SinoInsight 1
May 9
“Red Flag Manuscript” (紅旗文稿) published an article by Professor Lu Yi titled, “The History and Inspiration of Adhering to the Centralized and Unified Leadership of Party Central” (堅持黨中央集中統一領導的歷程及啟示). Lu is a deputy director of Party-building Teaching and Research Department at the Central Party School, and “Red Flag Manuscript” is a bimonthly (twice a month) political theory magazine under the supervision and sponsorship of Qiushi Magazine that is distributed in China and abroad.
Lu Yi’s article goes over Party history (including Xi Jinping’s tenure) to expound upon the importance of “adhering to the centralized and unified leadership of Party Central” to the CCP regime. The article also explains the process of how the “centralized and unified leadership” system was established. The phrase “centralized and unified leadership” appeared 38 times in the over 5,000-character article.
The article cites the oft-repeated examples of Zhang Guotao establishing “another Party Central” and Wang Ming’s “right-leaning mistakes” to illustrate what it means to not adhere to the “centralized and unified leadership of Party Central.” The article then claimed that sticking to the “centralized and unified leadership” system became a “strong guarantee” for the CCP’s eventual seizure of power in China.
The article noted that Mao Zedong (early PRC), Deng Xiaoping (reform and opening era), and Xi Jinping (post 18th Party Congress PRC) all proposed the importance of “adhering to the centralized and unified leadership of Party Central.” The segment on the Xi era (1,569 characters) contained over 500 more characters than the segments on the Mao and Deng eras (1,042 characters total).
The article also summed up three “valuable experiences” of “adhering to the centralized and unified leadership of Party Central”:
- A stable core leadership must be established and maintained.
- The system and mechanism for centralized and unified leadership of Party Central must be established and improved.
- The “four consciousnesses” must be strengthened, the “four self-confidences” must be adhered to, and the “two safeguards” must be achieved.
May 23
State mouthpiece Xinhua aired the first episode of “Footprints” (足跡), a 50-episode short video series about Xi Jinping. Titled “The Difficulty of Overcoming ‘Five Tribulations’” (過“五關”有多難), the first episode tells the story of how Xi had to deal with the “tribulations” of fleas, diet, livelihood, labor, and ideology while working in Yan’an as a “sent-down youth” during Mao Zedong’s Cultural Revolution.
According to a Xinhua trailer, the 50-episode series on Xi will allow viewers to “know the Xi Jinping who has come this far” (帶你認識一路走來的習近平), starting from when Xi “sent-down” as a 15 or 16-year-old from a “big city to the poor countryside.” Xi is said to have “dared to risk the world” (冒天下之大不韙) in pointing out problems in the places where he worked, and “brought everyone out of trouble.”
The Xinhua trailer added that Xi’s over 40 years in government “were very long” and he left “footprints all over the country” (i.e. Xi understands China and the Chinese people very well). The trailer also claimed that Xi has “come this far” over the past 40-odd years “without deviating in direction” (方向從未改變, i.e. Xi’s “original aspiration” of caring for the people and ideological orthodoxy has not changed).
OUR TAKE
1. Since the start of the year, major propaganda outlets like Xinhua and Qiushi have been continuously promoting Xi Jinping’s “political achievements,” including his “always on the road” anti-corruption campaign, political thought, the “zero-COVID” policy, economic policies, “great power diplomacy,” and emphasis on traditional Chinese culture and China’s youth.
Aside from the developments above, the CCP propaganda apparatus has also recently taken the following noteworthy actions:
- April 18: Xinhua created a column titled, “Close-up, Warm Moments” (近鏡頭‧溫暖的瞬間) that reviews Xi’s tenure through photographs. The column claims that since the 18th Party Congress, Xi “planned the overall situation at home and abroad; promoted reform, development, and stability; domestic affairs, foreign affairs, and national defense; and the various undertakings of governing the Party, the country, and the military have entered a new situation.”
- May 12: The Central Propaganda Department held a press conference on the theme, “China Over the Past Decade” (中國這十年) to promote Xi’s “political achievements” during his 10 years in power.
