1 Rumor of Liu Yazhou’s sentencing surfaces before Tsai Ing-wen makes US transit
In the week of March 27, Taiwanese leader Tsai Ing-wen and former Taiwanese leader Ma Ying-jeou visited the United States and mainland China respectively.
March 27 – March 30
Ma Ying-jeou landed in Shanghai with aides and a delegation of about 30 students to begin a 12-day private trip across five Chinese cities.
Ma was received at the Shanghai Pudong Airport by Chen Yuanfeng, deputy head of CCP’s Taiwan Affairs Office, and other officials. Ma was greeted with a bouquet but no red carpet, in contrast to recent visits by Kuomintang heavyweights like former chairman Lien Chan and Wu Po-hsiung.
Taiwanese media had earlier reported that Ma would be given “high-level protocol” treatment during his China trip and would be received by Politburo Standing Committee member Ding Xuexiang or Taiwan Affairs Office director Song Tao.
On March 30, Ma Ying-jeou visited a special exhibition on Wuhan’s epidemic prevention and control efforts at the Wuhan Municipal Archives. Later, he said in a media interview that Wuhan did a “good job” of controlling the epidemic at the beginning of the outbreak and saw that it would not “expand outwards significantly.” Ma added that this was something he “much admired” Wuhan’s “contribution not just to mainland China, but to the entire human race.” Ma’s trip to the epidemic prevention and control special exhibition in Wuhan was not part of his official itinerary.
In the evening of March 30, Song Tao met with Ma in Wuhan. Song conveyed Xi Jinping’s greetings to Ma and told him, “welcome home.” Ma then said that the PRC and the ROC can develop cross-strait relations on the basis of the “1992 Consensus” and said that the leaders on both sides of the Taiwan Strait must do everything possible to prevent war and conflict.
March 29 – March 31
Tsai Ing-wen arrived in New York on March 29 on a three-day transit in the U.S. before visiting Guatemala and Belize. While in New York, Tsai visited a specialty store in Brooklyn that sells Taiwanese food and attended a private gala hosted by the Hudson Institute where she was presented a Global Leadership Award.
Hundreds of pro-Beijing supporters held a rally outside Tsai’s hotel in Midtown Manhattan to protest her visit. The pro-Beijing crowd outnumbered the dozens of Tsai’s supporters who showed up holding ROC and U.S. flags.
PRC foreign ministry spokeswoman Mao Ning said in a press conference on March 29 that Tsai’s transit through the U.S. was “an attempt to seek breakthroughs and propagate ‘Taiwan independence.’” She added, “The issue is not about China overreacting, but the U.S. egregiously conniving at and supporting ‘Taiwan independence’ separatists.”
Meanwhile, PRC Taiwan Affairs Office spokeswoman Zhu Fenglian warned that the regime would respond if Tsai Ing-wen met with House speaker Kevin McCarthy in Los Angeles during her second stop-over on her way back to Taiwan on April 5. “We firmly oppose this and will take resolute countermeasures,” Zhu said.
On March 31, nine PRC military aircraft and one military drone crossed the median line of the Taiwan Strait, according to Taiwan’s defense ministry.
Suspended death sentence for Liu Yazhou?
On March 24, Hong Kong newspaper Ming Pao reported that former People’s Liberation Army Air Force general Liu Yazhou could receive a suspended death sentence with a two-year reprieve for “serious economic corruption,” citing multiple sources from different channels in Beijing. Liu is allegedly accused of having amassed significant wealth by accepting money in the name of foundations, associations, and other organizations. One of Ming Pao’s sources added that Liu’s wife Li Xiaolin, who is also the daughter of former PRC president Li Xiannian, is “safe and unaffected” despite Liu’s sentencing.
News that Liu Yazhou had been arrested first emerged in December 2021. In February 2022, then-Hudson Institute scholar Michael Pillsbury (now a senior fellow for China strategy at the Heritage Foundation) told the Chinese edition of Radio Free Asia that the Central Military Commission had detained Liu in late 2021 due to his “economic crimes and political problems.”
