SinoInsight 1
Propaganda
April 29 – May 9
State mouthpiece Xinhua published 10 commentary articles to promote and expound on the April 29 Politburo meeting on “analyzing and studying the present economic situation and economic work.” The titles of the articles are:
- “The Epidemic Must Be Prevented, the Economy Must Be Stabilized, and Development Must Be Safe——The Central Committee Politburo Meeting Sets the Tone for the Current Economic Work” (疫情要防住、經濟要穩住、發展要安全——中央政治局會議為當前經濟工作把舵定調)
- “Endeavor to Achieve the Annual Expected Economic and Social Development Goals——Implementing the Spirit of the Central Committee Politburo Meeting and Doing a Good Job With the Current Economic Work Part 1” (努力實現全年經濟社會發展預期目標——落實中央政治局會議精神做好當前經濟工作系列述評之一)
- “Efficiency Coordinate Epidemic Prevention and Control and Economic and Social Development——Implementing the Spirit of the Central Committee Politburo Meeting and Doing a Good Job With the Current Economic Work Part 2” (高效統籌疫情防控和經濟社會發展——落實中央政治局會議精神做好當前經濟工作系列述評之二)
- “Make Every Effort to Do a Good Job in Expanding Domestic Demand——Implementing the Spirit of the Central Committee Politburo Meeting and Doing a Good Job With the Current Economic Work Part 3” (全力做好擴大內需這篇大文章——落實中央政治局會議精神做好當前經濟工作系列述評之三)
- “Do Everything Possible to Stabilize Market Entities——Implementing the Spirit of the Central Committee Politburo Meeting and Doing a Good Job With the Current Economic Work Part 4” (千方百計穩住市場主體——落實中央政治局會議精神做好當前經濟工作系列述評之四)
- “Promote the Stable and Healthy Development of the Real Estate Market——Implementing the Spirit of the Central Committee Politburo Meeting and Doing a Good Job With the Current Economic Work Part 5” (促進房地產市場平穩健康發展——落實中央政治局會議精神做好當前經濟工作系列述評之五)
- “Concretely Guarantee and Improve the People’s Lives——Implementing the Spirit of the Central Committee Politburo Meeting and Doing a Good Job With the Current Economic Work Part 6” (切實保障和改善民生——落實中央政治局會議精神做好當前經濟工作系列述評之六)
- “Persevere in National Coordination to Ensure Smooth Logistics——Implementing the Spirit of the Central Committee Politburo Meeting and Doing a Good Job With the Current Economic Work Part 7” (堅持全國一盤棋，確保交通物流暢通——落實中央政治局會議精神做好當前經濟工作述評之七)
- “Do a Good Job of Energy and Food Production, and Securing Supplies——Implementing the Spirit of the Central Committee Politburo Meeting and Doing a Good Job With the Current Economic Work Part 8” (做好能源糧食生產保供工作——落實中央政治局會議精神做好當前經濟工作系列述評之八)
- “Solve Problems in Development By Means of Reform——Implementing the Spirit of the Central Committee Politburo Meeting and Doing a Good Job With the Current Economic Work Part 9” (用改革的辦法解決發展中的問題——落實中央政治局會議精神做好當前經濟工作系列述評之九)
Economic problems
May 5
According to a survey by the Shanghai Japanese Commerce & Industry Club, 63 percent of 54 Japanese firms in Shanghai that responded to a survey conducted between April 27 to April 30 said that their factories had not resumed operations. Over three-quarters of the 37 percent of companies that had resumed operations said that production was at or below 30 percent of regular levels. The Japanese firms also noted difficulties in procuring raw materials, components, and finished goods required for production.
The Shanghai lockdowns have impacted domestic auto manufacturing in Japan. Honda’s Suzuka factory halved production in April over chip shortages and COVID-19 lockdowns and is planning to cut production by 50 percent on two lines in early May. Meanwhile, Toyota shut down all 14 of its domestic factories from April 30 to May 8.