- May 17: Xinhua announced that it would create a new column with the title, “Xi Jinping’s Cultural Sentiments” (習近平的文化情懷). The column is named after a May 11 Xinhua with that title.
As propaganda outlets shape an image of Xi as a “great leader” of many accomplishments who is caring and close to the Chinese people, they also gloss over his policy failures by “spinning tragedy into victory” (喪事當喜事報) and ignoring the views of those negatively impacted by Xi’s policies.
The propaganda push to promote Xi Jinping appears to be aimed at raising his profile and boosting his “quan wei” (authority and prestige) ahead of the 20th Party Congress. At the Party Congress, Xi is making a bid for a norm-breaking third term and is looking to secure favorable personnel reshuffles.
2. The disastrous performance of CCP officials in handling recent COVID-19 outbreaks, implementing Beijing’s economic policies, and other orders from Party Central are undermining the propaganda apparatus’s efforts at hyping up Xi Jinping’s various “achievements.”
Worse for Xi, some opportunistic local officials have “taken the lead” from major propaganda outlets to engage in flattery and cult of personality-building that deviates from what central-controlled propaganda operations consider to be acceptable. For instance, Guangxi Party secretary Liu Ning publicly called for “always supporting the leader, defending the leader, following the leader” (永遠擁戴領袖、捍衛領袖、追隨領袖) on April 17. Some local Guangxi official media also repeated the “leader” phrasing. Three days later, Tian Qizhuang, a retired writer from Hebei Province, reported Liu for attempting to create a personality cult. While Tian was cautioned against speaking out, no other official dared to follow Liu Ning’s lead in excessively extoling Xi Jinping. On April 22, the Guangxi official announcement of Xi’s election as a representative of the province to the 20th Party Congress reverted to the standard propaganda phrasing, “loyal to the core, support the core, safeguard the core, and defend the core” (忠誠核心、擁戴核心、維護核心、捍衛核心) instead of its earlier “leader” phrasing.
In another Guangxi incident, Nanning Daily, the official media of Guangxi’s capital Nanning City, noted in a report on Feb. 24 that “pocket books” (口袋書) promoting Xi Jinping Thought would be distributed “from time to time” to Party organizations at all levels in the city and thousands of households. Official Guangxi media subsequently began building up the book, touting it as “an authoritative teaching material for grassroots preaching” and “a treasure in the hands of villagers.” On May 11, some Chinese netizens from Nanning tweeted that their local community had been notified by the city government that the “pocket books” were to be recalled and destroyed. This development suggests that Party Central had finally caught wind of what the Nanning government was doing to promote Xi and disapproved of the action.
Beijing had previously shut down efforts at overglorifying Xi Jinping. After the 19th Party Congress in 2017, the Guizhou provincial propaganda outlet decided to “upgrade” Xi’s position as “core” leader to “great leader” (偉大領袖). Portraits of Xi with the words, “The Great Leader General Secretary Xi Jinping” were distributed to work units and schools with orders that they be hung up. Within a week, however, the Guizhou government had retracted its order, ended its promotion of Xi as “great leader,” and stuck to central-approved propaganda framing of Xi, moves that were almost certainly undertaken at Beijing’s request.
3. Xi Jinping is the head of the Party, the government, and the military, as well as the “Chairman of Everything.” But lacking solid achievements and results, Xi’s “quan wei” is built mostly on propaganda.
As Xi’s sticks to his policies to safeguard his political legacy and his failures mount, criticisms of Xi from his political enemies and the “anti-Xi, not anti-CCP” crowd will become more valid. Xi’s factional rivals will look to leverage the emptiness of Xi’s propaganda to undermine his leadership and find ways to block him from taking a third term. Xi’s domestic enemies could also frame Party Central’s toning down of excessive flattery about him as a “sign” or further “evidence” that Xi is losing power, and mobilize wave after wave of “anti-Xi, not anti-CCP” attacks leading up to the 20th Party Congress.
