SinoInsight 1
Shanghai epidemic control messaging
April 4
Party mouthpiece People’s Daily reported that 15 provinces dispatched more than 38,000 medical personnel to support Shanghai per the requirements of the State Council’s Joint Prevention and Control Mechanism Medical Treatment Team.
April 6
Sun Chunlan, the second-rank PRC vice premier, visited Shanghai from April 4 to April 5 to inspect and guide the city’s epidemic prevention and control work, according to the Shanghai Municipal Government Information Office website. Shanghai Party secretary Li Qiang participated in relevant inspection activities.
Sun stressed that local officials should have the spirit of thoroughly implementing General Secretary Xi Jinping’s important instructions, in accordance with the decisions and deployments of Party Central and the State Council. Officials should also have a more resolute attitude, carry out epidemic measures more thoroughly, move with greater speed, speed up the construction of makeshift hospitals, and accelerate the expansion of centralized isolation rooms, she said. Sun added that officials should inspect, collect, isolate, and treat (應檢盡檢、應收盡收、應隔盡隔、應治盡治)—that is, inspect the people, collect positive cases and close contacts, isolate positive cases and close contacts, and treat positive cases to the greatest possible extent—so as to “resolutely win the battle of epidemic prevention and control.”
April 7
The Shanghai Municipal Commission for Discipline Inspection and Supervision announced the sacking of two officials for showing “typical problems of inadequate epidemic prevention and control.”
Li Shuifei, former deputy Party secretary and general manager Hongqiao Company’s (a subsidiary of the Shanghai Airport Group) fire and emergency department, was removed from Party and government positions. Zhou Baoguo, director of the Huangpu District Mental Health Center, was also removed from Party and government positions, as well as being subjected to further investigations and punishment.
April 8
1. The Pudong District local government announced that three division-level officials had been removed from office for ineffective epidemic prevention and control work.
2. Jiefang Daily, the official mouthpiece of the Shanghai Party Committee, reported that Sun Chunlan visited the city from April 6 to April 7 to inspect and guide local epidemic prevention and control work.
Sun urged officials to “not waver” in adhering to the general policy of “zero-COVID.” She added that social and community controls should be strengthened, and sealed and controlled areas should be strictly managed. Community prevention and control and service security forces should be augmented, she said, while cadres in Party and government organs, medical staff, and police officers must be more proactive and participate in community-related work.
Sun also said to further mobilize the enthusiasm and initiative of community volunteers, ensure that the “last 100 meters” are covered in community distribution and serving the masses, and further enhance the Shanghai citizens’ “confidence and determination” in overcoming the epidemic.
3. According to The Wall Street Journal, Xi Jinping told senior leaders in late March that “nothing is more important than clearing the virus,” citing a person close to decision-making who was briefed on Xi’s remarks.
The Journal cited Xinhua as saying that Xi had called for epidemic prevention and control measures to be tailored to minimize public impact during a meeting with top leaders on March 17.
Yet Xi reportedly told members of the Politburo Standing Committee in undisclosed comments that China cannot retreat from its stringent approach to COVID-19 even if it means slower economic growth, citing a person close to decision-making who was briefed on the remarks.
The Journal also reported that Xi and other top officials saw Shanghai as a model for the PRC’s “long-term goal of living with the virus” before the latest outbreak, citing people close to government decision-making.
Propaganda discourse
April 6
1. Jiefang Daily published an op-ed titled, “Help Grassroots Officials Resolve Problems, Help the Common Folk Resolve Troubles” (為基層分憂, 為百姓解難). The op-ed was republished in other major official media outlets under the headline, “To All Leading Cadres at All Levels in Shanghai: Please Step Up to The Plate, Help Grassroots Officials Resolve Problems, and Help the Common Folk Resolve Troubles” (致上海各級領導幹部:請挺身而出, 為基層分憂, 為百姓解難!)
The op-ed urged Shanghai Party members and leading cadres at all levels to step forward and show “special responsibility and energy,” as well as “special state and style,” during the city’s critical epidemic period. Local Party members and leading cadres are to also step up the promotion of epidemic inspection, collection, isolation, and treatment.