May 9
1. China’s total imports and exports was 3.16 trillion yuan in April according to data released by the General Administration of Customs, a year-on-year increase of 0.1 percent and a 5.7 percent lower pace of growth as compared to March. Exports grew 1.9 percent year-on-year and at a 12.9 percent lower pace of growth as compared to March. Imports fell 2 percent year-on-year, or a decline that is 0.3 percent higher than in March.
China’s total foreign trade from January to April 2022 was 12.58 trillion yuan, an increase of 7.9 percent year-on-year and a 2.8 percent lower pace of growth than in the first quarter. Exports during the period increased by 10.3 percent, and imports increased by 5 percent.
2. According to an American Chamber of Commerce in China survey conducted from April 29 to May 5 covering 121 companies in China, 15 percent of its respondents with Shanghai operations said that they have yet to reopen. Across China, nearly 60 percent of the companies surveyed reported slowed or decreased production capacity owing to employee and material shortages, as well as lockdown measures. Fifty-three percent of respondents said that they would reduce investment in China next year if COVID controls persist for another year.
May 10
Tesla’s Shanghai plant suspended most of its production due to difficulties in securing parts, Reuters reported, citing an internal memo. The company had planned to manufacture fewer than 200 cars at its Shanghai factory that day, far fewer than the 1,200 a day it produced after a 22-day suspension.
According to news reports, Tesla only produced 10,757 cars at the plant in all of April, a fraction of its normal output.
May 11
The latest data released by the China Passenger Car Association (CPAC) showed total vehicle sales in April was 1.042 million units, a year-on-year decrease of 35.5 percent (570,000 units) and a month-on-month decrease of 34.0 percent. Cumulative retail sales from January to April was 5.957 million units, a year-on-year decrease of 11.9 percent (800,000 units).
Passenger car production in April totaled 969,000 units, down 41.1 percent year-on-year and 46.8 percent month-on-month. Passenger car exports (including CBUs and CKDs) were 91,000 units, down 17 percent year-on-year and 15 percent month-on-month.
Mainland media also reported that Tesla is having trouble with deliveries, with sales plummeting 97.7 percent month-on-month in April. CPAC data showed that Tesla’s Shanghai plant produced 10,757 vehicles in April but sold just 1,512 vehicles. Also, Tesla Shanghai usually focuses on exports in the first month of each quarter, but the lockdowns led to zero exports in the second quarter of 2022.
Extreme ‘zero-COVID’ measures & rising resident fury
May 6 to May 10
Shanghai Party secretary Li Qiang held a mobilization meeting on May 6 where he urged local officials at all levels of government to “make military pledges” and win the battle to defend Shanghai from the virus. Since then, local officials have been carrying out building and street sweeps, “door knocking operations,” and other extreme and abnormal epidemic prevention measures to track down cases without exception. Some officials even implemented a policy of isolating whole buildings and forcibly sending people into makeshift hospitals after one positive case is discovered (“一人陽性、全樓轉運”). Meanwhile, “white guards” (白衛兵), or officials and hired hands in white, full-body protective suits, have been filmed illegally barging into residents’ homes to spray disinfectant, erecting barbed wire on corridors and fences, and engaging in fierce clashes with residents.
Some incidents include:
1. The Xuhui District local government issued an emergency notice on May 7 requiring all residents to stay at home until May 15. Residents are only allowed to leave home for nucleic acid testing, and communities will stop accepting group purchases and deliveries. Those who do not participate in nucleic acid testing will have their delivery of supplies suspended.
The notice added that resident committees will ferry those in need of emergency medical treatment to medical facilities in a “closed-loop way.” Also, resident committees will stop issuing exit permits to residents.
2. On May 7, residents of a building in Jinsheng Community, Zhuanqiao Town who ran out of supplies began demanding them loudly. The commotion drew the attention of several “white guards,” leading to violent clashes that were caught on video and shared widely. In some of the videos, dozens of residents were seen rushing downstairs and breaking the building’s iron gate in their pursuit of the “white guards.”