Meanwhile, Xi is likely to step up propaganda efforts going forward to create the impression that “all’s well” in the regime and preserve his rule. As the limitations of using propaganda as a tool to stabilize society become increasingly obvious, the Xi leadership could instead rely more heavily on the political and legal affairs apparatus to “maintain stability,” or even heighten “zero-COVID” measures as a means of shoring up regime control. The Xi leadership will also turn to the anti-corruption campaign and purge some factional foes with the goal of intimidating the rest into ceasing their opposition.
SinoInsight 2
Beijing’s recent announcement of additional measures to stabilize the economy and more real estate policy easing by local governments hint at deep trouble with the Chinese economy. Economic deterioration has also become dire enough that prominent figures like Hu Xijin and Tencent’s Pony Ma have publicly commented on the situation.
Central government economic policies
May 23
1. PRC premier Li Keqiang presided over an executive meeting of the State Council on deploying further measures to stabilize the economy and strive to bring the economy “back on a normal track.” The meeting announced 33 policy items covering six areas (finance and related policies, financial policies, industrial and supply chain stabilization, promotion of consumption and effective investment, energy security, and protection of people’s basic livelihood) to help businesses.
The measures include:
- Provide tax refunds to more industries, including more than 140 billion yuan ($21 billion) of additional tax cuts and 2.64 trillion yuan in total tax refunds for the year.
- Support banks in deferring principal and interest repayments for micro, small, and medium-sized enterprises and individuals with difficulties during the year.
- Financial institutions are to cooperate with central automobile enterprises in deferring repayment of principal and interest on 90 billion yuan worth of commercial truck loans issued by central automobile enterprises by half a year.
- Guarantee the smooth flow of freight, scrap restrictions on vehicle passage from areas with low epidemic risks, and cancel regulations and fines for vehicles of excessive height.
- Increase civil aviation emergency loans by 150 billion yuan and issue 200 billion yuan worth of bonds to support the aviation industry.
- Relax restrictions on car purchases and reduce the purchase tax of some passenger cars by 60 billion yuan in stages.
- City-specific policies to support “rigid” and “improving” housing needs should be issued.
- Optimize the approval of and launch a number of new water conservancy projects (especially large-scale water diversion and irrigation projects), as well as projects dealing with, transportation, renovation of old communities, and underground integrated pipeline corridors.
- Expedite procedures for coal mines that are essential for heating and electricity supply. Start another batch of hydropower, coal, and other energy projects.
- Issue 300 billion yuan of railway construction bonds.
2. The People’s Bank of China and the China Banking and Insurance Regulatory Commission held a meeting on the monetary and credit situation of major financial institutions. The meeting analyzed and studied the credit situation in China and made arrangements to promote the current and next stage of credit work. Twenty-four major financial institutions participated in the meeting.
The meeting noted that new downward pressures on the economy will increase further in the near future due to “unexpected factors at home and abroad.” Hence, the PRC financial system should further improve its political position, enhance overall situation awareness and responsibility awareness, make concerted efforts to implement the decisions and deployments of Party Central and the State Council, increase support for the real economy, and go all out in stabilizing economic fundamentals.
On the same day, the PBoC held an important video conference to analyze the central bank system-wide monetary and credit situation. The conference pointed out that many market entities are experiencing substantial difficulties, and the severity and uncertainty of monetary and credit work have increased. The conference stressed that the central bank system should take the initiative to implement various financial policies proposed at the May 23 State Council executive meeting as soon as possible.
May 25
The State Council held a national teleconference on stabilizing the economy that reportedly had 100,000 participants. All four PRC vice premiers attended the conference, with first-rank vice premier Han Zheng presiding. State Councilors Wei Fenghe, Wang Yong, Xiao Jie, and Zhao Kezhi were also in attendance.
Premier Li Keqiang delivered a major speech at the conference and made several points that hinted at the severity of China’s economic situation. He said that some economic indicators, including employment, industrial production, power generation and cargo freight, have fallen significantly since March, and especially in April. Li added that hardships are, in some aspects and to some extent, greater than those seen during the severe epidemic outbreak in 2020.
Li noted that all departments have responsibilities in “stabilizing the economy in general” (穩經濟大盤), and urged them to ensure that policies and measures determined at the Central Economic Work Conference and the government work report are “basically implemented” by the first half of the year. He added that implementable details of the additional 33 policy items to stabilize the economy will be released before the end of May.