The op-ed noted that the bulk of grassroots cadres and frontline workers at the forefront of Shanghai’s epidemic prevention and control effort are “under enormous pressure.” They have faced “contradictions and problems at the front,” have been used as “punching bags” and “decompression valves,” and feel “exhausted physically and mentally,” but their work has the “strong affirmation” of the Shanghai Party Committee.
The op-ed then demands that leading cadres at all levels “earnestly take up responsibilities, tangibly reduce the burden of grassroots officials, help them resolve problems, and empower them.” Leading cadres must “truly listen and value” the views and voices at the grassroots, and respond to them with “strong and effective action.” Doing so will lay the foundation of “unity,” create a “strong synergy of participation and cooperation,” unite everyone’s wills in fighting the epidemic, and create confidence in winning the “big and tough battle” against the virus.
2. The Shanghai Municipal Party Committee issued an open letter to the city’s Party members. The letter urged the majority of Party members to act with urgency, fight with all their might, continue fighting, and devote all their efforts in the “serious fight against the epidemic.” The letter also tells officials to “dare to show the sword” against behavior that interferes with and undermines the epidemic prevention and control effort, as well as take initiative in “clarifying” and responding to “rumors.”
The open letter went on to say that Shanghai is the birthplace of the CCP and its “original aspirations,” while generations of Party members have “never been afraid of any risks and challenges.” The letter added that “victory” would “definitely” come to Shanghai under the “strong leadership of Party Central with Comrade Xi Jinping at the core, the strong support of the country’s people, and with overwhelming numbers of Party members charging ahead.”
April 7
Duowei News, the Beijing-based overseas Chinese language media outlet, published an op-ed titled, “Will the Shanghai Epidemic Affect Li Qiang’s Career?” (上海疫情會影響李強的仕途嗎).
The op-ed repeatedly stresses the importance of Shanghai, describing the city as China’s “business card” with a “special nature that needs no explanation.” Thus, the Omicron outbreak comes as a challenge for the Shanghai authorities, who set the “benchmark” of “precise epidemic prevention” early on and have to deal with the “naturally higher” expectations and requirements of the people. The op-ed also noted that China’s “internal and external situation today is different from the early days” of the Wuhan outbreak.
The op-ed added that all officials from “Zhongnanhai down to the towns and villages” will “undoubtedly bear additional and heavy political” over the sudden outbreaks ahead of the 20th Party Congress. In particular, Shanghai Party secretary Li Qiang, who is expected to see further career progression at the Party Congress, could see “some unknown twists and turns in his career” over the epidemic prevention and control situation in Shanghai.
Analysis: The Duowei op-ed indirectly attacks Xi Jinping and his political ally Li Qiang for the disastrous handling of the Shanghai outbreak. The Wuhan comparison is meant to highlight the high degree of official incompetence; unlike Wuhan officials, those in Shanghai had two years of epidemic prevention and control experience in handling a known virus, but still managed to bungle things badly. The op-ed also stresses that those from “Zhongnanhai down to the towns and villages” are accountable for the current.
Duowei is known to carry messaging from various factions in the Party elite. The messaging in this op-ed aligns with the interests of the Jiang Zemin faction and others in the “anti-Xi coalition.”
April 8
State mouthpiece Xinhua published a commentary piece titled, “Adhere to Scientific Accuracy, Do Not Waver in Dynamic Zero-COVID” (堅持科學精準, “動態清零”不動搖).
The commentary stressed that local governments in Shanghai and elsewhere must implement Xi Jinping’s epidemic prevention instructions. Further, the Omicron strain of COVID-19 is not a “big flu,” while adhering to “dynamic zero-COVID” measures will “minimize the impact of the epidemic, as well as minimize infections, severe illness, and death.”
The commentary urged Party members and cadres to “do their best in battle” and report to the frontlines in communities to serve as volunteers, including carrying out nucleic acid testing “without excluding a single household or leaving anyone behind.” The commentary also added that “although the epidemic prevention and control situation is severe, we have the confidence to win this tough battle,” and the “understanding and support of every single Chinese citizen is needed.”
