1 CCDI work report foreshadows more purges and political trouble this year
Feb. 25
PRC state mouthpiece Xinhua published the full text of the Central Commission for Discipline Inspection’s work report for 2024. The report was delivered by CCDI head Li Xi at the third plenum of the 20th CCDI on Jan. 8.
The report first reviewed the work and accomplishments of the CCDI in 2023:
- The CCDI organized an annual seminar for its members. All anti-corruption personnel underwent comprehensive training, with a total of 51,000 training sessions held and 2.679 million participants trained.
- The CCDI assisted Party Central in revising and formulating multiple anti-corruption rules, as well as goals and tasks for the 2023 to 2027 period.
- The CCDI seriously dealt with “two-faced factions and individuals” (兩面派、兩面人). The national discipline and supervision organs punished 8,890 personnel who violated political discipline, including 34 central-level cadres.
- The CCDI resolutely eliminated systemic corruption risks and deepened anti-corruption efforts in various fields such as finance, state-owned enterprises, universities, sports, tobacco, grain purchase and sales, pharmaceuticals, the national integrated circuit industry investment fund, and soccer. In total, the anti-corruption authorities filed investigation cases against 87 central-level cadres and 626,000 cases across the country, placed 26,000 individuals under “reservation” (留置; i.e. limit personal freedoms, keep individuals under surveillance and limited detention, etc.), and submitted 610,000 Party members and government officials to disciplinary action.
- The CCDI rectified prominent issues in employment and entrepreneurship, education and healthcare, pension and social security, ecological and environmental protection, workplace safety, food and drug safety, law enforcement and justice, rural revitalization, and corruption related to gangs and those serving as “protective umbrellas” for criminal elements. Anti-corruption authorities across the country handled 77,000 cases of corruption and misconduct in the fields of the people’s livelihood, as well as subjected 75,000 Party members and government officials to disciplinary actions.
- The anti-corruption authorities investigated 17,000 bribery cases nationwide.
- The anti-corruption authorities recovered losses worth 10.2 billion yuan and repatriated 1,624 fugitives in handling cross-border corruption cases.
- The anti-corruption authorities addressed 62,000 cases of indulgence in hedonism and extravagance nationwide, and subjected 83,000 individuals to criticism and education.
- The anti-corruption authorities publicly reported 10 typical cases that increase burdens on the grassroots. The authorities also addressed 46,000 cases of formalism and bureaucratism nationwide, and subjected 71,000 individuals to criticism and education.
- The anti-corruption authorities held 2,317 Party organizations, as well as 43,000 leading Party cadres and supervisory targets, accountable nationwide.
- Anti-corruption authorities used the “four forms” (四種形態) to criticize, educate, and handle 1.718 million individuals. Of those individuals, 66,000 (3.9 percent) were transferred to the judicial organs for punishment.
The CCDI report stressed the importance of deeply understanding Xi Jinping’s “self-revolution” to the development of the regime, and added that the discipline inspection and supervisory organs are important forces in advancing this “self-revolution.”
The report also laid out the anti-corruption authorities’ work deployment for 2024. Some noteworthy points include:
- Emphasize political indoctrination in “Xi Jinping Thought.”
- Highlight the deepening of political supervision in upholding Xi Jinping (“Two Safeguards,” “Two Establishes”).
- Deepen the fight against corruption.
- Recognize that the fight against corruption has entered “deep-water territory” and there can be no turning back, no slackening, and no mercy.
- Strengthen the high-pressure situation against corruption.
- Focus on key issues, key areas, key targets, new types of corruption, and hidden corruption. Make the severe punishment of official-business collusion a top priority. Resolutely prevent interest groups and power cliques from infiltrating the political sphere.
- Uphold the combination of individual case investigation and systematic rectification. Deepen the rectification of corruption in areas where power is concentrated, capital is intensive, and resources are rich, such as finance, state-owned enterprises, energy, tobacco, medicine, infrastructure projects, and bidding.
- Extend anti-corruption efforts to the grassroots. Target education, employment, healthcare, and other areas of livelihood for concentrated rectification.
- Deepen the special rectification of corruption and misconduct in the field of rural revitalization. Promote the normalization and institutionalization of the crackdown on gangs, organized crime, and their “protective umbrellas” (打傘破網).