Li said that the proactiveness of both central and local governments should be brought into play. He requested government administrations at all levels complete the tasks of economic and social development while doing a good job in epidemic prevention and control. Li added that tasks should be done comprehensively, while “one-track mind” (單打一) and “one-size-fits-all” (一刀切) approaches should be avoided.
Li said that the State Council will dispatch inspection teams on May 26 to 12 provinces to conduct special inspections on the implementation of policies and supplemental measure rollout. He added that the National Bureau of Statistics will publish the main economic indicators for the second quarter of the year by province “in accordance with the law, and in seeking truth from facts.” Also, the State Council will issue notifications on the work situation. Li Keqiang said that all regions and departments should insist on seeking truth and being pragmatic, and they will be assessed on the delivery of actual results.
Local governments ease property policy
May 23
1. The Harbin municipal government announced that home buyers can list and trade their property after they have obtained their real estate certificate of title.
Per previous local regulation issued on May 5, 2018, newly purchased commercial houses in Harbin can only be listed and traded three years after online registration. The local government was also required to “strictly control down payment and interest rate standards for the purchase of more than two sets of houses.”
2. The Taiyuan municipal government issued an opinion encouraging banking financial institutions to offer a mortgage ratio of 20 percent of the down payment to home buyers purchasing their first new commercial house. Also, new residents and young people looking to purchase their first new commercial house do not need to provide relevant certificates (settlement household registration, social security, tax payment, etc.) to proceed with the transaction.
3. The Jinan municipal government announced that it was relaxing and adjusting three property restrictions, namely, the scope of purchase restrictions, sales restrictions, and provident fund loan quotas.
Centaline Property Research Institute noted that more than 64 cities in China had issued over 60 policies to stabilize the property market in May (as of May 23), according to mainland media reports. A May 26 Reuters report said that over 100 cities so far this year had taken steps to “boost home purchase demand via cuts in mortgage rates, smaller down-payments, and subsidies.”
May 24
1. The Dalian municipal government issued a notice on “comprehensively liberalizing settlement [household registration] conditions” (關於全面放開落戶條件的通知).
2. The Ministry of Housing and Urban-Rural Development, Ministry of Finance, and People’s Bank of China rolled out a phased supportive policy on deferring housing provident fund contributions (關於實施住房公積金階段性支持政策的通知).
Support policies include:
- Enterprises impacted by the coronavirus epidemic can defer provident fund payments and make payments beyond the due date.
- Individuals affected by the coronavirus epidemic and who are unable to make provident fund loan payments normally will not be punished for overdue payments.
- Local authorities can raise the provident fund withdrawal quota for housing rental payments based on local conditions and support depositors in need by drawing from the fund.
Views on the economy by experts and thoughts leaders
May 20
1. Hu Xijin, former editor-in-chief of the nationalistic Party media Global Times, published an article on Sohu.com titled, “To Restore Market Confidence, Shock Bomb-level Measures Must Be Taken Out” (恢復市場信心, 需要拿出震撼彈級別的措施來). Hu’s central thesis was that the series of monetary and fiscal policies issued by various government agencies and departments recently was not enough to restore market confidence.
Key points in Hu’s article include:
- Aside from making basic policy announcements, the authorities must “fully open their toolbox” of economic measures (“where there are plenty of tools”) to hedge against international pressure and the coronavirus. In dealing with those “fierce floods and savage beasts” (洪水猛獸), “shock bomb-level” measures must be brought into play.
- Consumption has become an “increasingly important driving force” for China’s economic growth. However, salary cuts and layoffs have become “a real worry for some people.” Market confidence incentives will not work if only slogans are issued to appease the public but the situation is not reversed.
- The common folk should be allowed to live in better houses, families who want to buy cars in the city should be allowed to buy cars, and efforts should be made to resolve difficulties that crop up. China’s property market and automobile market could welcome new prosperity if market tools and special housing policies are leveraged, and the prosperity will bring momentum to the entire economy.