Citizen information and ‘stability maintenance’ arrangements
April 4
1. In the wake of a widely circulated recording between a Shanghai resident and a female section chief at the Shanghai Municipal Center for Disease Control & Prevention, other recordings of conversations between grassroots cadres and other Shanghai residents started to circulate online. Those conversations reveal the city’s “zero-COVID” measures to be a mess, with frontline officials under enormous pressure.
1.1. The community-level Party secretary of Xinsi Village in Pudong South District expressed her frustrations about Shanghai’s epidemic prevention and control measures in a roughly 9-minute telephone conversation with residents. She complained that local leading cadres were not answering their phones when she needed to reach them. She also acknowledged “mistakes” in Shanghai’s epidemic prevention policy and noted that “it’ll really be chaos” if the Shanghai government does not come up with “better measures.”
The Party secretary added that the pressure was too great, felt that she lacked ability to handle things, had to pay out of her pocket for some measures, believed that they were “playing with lives,” and had told her superiors that she was thinking about quitting her job.
1.2. A phone call between Shanghai Hong Kong Liyuan Neighborhood Committee Party secretary Liu Miao and a female nurse from the neighborhood who was seeking urgent permission to leave a sealed building to report for work at a hospital that was short on manpower was leaked online.
In an emotional conversation, Liu, the neighborhood committee Party secretary, revealed that there were only three doctors carrying out epidemic prevention and control work in their neighborhood of about 4,000 to 5,000 people. Choking back sobs, Liu said that local officials are short on confidence to handle the situation and are “on the verge of collapse.” Liu also told the nurse, who was moved to tears, to take the opportunity when she leaves the building to buy things for the other people in the building.
2. Zhang Jin, a scholar from Puxi District in Shanghai, told Radio Free Asia that armed police are guarding the gates of the community where he lives to prevent residents from vaulting the walls or sneaking out.
“The troops have been brought in now, but this is a double-edged sword because the district’s elderly folk can’t be controlled,” Zhang said. “SWAT police are stationed at the community gates because they’re afraid that something will happen in Shanghai and there’s a need to control the situation. If something happens it will not be a small incident; the situation now is like [fixing] a broken lamp, glue one area, and it breaks in another.”
3. The official Weibo account of the Western Theater Command People’s Liberation Army Air Force wrote in a post, “More than 38,000 medical personnel from 15 provinces rush to Shanghai”: “Little West(ern Theater Command) is here too, let’s guard Shanghai together.” The post included two pictures of two Y-20 military transport aircraft.
Later, the post was deleted.
April 6
Hong Kong pro-Beijing newspaper Ming Pao cited people familiar with the matter as saying that the Shanghai lockdown is “full of loopholes” at the middle and grassroots local government level. Some cadres have taken to “laying flat,” while some suburban towns and villages have been “taken over” by military medical personnel.
Ming Pao added that Shanghai cadres, who were previously regarded as being the best in the country, have been criticized for “taking the wrong path at the top, having improper command at the middle ranks, and showing incompetence at the grassroots.”
April 7
Information that the military had taken over control of several communities in Shanghai, as well as photos and videos suggesting a sizable military presence in the city, were circulated on Chinese social media.
Rumors have also circulated that Shanghai will undergo “militarized management.” Local armed police were reportedly notified to station two guards outside all communities to prevent all entry and exit. From April 9, Pudong District would be placed under “militarized management,” with armed police being stationed at all communities.
In a community social media chat group, a resident of Meiliu Community in Putao District wrote that their community’s Party Committee had been taken over by the military, and that the latter was sealing off every building and enforcing door-to-door nucleic acid testing. Separately, a resident from Weifang No. 2 Village in Pudong District informed members of a food ordering social media chat group that the neighborhood Party Committee had sent a notice stating that troops would be stationed in the area that night.
On April 8, the Shanghai local government’s “internet rumor refuting” WeChat account officially debunked the “militarized management” rumors.
April 8
A recording of an exchange between a Shanghai resident and a policeman made the rounds on the internet.
