SinoInsight 1
This week saw four provincial-ministerial level personnel reshuffles in five Chinese provinces (Liaoning, Zhejiang, Tianjin, Shanghai, and Jiangxi):
- On Aug. 31, Luo Xiaoyun (age 55), head of the Jiangxi Water Resources Department, was promoted to deputy governor of Jiangxi Province.
- On Sept. 1, Tianjin mayor Zhang Guoqing (56) replaced the retiring Chen Qiufa (66) as Liaoning Party secretary.
- On Sept. 1, Zhejiang governor Yuan Jiajun (58) replaced the retiring Che Jun (65) as Zhejiang Party secretary.
- On Sept. 2, Liao Guoxun (57), the Shanghai deputy Party secretary and provincial Political and Legal Affairs Commission head, was appointed Tianjin deputy Party secretary and mayor (replacing Zhang Guoqing).
OUR TAKE
1. As previously noted, Xi Jinping has long struggled with running the regime and ensuring that his orders are duly carried out (政令不出中南海) because many senior officials are loyalists or supporters of the rival Jiang Zemin faction. While Xi has been methodically weakening the Jiang faction’s influence in the bureaucracy through purges, strategic personnel reshuffles, and retirements, he still faces the challenge of finding replacements primarily because he did not have a faction prior to taking office in 2012, and hence a ready pool of supporters to take over key positions.
Xi has since filled several top positions with close allies and former colleagues, but he has only so many of them to rely on and numerous senior posts in the regime. This means that Xi has to select officials for senior positions using other criteria, some of which can be seen from the recent wave of post-Beidaihe personnel reshuffles:
a) Promote technocrats
Xi has a preference for appointing technocrats, or officials who made their careers in the state apparatus rather than the Party apparatus in the CCP’s system of parallel government, to senior positions. This is partly because technocrats tend to climb up the ranks through merit rather than factional associations, and hence will be less influenced by CCP factionalism and more obedient to Xi (there are downsides to technocrats though, which we explained here).
Three of the four newly promoted officials, Zhang Guoqing, Yuan Jiajun, and Luo Xiaoyun, can be considered technocrats in examining their careers. For instance, new Zhejiang Party boss Yuan had a background in China’s aerospace industry while new Liaoning Party secretary Zhang was once general manager of state-owned defense corporation Norinco. Zhang’s case is interesting because he was “parachuted” from Norinco into Chongqing to serve as deputy Party secretary in April 2013; at the time, the Chongqing officialdom was on tenterhooks after the ouster of Chongqing boss Bo Xilai a little over a year ago, while Xi Jinping had just come into office and was beginning to shake things up. Zhang Guoqing later became Chongqing mayor (January 2017) and Tianjin mayor (January 2018) before assuming his current post. The fact that Xi installed Zhang in Liaoning, one of the former strongholds of the Jiang faction (Bo Xilai was once Liaoning governor), suggests Zhang has won Xi’s trust.
b) Inter-provincial and cross-apparatus appointments
The career trajectories of the newly promoted officials suggest a method of official promotion under Xi. For instance, some of the officials started out as actual technocrats in state-owned enterprises before moving into government. These officials then spend time in various state or Party positions, and are rotated between the provinces and ministry departments. Eventually, some of them become provincial Party secretaries, a senior political appointment, and can be considered to be part of the growing Xi camp.
c) Promote subordinates of allies
It is clearly advantageous for Xi to prefer subordinates of allies when considering staff for promotion.
Of the newly promoted officials, Tianjin deputy Party secretary and mayor Liao Guoxun is a former subordinate of Li Zhanshu, the third-ranking Politburo Standing Committee member and a close Xi ally. Liao was appointed to the Guizhou Party Committee Standing Committee when Li was Guizhou Party secretary from August 2010 to July 2012, and steadily climbed up the Guizhou Party ranks after Li moved up to the CCP General Office at the 18th Party Congress. Over the next several years, Liao was constantly promoted and transferred, moving out of the poorer province of Guizhou to wealthier and more important areas like Zhejiang, Shanghai, and now Tianjin.
2. Xi Jinping is most certainly thinking ahead to the 20th Party Congress in 2022 with his latest personnel reshuffles. Senior provincial officials are appointed to the CCP Central Committee as full or alternate members, and Xi will want to stack the body with as many of his supporters or loyalists as he can. Also, Party bosses of direct-administered municipalities like Shanghai and Tianjin usually get a spot on the 25-person Politburo. Meanwhile, Xi will want to prise Jiang faction “fiefdoms” like Liaoning away from the faction’s hands through purges and personnel reshuffles.
The recent wave of personnel reshuffles could also be part of political jockeying ahead of the CCP 19th Central Committee’s Fifty Plenum in October. Xi needs all the support he can get to ensure consensus on his agenda, including the new five-year plan, prioritization of “internal circulation” in the so-called “dual circulation” economic policy, and how to deal with America in the “new cold war.” The “internal circulation” policy in particular is controversial because it implies a partial closing up of China, a fact that would greatly concern the private sector and a majority of CCP officials who do not want a return to the pre-“reform and opening up” days.
3. Some Chinese language news sources and commentators have been speculating that the “anti-Xi coalition” had successfully challenged Xi Jinping at Beidaihe and the latter is about to be marginalized. Such information and analysis, however, has been debunked by Xi’s recent personnel reshuffles and his conferring a flag to the PRC police. While Xi’s rivals are not close to displacing him, the fact that Xi is making those personnel changes also indicates that his “quan wei” is not yet at the level of Mao or Deng.
