Biden-Xi call bodes ill for Russia-aligned PRC; Xi continues ‘rectification’ of financial sector, cyberspace, entertainment

     SinoInsight  1     

• Crackdown on livestreaming and short video platform “chaos”;
• Rectify misinformation published by multi-channel networks (MCN; agencies that manage online influencers);
• Crack down on online rumors;
• Rectify the network environment for minors by the summer of 2022;
• Rectify application information services chaos;
• Regulate the order of network communication;
• Comprehensively manage algorithms in 2022;
• Rectify CMG’s “315 Gala” network environment in 2022;
• Crackdown on web traffic fraud, “black PR,” and the “internet water army” (online comments ghostwriters);
• Special rectification action against internet user account operations.

OUR TAKE
1. Jiang Jinquan’s promotion of Xi Jinping’s “self-revolution” as the “answer” to regime crisis is in line with the Xi camp’s post-Sixth Plenum propaganda and political mobilization drive. This signals that the Xi leadership does not intend to relax its anti-corruption campaign and “self-revolution” push in the face of growing intra-Party resistance to Xi and his policies. Xi’s overall authority also seems solid despite recent reports suggesting the development of “cracks” in his power.

2. Beijing’s continuing effort to clarify its “common prosperity” drive and campaign against the “disorderly expansion of capital,” the arrest of HNA executives, the focus on anti-monopoly work, and the handing out of financial holding company licenses affirm our observation of what the Xi leadership is doing in adjusting its economic policy.

We wrote in the March 17 newsletter that Beijing is likely looking to address “investor concerns that Xi is reverting the regime back to the Mao era as Beijing looks to court and retain capital to stabilize the economy.” Concurrently, the Xi leadership is “still keen on checking Chinese financial elites like Jack Ma who have abused the system for their gain while endangering regime security.”

Successive investigations into HNA Group executives show that Xi Jinping is not letting up on targeting financial elites and the political forces behind them. To assure investors that such measures do not mean that China is closed for business and looking back to Mao, the authorities are concurrently issuing articles to explain what tackling the “disorderly expansion of capital” entails while requiring that relevant departments “stabilize” their “anti-monopoly” work.

The authorities’ issuing of new financial holding company licenses further signals that Beijing is not rejecting capital but is merely looking to set up “traffic lights” (or “red light, green light” mechanisms) to rein in established financial elites with questionable loyalties or business practices and strengthen the Xi leadership’s control over capital. In doing so, the Xi camp is also wittingly or unwittingly cultivating a new crop of financial elites whose interests and loyalties would be tied to the current leadership.

3. The Cyberspace Administration of China’s “Operation Qinglang” rectification campaign targets the entertainment sector, with implications for Xi’s factional rivals with influence and connections to the sector like the Zeng Qinghong clique of the Jiang faction.

Beijing is also likely looking to curb “fan communities” culture and disincentivize making money off livestreaming and short videos as a way to channel China’s youths into manufacturing and other jobs that boost the real economy.

     SinoInsight  2     

• The readout claimed that Biden reiterated to Xi that “the U.S. does not seek to fight a ‘new cold war’ with China, does not seek to change China’s system, does not seek to oppose China through strengthening its alliances, does not support ‘Taiwan independence,’ and has no intention of clashing with China.”
• Xi told Biden that both countries must “lead the development of China-U.S. relations on the right track,” “shoulder our international responsibilities,” and “make efforts for world peace and tranquility.”
• Xi accused “some people in the U.S.” of sending “wrong signals” to “Taiwan independence forces.” This is “very dangerous,” Xi said, adding that the bilateral relationship will be “subversively impacted” if the Taiwan issue is not handled well. Xi also said that the current Sino-U.S. situation is “directly due” to the fact that “some people in the U.S.” did not implement the consensus reached between Biden and himself at their last meeting. “The U.S. side has misread and misjudged China’s strategic intentions,” the readout said.
• Xi stressed that the PRC and the U.S. have had differences in the past and present, and will also have differences in the future. “The key is managing the differences” because “a stable and developing China-U.S. relationship is beneficial to both sides,” Xi said.
• Xi said that the Ukraine situation has developed to a point “which China does not want to see.” He added that the PRC would provide humanitarian aid to Ukraine and “other affected countries,” would support peace talks between Ukraine and Russia, and called on the U.S. and NATO to hold dialogues with Russia to “solve the crux of the Ukraine crisis and resolve the security concerns of both Russia and Ukraine.” Xi said, “there are two old sayings in China; the first is ‘the one hand clapping makes no sounds’ (一個巴掌拍不響), and the other is ‘let he who tied the bell on the tiger take it off’ (解鈴還須繫鈴人).”
• Xi said that “all countries in the world are already experiencing difficulties” due to the coronavirus pandemic and economic issues. He added that the “common folk” are suffering from the implementation of “comprehensive, indiscriminate sanctions,” and warned that escalating sanctions would trigger “serious crises in the global economy, trade, finance, energy, food, industrial chain, and supply chain,” worsening a “world economy already experiencing difficulties” and causing “irreparable losses.”
• Xi called for more dialogue and negotiations to bring about a ceasefire and an end to war at an early date. “The long-term solution lies in mutual respect among major powers, abandonment of Cold War mentality, not engaging in confrontational camps, and gradually building a balanced, effective, and sustainable global and regional security architecture,” he said.