Meanwhile, news that Liu would receive a suspended death sentence had been circulated as early as February 2022 by Bi Ruxie, a “second generation red” writer based in America. Bi would later cite Party insider information in claiming that Xi Jinping once mentioned Liu Yazhou’s corruption case in a 40-minute internal speech. Xi allegedly said that Liu had political ambitions, established dozens of (political/factional) strongholds across the country, and was guilty of “economic problems.”
Bi also cited Party insiders in saying that Liu Yazhou would receive a heavy sentence because he was no longer a princeling, noting that Li Xiaolin had been forced to divorce Liu under pressure from the CCP organization. Party insiders further claimed that the “weakling” Liu attempted to report on others to secure leniency for his case, resulting in the implication of a daughter-in-law of Li Xiannian and Li’s son immediately divorcing her to avoid being dragged into the affair. Party insiders allege that Wang Liusheng, the father of Li Xiannian’s daughter-in-law and a major general from the generation of founding revolutionaries, saw some leniency when he was implicated as a result of Liu Yazhou’s reporting because Wang had “a bit of connection” with the Xi clan; Wang was reportedly made to return more than 30 million yuan in ill-gotten money and was expelled from the Party and the military.
Bi previously said that Party princelings do not believe that Liu had established strongholds. The princelings noted that early reports of the investigation into Liu only found him to have “economic problems,” engaged in promiscuous relations, and offended Xi Jinping with “a lot of strange political talk.”
Our take
1. At the time of writing, the CCP has not attempted to inflame Sino-U.S. or PRC-ROC tensions beyond issuing the usual warnings about American support for “Taiwan independence,” mobilizing its united front elements to protest Tsai Ing-wen’s visit, and sending a token force to buzz the Taiwan Strait. This reaction is in line with our earlier analysis of where Beijing currently stands on the Taiwan issue (see here, here, and here).
To briefly recap, Xi Jinping appears to still be committed to “peaceful reunification” solutions to take Taiwan. Concurrently, the Xi leadership is preparing the regime to be ready militarily for the task before the turn of the decade, but it would prefer not to resort to an invasion where the chances of success are low and the cost is very high (including regime collapse). While Beijing would be concerned about efforts by the U.S. and its allies to “Ukrainify” Taiwan, it seems to be planning to “delay and wait for change” (i.e. when Western decline becomes more obvious and irreversible) before making more earnest efforts (be it kinetic or non-kinetic means) to achieve its “reunification” goals. Finally, the Xi leadership is unlikely to be provoked into invading Taiwan unless the West crosses certain “red lines.”
2. Beijing’s more measured approach to the matter of Taiwan “reunification” opens Xi Jinping up to criticism from the more hawkish elements in the CCP elite and his remaining factional rivals. To silence his critics, Xi would have to signal to the Party elite that disagreements over his current Taiwan strategy will not be tolerated. We believe that the “leaked” information about Liu Yazhou’s expected sentencing to Ming Pao ahead of Tsai Ing-wen’s U.S. transit is a warning by Xi to his political adversaries not to pressure him over the CCP’s lackluster response lest they end up like Liu.
Party elites are known to send political messaging to each other and conduct political mobilization through the more relaxed Hong Kong media environment starting from the “reform and opening up” era. That Ming Pao published the story about Liu Yazhou’s suspended death sentence in Xi’s “new era” is perhaps even more significant because Hong Kong media have become more careful about what they publish after the imposition of the National Security Law in Hong Kong in 2020.
As we noted in the background information above, information that Liu Yazhou would be severely punished for opposing Xi is not new. Rather, the timing of the information’s release (or re-release) is noteworthy because it comes just when attention was beginning to focus on Tsai’s U.S. trip and how the PRC will react.