3. Several videos circulating on Chinese social media show epidemic prevention personnel entering residents’ apartments to carry out disinfection work. Some of the homes were broken into (not all residents handed over their home keys to the local neighborhood Party Committee) and the officials left a number of apartments in a mess. Residents saw their furniture, electronics, and clothing damaged by the disinfectant, and some saw their items go missing after the disinfectant work. In one incident, food in a resident’s refrigerator was strewn on the floor, leaving puddles of blood, flies, and maggots in the wake.
Residents sought out their local community leaders and called the police to report the destructive disinfectant work, but their complaints did not appear to be addressed.
4. A video circulating on Chinese social media on May 9 showed a dozen epidemic prevention personnel forcibly moving into quarantine the legal department director of Chinese auto company OnStar and his family from their luxury apartment in Shanghai’s Lujiazui District at 1:00 a.m. Information on Chinese messaging groups say that the legal department director was taken away because his neighbor had recently tested positive, and a total of 19 people on upper and lower floors in the luxury building had been sent to isolation facilities.
5. On May 10, the Shanghai local government announced that quarantine staff would not forcibly break into homes to carry out disinfection and would seek permission before entry.
May 6
Overseas Chinese language media outlets reported that some Chinese netizens are complaining on social media that their local governments are imposing lockdowns even though there are no outbreaks. Some complaints include:
- “In my hometown, there are no confirmed or asymptomatic cases in the whole county. (However,) we’ve been under lockdown for 20 days, schools have closed and the children are taking online classes, others are locked down in their villages and nucleic acid testing is done once a day. Some factories have already stopped production because they can’t get raw materials.”
- “My hometown is a third-tier city and there’s no epidemic here, but school from kindergarten to middle school has been suspended. The open-air morning markets are forbidden from opening, and the (public) baths are closed! Some supermarkets that are not large but have many people are also closed! The situation in the villages is even more outrageous; there’s a village without a single case that has been locked down, and only one person from each family is allowed to go out to buy vegetables every three days. Don’t you think that’s ridiculous?”
Analysis: There is comparatively little information about the “zero-COVID” situation in other parts of China as compared to Shanghai. Part of this is due to wealthier, more globalized Shanghai residents being more daring to speak out and complain about their plight. The environment in Shanghai is also relatively more liberal because there are many foreigners and foreign companies in the city. In contrast, there are few foreigners and foreign firms in inland Chinese cities and areas, people are poorer and less savvy, with many employed in the CCP system or state-owned enterprises. To protect their rice bowls, many residents of inland Chinese cities and areas are likely staying silent about lockdowns and other draconian epidemic prevention policies even though their “zero-COVID” situation could be even worse than in Shanghai.
The bureaucratism of local officials is seriously amplifying the negative impact of “zero-COVID,” and the aforementioned information disclosed on Chinese social media is likely only the tip of the iceberg. There are several possible reasons for why officials are implementing such extreme lockdown measures:
- Outbreaks could be genuine in some areas, but officials are covering up the situation to protect their political achievements. The lack of transparency would make the resulting lockdowns baffling to residents.
- Outbreaks in surrounding areas could have inspired officials concerned about “imported COVID” and local outbreaks to impose preemptively lockdowns.
- Officials could be blindly implementing “zero-COVID” out of sheer “political correctness” and to demonstrate loyalty to Xi Jinping.
- Officials looking to profit from “zero-COVID” imposed lockdowns to create more opportunities for corruption.
- Officials who do not want to take the blame for poor economic performance could have imposed lockdowns so that they can later shift blame to Beijing and Xi’s “zero-COVID” policy.
- A mix of the above reasons.
May 8
Several videos showed teachers and students of the Beijing International Studies University protesting against a blockade of the campus due to epidemic prevention reasons. A large number of police officers were dispatched to the scene and the protesters were warned that they would be forcibly dispersed and arrested after a third warning had been issued. The teachers and students later gave up their protest and left after the second warning.