The Shanghai resident had called the local police station to inform them that he was preparing to break out of a sealed community to get food because he had been starving for four days. The policeman replied, “You can’t rush out, I’m telling you clearly that even if you rush out, there’s no food available. Even we [policemen] don’t have [food], we’re trying to figure things out for ourselves; the grassroots government is handling [the food situation], and we also have no choice. How can the neighborhood Party Committee not solve [your] problem? That’s impossible?”
The resident said, “Through this incident, we understand why there was rebellion [at the end of] Qin Shi Huang’s time, why the common folk fought, and why there were militia uprisings. It all makes sense, don’t you understand? Only after they had experienced it themselves and had empty bellies did they understand that they had to rebel.”
2. According to information circulating on Chinese social media, residents of the Anju Chaoyang Yuan community in Shanghai’s Putuo District kicked out the neighborhood Party Committee on April 6 after accusing the latter of hoarding supplies and failing to distribute them. With the assistance of volunteers, the Anju Chaoyang Yuan residents then distributed supplies, organized nucleic acid testing, and set up a public WeChat account to promote epidemic prevention knowledge. The residents also imparted their experiences in self-government to the residents in other communities.
A resident of the Anju Chaoyang Yuan noted in a post that “the community is now well-organized and harmonious.” Some netizens even described the incident as an “uprising.” Subsequently, the authorities claimed as part of “refuting rumors” work that the Anju Chaoyang Yuan residents were “Party member volunteers.”
3. A video circulating on social media showed residents of Kangting Community in Shanghai’s Songjiang District engaging in collective protest at the community gates. The residents demanded that the local government distribute supplies (“Kangting Community, send supplies!”) and clashed with the police.
OUR TAKE
1. The Omicron strain of COVID-19 appears to be spreading quickly through Shanghai. Yet the bulk of the damage and humanitarian problems have been caused by bad governance, overly rigid adherence to the Xi leadership’s “zero-COVID” policy, and the CCP totalitarian system in general.
From the April 8 Wall Street Journal report and information about Beijing looking to relax “zero-COVID” restrictions from early March, it appears that Xi Jinping was indeed planning to loosen up on his pet policy while leaving it officially on the books. The Shanghai outbreak and habits of the CCP officialdom, however, forced the Xi leadership to stick to the more draconian interpretation of “zero-COVID” to deal with the brewing problem.
Here is where the contradictions of the CCP system become glaringly obvious. In seeking to preserve his political legacy and maintain his “quan wei” (authority and prestige) in the lead up to the 20th Party Congress, Xi cannot abandon “zero-COVID.” But deciding to maintain “zero-COVID” means accepting that CCP officials will interpret and enact the policy in extreme ways as they strive for “political correctness.” Executing “zero-COVID” in dogmatic, “one-size-fits-all” fashion results in unnecessary chaos, hardships, and tragedy, not only undermining Xi’s standing in the eyes of officials and the people, but also damaging the CCP’s political legitimacy in general. Xi’s factional rivals will also note that his COVID failures in Shanghai and elsewhere justify their mounting criticism of him, which further legitimizes their push to deny him an extended tenure as Party boss. In other words, Xi is being hemmed in by his own political legacy even as he seeks to preserve it, and in the process, is seriously eroding his “quan wei” and obstructing his bid for a third term in office.
2. The April 8 Xinhua commentary about “adhering to scientific accuracy” and “not wavering” from “dynamic zero-COVID,” as well as Sun Chunlan’s orders for Shanghai to double down on “zero-COVID,” suggest three possible scenarios.
The first possibility is that the Xi leadership genuinely believes that “zero-COVID” works against Omicron and is the most “scientific” solution to the problem. If so, there is reason to believe that Xi is being misled by his advisers while experts who better understand the nature of Omicron are unable to get their views through to him (see the Huang Wansheng incident).
In the second scenario, the Xi leadership is aware of the facts around the Omicron variant and its high transmissibility, but has decided that political needs trump scientific reality.
A third possibility is that Xi recognizes the limitations of “zero-COVID” in dealing with Omicron, but has no choice but to continue with it solely due to political reasons.
All three scenarios lead to the same outcome—the COVID situation in Shanghai is disastrous not because Omicron is particularly deadly, but because the “political epidemic” is causing unnecessary chaos and suffering.