We believe there is some credibility to the Ming Pao report about Liu’s sentencing. As we have observed in several newsletters, the Xi leadership appears to be preparing a “Yan’an-style” rectification effort to purge the Party of the remnant Jiang faction and other interest groups who are still opposed to his rule. This means that aside from cautioning the Party elite about challenging Xi over his response to Tsai transit, Xi could also be looking to “kill the chicken to scare the monkeys” by making known the fate of Liu Yazhou so that the princelings will think twice about questioning Xi’s upcoming “self-revolution” measures (including a possible effort to repudiate Jiang Zemin’s “incorrect political line”).
3. Ma Ying-jeou’s trip to mainland China is almost certainly a CCP united front effort to “balance out” Tsai Ing-wen’s U.S. transit and promote various propaganda narratives (e.g. “zero-COVID” success, the closeness between mainlanders and “Taiwanese compatriots,” etc.) on behalf of the regime.
The CCP, however, had also somewhat slighted Ma by not rolling out a physical red carpet for him or having Taiwan Affairs Office director Song Tao greet him at the airport. Ma’s reception in mainland China suggests that the CCP only considers him to be a retired ministerial-level official at best, and not a national-level leader; this is in accordance with how the PRC views the ROC as a “renegade province” instead of a legitimate state.
What’s next
The CCP could protest loudly and buzz Taiwan’s airspace when Tsai Ing-wen meets with Kevin McCarthy, but will remain measured in its “countermeasures.”
Meanwhile, the CCP could officially announce the Liu Yazhou investigation and move his case into legal proceedings.
2 Xi steps up political indoctrination, requires leading cadres to report personal matters
On March 30, Xi Jinping presided over a meeting of the CCP Politburo, according to state media.
The meeting decided that the entire Party will carry out study sessions to “learn and implement” Xi’s political theory (“Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era”) starting from April 2023, with the goal being to “unify thought, will, and actions (of officials) with the Party’s innovative theory.” The political indoctrination movement would be carried out in two batches, and will first focus on division rank leading cadres at the county level and above.
The meeting also reviewed a revised version of regulations governing the reporting of personal matters by leading cadres to the Party organization (領導幹部報告個人有關事項規定). The meeting stressed that the reporting of personal matters by leading cadres is an important part of the CCP’s reporting system, and truthful reporting to the Party organization is a political and organizational discipline that leading cadres must abide by.
In the afternoon of March 30, Xi presided over a collective study session of the Politburo to “learn and implement” his political theory. Xi emphasized during the study session that Politburo members should set an example in the political indoctrination movement.
More on leading cadres reporting personal matters
The central government first issued regulations governing the reporting of leading cadre personal matters in May 2010. At the time, the regulations required CCP officials at the deputy division level and above to “truthfully report” 14 personal details, including their marital status, their travels abroad, income, property owned, and the employment of their spouse and children.
After Xi Jinping took office, the state-run Beijing Times reported in December 2014 that officials had largely paid lip service to the reporting requirements (“only made reports without verification”), with many omissions, misreporting, and concealment of facts. Beijing Times added that the reporting system had essentially “decayed” in its role of monitoring and restraining officials.
On Feb. 27, 2015, the 10th meeting of the leading group for comprehensively deepening reform (presided over by Xi) reviewed and approved an opinion requiring leading cadres to give accounts of their spouses, children, and the spouses’ businesses in Shanghai (上海市開展進一步規範領導幹部配偶、子女及其配偶經商辦企業管理工作的意見). The Shanghai municipal Party Committee would implement the opinion on May 4. On May 14, Hong Kong media reported that the Central Commission for Discipline Inspection formally interviewed Jiang Zemin’s eldest son Jiang Mianheng and asked him to disclose details regarding his personal and family property and assets abroad, whether he had set up any companies, etc. As a leading official in Shanghai at the time (president of the Shanghai University of Science and Technology), Jiang Mianheng would have to report his and his family’s (including Boyu Capital’s Alvin Jiang) businesses, finances, immigration status, and other personal details to the CCP authorities.