- Continuously carry out “Sky Net” operations. Intensify efforts to pursue and recover fleeing suspects, strengthen clean construction along the “Belt and Road,” and focus on rectifying cross-border corruption issues.
- Strengthen the investigation of bribery and corruption, and eradicate “hunting” (i.e. bribing officials) as a source of political and ecological pollution.
- Strictly investigate the chain of interest, increase efforts to confiscate and rectify ill-gotten gains from bribery, and strengthen rectification efforts.
- Intensify efforts to govern the revolving door between politics and business as well as “escape resignations” (逃逸式辭職; i.e. quitting as an official to escape consequences of engaging in corruption), crack down on political fraudsters, and strengthen the comprehensive punishment of corruption-related crimes like bribery, introducing bribery, and money laundering.
- Implement the spirit of Party Central’s Eight-point Regulation.
- Prevent the resurgence of hedonism and extravagance.
- Crack down heavily on formalism and bureaucratism.
Feb. 26
Xinhua published a short report about top officials submitting personal reports (述職) to Xi Jinping, including members of the Politburo, the secretaries of the Central Secretariat, members of the Party group of the Standing Committee of the National People’s Congress, members of the State Council, members of the National Committee of the Chinese People’s Political Consultative Conference, as well as the Party secretaries of the Supreme People’s Court and the Supreme People’s Procuratorate.
Xinhua said that Xi “carefully reviewed” the personal reports before making important requirements to those senior officials, stressing that 2024 is a crucial year for achieving the goals and tasks of the 14th Five-year Plan. Xi also requested that those top officials implement various political requirements that uphold his “quan wei” (“four consciousnesses,” “four confidences,” Two Safeguards, etc.), take the lead in consolidating and expanding the results of “Xi Jinping Thought” thematic education, and ensure that the decisions and deployments of Party Central are implemented.
2. State media reported that the State Council conducted its sixth special study session on the theme of establishing and improving a fair competition system and accelerating the improvement of basic institutional rules for the unified national market.
Premier Li Qiang, who chaired the session, noted that the promotion of constructing a unified national market has “strong strategic and overall significance” that is “crucially important” for both the present and the long term.
Li also:
- Made requirements for a comprehensive cleanup of policies and regulations that hinder the unified market and fair competition, vigorously eliminate both explicit and implicit barriers to market access, and continuously address prominent issues such as local protectionism, market segmentation, and chaos in attracting investments.
- Encouraged local governments to actively explore and practice measures to advance the unified national market.
- Called for efforts to be made to improve basic institutional rules and refine supporting policies with strong operability.
- Urged deepening of reforms in finance, taxation, statistics, and other aspects.
Wang Yiming, vice chairman of the China Center for International Economic Exchanges, gave an explanation of how to promote the unifed national market and other related matters. PRC vice premier He Lifeng, vice premier Liu Guozhong, and State Councilor Wu Zhenglong also made speeches at the study session.
3. Li Shangfu’s name was removed from the list of top leaders of the Central Military Commission on the website of the PRC defense ministry. Internet archive data showed that Li’s name was still on the list on the defense ministry website as of at least Jan. 3, 2024.
Feb. 27
Qin Gang resigned as a member of the National People’s Congress, according to an official statement issued after a meeting of the NPC Standing Committee. The statement said Qin has not been expelled or dismissed from the NPC and that his resignation was accepted by the Tianjin People’s Congress.
Our take
1. The CCDI work report for 2024 indicates that the Xi leadership is planning to deepen its rectification of the regime this year and resolve the lingering problems left behind by Xi Jinping’s predecessors. For instance, the report calls on the anti-corruption authorities to safeguard Xi’s “quan wei” and maintain his political supervision over the regime. The report also urges the anti-corruption authorities to take the fight against corruption into “deep-water territory” and stresses that there can be “no turning back, no slackening, and no mercy.” This implies that Xi is preparing to move against his remaining political opponents and the “anti-Xi coalition” in mainland China.
Meanwhile, references to “official-business collusion” and the rectification of areas where “power is concentrated, capital is intensive, and resources are rich” in the work report suggest that the Xi leadership is keen on targeting the Party elites and “white gloves” who have their hand on the PRC’s financial and economic lifelines. The Xi leadership could move to cut his political adversaries off their financial resources and channels, as well as make vigorous efforts to recover their ill-gotten wealth to replenish the regime’s depleting coffers.