3. The April 6 Jiefang Daily op-ed about “helping grassroots officials solve problems,” as well as the complaints of grassroots officials, suggest that the Shanghai top leadership is looking to blame and hold lower level officials responsible for the collapsing epidemic response. Reports of Shanghai officials “laying flat” indicate that they are not exactly without fault in perpetuating the man-made disaster that is unfolding in the city.
The general incompetence of the Shanghai officialdom may have convinced more senior officials to send in the military and armed police to carry out “militarized management” of the city. While this may lead to a more organized response and better maintenance of stability (intimidation of local residents, securing of communities, etc.) in the short term, the stringent outcome demanded by “zero-COVID” means that humanitarian problems will persist and worsen the “pressure cooker” environment in Shanghai.
4. The Shanghai authorities can only keep up the most draconian iteration of “zero-COVID” for so long before problems metastasize out of control. Shanghai has always been one of the most cosmopolitan cities in China and is home to a large professional and business class, financial elites, expats, and media outlets. In fact, the presence of many savvy locals and foreigners in Shanghai is very likely one of the reasons why many “zero-COVID” nightmare stories in the city are seeing the light of day. The constant stream of negative information about Shanghai’s draconian epidemic prevention and control situation has captured the attention of many in China and abroad, to the detriment of the Shanghai government and the Xi leadership.
The Shanghai authorities’ inability to resolve food issues is a potential trigger point for a full-blown crisis. As the Shanghai resident who called the police about food problems indicated, the Chinese people have started rebellions over empty bellies throughout history. Even the large military presence in Shanghai would be helpless if the bulk of Shanghai’s 25-million-strong population decide that they cannot take it any more and lash out for survival.
Extended lockdowns are another trigger point. Pushing the local populace to the brink and wrecking the local economy aside, the prospect of “endless” lockdowns will further convince foreign investors that China is “uninvestable” due to COVID measures and geopolitical concerns. This would accelerate capital outflows from the city. While Xi Jinping may claim to be fine with slower growth, he will most definitely feel the pressure when the 20th Party Congress draws near and data shows that China is not on track to hit the CCP’s 2022 growth target of 5.5 percent.
Xi’s problems with Shanghai will be compounded by other stringent “zero-COVID” lockdowns in other parts of China. For instance, Jilin Province is another area seeing a severe outbreak and farmers are being forbidden from tending to their fields ahead of the spring plowing season. This would impact food production and worsen food shortages in China. As Xi’s domestic and external problems mount and his political risks sharply spike, the probability of political Black Swans emerging in China in 2022 will rise correspondingly.
SinoInsight 2
1. PRC premier Li Keqiang presided over a symposium of experts and entrepreneurs to analyze the economic situation.Li said that the current world situation is complex and evolving. Also, domestic COVID-19 outbreaks have recently become more frequent with “unexpected factors exceeding expectations,” resulting in greater uncertainty and challenges to the smooth operation of the economy.
Li pointed out that market entities are an “important basis” for stabilizing the economy’s fundamentals. He added that some market entities, such as small- and medium-sized enterprises and individual entrepreneurs, are facing many difficulties and are under great pressure, and efforts must be made to help them through tough times.
On the same day. PRC vice premier Hu Chunhua hosted a symposium on the employment situation in Beijing. Hu stressed that every effort should be made to stabilize and expand employment.
2. According to mainland media reports, the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank of China issued different policies to allow several categories of people who are more affected by the COVID-19 epidemic to apply for mortgage repayment deferments.
The people include:
- Infected persons who have been hospitalized or quarantined;
- Those participating in epidemic prevention and control work;
- Bank customers who temporarily lost their source of income due to the epidemic.
- Deferment of personal loans repayment. During the period of deferment, customers would not be included in a list of defaulting customers;
- Credit protection for customers, and the reduction or exemption of penalty interest;
- Loan term extensions and overall loan term extensions of up to six months.