The second half of 2015 saw Xi’s factional rivals strike back with a “financial coup” in June. Tianjin also saw a major explosion incident in August. Subsequently, Xi Jinping stepped up his power consolidation in earnest, starting with efforts to solidify his paramount authority over the People’s Liberation Army in late 2015 through a grand parade and the implementation of sweeping military reforms. At the Sixth Plenum of the 18th Central Committee in September 2016, Xi would take on the title of CCP “core” leader and make revisions to the regulations governing the reporting of leading cadre personal matters to the Party organization (and to his leadership). By the end of 2016, Xi would noticeably begin the marginalization of the “collective leadership” system by having members of the Politburo Standing Committee submit personal reports (述職) to him.
Per the regulations governing the reporting of leading cadre personal matters, the CCP Organization Department shall conduct random spot checks and key checks on the authenticity and completeness of personal matters reports submitted by officials. The spot checks will target 10 percent of all officials required to submit a report each year.
In 2022, the Organization Department inspected all nominees for the new leadership team, according to state media. The Organization Department also checked all cadres under central government management before the 20th Party Congress.
Our take
1. We see at least three reasons why Xi Jinping is stepping up political indoctrination for officials and re-emphasizing the reporting of personal matters by leading cadres to the Party organization.
First, Xi is looking to boost his personal “quan wei” (authority and prestige) and entrench his paramount position in the regime. This is in line with the string of Party and state institutional reforms rolled out by the central government around the Two Sessions period and the latest revision to the State Council work rules. Xi likely believes that strongman rule must be strengthened to allow for more effective governance so as to handle the serious internal and external crises plaguing the PRC, as well as safeguard himself as his personal political risk levels skyrocket.
Second, Xi is hoping that greater political indoctrination can produce more loyal and obedient officials who will better implement his decisions and deployments. On paper, officials who “deeply understand” Xi’s political thought will be more “in sync” with his thinking and better execute the central government’s orders per his wishes. We believe, however, that Xi will not be able to overcome the dilemma of “orders not leaving the gates of Zhongnanhai” merely by intensifying the degree of political indoctrination due to Party culture and other systemic deficiencies of the CCP authoritarian dictatorship.
Third, Xi is paving the way to eliminate the remaining factional rivals in the regime. Officials “brainwashed” by “Xi Jinping Thought” will theoretically be more willing to accept and be less resistant to the Xi leadership’s effort to undo the political legacies of his predecessors and denounce certain former leaders like Jiang Zemin. Those who refuse to go along with the indoctrination or who still support Xi’s factional rivals could find themselves being more closely scrutinized through the reporting of personal matters and eventually investigated. Meanwhile, Beijing can use the reporting system to more easily expose and purge the associates of the remnant Jiang faction and other interest groups who oppose Xi.
2. The more Xi Jinping consolidates personal power, the more likely it is that he will move to publicly criticize Jiang Zemin’s “incorrect political line” and blame the Jiang faction for all of the regime’s problems. Xi will also have greater ability to abandon the Party and preserve his power in the event that the CCP itself becomes a serious liability to his personal safety.
Xi likely believes that greater power centralization is necessary to safeguard himself and the regime. However, his growing authoritarianism will likely also heighten his personal political risks as Xi’s opponents at home and abroad become warier of his rule and feel the need to take more drastic actions to guard against him and the CCP. For instance, the U.S. and its allies could decide to impose more sanctions and restrictions on the PRC as they look to stop “repression at home and aggression abroad” by the “CCP under Xi Jinping.” This in turn would worsen the crises facing Xi and the CCP, creating a vicious cycle.
3 Li Qiang reassures foreign capital as the Chinese economy continues to show weakness
March 30
1. PRC premier Li Qiang delivered a keynote speech at the annual Boao Forum in Hainan Province. The speech was titled, “Following the Vision of a Community with a Shared Future for Mankind and Bringing More Certainty to World Peace and Development” (以人類命運共同體理念為引領 為世界和平與發展注入更多確定性).