The CCDI work report also indirectly reveals in listing the areas of focus for anti-corruption work that corruption remains a very serious issue. Despite more than a decade of anti-corruption work by the Xi leadership, the malfeasance of Jiang Zemin and the Jiang faction’s “ruling the country through corruption” (以貪治國) from the late 1990s to the early 2010s remain entrenched in the bureaucracy. In particular, the figures in the work report indicate that the anti-corruption authorities had dealt with nearly 2.7 million individuals alone in 2023. Interestingly, while the report identifies 34 of the purged central government officials as “two-faced people” and noted that 87 central government officials were being investigated, the names of former defense minister Li Shangfu and former foreign minister Qin Gang were not mentioned.
2. Xi Jinping’s requirement to his senior officials that they submit personal reports (述職) to him and continue to uphold his “quan wei” suggests that Xi is still struggling to maintain his paramount position (定於一尊) within the Party. Therefore, Xi has to constantly rely on political pressure and indoctrination to get his top officials in line; by contrast, if Xi was very secure in his power and position, he would be comfortable with tapering back his indoctrination and intimidation efforts, and would not need to continually make it known public that he is firmly in charge and senior officials must answer to him.
3. The CMC removing Li Shangfu from the list of its members on the defense ministry website and Qin Gang’s resignation suggests that the Xi leadership has reached a decision on how to publicly handle Li’s case, and possibly also that of Qin Gang. If so, this suggests that the 20th Central Committee could soon be convening its Third Plenum to officially confirm the personnel changes; per the CCP’s constitution, Central Committee members must vote on removing members from its body and the CMC.
The Xi leadership could be thinking of holding the Third Plenum sooner rather than later to announce some economic and financial reform measures (such as the unified national market, more financial opening up, reforming the stock market system, etc.) as it seeks to restore the confidence of domestic and foreign investors who are troubled by Beijing’s seeming lack of concrete efforts to rescue the economy. However, we are doubtful of Beijing’s ability to announce economic and financial reforms that will truly excite investors because it is currently prioritizing national security, socialism, and the growth of the “real” economy over the “financialized” economy. Indeed, Li Qiang’s recent remarks on “accelerating the improvement of basic institutional rules for the unified national market” suggest that the Chinese economy is still plagued by “localism” and efforts to establish the unified national market have largely remained proposals on paper with little actual progress.
4. Xi Jinping’s increasing use of the regime’s iron fist and the anti-corruption campaign to resolve the CCP’s problems will likely backfire and exacerbate Beijing’s domestic and international dilemma. For one, the corrupt practices that were entrenched during the Jiang faction’s era of dominance were allowed to take root due to the systemic deficiencies of the CCP authoritarian dictatorship, and Xi cannot fundamentally address those issues so long as the system remains in place. Xi’s efforts to work within the Party and rectify the CCP using the tools provided by the system will only resolve corruption at the skin level while weakening the Party’s political legitimacy and governing capacity.
Xi’s increasing attempts to fix the regime using CCP means will also deepen international concerns about growing authoritarianism inside China. Foreign investors will lose more confidence in China over time and countries will become more wary about the prospect of CCP aggression abroad.
What’s next
The Xi leadership will likely focus on domestic issues in 2024 given the grim situation with the economy and because it lacks both the opportunity and ability to pursue external adventurism. Hence, Beijing is likely to be more “sound than substance” (雷聲大雨點小) on foreign affairs as it seeks to maintain a bold front while not ratcheting up geopolitical tensions so as to buy more “breathing space” for the PRC to address internal matters.
2 Various signs indicate a worsening of China’s local debt crisis
Halting of investment projects in Yunnan does not do much to alleviate debt risks
Feb. 22
A list of suspended or delayed government investment projects in Yunnan Province that is circulating online shows 1,153 projects totaling 290.468 billion yuan. The document also noted that the available funds reappropriated from the halting of these projects to resolve the province’s debt crisis amounted to just 2.551 billion yuan, or less than 1 percent of the total investment in the projects.