May 9
PRC vice premier Sun Chunlan attended a meeting of the State Council’s Joint Prevention and Control Mechanism. In a speech at the meeting, Sun emphasized the necessity of effectively unifying thoughts and actions with the spirit of General Secretary Xi Jinping’s important speech, implement the decisions and deployments of Party Central and the State Council, adhere to “dynamic zero-COVID” without hesitation, adhere to bottomline thinking and “limit thinking” (極限思維) to ensure that the epidemic can be managed and controlled, and create a good environment for the “victorious” opening of the 20th Party Congress.
Sun put forth several epidemic prevention work requests, including:
- Upgrade prevention and control standards, and improve response and handling capabilities;
- Establish nucleic acid “sampling circles” within a 15 minutes’ walk in large cities;
- Improve the construction standards of quarantine points and makeshift hospitals; do a good job in planning and site selection, as well as necessary materials preparation; and ensure that quarantine points and makeshift hospitals can be put to use within 24-hours when needed.
OUR TAKE
The developments above show that the “political epidemic” in Shanghai and other parts of China has become more severe. Xi Jinping bears the bulk of the blame for doubling down on “zero-COVID,” most notably during a Politburo Standing Committee meeting on May 5. The negative impact of the “zero-COVID” political campaign is in turn exacerbated by officials adhering to Party culture (“great, glorious, correct” messaging, refusal to acknowledge failures, “spinning tragedy into victory,” etc.), bureaucratism (“prefer left rather than right,” “one-size-fits-all,” “campaign-style,” corruption, political correctness, loyalty testing, etc.), and factional struggle. The extreme epidemic prevention measures and absurdities have resulted in unnecessary “collateral damage” in Shanghai and elsewhere, undermining the CCP’s political legitimacy in the eyes of the Chinese people and Xi’s standing in the Party.
The “political epidemic” is also clearly taking its toll on the Chinese economy. Dismal vehicle sales data hint at much worse to come next under the “zero-COVID” regiment, and will inspire foreign businesses and investors to pull capital out of China to cope with rising political risks and business unpredictability. The exodus of foreign capital and companies from China will profoundly impact the economy, and will drive up political risks for Xi Jinping and the CCP regime.
All in all, Xi’s “zero-COVID” policy and the “political epidemic” that it has engendered has subjected China to a mini-“Great Leap Forward.” On the present trajectory, the “political epidemic” will worsen regardless of the actual COVID-19 situation on the mainland, resulting in more needless loss of life, food shortages, economic deterioration, social instability, and political instability. Xi’s efforts to deal with the crumbling situation politically (purges, anti-corruption campaign, etc.) will likely make things worse, increase the probability of political Black Swans emerging in China, and precipitate a “Berlin Wall moment” for the CCP regime.
SinoInsight 2
Political rumors
April 24 – May 9
Negative rumors about Xi Jinping, his political ally Li Keqiang, and the Xi camp in general have been circulating in Chinese-speaking circles since mid-April. The emergence of those rumors picked up pace after the April 29 Politburo meeting, leading China observers to question whether Xi’s position has become unsteady.
Some prominent rumors include:
- April 23: Some deputies to the National People’s Congress allegedly wrote to NPC Standing Committee chairman Li Zhanshu requesting that the “bandit Jinping” (賊近平) be removed.
- April 24: Ding Xuexiang, CCP General Office director and Xi’s trusted ally, and Wang Weizhong, the Guangdong Province governor, were allegedly transferred to Shanghai to replace Shanghai Party secretary Li Qiang and Shanghai mayor Gong Zheng.
- May 2: The CCP allegedly held an enlarged meeting of the Politburo Standing Committee. During the meeting, Xi reportedly decided to relinquish power and retire at the 20th Party Congress. Li Keqiang then allegedly took over the running of the central government’s daily affairs, and is tipped to officially take over as CCP General Secretary at the 20th Party Congress.
- May 7 – May 8: The People’s Daily did not carry articles featuring Xi Jinping on its front pages, leading some observers to see “evidence” that the central government is tempering Xi’s personality cult.
