SinoInsight 1
The week of June 22 saw several developments and the release of information pertaining to the PRC’s planned Hong Kong national security legislation and the Hong Kong situation:
June 22
- The South China Morning Post cited sources as saying that the PRC Hong Kong national security law is “effectively a done deal” and the Standing Committee of the National People’s Congress is expected to pass it on June 30.
June 26
- The U.S. Department of State imposed visa restrictions on current and former CCP officials “who are believed to be responsible for, or complicit in, undermining Hong Kong’s high degree of autonomy, as guaranteed in the 1984 Sino-British Joint Declaration, or undermining human rights and fundamental freedoms in Hong Kong,” according to an official statement. The statement added that family members of CCP officials may also be subjected to visa restrictions.
- Pro-democracy figure and former Hong Kong chief secretary Anson Chan announced her retirement from politics and public life. In a statement, Chan said that she wanted to live a “quieter life” and that the recent loss of her daughter was a “devastating blow” to her. Observers speculate that Chan’s decision to exit politics at this juncture has more to do with concerns over the potential use of the proposed national security legislation to target vocal pro-democracy figures.
- In a news report, Chinese edition of The Epoch Times cited a source from within the upper echelons of a PRC state-owned enterprise in Hong Kong as saying that the CCP is implementing a plan to “preserve Hong Kong, but not the Hong Kong people” (留港不留人). The plan calls for mainland companies to snap up property and make investments in Hong Kong when property prices plummet and for the Hong Kong work visa issuance rate for mainland Chinese to be doubled.
June 27
- In an interview on Steve Bannon’s “War Room Pandemic” program, Hong Kong businessman Elmer Yuen (袁弓夷) claimed that the CCP had detained “more than 20,000, and even 30,000” Hong Kong youths over the anti-extradition bill protests, citing “inside information.” Yuen claims that the youths were “tortured, attacked, raped, and some even murdered” in detention, and that many of them have been sent to concentration camps in mainland China. Elmer Yuen was embraced by anti-CCP figures and media outlets after he spoke out strongly against the CCP regime in recent weeks.
- Pro-Beijing Hong Kong lawmaker and NPC Standing Committee member Tam Yiu-chung said in an interview that he had called for retroactive application of the Hong Kong national security legislation and harsher punishments to “kill the chickens to scare the monkey” (殺雞儆猴).
- Hong Kong media outlet Now TV News cited sources as saying that the NPC Standing Committee will vote on the national security law on June 30 and that the proposed law mandates the life sentence for acts of secession and subversion.
June 28
- PRC state mouthpiece Xinhua reported that the NPC Standing Committee reviewed a draft of the planned Hong Kong national security law during a meeting.
- Hu Xijin, the editor-in-chief of the CCP media outlet Global Times, tweeted that the Hong Kong national security law “could be passed within days” and is “expected to be enforced powerfully.”
- According to Taiwanese media, Wang Dan, one of the Tiananmen student leaders, wrote in a social media post that prominent Hong Kong pro-democracy activists Joshua Wong and Jimmy Lai could be arrested on July 1, or a day after the PRC Hong Kong national security legislation will reportedly be passed. Wang said that he was informed of the matter by Wong and Lai themselves, as well as members of foreign media.
OUR TAKE
1. Our assessment of the CCP’s strategy with the proposed Hong Kong national security legislation remains unchanged from our early analysis of the issue despite the latest developments over the past week. While it is undoubtedly in the interest of the CCP to tighten its control over Hong Kong through introducing national security legislation, the CCP would prefer that the Hong Kong people themselves enact the legislation (Article 23 of the Basic Law) rather than have Beijing impose one over Hong Kong given the highly controversial nature of the latter move.
2. The CCP wants to demoralize and intimidate the people of Hong Kong into acquiescing away their freedoms (including toning down their annual July 1 pro-democracy demonstrations and other protest activities), dissuade pro-democracy figures from running in the upcoming Legislative Council elections in September, and persuade Hong Kong lawmakers to choose enacting Article 23 over having Beijing impose a national security law over the city. To achieve the aforementioned ends, the CCP has been actively engaging in informational warfare against the Hong Kong people through its “Great External Propaganda Plan” (大外宣) and its “Red Matrix.”