Reuters previously reported on Jan. 19 that the central authorities had instructed 12 heavily indebted local governments, including Yunnan, to delay, scale down, or halt some state-funded infrastructure projects to reduce their “debt risk to the low and medium level.” A State Council document dated Dec. 24, 2023 on how indebted local governments should handle infrastructure projects instructed the 12 heavily indebted local authorities to properly handle financing for suspended or halted projects to prevent defaults, avoid leaving creditors hanging, and avert the “risk of managing risks.”
Local SOEs issue bonds to help local gov’ts fund LGFV
Feb. 25
Bloomberg News reported that Guizhou Hongyingda Construction Project Management Co., a wholly-owned subsidiary of the finance bureau of Xixiu District in Anshun City, had issued a 1.8 billion yuan five-year non-public bond on Feb. 23 with a coupon of 4.8 percent, according to a filing on the Shanghai Stock Exchange’s private disclosure platform.
According to a prospectus seen by Bloomberg, the proceeds of the private note will go toward repaying or refunding two bonds sold by the Guizhou LGFV Anshun Xixiu Qiancheng Investment Development Co. Guizhou Hongyingda has no direct equity relationship with Xixiu Qiancheng Investment.
Wang Chen, co-founder of Belt&Road Origin (Beijing) Tech Co., told Bloomberg that it is “extremely rare for a company to issue bonds for an entity without a direct equity relationship.” Wang added that the move “signals a new channel for LGFVs’ debt repayment. It will be conducive for debt-laden regions to help weak LGFVs in repaying debt, especially bonds sold in the open market.”
Guizhou local authorities arrest its creditor and her lawyers
Feb. 25
An article by mainland media China Business Journal (女企業家討工程款陷“尋釁滋事”被批捕 過億債務政府只願給1200萬) on the arrest of ethnic minority female construction contractor Ma Yijiayi for demanding repayment for projects was widely circulated and elicited a strong reaction from the public.
According to the article, Ma has been seeking repayment from the Shuicheng District local government for various projects in Guizhou’s Liupanshui City since 2016. The Shuicheng authorities reportedly owe Ma about 220 million yuan for projects including poverty alleviation and relocation works (扶貧搬遷工程) for poor farmers, as well as the construction of kindergartens and primary schools.
China Business Journal said that Ma has been demanding repayment for eight years to no avail and was instead met with denials and threats from the Shuicheng government. The Shuicheng public security authorities would come to detain Ma at the end of 2023 on the day of a debt payment hearing at the Guizhou high court on charges of provocation and troublemaking. Before Ma was arrested, the Shuicheng authorities had also detained on similar charges more than a dozen people who were helping her with the debt repayment issues, including lawyers and legal assistants; the authorities counted the posting of debt and litigation information on Chinese social media like Weibo and Douyin (TikTok) as “provocation and troublemaking.”
China Business Journal said that Ma’s lawyers previously sent letters reporting certain officials of the Shuicheng District government to the officials themselves. Those letters listed details of unpaid debts to Ma, the illegal freezing of funds, and questions about the whereabouts of large sums of money.
China Business Journal said that the local governments gave the excuse of some of Ma’s projects not being audited as a reason to refuse paying her. Ma’s lawyers suspected that the long-term lack of auditing could be due to an LGFV’s fraudulent acquisition of 580 million yuan from two state-owned banks.
Before Ma Yijiayi and others were arrested, the Shuicheng government proposed to settle all its debts with Ma with 12 million yuan, but Ma turned down the offer. The Shuicheng government later issued a public denial on Feb. 27 that it had attempted to settle the approximately 220 million yuan owed to Ma with 12 million yuan. The Shuicheng government also claimed that it had made nearly 90 percent of payments for 10 projects undertaken by Ma, and that Ma and the others were arrested for trying to reclaim debts through illegal means. China Business Journal said that the evidence it obtained through public interviews, court rulings, and other documents refuted the Shuicheng government’s claims.
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Corruption in Liupanshui
Official anti-corruption information issued by the authorities, including the content of anti-corruption documentaries, hold former Liupanshui Party group member and Guizhou Provincial Political Consultative Conference vice chairman Li Zaiyong responsible for Liupanshui City’s debt problem.
