
Beijing rolls out ‘special action plan’ for consumption
On March 16, the CCP General Office and the State Council General Office issued a “special action plan to boost consumption” that outlined 30 key tasks across eight focus areas.
Our take
As China’s most important economic and financial hub, Shanghai’s economic trends are often seen as a barometer for the national economy. Therefore, the latest economic data from the city are a worrisome sign for the Chinese economy.
1. Shanghai typically leads other Chinese cities in consumption. In 2024, just seven cities reported total retail sales of consumer goods exceeding 1 trillion yuan, including Shanghai (1.79 trillion yuan), Chongqing (1.57 trillion yuan), Beijing (1.4 trillion yuan), Guangzhou (1.11 trillion yuan), Shenzhen (1.06 trillion yuan), Chengdu (1.03 trillion yuan), and Suzhou (1 trillion yuan). If Shanghai — the city whose consumer spending was significantly stronger than others — saw a sharp drop in consumption in the January-February 2025 period (down 11.1 percent in real terms), then consumer spending in other parts of China is likely to be much worse.
Shanghai’s troubling consumption figures look even worse given that the Chinese New Year holiday — traditionally a peak consumption period — fell within the January-February 2025 period. Shanghai and other areas in China could see a severe contraction in consumption spending for the rest of the year. However, the National Bureau of Statistics is likely to “massage” the figures to cover the dip and endeavor to produce positive growth figures.
Meanwhile, drops in Shanghai’s CPI and PPI reflect persistent deflationary pressures, weak consumer demand, and intensifying price competition among businesses.
2. Shanghai’s economic slowdown could be linked to a worsening business environment and a declining migrant resident population. Since Shanghai was subjected to very strict “zero-COVID” lockdowns and as the CCP authorities intensified national security controls, the business climate in the city has markedly deteriorated and foreign companies and expatriates are exiting in droves.
The withdrawal of foreign capital from Shanghai has led to job losses among both industrial workers and white-collar employees. Industrial workers may leave Shanghai in search of new opportunities, while white-collar job losses have contributed to weaker demand for high-end consumption, declining office rental prices, and rising office vacancy rates. According to mainland media, office vacancy rates in Shanghai in 2024 ranged between 25 percent and 35 percent, a historic high. BlackRock’s recent relinquishing of assets in Shanghai reflects the impact of corporate withdrawals or bankruptcies, and add to the gloomy outlook for the commercial real estate market.
Shanghai’s foreign direct investment figures also affirm the trend of foreign capital retreating from the city. Per the Shanghai Bureau of Statistics:
- In 2024, new foreign-invested enterprises decreased by 1 percent year-on-year to 5,956. Actual utilized foreign investment decreased by 26.6 percent year-on-year to $17.673 billion.
- In January 2025, new foreign-invested enterprises decreased by 9.8 percent year-on-year to 495. Actual utilized foreign investment dropped 10.3 percent to $2.027 billion.
3. Shanghai is a leading financial center and its local government has the highest fiscal self-sufficiency. The city’s struggles with consumption bode ill for other regions, and could be one of the driving factors behind the central government’s “special action plan” to boost consumption.
We believe that political factors will ultimately doom Beijing’s economic rescue efforts. Xi Jinping’s focus on power consolidation will likely result in even stronger Party control over the economy. This will worsen the business environment and see the PRC walk further down the path of misguided economic policies. Meanwhile, Beijing’s increased efforts at political indoctrination and purges will deepen the atmosphere of fear among officials, making them hesitant to take initiative and come up with creative solutions to rescue the economy lest they get punished for mistakes and not adhering to the “Xi core.”
Concurrently, the PRC’s prioritization of national security and domination-focused geopolitical agenda risks escalating the regime’s tensions with the U.S. and the international community. Communist China’s worsening relations with the U.S. and other countries will further deteriorate both the domestic and external business environments, posing even greater challenges to China’s economic recovery.