- May 9: Wang Qishan met with outgoing South Korean president Moon Jae-in in Seoul a day before attending president-elect Yoon Sul-yeol’s inauguration as Xi Jinping’s special representative. Observers claim that Wang did not mention Xi’s name or title in speaking with Moon, but instead referred to Xi as “he.” They also claim that the PRC was looking to communicate with the United States via South Korea, and were hoping that the U.S. will suspend sanctions against the PRC, etc.
May 7
The Financial Times (FT) cited Cercius Group chief executive Alex Payette as saying, “More and more voices are rising in Shanghai and inside the party, especially coming from [vice-premier] Han Zheng, asking Xi to force Li to step down.” The FT said that Han is “considered a rival to the Shanghai Party secretary [Li Qiang] to replace Li Keqiang as premier next year.”
“If Xi were to sacrifice Li (Qiang), the message sent to his other allies [and current Politburo members] like Chen Min’er, Ding Xuexiang and Cai Qi is that no one is safe and untouchable . . . We expect Xi to bargain with other factions inside the party to keep Li in play, despite the ongoing Shanghai fiasco—though the same cannot be said for Gong (Zheng)” the Shanghai mayor, according to Payette.
May 11
The Wall Street Journal reported that PRC premier Li Keqiang is “helping press” Xi Jinping to “dial back some measures that steered the country away from Western-style capitalism and contributed to China’s economic slowdown,” citing “government officials and advisers close to decision-making.”
The Journal said that Beijing’s recent efforts to relax property restrictions, ease a regulatory crackdown on private technology firms, and help some manufacturers affected by “zero-COVID” resume production were undertaken “under Mr. Li’s influence.” People close to decision-making told the Journal that Li’s moves are “backed by some Communist Party officials who worry Mr. Xi has focused too heavily on adhering to an ideology rooted in Mao Zedong’s socialist vision, rather than on giving priority to practical measures to ensure economic growth.” Officials with ties to the Communist Youth League support Li Keqiang’s efforts. The people close to decision-making also said that Li and his team received feedback from inspection teams since late last year that showed that Xi’s clampdown had “hurt employment and growth,” and that “Li is the driving force behind the shift.”
People close to decision-making also told the Journal that Li Keqiang is trying to influence the selection of his replacement, who he wants to be a “counterweight” to Xi. They say that Li’s candidates, including Wang Yang and Hu Chunhua, “may be gaining ground.” The Journal reported that Xi Jinping’s “desired candidate” is Li Qiang.
The Journal further noted that “frustration with Mr. Xi’s autocratic style is boiling over,” citing people familiar with Party discussions. Feedback gathered recently by Party schools had many Party members express concern that Xi “puts ideology over practical steps to keep the economy strong.” One official wrote, “‘Politics in command’ has replaced ‘economics in command’ as the central task of the Party,” and is apparently a “main issue raised with Xi’s leadership.” In contrast, people close to Li Keqiang describe him as “a skilled but cautious politician who has embraced market liberalization, yet is driven more by pragmatism than ideology.”
The Journal also attributed the Xi leadership’s efforts to “remake China’s debt-driven development model by curbing vast bank lending” and reform state-owned enterprises to Li Keqiang. The Journal claimed that “Likonomics” fell out of favor when “it became clear Mr. Xi was subverting the traditional division of labor between the president and the premier and taking charge of the economy.” However, the Journal noted that Xi was “depicted as playing a central role in an ambitious economic agenda approved by the party’s Central Committee in November 2013,” a reference to the “decisive role of the market” proposal at the Third Plenum of the 18th Central Committee.
Foreign pressure
May 10
1. According to various news reports, the U.S. State Department updated its fact sheet (see previous version) on U.S.-Taiwan relations on May 5. Secretary of State Antony Blinken was originally scheduled to deliver the Biden administration’s China strategy that day, and it is unclear if the changes reflected what Blinken was meant to announce.
The new fact sheet describes Taiwan as a “leading democracy and a technological powerhouse” and a “key U.S. partner in the Indo-Pacific.”
The fact sheet removed part of the first paragraph stating that the “U.S. recognized the government of the People’s Republic of China as the sole legal government of China, acknowledging the Chinese position that there is but one China and Taiwan is a part of China” in the 1979 Joint Communique.