Li, 62, worked in five prefecture-level administrative regions in Guizhou, including Zunyi, Qiandongnan, Tongren, Guiyang, and Liupanshui. He previously served as a member of the Guizhou Provincial Party Committee, deputy secretary of the Guizhou provincial government Party Group, and vice governor of Guizhou Province. In January 2022, Li was elected as a vice chair of the Guizhou Provincial CPPCC but was not re-elected the following year. Li was officially investigated on March 27, 2023 and prosecuted on Feb. 7, 2024.
An anti-corruption documentary aired on Jan. 7, 2024 noted that during the three-plus years (2013 to 2017) when Li Zaiyong was Party secretary of Liupanshui and in the provincial government, 16 of the 23 tourism projects whose construction he oversaw were listed as inefficient and idle by the Guizhou provincial authorities. Those projects caused new local debts to exceed 150 billion yuan, with a debt growth rate of over 300 percent. The documentary added that servicing the debt interest alone resulted in losses of over 900 million yuan for the local authorities.
As part of a self-confession that featured in the anti-corruption documentary, Li Zaiyong said, “If I had to repay the money I borrowed back then, I definitely wouldn’t have borrowed it. But since it was the government that was making repayments, I borrowed the money. After all, I would be changing jobs in a few years and can leave (the debt) without a backward look. Whoever succeeded me would have to bear the responsibility (of servicing the debt), and it feels like passing the buck.”
Our take
1. The information above suggests that the CCP authorities are finding it difficult to resolve local debt risks and the measures being used to resolve the risks would end up increasing them.
In the Yunnan case, the reappropriation of less than 1 percent of project investment funds for debt repayment from the suspension of 1,153 projects indicates that the suspended projects may not have sufficient funding to begin with or were blind investments undertaken without conducting serious feasibility studies. Had those projects not been suspended, they would have likely turned out to be bad investments (affirming an earlier observation) that would deepen, and not alleviate, the Yunnan government’s debt problems. Yunnan’s inability to recoup much funds from suspending infrastructure projects also shows the limits of the central government’s strategy of encouraging local governments to issue large amounts of bonds annually (9.32 trillion yuan worth of local bonds were issued in 2023) to invest in infrastructure and stimulate the economy.
The central government’s instruction to the 12 heavily indebted provinces to delay, scale down, or pause some state-funded infrastructure projects to lower their debt risks appears to instead be increasing such risks. The halting of projects entails the possibility of wasted initial investments by local governments, increases the probability of bank loans not being repaid, and developers likely being saddled with unfinished projects after making large upfront payments. The result is the creation of a new debt crisis instead of the alleviation of the ongoing one.
It is possible that the suspended projects are not worth much because they were not real projects in the first place. According to “Minutes of a Meeting of Kunming City Investment Bond Experts,” a document exposing local government debt risks that circulated in May 2023, the bulk of the funding raised by the issue of special government bonds by the Yunnan and Kunming authorities appeared to have been diverted to repay debts. Mainland media reports exposing local debt risks also note that local governments have been known to launch fake projects or fabricate fake land transactions to issue bonds and secure funding to pay civil servants.
Meanwhile, the case of the Guizhou SOE issuing a non-public bond to help a Guizhou LGFV repay its debts suggests that local governments are doing their best to avoid public defaults. This is in line with a detail in the Kunming “Minutes” exposing local government debt risks where the Yunnan provincial government required governments under it not to have any material default on public debt; Guizhou, which is next to Yunnan, appears to have a similar arrangement. Local governments are willing to take on new debt to pay off old ones because officials are accustomed to caring only about securing their political achievements and, in the words of purged Guizhou official Li Zaiyong, passing the buck to their successors.
However, a reckoning is due to local governments who keep passing the buck. Publicly available information shows that local governments have to make repayments on over 3 trillion yuan worth of LGFV bonds in 2024, or 25.5 percent of the total stock of such bonds. Local governments also have to deal with implicit debt, which is likely to be a greater amount than their public debt. Further, local governments will not have much ability to make repayments as their revenue from land sales drop with the worsening of the real estate crisis and China’s economic downturn in general.
Finally, the Ma Yijiayi “debt criminalization” case in Guizhou’s Shuicheng District in Liupanshui City shows that local governments owe huge amounts to developers and are having problems paying up.