“Relay loans” regulations include:
- Customers can purchase a home under their parents’ quota, apply for a “relay loan,” and get entitled to the first home purchase policy;
- Customers can apply for a “relay loan” as long as the combined income of the parents and children is 1.5 times the monthly loan repayment amount, and the parents cannot be older than 70;
- The maximum term for a “relay loan” is 30 years and the first home down payment is 30 percent;
April 8
1. The Bank of Beijing recently accelerated the approval period for housing loans, according to 21st Century Business Herald. Real estate agents told the Herald that the bank already approved loans within three to seven working days period, or a faster pace than was the case two months ago, with actual approval times being faster. In January, some banks in Beijing took two to three months to approve loans, while others did so within a month, which is faster than the speed of approvals in the second half of 2021.
2. R&F Properties disclosed its sales data for the first quarter of 2022.
According to the data, R&F Properties’ total sales revenue for March decreased 56.8 percent year-on-year to about 4.37 billion yuan, while the total sales area was about 341,600 square meters. In the first three months of the year, the company’s total sales revenue decreased 55.8 percent to about 13.48 billion yuan, while the total sales area was about 1.198 million square meters.
R&F Properties ranked 28th among the 200 top real estate property companies by sales in 2021 with total sales of 118.26 billion yuan. The company is still deep in debt crisis this year, and is currently trying to resolve a liquidity crisis through asset sales and debt rollovers.
OUR TAKE
1. The various developments listed above are a reflection of the poor and rapidly deteriorating economic situation in China. A range of factors have contributed to the sharp slowdown, including the real estate sector debt crisis, COVID-19 outbreaks across China and particularly in economically strong areas like Shanghai and Shenzhen, the stringent application of Xi Jinping’s “zero-COVID” policy, and increasing capital outflows as foreign investors account for rising political risks in China and the U.S. Federal Reserves’ plan to take strong action to curb inflation (raising rates, shrink balance sheet, etc.).
2. Between December 2016 and November 2021, the PRC government prioritized financial derisking and deleveraging, as well as policies like “houses are for living in, not for speculation” (房住不炒). The Xi leadership was looking to curb the “fictitious economy” and grow the real economy, as well as eliminate financial risks and shore up regime security. The “houses are for living” policy was even written into the 19th Party Congress report as Xi Jinping sought to establish his political legacy on the economy.
Xi likely believed that the CCP regime would be better off in the long run with revamped economic focus and fundamentals if it sacrificed unsustainable and risky economic growth in the short term. However, geopolitical factors like the Sino-U.S. trade war, growing global wariness towards the PRC, and the coronavirus pandemic are upending Xi’s ideal scenario. Worse, the real estate debt crisis and other domestic problems are ensuring that the Xi leadership’s nightmare scenario is quickly actualizing, i.e. failure of economic policies to turn things around and instead ushering in economic recession.
The easing of housing sector restrictions from November 2021 is a quiet admission by Beijing that its “eat bitter now, reap rewards later” range of economic policies are sending China’s economy off a cliff faster than they can turn things around (if at all). Yet the Xi leadership will unlikely be able to salvage the situation given the “perfect storm” of internal and external problems facing the regime. If anything, Xi Jinping eating humble pie on real estate sector policy and other economic measures (the non-mentioning of “common prosperity,” “dual circulation,” etc.) now is a “da lian” (打臉; Chinese slang for hitting oneself in the face when proven wrong, i.e. to eat one’s words) moment that further undermines his “quan wei,” tarnishes his political legacy, and opens him up to attack from factional rivals. This will further impact Xi’s bid for a third term at the 20th Party Congress.
3. The increased speed of bank loan approvals recently, the dropping of property purchase restrictions in over 60 cities, and the sharp drop in real estate sales of large property developers like R&F Properties suggest that the property sector debt crisis is worsening.
A sign of spreading financial contagion from the real estate debt crisis can be seen from the six large state banks granting mortgage repayment deferments. Those banks will have to bear the loss of interest when they approve deferments, those losses are not unsubstantial. According to the People’s Bank of China’s latest summary of sources and uses of credit funds of financial institutions (in RMB), mid- and long-term loans to households (主要反映中國居民房貸規模) in February 2022 were 54.477986 trillion yuan. Assuming just 1 percent of loans are deferred for a three-month period, Chinese banks and financial institutions would lose nearly 750 billion yuan in interest (average interest rate of 5.5 percent).