Demoralization and intimidation are accomplished through the release of the following information and narratives:
- “The Hong Kong national security law is a ‘done deal’ and will be imposed ‘imminently.’”
- “The national security law will be applied retroactively and punishment will be severe.”
- “Many Hong Kong youths have already been arrested, taken to mainland China, and brutalized by the CCP regime.”
- “Pro-democracy figures are already being targeted for punishment before the national security law is passed.”
- “The CCP is looking to ‘preserve Hong Kong, but not the Hong Kong people.’”
It is noteworthy that demoralizing information is being disseminated not just by CCP regime propaganda outlets and pro-Beijing figures, but also by individuals and organizations that are widely regarded as being in the “anti-CCP” camp. We believe that there are two mutually exclusive reasons for this phenomenon. First, not every individual or organization that claims to be “anti-CCP” are necessarily so; we wrote in November 2018 that the CCP will look to infiltrate, control, and guide the anti-CCP movement abroad, including creating its own “opposition.” Second, the CCP could be “inflicting injury on oneself to win the enemy’s trust” (苦肉計); should the information “leaked” to trustworthy anti-CCP individuals or organizations later prove to be inaccurate, the CCP gets to play the “victim” and the reputation of those individuals or organizations will be damaged. Meanwhile, those individuals or organizations would have helped the CCP demoralize the Hong Kong people by publishing purportedly “damaging” information about CCP actions, thus helping the CCP “kill two birds with one stone.”
3. We believe there is a 50-50 chance the CCP will pass into law the Hong Kong national security legislation on June 30.
If the CCP does impose the national security law by the end of the month, then its current outlook on both domestic and foreign matters is extremely bleak. The CCP must presume that it cannot mend Sino-U.S. ties regardless of the outcome of the U.S. presidential election in November, that the CCP regime is imperiled because the Chinese economy is very fragile, and that Hong Kong is no longer valuable or useful to the Chinese regime as an international commercial hub. If these are truly the CCP’s presumptions, then it will next step up efforts to partially “close up” China to the outside world.
SinoInsight 2
Recently, news that the Chinese police are either having their wages delayed or reduced due to government financial shortages have been making the rounds on Chinese social media. In one case, it was widely circulated on Chinese social media that police and auxiliary police in many places in Xinjiang Province had not been paid wages for two months. In another case, Chinese social media carried news that police in Guangzhou City were facing a 20 percent pay cut.
OUR TAKE
1. We have not been able to independently verify the information being circulated on Chinese social media about police wage cuts and salary payment delays. However, the news about government financial shortages are in line with our recent analysis of the CCP regime’s economic and financial woes. For instance, the fact that the CCP is prioritizing the so-called “six guarantees” (employment, basic livelihood, market entities, food and energy security, supply chain stability, and operations of grassroots institutions) this year and declined to set a GDP figure indicates that the CCP knows it will have immense difficulties financially in 2020.
2. The CCP government’s fiscal revenue shortages are revealed in official data.
PRC finance ministry data released on June 18 showed that the national general public budget revenue from January to May 2020 fell 13.6 percent year-on-year to 7.7672 trillion yuan. Meanwhile, the national tax revenue fell 14.9 percent over the same period from a year ago to 6.681 trillion yuan and national non-tax revenue declined 4.9 percent to 1.0862 trillion yuan.
On June 28, the PRC National Bureau of Statistics released figures showing that the total profit of industrial enterprises above designated size from January to May 2020 decreased 19.3 percent from the same period a year ago to 1.84349 trillion yuan. Thirty of 41 major industries saw profits drop from the previous year, while state-owned enterprises saw profits drop 39.3 percent to 440.42 billion yuan.
3. The CCP’s financial woes can also be seen from the plight of one of China’s richest cities in the wealthiest Chinese province by GDP.