Noteworthy parts of Li’s speech include:
- Li said that “humanity is faced with unprecedented challenges” in a “world of turmoil and transformation” where “instability, uncertainty, and unexpected developments have become the norm.” He then promoted Xi Jinping’s “vision of a community with a shared future for mankind” as a “banner that guides the trend of the times and human progress, and a source of certainty for lasting peace and shared prosperity in the world.” Li also mentioned Xi’s “global development and governance” proposals such as the Global Development Initiative, the Global Security Initiative, and the Global Civilization Initiative.
- Li called for countries to “work together” to build a “peaceful and stable environment for development to bring greater certainty to the fluid global environment,” build a “more vibrant center of growth to bring greater certainty to world economic recovery,” “expand effective ways for enhanced solidarity and cooperation to bring greater certainty to world economic recovery,” and “pursue deeper and more substantive people-to-people exchanges to bring greater certainty to the interactions among civilizations.”
- Li claimed that the PRC has been a “builder of world peace, a contributor to global development, and a defender of international order.” He touted China’s “twin miracles” of “rapid economic growth and enduring social stability,” and added that China is an “anchor for global peace and development” in an “uncertain world,” and “will remain so now and in the future.” Li also said that China “will not pursue such modernization through war, colonization, or plunder, but through peace and development to bring our entire 1.4 billion-plus people into a modern society” and create “powerful impetus for economic growth in Asia and beyond.”
- Li claimed that the “dynamism and momentum of China’s growth are strong,” and added that the CCP authorities “have the confidence and ability to sail the giant ship of the Chinese economy steadily ahead against all winds and waves, and make even greater contributions to the global economy.”
Li Qiang later participated in a dialogue between PRC and foreign entrepreneurs on the afternoon of March 30. The dialogue was chaired by Boao Forum chairman and former United National secretary-general Ban Ki-moon. Representatives of five foreign companies (including Mitsubishi Electric, the Cohen Group, SK Group, and AstraZeneca) and former U.S. commerce minister Carlos Gutierrez asked various questions, including whether China’s “reform and opening up” was going backward and in regards to the state of Sino-U.S. relations.
Li said during the dialogue that the PRC has never changed its basic national policy of opening up to the outside world. He added that there is some “bias” circulating in the public discourse regarding China’s punishment of private companies, adding that only certain companies and certain forms of non-compliance were being targeted. “We’ve never been like this. The punishment is for non-compliant behavior, and not aimed at certain types of companies like foreign-funded enterprises. We are emphasizing now that all companies are treated equally,” Li said.
Li also said in answering a question about why China’s financial liberalization is insufficiently “liberal” that there are “preconditions” to the liberalization of financial investment. He explained that the PRC would not be able to have greater financial liberalization if there were inadequate legal services, financial talent training, and risk management and control capabilities. “Liberalizing is ‘digging a hole’; everyone jumps in and everyone dies in the end. There are very profound lessons of this in Chinese and foreign history,” Li said.
2. Singaporean prime minister Lee Hsien Loong said in a speech at the Boao Forum that China has a “big role to play” in seeing that “countries in Asia maintain stable relations and cooperate practically and productively” as it is a “very important economy in Asia.” He added, “We welcome China’s commitment to continue opening up its economy, and to continue supporting multilateralism and regional cooperation, and we look forward to all parties contributing more actively to regional and global development and prosperity, to benefit Asia and the world.”
Official economic data
March 27
The PRC National Bureau of Statistics reported that the total profits of industrial enterprises above designated size in China during the January-February period decreased year-on-year to 22.9 percent to 887.21 billion yuan.
Of the total:
- Foreign, Hong Kong, Macau, and Taiwan investment enterprises saw their total profits decrease 35.7 percent year-on-year to 176.13 billion yuan.
- Private enterprises saw their total profits drop 19.9 percent year-on-year to 255.93 billion yuan.
- Manufacturing enterprises saw their total profits fall 32.6 percent to 583.78 billion yuan.