- Every period in China has its urgent issues. But China’s long-term and consistent top mission is strengthening economic development to build a strong and prosperous country, and give the people a happy life.
- When it comes to solving practical problems, doing a good job with the economy is an “eternal prerequisite.” Once the economy slows down, domestic conflicts could break out and the world’s attitude towards China will change unfavorably.
- All local governments must use whatever method there is without hesitation to provide the strongest support to the public’s confidence in the economy in the current “special period.” Get rid of the current predicament quickly, fully rejuvenate the spirit of China’s economy before 2019, and rebuild the momentum of China’s economy going against the trend to lead the world’s economy in the first two years of the pandemic. That is the greatest “political correctness,” and is the “examination paper of the times” that local governments need to devote their efforts into answering.
2. Zhang Mingyang, a writer under the official WeChat account “Narwhal Workshop” (獨角鯨工作坊), published an article on Hu Xijin’s recent commentary on the economy. Titled “Except Hu Xijin, No One Cares About the Economy” (除了胡錫進, 已經沒人關心經濟了), Zhang’s article went viral after it was shared by Tencent founder Pony Ma the next day (see below).
The article noted that Hu Xijin had dropped some “shock bomb-level” truths in his May 20 article on Sohu.com. The article added that Hu is the “big V” (verified social media account user) that is most concerned about the Chinese economy, and his opinions have a tinge of someone carrying out a “fatal remonstration” (死諫, or the act of officials presenting frank advice to the emperor even though such outspokenness could lead to their execution). The article also said that even those who usually have a bad impression of Hu (for being a CCP mouthpiece, cheerleader, and toady) would be surprised that it was him expressing “spot on” views about the economy with a “sense of anxiety” almost every day.
The article proceeded to highlight some of the points that Hu had been making in his recent articles:
May 15 — “Some Economic Data in April is Very Dazzling; [We Must] Attach Importance to the Trend But Not Exaggerate Their Significance” (4月一些經濟數據很刺眼, 必須重視但不誇大它們的趨勢意義)
- “Nor would it ever be China’s style to just fight the epidemic without regard to the economy and other issues.”
- “How can China allow central cities like Beijing and Shanghai repeatedly lock down, abandon the economy, allow tax revenue to fall off a cliff and print money, not care whether businesses close or not, and let the people be without income; how can our country allow this to happen!”
May 16 — “April’s Economic Data is Not Good; China Has the Ability to Overcome Problems as Long as They Are Identified” (4月份經濟數據不好, 中國祇要確認了的問題就有能力克服它)
- “Confidence is not something that can be driven up and maintained by slogans and headline articles. It must be continuously inspired and supported by the things actually and constantly improving.”
- “When we repeatedly use [economic] fundamentals to demonstrate that the current problems are short-term, we’re eroding the fundamentals [of the CCP’s propaganda about the economy]. Excessive erosion will continually weaken [the fundamentals’ ability to] support the people’s confidence.”
May 18 — “At This Time, China Must Be United and Look Forward” (此時的中國, 更要團結向前看)
- The private economy and the online platform economy are the “absolute bottom line” in preventing the collapse of the Chinese economy. They are also important in “maintaining the sustainable and healthy development of the economy,” and are “absolute conditions” in taking the “road of marketization and legalization.”
Zhang Mingyang’s article noted that it should be Chinese economists and entrepreneurs who should be speaking up about the economy at this time, and not Hu Xijin (the CCP stooge, propagandist, and nationalist). The article added that nobody listened to economists and entrepreneurs when they spoke up in the past, and they probably also did not want to get publicly attacked (by nationalists, the “50-cent army,” and “little pinks” for expressing seemingly unpatriotic views).
The article noted that the concern of some netizens about the economy extends only as far as “companies can go bankrupt, but they cannot fire staff; companies can go bankrupt, but they cannot have overtime work.” They may also be interested in whether the Chinese economy can deliver semiconductors and so-called “hard-core” technology, but not whether the economy can deliver food, clothing, housing, and transportation. The article added that these netizens will bitterly curse at the food delivery person when their takeout arrives late and will blame “unscrupulous companies and capitalists” when they lose their job, but their “economic concerns” have nothing to do with the economy. (Zhang is implicitly making the point that some people in China do not realize that the CCP is to blame for the economic problems that impact their lives).