Guangzhou City, the capital of Guangdong Province, saw its GDP for the first five months of the year drop 6.8 percent per official figures. Guangzhou’s general public budget revenue from January to May 2020 also fell 8.7 percent from a year ago to 68.21 billion yuan. Meanwhile, Guangzhou’s public security expenditure budget for 2020 is 21.38 billion yuan, or 1.83 percent lower than the 21.78 billion yuan for 2019; in 2019, Guangzhou’s actual public security expenditure totaled 24.07 billion yuan (the 2020 budgeted expenditure would be 11.2 percent lower than actual expenditure).
The official data above suggests that the Guangzhou government will likely not be able to spend more money this year on public security to quell “social contradictions” that may arise. If the information on Chinese social media about Guangdong police facing a 20 percent pay cut is accurate, then the Chinese economy is doing far worse than what it appears on the surface and the CCP may not have enough money to “guarantee” the “operations of grassroots institutions” and maintain the stability of the regime.
4. With wealthy cities like Guangzhou facing financial difficulties, other local governments are bound to be in an even worse state financially. A leaked local government document obtained by the Chinese edition of The Epoch Times reveals the situation. According to a May 21, 2020 document by the Bureau of Housing and Urban-Rural Development of Pulandian, a county-level city in Dalian Province, the Bureau was requesting a 1.6 million yuan loan from the Pulandian local government (specifically from the local government “stability maintenance” fund) to cover social welfare benefits to its civil servants from May 2020 to December 2020. If this document is authentic and the Pulandian local government approves of the loan, then the local government will have even less money to carry out “stability maintenance” this year.
The CCP has sought to address this issue by getting the central government to carry out “blood transfusion” to local governments via fund transfers. On June 17, the PRC finance ministry announced that the central government had budgeted 8.3915 trillion yuan for transfer to local governments, an increase of 12.8 percent (949.99 billion yuan) from 2019. Earlier, PRC government announced in its annual work report that the central government will directly issue 1 trillion yuan in special treasury bonds to support local governments in epidemic prevention and control. In other words, the central government is planning to transfer nearly 2 trillion yuan to local governments in 2020, a sign that the CCP expects severe financial shortages at the local level.
5. The CCP’s concentration camps for Uyghur Muslims in Xinjiang allow the regime to perpetuate state surveillance and resolve “stability maintenance” issues. However, such drastic measures require substantial funds to sustain and also have a deleterious effect on economic activity and the local economy.
To finance its suppression of the Uyghurs, the Xinjiang local government has been issuing local bonds to pay its “stability maintenance” fees as early as 2019. On Jan. 14, 2020, the Xinjiang finance department issued 10 billion yuan worth of general bonds, of which 26.96 percent was channeled to “stability maintenance” projects.
According to official data, Xinjiang’s general public budget revenue and general public budget expenditure was 51.7 billion yuan and 213.74 billion yuan (up 3.4 percent year-on-year) respectively from January to May 2020. That is, the Xinjiang government spent 4.13 times more than it made in the first five months of the year. In comparison, the Xinjiang government’s expenditure was 3.76 times greater than its revenue in 2019 (expenditure: 592.81 billion yuan; revenue: 157.73 billion yuan).
The Xinjiang government, which already has trouble making ends meet, will struggle even more this year as the national economy tanks due to the coronavirus pandemic and increasingly unfavorable geopolitical conditions for the PRC.
6. The CCP typically spends huge amounts of money on public security and “stability maintenance.” Public security spending has even exceeded military spending (particularly during the reign of “security czar” Zhou Yongkang) as “social contradictions” worsen with the deterioration of the Chinese economy. The sharp economic decline in the past three years has left the CCP regime with even less money to finance its “stability maintenance” operations.
Mao Zedong’s Great Leap Forward and Cultural Revolution led to the bankruptcy of the communist ideology. After Mao’s passing, Deng Xiaoping re-established the Party’s political legitimacy on being able to deliver economic growth and prosperity for the Chinese people. A serious economic downturn, however, threatens to shake the foundations upon which the CCP’s political legitimacy currently rests and deny the Party the means to adequately bankroll the security apparatus that it has come to rely on for regime survival. U.S. pressure on the PRC over the coronavirus pandemic and other issues will hasten the arrival of the CCP’s “Berlin Wall” moment.