March 30
China’s manufacturing purchasing managers’ index (PMI) fell to 51.9 in March, down from 52.6 in February and compared to 50.1 in January, according to data released by the NBS. The non-manufacturing rose to 58.2 in March, up from 56.3 in February and compared with 54.4 in January.
March 31
Six major state-owned banks (Bank of China, Agricultural Bank of China, Industrial and Commercial Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank of China) reported their 2022 growth figures by March 30, according to mainland media. The total net profits of the six banks in 2022 was 1.348 trillion yuan, a year-on-year increase of 5.97 percent (average daily profits of 3.694 billion yuan). The Industrial and Commercial Bank of China topped the list with a total profit of 360.483 billion yuan while the Postal Savings Bank of China saw the highest profit growth at 11.89 percent.
Our take
1. Li Qiang’s Boao speech appears to be part of the CCP’s ongoing effort after the 20th Party Congress to adjust its “wolf warrior” diplomatic approach, promote Xi Jinping’s “great power diplomacy,” and reassure other countries that are concerned about the PRC’s hegemonic ambitions that China is peaceful and intends to uphold the international order.
Through those measures, Beijing is looking to make China attractive again to foreign investors to secure much-needed funds in order to rescue the Chinese economy and strengthen the PRC’s “economic shield,” drive a wedge between the U.S. and its allies who are still wavering on joining Washington’s growing effort to “contain” China, and ultimately make progress in addressing the serious internal and external crises plaguing the CCP regime.
Businesses, investors, and governments should regard Li Qiang’s reassurances with a healthy dose of skepticism. Unless Xi Jinping fully abandons Marxism-Leninism or in the event that the CCP should give up power, the Party and its leadership will remain ideologically committed to world domination and as such do whatever it takes (including saying whatever it thinks foreigners want to hear) to achieve its aims. The CCP wants to promote “global development and governance” to facilitate the rise of its regime to the position of world hegemon and not because it is genuinely interested in benefiting all countries and foreign companies. Presently, the CCP appears to have calculated that preserving global stability is in its best interests because it is not yet ready for conflict with the major powers, but this calculation could easily flip later down the road when the Party assesses that “the East has risen” and the “West has [irreversibly] declined.” Businesses, investors, and governments must take care not to sell the PRC the proverbial rope with which it will later hang them, to paraphrase the quote attributed to Lenin.
2. Li Qiang’s comments at the Boao dialogue about how the PRC only punishes “certain companies” and “certain non-compliant behavior” is aimed at restoring the confidence of foreign businesses about investing in China in the wake of the CCP’s crackdown on technology companies and other industries in recent years. Jack Ma’s return to mainland China on the eve of the Boao forum is likely also meant to reassure foreign companies that “China is open for business.”
Ma’s return to China and Li Qiang’s comments indirectly affirm our analysis (see here and here for examples) that the Xi leadership’s crackdown on tech and other sectors was intended to ensure that politics would always remain in control over capital in the CCP regime (the breakup of Alibaba into six units is the latest reflection of this) and to target factional enemies (and their intermediaries like Ma) who were looking to profit at Beijing’s expense. Li’s comments and Ma’s China return further show that the Xi leadership’s crackdown on capital is not a sign that the CCP is reverting China to a “closed” country, but that it is still looking to attract foreign capital to turn around economic deterioration and strengthen the regime so that it can better pursue its national and global ambitions.
3. At a glance, the recently released official PRC economic data seems to suggest that China’s economy is recovering. However, there is a clear mismatch between the shrinking profits of industrial enterprises above designated size and the manufacturing PMI figure still claiming an expansion.
Another strange phenomenon is the growth in profits for the six major state-owned banks in 2022 at a time when key pillars of the Chinese economy like real estate and manufacturing were performing badly as a result of “zero-COVID” and Beijing’s property sector restrictions. This suggests that the Chinese economy is still being plagued by financialization despite the Xi leadership’s efforts at deleveraging and emphasis on growing the “real” economy.