The fact sheet also removed a statement from the second paragraph declaring that the U.S. “does not support Taiwan independence.” Further, a mention that the U.S. “opposes unilateral changes to the status quo by either side” and “encourages both sides to continue their constructive dialogue on the basis of dignity and respect” was deleted.
2. The guided-missile cruiser USS Port Royal conducted a “routine” passage through the Taiwan Strait, the second such mission in two weeks.
The People’s Liberation Army’s Eastern Theater Command later issued a statement criticizing the U.S. of “frequently staging such dramas and provoking trouble, sending wrong signals to Taiwan independence forces, and deliberately intensifying tensions across the Taiwan Strait.”
3. Former Australian prime minister and Asia Society president Kevin Rudd published an op-ed critical of Xi Jinping and his policies in The Wall Street Journal.
“If Xi Jinping was hoping for an uneventful and stable 2022 before his planned ‘re-election’ this fall, he must be disappointed,” Rudd wrote. He listed signs of China’s economic deterioration and added that the crisis in China’s property sector, Xi’s tech crackdown, Russia’s invasion of Ukraine, and Xi’s “zero-COVID” strategy are to blame.
Rudd noted Xi’s recent efforts to rescue the economy, but declared that “none of this will solve the Chinese economy’s most fundamental problems.” Rather, “the economic problems rests with Mr. Xi and his pivot to the state … Mr. Xi has begun strangling the goose that, for 35 years, has lain the golden egg.”
Rudd added that “the world may enter an even more dangerous phase if Mr. Xi turns to nationalism and greater foreign-policy assertion to reinforce his domestic political legitimacy in the face of a slowing Chinese economy.” In an Asia Society speech delivered on the same day titled, “Xi Jinping’s Year of Instability,” Rudd indicated that Xi’s “turn to nationalism” includes taking more “calculated risks” on Taiwan.
In concluding the op-ed, Rudd wrote, “The only way out of this future is for Mr. Xi to lead China on a more sustainable policy path. But given his Marxist-Leninist ideological predilections, that will be hard.”
OUR TAKE
1. Many of the rumors circulating in Chinese-speaking circles about Xi Jinping, Li Keqiang, and the Xi camp read like unreliable hearsay or guesswork, and do not conform to standard CCP operations. The rumors have also since been debunked by actual events. Most glaringly, the rumor about Xi ceding power to Li in an enlarged meeting of the Politburo Standing Committee on May 2 quickly turned out to be sheer nonsense in light of Xi’s May 5 Politburo Standing Committee meeting where he doubled down on “zero-COVID” and the subsequent propaganda push to promote what was said during the meeting. Likewise, Li Qiang and Gong Zheng have not been replaced by Ding Xuexiang and Wang Weizhong, and articles featuring Xi continue to be published in People’s Daily and other official media.
At the time of writing, we have yet to observe credible information indicating that Xi’s position has been noticeably challenged or shaken over his failures in Shanghai and the economy. The rumors circulating in Chinese-speaking circles, however, are in line with domestic “anti-Xi, not anti-CCP” sentiment (see here and here) that became more obvious in February. The rumors could represent attempts at political mobilization by those who oppose the Xi leadership, and hint at growing dissatisfaction towards Xi in the Party.
2. We previously explained on numerous occasions (including in the May 9 edition of this newsletter) the connection between Xi Jinping, Li Qiang, and the “zero-COVID” policy. To briefly reiterate, Xi is looking to keep “zero-COVID” on the books to preserve his political legacy, Xi and Li are allies, and Xi will unlikely abandon Li as long as the latter sticks to his policies and Xi has sufficient political strength. Shanghai mayor Gong Zheng’s career is also unlikely to be affected; the punishing of Shanghai’s top leaders is tantamount to an admission of policy failure, and is something Xi will be looking to avoid.
