SinoInsight 1
Recently, the Trump administration introduced strong measures against the PRC and made certain moves which lead us to believe that the U.S. has informally made “official” the Sino-U.S. “new cold war.” On May 20, the White House published the “United States Strategic Approach to the People’s Republic of China,” a 16-page document that marks the failure of the U.S. engagement policy toward China and announces a shift to a “competitive approach” against the PRC. On May 29, U.S. President Donald Trump announced several actions against the PRC, including withdrawing the U.S. from the World Health Organization, suspending the entry of PRC nationals who implement or support the PRC’s “military-civil fusion strategy” through study or research in the U.S., eliminating U.S. policy exemptions for Hong Kong, and sanctioning PRC and Hong Kong officials who are directly or indirectly involved in eroding Hong Kong’s autonomy and freedoms. On May 30, President Trump told reporters that he is postponing the G7 meeting to September or later and is looking to include Australia, Russia, South Korea and India to the list of invitees. White House spokeswoman Alyssa Farah said that Trump wants the countries to discuss China at the G7 summit.
As of the time of writing (May 31, 2020), the CCP’s response to the hardening U.S. stance on China has been relatively muted. Barring the standard bombastic rhetoric from the nationalistic Party tabloid Global Times, PRC and Party mouthpiece publications like Xinhua and People’s Daily, as well as the regime’s foreign ministry, have avoided being overly provocative. On May 22, PRC foreign ministry spokesperson Zhao Lijian trotted out the usual propaganda lines and urged the U.S. to “abandon its Cold War mentality and ideological bias” when asked to comment on the Trump administration’s PRC strategy document. On May 31, the People’s Daily ran a commentary piece that insisted that “the baton of sanctions that the U.S. is brandishing will not scare Hong Kong and will not bring China down,” and recommended that the U.S. “not misjudge the situation and back away from the cliff’s edge.” The CCP’s relatively muted response to the Trump administration’s latest China moves starkly contrast the outpouring of “fury” directed at U.S. Secretary of State Mike Pompeo and other “China hawks” in the administration back in April.
OUR TAKE
1. We believe that there are two likely scenarios for why the CCP has been relatively muted on the Trump administration’s hardening stance on China.
In the first scenario, the CCP has quietly accepted the fact that the Sino-U.S. “new cold war” is underway and is taking steps to avoid causing panic on the mainland. To keep the Chinese people in the dark about the “new cold war” reality, the CCP will use propaganda and disinformation to “attack” the U.S. on minor points while glossing over the major implications of the Trump administration’s “toughened” stance on China. Concurrently, the CCP will act and pretend as if there is no change in U.S. policy on China in its external propaganda, and will tap its “Red Matrix” to keep up this illusion (for example, CCP-friendly scholars could criticize the U.S. for wanting a “cold war” or warn against a “cold war” without acknowledging that a “cold war” is already ongoing). The goal of the CCP’s propaganda and disinformation campaign is to buy itself time to do whatever is necessary to ensure regime survival before the “new cold war” reality becomes too obvious to ignore. That means that the CCP will attempt to purchase as much food and other materials from other countries as possible; continue to steal intellectual property and key technologies before the “window of opportunity” shuts for good; entice foreign investors to park funds in the mainland “financial safe haven,” and deceive as many highly educated (graduates, doctorates, etc.) and professional overseas Chinese as possible to return to the mainland. Specific to the U.S., the CCP will interfere in the upcoming presidential election and attempt other “Pearl Harbor” strategies.
In the second scenario, the CCP continues to misread the worsening Sino-U.S. relationship and has been keeping relatively muted because it is preparing to launch another propaganda barrage against the United States. We believe that this scenario is the less likely of the two. But should the second scenario come to pass, it would indicate that the CCP regime is experiencing far greater internal problems than we anticipated and would sharply escalate Sino-U.S. tensions.
2. The international community, like the CCP, appears to be confused about how to respond to the “official” outbreak of the Sino-U.S. “cold war.” Stock markets plummeted on May 28 after President Trump said that he would be announcing China policies the following day due to expectation that he could scrap the Sino-U.S. “phase one” trade deal. Markets then rose after Trump’s May 29 press conference on China, seemingly because Trump did not cancel the trade deal or announce new sanctions. Observers have also questioned Trump’s ability to carry out the actions he announced on May 29.
We believe that President Trump will follow through on what he announced on May 29. While there are legal difficulties in withdrawing the U.S. from the WHO, the Trump administration will likely find creative ways to circumvent those difficulties. Trump has also made it clear in his speech that his administration has decided to draw the line on Hong Kong after the CCP’s attempt to impose national security legislation on the city. U.S. actions in Hong Kong suggest that Trump is not making an idle threat. According to a pro-Beijing Hong Kong newspaper, the U.S. Consulate General in Hong Kong and Macau recently listed for sale six of its residences in the city that it owned for over seven decades. If the information is accurate, then the U.S. Consulate General is likely expecting trouble from the CCP regime over toughening U.S. actions on China, and is now preemptively making preparations to mitigate problems down the road while simultaneously “signaling” to U.S. businesses and investors that they should consider similar action to curb political risks.