In concluding, the article wrote, “I still don’t care [about the economy]; most people, I’m afraid, can’t afford to care and don’t want to care; and [sacrificing] the economy may really just be a [political] ‘price.’ Young people are becoming unemployed and think that the economy isn’t important, so what else can others say about it? As for the economy, let Hu Xijin alone care about it, thanks for his work.”
May 21
A screenshot of Tencent’s Pony Ma sharing the article, “Except Hu Xijing, No One Cares About the Economy” (see above) in a group chat was widely circulated on Chinese social media. In commenting on the article’s observation that some netizens care about the economy when “companies can go bankrupt, but they cannot fire staff; companies can go bankrupt, but they cannot have overtime work,” Ma wrote, “The description in this paragraph is very vivid.”
Some Chinese scholars noted that Ma’s sharing of the article and his comment reflect China’s poor economic situation: Ma is usually very cautious in his words and actions, but could not help weighing in on a sensitive topic.
According to Chinese media, scholar Zhang Ming said that Pony Ma’s comment was akin to “a mute speaking,” and “things are not great” when even mutes start talking. Beijing scholar Rong Jian noted that it was extremely rare for someone as “timid as a mouse” like Ma to make such gestures, and added that it is “evident” that “business bigwigs are in a state of panic.”
May 25
Dan Bin, chairman of Shenzhen Oriental Harbor Investment and a leading private equity fund figure, recently reviewed his company’s operations over the past year and future investment outlooks during an interactive meeting with clients, according to state media Securities China.
Dan Bin said that Oriental Harbor had reduced its position in mid-January. After the outbreak of the Russia-Ukraine war, “I personally believe that the entire global market faces systemic risk, and the changes stemming from this risk are relatively incomprehensible,” he added. Dan said that his company avoided the impact of market slumps in February, March, and April because it maintained a 10 percent position.
Dan Bin said that Oriental Harbor manages 25 billion yuan and is still keeping its 10 percent position. In the next phase, the company plans to up its position to 20 to 30 percent (a small position) when participating in the rally.
Analysis: Oriental Harbor’s very cautious approach to investing indicates that they are not optimistic about China’s economic prospects and would rather hold on to cash than take risks in the market.
OUR TAKE
1. The CCP’s recent raft of meetings on the economic situation, economic policies and measures, and rhetoric on the economy affirms our assessment that China’s economy is rapidly deteriorating and is heading toward a recession this year. Beijing’s anxiety about the situation suggests that it is very concerned that economic troubles could endanger the regime.
The CCP’s choice of certain phrases and the repeating of others indicate that all is truly not well with the Chinese economy. For instance, Li Keqiang’s call to stabilize the economy and bring it “back on a normal track” during the May 23 State Council executive meeting suggests that the economy had in fact been “derailed”/gone “off course” as a result of the “zero-COVID” policy and capital outflows stemming from “spillover risks.” Problems are likely most severe in the six areas covered by the 33 policy items introduced during the meeting.
In another example, the May 25 State Council meeting with 100,000 participants on “stabilizing the economy” underscores the fact that the economy is not stable. The constant repeating of the phrases “stabilizing economic fundamentals” and “stabilizing market entities” in recent State Council meetings also indicate that China’s economic fundamentals and businesses are not doing well and are very likely facing serious trouble.
Another way to discern the severity of the economic crisis is tracking the number of economic meeting participants and the rhetoric used during those meetings. We already noted the May 25 State Council meeting where 100,000 officials were summoned to attend. The May 25 People’s Bank of China meeting on the monetary and credit situation of major financial institutions is one more case in point. The previous meeting on the topic in December 2021 was attended by 12 banks, but the recent meeting saw the participation of 24 major financial institutions. Also, the December 2021 meeting noted that China’s “fundamentals of strong economic resilience and long-term improvement will not change” despite “short-term downward pressures” on economic development, but the May 25 meeting made a more dire appeal to financial institutions to “further improve [their] political position, enhance overall situation awareness and responsibility awareness, make concerted efforts to implement the decisions and deployments of Party Central and the State Council, increase support for the real economy, and go all out in stabilizing economic fundamentals.”