Officials are known to escape being punished for failures and instead receive promotion owing to the workings of CCP factional politics. For instance, Zhang Gaoli was Party secretary of Tianjin when a huge fire broke out in the Laide Commercial Building in Tianjin’s Jixian County on June 30, 2012. Based on anecdotal evidence and resident interviews, overseas Chinese language media estimated that the fire had resulted in at least 500 deaths. The Tianjin authorities, however, claimed that only 10 people were killed and 16 suffered minor injuries, which gave the impression of a minor incident rather than a major tragedy. The Tianjin government under Zhang Gaoli also appeared to cover up its fault in the mass deaths; mainland and overseas media outlets reported that the building’s fire exits were not properly maintained, which meant that the disaster could have been avoidable. Ultimately, the Laide fire incident did not affect Zhang’s promotion to the Politburo Standing Committee at the 18th Party Congress because he is a loyal Jiang Zemin faction member, and the Jiang faction was still dominant in 2012.
Regarding the May 7 Financial Times report, it cannot be ruled out that Jiang faction member Han Zheng and the “anti-Xi coalition” in the Party elite are indeed asking Xi Jinping to punish or remove Li Qiang for the fiasco in Shanghai. Reports in the Western press that Li is in trouble and Xi is facing pushback over the performance of his political ally will undoubtedly pile pressure on the Xi camp. However, Xi is likely to ignore opposition voices, cover for the failures of his political allies, and find ways to “spin tragedy into victory” for the Xi camp before the 20th Party Congress.
3. The May 11 Wall Street Journal report emphasizing Li Keqiang’s role in Beijing’s recent effort to rescue the economy is framed in a way that boosts Li’s profile while downplaying Xi Jinping’s agency in the matter and casting him in a negative light. Per this narrative, Xi comes across as another Mao Zedong, driving the country to ruin with a modern-day “Great Leap Forward,” i.e. Xi’s “zero-COVID” policy, property restrictions, and tech sector crackdown. The Journal’s sources even note that Party officials are criticizing Xi for putting ideology over the economy, a description that further reminds of Mao. Meanwhile, Li appears as a Liu Shaoqi figure, “seeking truth from facts” during inspection tours and pushing changes to fix the disasters wrought by Xi’s political campaigns. Readers of the Journal piece would find it hard not to root for Li Keqiang and his preference for “pragmatism” over ideology, and hope that his recent “ascendency” in the Party bodes ill for Xi Jinping.
Remove the framing, however, and nothing in the Journal report indicates anything out of the ordinary. As PRC premier, Li Keqiang is not out of place handling the minutiae of economic affairs and making policy recommendations to General Secretary Xi Jinping. Had Xi not approved of Li’s recommendations, they would not see the light of day. The Xi leadership began making adjustments to economic policy in late 2021 (see here and here) when signs of China’s economic deterioration became more obvious, and the recently announced measures (“smooth logistics,” more property policy easing, support for SMEs, etc.) that Li is reportedly behind are consistent with the Xi leadership’s ongoing efforts to rescue the economy. Put another way, the Journal article actually confirms that Li has been doing his job and in turn that Xi is pragmatic enough to shift policy when needed.
The Journal seemed to imply that the CCP’s reform-minded economic agenda unveiled at the Third Plenum of the 18th Central Committee was Li Keqiang’s brainchild even though official propaganda credited Xi Jinping with playing a “central role” in the plan. We previously explained that both Xi and Li struggled to push through reform during Xi’s first term due to CCP bureaucratic culture, factional struggle, and Xi’s lack of political strength at the time. To better overcome the “orders not leaving Zhongnanhai” problem, Xi proceeded to consolidate power, resulting in the Xi leadership’s inevitable leftward shift (power consolidation in the CCP requires close adherence to political orthodoxy, which is inherently left) on policy and the “marginalization” of Li. With the aforementioned context, there is far less daylight between Xi and Li than the Journal article makes out to be.