SinoInsight 2
According to a Sept. 3 Bloomberg News article, Beijing is preparing “broad support for so-called third-generation semiconductors for the five years through 2025” in the PRC’s 14th five-year plan. A draft of the plan includes measures to “bolster research, education and financing” for the PRC semiconductor industry.
Developing the domestic semiconductor industry has become a priority for the CCP regime following U.S. tech restrictions. In May this year, Xi Jinping pledged to invest an estimated $1.4 trillion through 2025 on key technologies.
OUR TAKE
1. On paper, there seem to be few reasons to bet against the PRC’s eventual success in developing its semiconductor industry. The CCP is prepared to invest large sums of money in the endeavor. Chinese people are frequently praised for being hardworking and innovative.
In fact, systematic flaws inherent to the Communist Party’s authoritarian rule dampen the PRC’s prospects of becoming a semiconductor powerhouse on par with Taiwan or South Korea. Decades of communism have fostered a malicious political culture that rewards theft, fraud, the leveraging of connections, and other shortcuts to gain a leg up in business or society, while penalizing legitimate paths to success. China may have a creative and industrious workforce, but minimal protection for intellectual property rights and the CCP’s corruption-prone “rule by law” hardly nurture the innovative energy necessary for cutting-edge success. Meanwhile, China’s “closed” academic environment—in which the Great Firewall restricts access to critical information—presents an additional roadblock to the country’s R&D efforts.
Accounts of PRC technology theft and fraud are legion. Notable examples include:
- In 2005, the PRC government announced that Chen Jin, a top computer scientist who supposedly created one of China’s first digital signal processing computer chips (Hanxin) in 2003, had faked his research and stole chip designs from a foreign company (Motorola).
- In 2018, website developer Redcore Times was accused by Chinese social media users and mainland news outlets of plagiarizing Google Chrome for its Redcore web browser, which was supposedly designed “completely in-house.” The company later admitted that the Redcore browser is based on Chromium.
2. The CCP has largely failed in its push to grow its semiconductor industry in recent years despite priority planning and investments.
The “Made in China 2025” plan, which was drafted in 2014 and rolled out in 2015, encouraged the development of domestic semiconductors and allocated substantial government funding to the initiative. Local governments looking to reap an “industrial windfall” started introducing favorable land and business to semiconductor projects to secure central funding. Even second-tier cities with no competitive advantage in technology R&D, manufacturing, and available talent like Wuhan, Nanjing, Hefei, Chengdu, and Chongqing hopped onto the semiconductor bandwagon. Non-first tier cities in the provinces of Jiangsu, Anhui, Zhejiang, and Shandong eventually became the “vanguard” of semiconductor manufacturing; according to incomplete public data, 24 non-first-tier cities in the four provinces took on over 20 semiconductor projects with total contract amounts reaching 160 billion yuan in the first half of 2020.
However, many semiconductor projects that have sprouted out in recent years end up being duds. Funding and profitability are problematic because substantial sums are spent on plant construction, leaving negligible sums (if at all) to run manufacturing operations. Some marquee projects never even make it past the construction phase. Meanwhile, improper supervision of how government funds are used results in wasteful spending where senior executives pay themselves exorbitant salaries while costs are cut in crucial areas with purchases of second-hand factory equipment and expired foreign patents. Within a handful of years, these semiconductor companies either become “zombie enterprises” reliant on government handouts (like state-owned companies) or go bankrupt.
This year, at least three big semiconductor projects have run into trouble due to funding shortages:
- In May, U.S. chip giant GlobalFoundries shut its new joint venture semiconductor factory in Chengdu. The factory was supposed to manufacture 300 mm wafers before progressing to more advanced technologies, but production never started at the 65,000 square meter plant after it was completed in mid-2018. Analysts say that the project failed as a result of poor planning. Early on, the Chengdu government boasted that final total investment in the factory could reach $10 billion.
- In July, Tacoma Semiconductor Technology’s $2.8 billion government-backed semiconductor project in Nanjing went bust after it failed to attract investors. The project was launched in 2016 and Tacoma’s fabrication plant was supposed to manufacture 8-inch wafers and support producers throughout the chip production chain. The plant was only 90 percent completed when the project was suspended, and the Nanjing government had invested $54.9 million in it.
- In August, news outlets reported that construction of Wuhan Hongxin Semiconductor Manufacturing Company’s (HSMC) $20 billion fab plant had stalled because the company could not find investors or secure government funds to finish construction. The Dongxihu district government had earlier invested $29 million in the project but HSMC’s owner has yet to meet its commitment to inject $261 million into the project. Last December, HSMC celebrated the purchase of high-end chip-making equipment from Dutch company ASML, but had to quickly pledge the machine as collateral to a bank to secure a 580 million yuan loan. Construction of the HSMC plant began two years ago, and it was supposed to build 14- and 7-nanometer chips at the rate of 30,000 chips per month.
3. China’s quest for domestic semiconductor self-sufficiency and eventual global market dominance may look like an opportunity at first glance, especially with the promise of strong government investment and support. However, systemic flaws in the CCP also translate to substantial political risks for those looking to capitalize on the PRC’s so-called “authoritarian advantage.” Businesses, investors, and governments must go beyond the headlines to sidestep risks and discover true opportunities with regard to China.