• Biden outlined the “views of the United States and our Allies and partners” on the Russia-Ukraine crisis to Xi.
• Biden detailed efforts by the U.S. and its allies to respond to Russia’s invasion, including “imposing costs on Russia.” He also “described the implications and consequences if China provides material support to Russia.”
• Biden emphasized his support for a “diplomatic resolution” to the crisis, and both leaders “agreed on the importance of maintaining open lines of communication, to manage the competition between our two countries.”
• Biden repeated that the U.S. policy on Taiwan “has not changed” and stressed that America opposed “any unilateral changes to the status quo.”

OUR TAKE
The PRC’s readout of the Biden-Xi call indicates that it holds the U.S. responsible for the Ukraine crisis and its resolution. The Xi leadership also appears to be very concerned about the impact of the Russia-Ukraine war on regime security, either directly through sanctions on China or indirectly through sanctions against Russia and its implications for the global economy. Further, Beijing seems to strongly suggest that Washington’s outreach over Ukraine and Russia is really about the Sino-U.S. relationship, including the prospect of a disastrous split. Finally, the Xi leadership is deeply troubled about possible escalation of the Russia-Ukraine war and how it could negatively impact the CCP regime.

True to the CCP’s habit of portraying itself as perpetually “great, glorious, and correct,” Party propaganda issued immediately after the Biden-Xi call created the impression that Washington was seeking Beijing’s help in ending the Russia-Ukraine war. However, Party propaganda also hinted that the U.S. had sought to intimidate the PRC during the call in breach of the Biden-Xi consensus that the two countries not clash. A March 19 Global Times op-ed ran the ominous headline, “Implement the Consensus of the Heads of State, Hope the U.S. Will Do What It Says” (落實元首共識, 希望美方言行一致).

The Xi leadership is caught between a rock and a hard place with regard to the Ukraine situation. From a long-term and strategic perspective, prolonged conflict in Ukraine that does not spiral into a broader war and Western sanctions against Russia provides opportunities for the CCP to massively advance its domination agenda. A weakened and isolated Russia would have no choice but to become even more reliant on China, solving an age-old geopolitical problem for Beijing (during the “Century of Humiliation,” Russia annexed large swathes of Chinese territory, and the Soviet Union remained a powerful menace for decades). Western sanctions on Russia could see countries move more quickly away from the dollar to purchase commodities and establish alternative payment channels using the yuan (see here and here), breaking the dollar hegemony and strengthening the CCP’s bid to internationalize the renminbi and establish it as the global reserve currency. The PRC could also seek to rally authoritarian countries more closely around its banner while convincing them to be less cooperative with U.S. demands; Venezuela and Iran, who Washington sought out to boost global crude oil supplies after sanctioning Russia, are susceptible to Beijing’s influence. Finally, U.S. hegemony could be dangerously eroded if domestic problems stemming from the Russia-Ukraine war (high inflation, commodity and manufactured goods shortages, bankrupt government legitimacy, etc.) spiral out of control, leaving the CCP free to seize the mantle of global leadership for itself.

The Xi leadership, however, is having trouble surviving the short-term with the Russia-Ukraine war raging on. The war and its impact on the global economy create an unwanted drag on the already rapidly deteriorating Chinese economy. The CCP’s Belt and Road Initiative in Eastern Europe is being hugely impacted by conflict in the region and the PRC’s unwillingness to condemn Russia. The PRC’s ability to procure weapons, military technology, food, and raw materials from Ukraine has undoubtedly been affected. Moreover, the threat of U.S. sanctions against China over its stance on Russia and the seizure of the assets of Russian oligarchs abroad are ramping up political risks for Xi as frightened Party elites with overseas assets begin to unite against him. All this puts tremendous pressure on Xi Jinping during a Party Congress year where he is seeking a norm-breaking third term; what Xi would rather have is more political achievements, as well as prosperous and stable times for the regime.

The Xi leadership would be even more severely tested if there is further escalation in the Ukraine crisis. A prolonged and more bloody localized conflict would give the U.S. and its allies greater incentive to sanction Xi and China as they seek an outcome from the Russia-Ukraine war that is in their favor. Meanwhile, a broader European or even world war would force the PRC to immediately pick sides instead of pretending to sit on the fence. All the problems facing the regime listed in the preceding paragraph would sharply worsen in a broader war. And unless Xi Jinping decides to abandon Vladimir Putin and Russia, the PRC and the CCP elite would almost certainly be sanctioned if the Russia-Ukraine conflict escalates, forcing a showdown in intra-Party factional struggle that looks likely to be hugely unfavorable for the Xi camp.

Having pledged to Putin “no limits” in the Sino-Russian friendship, Xi Jinping is unlikely to retreat from backing Russia (barring unforeseen circumstances) because his “quan wei” (authority and prestige) and political legacy are on the line. Xi’s Russia policy falls under his “great power diplomacy,” which is in turn part of Xi’s political legacy as well as justification for power consolidation and an extended tenure. Ditching Russia and Putin in favor of making good with the U.S. and its allies over Ukraine and other issues (Taiwan, reduced militarism, etc.) would be akin to Xi disowning his own political legacy and admitting to errors, a “quan wei”-destroying move which seriously weakens his bid for a third term. In this scenario, Xi would either very likely fail to take a third term, or come to office again as a mere figurehead of pro-Western elites in the CCP “collective leadership.”

Xi would also be foolish to ditch a key geopolitical ally at a crucial time when the U.S. and Western powers are promoting the “authoritarianism versus democracy” framework and laying the foundations for a “new cold war.” This means that the Xi leadership would continue to quietly support Russia (telecommunications, logistics, material, military, etc.) for as long as it can get away with it while selling the PRC as “peacemaker” to the international community. This also means that Beijing is prepared to chance U.S. “implications and consequences” for staying its current course.