SinoInsider has been consistent in our analysis and forecasting of the Sino-U.S. relationship over the past two-and-a-half years. After the Trump administration rolled out the 2017 National Security Strategy, we noted in January 2018 that Trump is “aiming for an endgame” with the CCP regime that could “potentially surpass Ronald Reagan’s most significant foreign policy accomplishment.” We accurately analyzed that the Trump administration is reshaping the CCP-hijacked world order in July 2018; the Trump administration is now pulling out of the WHO. We noted the coming ideological turn in U.S. policy on China in August 2018; today Secretary Pompeo and U.S. lawmakers prefer to refer to “China” as the “PRC” or the “Chinese Communist Party.” We also laid out why a Sino-U.S. “new cold war” was already underway in our 2019 Special Report; today talk of a “new cold war” is commonplace. The major Sino-U.S. trends forecasted in our 2019 Special Report and 2020 Special Report have thus far been proven accurate.
The actions against China that President Trump announced on May 29 are not the toughest that his administration can roll out. But that does not mean that the “new cold war” is not a reality or that the Sino-U.S. relationship will not spiral downward in the coming weeks and months. Businesses, investors, and governments should expect the Sino-U.S. “cold war” to escalate quickly (but stop short of a “hot war”) in the near future. The Hong Kong issue is bringing the CCP regime closer to its “Berlin Wall” moment, and Black Swans are coming to China.
SinoInsight 2
During a press conference on May 28, PRC premier Li Keqiang said that China has 600 million people living on a monthly income of 1,000 yuan, or less than $150. Li noted that 1,000 yuan is “hardly enough to cover monthly rent in a mid-sized Chinese city.” He also noted that guaranteeing people’s livelihoods is a priority, especially with the coronavirus epidemic.
OUR TAKE
1. Li Keqiang’s May 28 remarks indicate that China is still a poor country. This runs counter to the CCP’s “Amazing China” (厲害，我的國) propaganda narrative of recent years, which depicts the PRC as “rising as a great power” and even “exceeding America.” So why would Li “admit” something so damaging for the CCP regime?
We have observed that whenever the CCP admits to something, it is usually hiding something more serious. Li’s remarks over insight into the state of China’s troubled economy and debunks the so-called “China is the world’s best consumer story” narrative.
The CCP’s moves are often designed to help the regime survive and dominate. The “domination” aspect of Li’s “admission” comes in selling the notion that China is still a “developing” country, and not the powerful “developed” great power that America claims it is and is taking action to curb. In other words, it cannot be ruled out that Li’s remarks are partly designed to “dispel” the notion of the CCP threat to the U.S. and the world.
Li’s remarks, however, are likely intended to aid regime survival. By “admitting” that 600 million Chinese people live on 1,000 yuan a month recently and not setting a GDP growth figure for 2020 at the Two Sessions, Li is paving the way for the CCP to again shift the goalposts of people’s expectations to keep the regime in power. For instance, the CCP made providing economic prosperity for the Chinese people a priority through “reform and opening up” after Mao Zedong’s rule discredited communism as an ideology in China. The CCP has always bragged about how it lifted hundreds of millions of people out of poverty. Now with China’s economy deteriorating rapidly, the CCP is changing the focus on economic prosperity to simply “poverty alleviation” so that it can retain its political legitimacy by claiming the “great political accomplishment” of having “guaranteed the livelihoods” of “1.4 billion Chinese people.” Meanwhile, the CCP will likely blame China’s economic problems on the coronavirus pandemic while continuing to cover-up its role in the outbreak.
The Chinese people and the world should not be deceived by the Party’s sudden shift towards “benevolence” and its focus on “societal welfare” policies. Deception is a key Party characteristic; as President Trump correctly observed in his speech to the United Nations General Assembly in 2019, “socialism and communism are about one thing only: power for the ruling class.”
2. Li Keqiang’s May 28 remarks indicate that despite over four decades of “reform and opening up” and with a 1.4 billion people consumer market, a good portion of China’s population still cannot make ends meet.
Li’s remarks also show that the PRC government has been falsifying its figures on consumer purchasing power. Data from the PRC’s National Bureau of Statistics indicate that:
- In 2019, the disposable income of Chinese residents per capita was 30,733 yuan while the median disposable income was 26,524 yuan (86.3 percent of the average).
- At the end of 2019, China’s working population (ages 16 to 59) totaled 896 million people; 774 million people were employed and 290 million of those employed were migrant workers.
Assuming that Li’s remarks about 600 million Chinese people living on 1,000 yuan a month is accurate, then the disposable income of Chinese residents per capita is only 12,000 yuan, or 40 percent of the NBS’s figure of 30,733 yuan in 2019 and 45.2 percent of the official median disposable income. Also, 600 million people is 77.5 percent of the 774 million people who were officially employed in China at the end of 2019. Put another way, Li’s remarks would indicate that the bulk of the people in China are low-income earners while the rest are making double or more of the median income. This means that there is an extreme rich-poor divide in China, a dangerous scenario for the CCP.
3. The CCP might be able to “hide” the Sino-U.S. “new cold war” through propaganda, but it will not be able to cover-up the economic impact that the “cold war” will bring as foreign companies leave China and the U.S. steps up scientific and technological decoupling. Again, presuming what Li Keqiang said about 600 million people living on 1,000 yuan a month is true, it is unlikely that the Chinese people will be able to weather the “cold war” without experiencing severe hardship. Serious economic problems in China will hasten the arrival of the CCP’s “Berlin Wall” moment.