Aside from financial institutions, the central government is also directly appealing to local governments to do their job “comprehensively” and with “proactiveness,” and avoid prioritizing local concerns over the overall regime security with “one-track mind” and “one-size-fits-all” approaches. Li Keqiang made it clear that local governments will be “assessed on the delivery of actual results,” and is sending inspection teams to make sure that orders are implemented and work is done. Beijing is likely very concerned that its orders will not leave the gates of Zhongnanhai (政令不出中南海), and local governments and financial institutions will act in self-serving and deceptive manners to satisfy their interests at the cost of regime security.
We are not optimistic that the Xi leadership will be able to turn things around due to the PRC’s dysfunctional officialdom, factional struggle in the Party elite, and serious deficiencies inherent to the CCP system. Beijing’s anxiousness and desire to see results could even produce the opposite effect and accelerate China’s economic deterioration. For example, officials struggling to be “politically correct” could implement economic rescue measures in extreme ways that worsen the overall situation. Beijing’s desperation could also rub off on local governments and financial institutions, incentivizing them to double down in protecting self-interests or finding ways to profit from the crisis (but likely at the expense of the central government).
2. Hu Xijin’s recent commentary on the economy and Pony Ma weighing in on the issue are also signs that China’s economic problems are worsening fast and getting very worrying for the country’s business elites.
Hu’s commentary is particularly noteworthy because he is a staunch defender of the CCP regime who always strives to cover up or explain away the regime’s flaws. Hu’s relatively frank (“shock bomb-level”) remarks indicate that the problems with the economy are very severe, and CCP propaganda has also somewhat obliquely acknowledged the situation (such as reporting the 100,000-participant meeting) so that it can take a stab at fixing them. Indeed, the economic situation has likely worsened social problems and contradictions to a point where the regime feels endangered, while international pressures are now a growing concern for the CCP.
The unwillingness of Chinese economists and entrepreneurs to speak up about the deteriorating economic situation is the result of Xi Jinping’s effort to tighten control over society in the past decade as part of his power consolidation and struggle against rival factions. Except for sycophants and propagandists, many economists and entrepreneurs are now given to caution and are afraid to air their views lest they get “summoned for tea” with the authorities. Some businessmen even deleted their public social media accounts, including Didi’s Liu Qing, Lenovo’s Liu Chuanzhi, Meituan’s Wang Xing, and ByteDance’s Zhang Yiming. As a consequence of heightened censorship and a more repressive environment, the “task” of sounding the alarm about China’s economic problems and offering “solutions” has fallen to a prominent CCP propagandist while the experts stay silent.
The pessimism of Party elites and elite businessmen about the economy is likely to prove contagious. Their pessimism will also impact business expectations and confidence, which will in turn impede the central government’s effort to stabilize the economy. Ultimately, Beijing may indeed be forced to roll out “shock bomb-level” measures to restore market confidence.
3. The central government’s recent efforts to save the economy expose the systemic financial risks that could be triggered further down the road. For instance, the central bank’s focus on the monetary and credit situation corresponds with market concerns of a “credit collapse” this year. As the Chinese people lose confidence in China’s economic prospects, consumption and home buying will be greatly reduced, and the sharp reduction in market demand will offset PBoC rescue measures like releasing stimulus and lowering interest rates. Funds will be left idle in financial institutions as consumption and demand plummet, and the CCP will struggle to jumpstart the real economy even though there is ample cash to lend out. Over time, the CCP will find that it cannot cover up a recession.
The authorities will not be able to turn around the economy unless Xi Jinping officially ends the “zero-COVID” policy and allows society to return to normal operations and expectations. The “political epidemic” will only worsen as bureaucratism and corruption rule the day, further affecting market confidence and damaging the economy. The vicious cycle of economic deterioration will likely push the CCP regime closer to a “Berlin Wall moment,” and could see the emergence of political Black Swans this year.