The Ma case is not an isolated incident in Shuicheng. For instance, court documents seen by mainland media reveal that the LGFV Shuicheng Water Affairs was hit with 14 instances of debt enforcement with a total amount of 362 million yuan to be collected. Another LGFV, Shuicheng Economic Development Zone Gaokai Development Investment Co., Ltd., was listed nine times by the courts as a debt enforcement target or dishonest entity, and has to pay up to 956 million yuan.
The Shuicheng government will be hard-pressed to avoid defaulting on its public debt, let alone repay arrears owed to developers. Data released by the Shuicheng finance bureau shows that the local governments debt balance in 2022 was 9.152 billion yuan, with about 10 billion yuan worth of LGFV bonds issued. The district, which has a population size of over 600,000, also has around 20 billion yuan in government debts. Meanwhile, Shuicheng’s fiscal revenue in 2022 was just 2.1 billion yuan, with expenditures reaching 5.7 billion yuan and a self-sufficiency rate of less than 37 percent. This means that the Shuicheng local government would have no chance of paying off its massive debts without assistance from higher-level governments even as it accumulates even more debt. Shuicheng’s debt situation is not even the most severe in Liupanshui City. The county-level city Panzhou has the most amount of debt, with government debt and LGFV bonds estimated at around 46 billion yuan.
The debt situation in Guizhou on the whole is also bleak. Guizhou’s total debt balance at the end of 2023 was about 3 trillion yuan, while its GDP and general budget revenue was about 2.09 trillion yuan and 200 billion yuan respectively. Without a change in Guizhou’s situation, the province will find it impossible to pay off its debts. Guizhou is one of 12 provinces identified by Beijing as having high debt risks.
Local governments will find it harder to maintain basic governing operations as they attempt to pay off their massive debts. To avoid defaulting on public debt, local governments are likely to put off paying wages to civil servants, compress basic livelihood expenditures, and fall even more behind in paying developers and other private enterprises involved in government projects. This in turn will lead to further social destabilization and erosion of support for the CCP authorities.
2. The Guizhou “debt criminalization” case and corruption in Liupanshui highlight the serious deficiencies of the CCP authoritarian dictatorship and show why Xi Jinping’s amplification of authoritarianism in China is failing to defuse economic risks.
The Li Zaiyong case is a microcosm of various corruption problems that plague the CCP regime. For one, Li is definitely not the only official who expanded local government debt for personal gain. Pan Zhili, the Party secretary of Dushan County in Guizhou, spent lavishly on building “image projects” for political rather than economic considerations, including 7 billion yuan on Dushan University City and 10 billion to build the Guilong International Health Center. To secure funding for these projects, the county government established 36 financing companies to borrow money from across the country and at interest rates exceeding 10 percent. Pan, who was purged in 2019, almost certainly believed like Li that he would reap the benefits of his vast spending while leaving his successor with the task of picking up the tab.
Officials like Li Zaiyong and Pan Zhili are also not easily ousted. The nature of “patron-client” relations and “guanxi” in the officialdom means that the successors of corrupt officials generally do not dare to report them for fear of being punished by their predecessor, who oftentimes is in a superior position to them. For instance, Li was promoted from Party secretary of Liupanshui City to vice governor of Guizhou Province, making it hard for future Liupanshui Party secretaries to address the corruption and debt problems without offending Li and sabotaging their career prospects. Rather, Li’s successors have a greater incentive to cover for their predecessors and continue existing corrupt practices. This perpetuates the vicious cycle of officials doing things to score political points and facilitate their own promotion instead of doing things to benefit the Party and the people.
As officials fail to tackle the debt problem at the root and instead add to it, local governments are finding it harder to make payments to developers for infrastructure projects. Officials are likely to become more inclined to turn to “debt criminalization” to avoid paying developers; information circulating on Chinese social media suggests that Ma Yijiayi’s case in Shuicheng District is quite common across China but only very few cases are reported by the mainland press. The use of “debt criminalization” and other illegal methods to “handle” developers like Ma instead of making payments will end up worsening the business environment in China, undermining investor confidence, and growing public dissatisfaction towards the CCP regime.
Meanwhile, the Xi leadership’s effort to increase political indoctrination and demand that officials show loyalty to Xi Jinping will likely cause officials to engage in more formalism and bureaucratism to please Xi without actually implementing the central government’s economic rescue policies. This will lead to greater social stagnation in China and worsen the regime’s economic problems.