The “people familiar with decision-making” who spoke with the Journal seem to have an interest in making sure that Li Keqiang gets all the credit for the “pragmatic” efforts to save the economy, while Xi Jinping is cast as the villain who clings to “ideology” to the detriment of the regime. This happens to fit the mainstream but imprecise view of how Xi and dynamics inside his leadership are understood in the West, which is suspicious given that establishment elites have been advocating for “leveraging splits in the CCP elite” in an “anti-Xi, not anti-CCP” strategy. Coincidentally, the Journal article promoting Li and denigrating Xi was also published in a period during which Chinese-speaking circles are rife with rumors of Li replacing Xi.
It is possible that the “people familiar with decision-making” who spoke to the Journal are looking to drive a wedge between Xi and Li by promoting the “Xi-Li split” or “Xi-Li struggle” theory (see here, here, and here), spark infighting in the Xi camp, and are part of the domestic “anti-Xi, not anti-CCP” movement. By leaking political rumors that are blatantly anti-Xi to the overseas press, the “people familiar with decision-making” could also be looking to signal to the foreign “anti-Xi, not anti-CCP” crowd that there is currently very strong opposition to Xi in the Party, and that the time to mobilize and coordinate moves against the Xi leadership is at hand. Kevin Rudd’s May 10 op-ed in the Journal seems to be representative of “anti-Xi, not anti-CCP” sentiment abroad, and his blaming Xi for China’s ongoing and prominent ills without also pointing out the role of the CCP system in creating and exacerbating those ills echoes the views expressed by the Party sources cited in the May 11 Journal article.
We previously wrote that the various CCP factions will attempt to gain leverage over each other and secure bargaining chips ahead of key political conclaves by leaking damaging information about their rivals to overseas media outlets (see here and here). The May 11 Wall Street Journal article comes when Xi Jinping is under pressure at home and abroad over the “zero-COVID” fiasco and economic woes, and is clearly damaging to the Xi camp and beneficial to his factional foes. Worse for Xi, the article undermines his “quan wei” (authority and prestige) by “affirming” what his rivals are saying about his incompetence and his role in “subverting” the regime.
We expect overseas media outlets to carry more damaging information about the Xi camp, the Jiang faction, and other CCP interest groups as intra-Party faction struggle heats up ahead of the 20th Party Congress. Western establishment scholars and think-tanks could also more pointedly fault Xi for China’s worsening economy and other stumbles in articles and speeches. The “anti-Xi, not anti-CCP” crowd are likely hoping to spark a run on the Xi leadership by shaping the narrative about Xi Jinping, casting doubts about his political strength, and talking up political crisis in the regime. The proliferation of anti-Xi messaging is unlikely to split the Xi camp or drastically erode his power, but will convince Xi Jinping to move more quickly and more fiercely against his factional rivals to secure a third term. On the current trajectory, high-level purges or other political Black Swans can be expected to happen before the Beidaihe meeting in the fall.
4. The State Department’s recent updates to its website on U.S.-Taiwan relations clearly pushed the CCP’s “red lines” and have the potential to provoke a crisis in the Taiwan Strait. While we earlier noted the increased probability of a cross-strait crisis this year, recent developments (factional struggle, Russia’s struggles with Ukraine, serious economic deterioration, “zero-COVID,” etc.) suggest that Xi Jinping will be more inclined to focus on resolving pressing domestic problems instead of opening another can of worms over Taiwan.
Washington has likely gauged that Beijing is less interested in—or capable of—taking Taiwan this year given the “perfect storm” of problems facing the CCP regime and Xi’s need to ensure domestic stability to secure a third term in office. This situation could incentivize Washington to keep pushing the CCP’s “red lines” over Taiwan and other sensitive matters ahead of the 20th Party Congress to heap pressure on Xi and “allow” internal contradictions within the Party elite to “resolve” the Xi Jinping problem. The Xi leadership is caught between a rock and a hard place; showing excessive aggression over Taiwan when provoked by the U.S. could lead to unwanted sanctions by the international community, but failing to take sufficient action to “defend regime interests” could result in internal political pushback against Xi.
Between invading Taiwan and targeting his political enemies to alleviate the pressure facing him, we believe that Xi Jinping will be more inclined to opt for the latter option.
