1 More political rumors emerge alleging ‘trouble’ in Zhongnanhai
Xi Jinping’s lack of public appearances after the conclusion of the Third Plenum of the 20th Central Committee has spurred various rumors, including Xi allegedly suffering from serious health issues and a military coup.
The political rumors and speculation have continued to swirl during and after CCP elite’s Beidaihe summer work retreat period. Pundits and self-media commentators have been parsing these rumors and other public developments to discern if Xi is either too ill to govern or has been targeted by a coup.
Some of the more popular rumors and analyses include:
CCP leadership yet to surface from Beidaihe retreat
PRC state mouthpiece Xinhua reported on Aug. 8 that nearly five dozen researchers in artificial intelligence, quantum physics, deep-sea exploration, and aerospace were invited to Beidaihe by the Central Committee and Party Central.
Xinhua said the researchers were at Beidaihe from Aug. 1 to Aug. 7, which observers believed was the duration of the CCP elite’s work retreat. Observers also noted that state media has not yet reported on the public activities of Xi Jinping and other top leaders even after Beidaihe has concluded, and speculated that there might be political upheaval in Zhongnanhai.
Xi’s image ‘vanishes’ from propaganda sign military retirement home
Zhao Lanjian, a former Chinese citizen journalist currently based in the United States, published a post on X on Aug. 8 with photos showing that Xi Jinping’s image had apparently vanished from a propaganda sign about the military following the Party’s leadership in a retirement home for military personnel in Beijing. Zhao cited leaked information from a Chinese military unit as indicating that “the political winds seem to have changed.”
‘Second generation red’ alleges ‘major domestic news’ to break in August
On Aug. 9, a screenshot of a post that allegedly came from the WeChat account of Yang Xiaoping, the son of founding revolutionary General Yang Yong, began circulating online. The post claimed that in the month of August, there would be “major domestic news” surpassing the Paris Olympics, the Russia-Ukraine war, the Israel-Hamas conflict, and the situations in Venezuela and Bangladesh. The post added that the event would be “the starting gun for truly unprecedented changes in a century.”
Commentary on ‘democratic centralism’ in military newspaper
On Aug. 9, the PLA Daily published on page two a commentary by the Fourth Medical Center of the PLA General Hospital titled “Adhering to Scientific, Democratic, and Law-based Decision-making” (堅持科學決策民主決策依法決策).
The commentary made the following points:
- The Central Military Commission’s Political Work Department recently distributed the “Democratic Centralism Reader” (民主集中製讀本) which it compiled to the entire military. The Reader emphasized “adhering to scientific, democratic, and law-based decision-making, as well as continuously improving the quality of decisions, are significant practical issues that all levels of Party organizations must address in implementing democratic centralism and making good use of the Reader.”
- The commentary cautioned against “replacing Party meetings with administrative meetings, replacing Party Committee research with the mere circulation of documents, and preventing autocratic directives and ‘special case handling.’”
- The commentary stressed the importance of turning the collective wisdom of officers and soldiers into “correct decisions.”
Some observers believe that the Fourth Medical Center’s commentary is significant because it supposedly contains messaging that diverges from the Xi leadership’s previous practices, notably a shift away from one-man rule. They speculate that the commentary lends credence to the rumors of internal issues in the CCP top leadership, and that the distribution of the Reader suggests that certain events have already happened or are currently unfolding.
Rumors of Xi’s ‘illness’ reportedly spreading in the officialdom
Zhao Lanjian claimed in an Aug. 12 post on X that “authoritative rumors” of Xi Jinping being ill are allegedly spreading at the provincial and ministerial levels in the CCP officialdom.
Zhao also published a list of alleged personnel changes (none have been publicly verified to date):
- Xin Changxing, Party secretary of Jiangsu Province, was reassigned as minister of public security.
- Xu Kunlin, governor of Jiangsu Province, was promoted to Jiangsu Party secretary.
- Liu Xiaotao, Party secretary of Suzhou municipality, was promoted to Jiangsu governor.
- Wang Xiaohong, minister of public security, was reassigned as director of the CCP General Office.
Alleged new Politburo
On Aug. 12, rumors circulating online claimed that Xi Jinping had partially relinquished power due to health issues and there was a reshuffle in the Politburo, including:
- Politburo Standing Committee member Ding Xuexiang took over as CCP General Secretary and PRC president.
- Central Military Commission vice chairman Zhang Youxia took over as CMC chairman.
Our take
The political rumors and speculation above do not conform to CCP political operations and are greatly lacking in credibility.
1. The days that the Chinese researchers who were invited to Beidaihe spent there are not necessarily equivalent to the duration of the CCP elite’s work retreat. In years past, the top Party leaders typically spent around two to three weeks at Beidaihe before emerging. Assuming previous trends hold and barring any unexpected developments, Xi Jinping and other top officials can be expected to resume their regular activities in the week of Aug. 19 (Reuters reported on Aug. 12 that Vietnam’s top leader To Lam will arrive in Beijing on Aug. 18 and meet with Xi and other officials).
During the Beidaihe period, it is normal for official mainland media to not report on the public activities of the top leaders. As long as there are no fundamental changes in the overall direction and tone of propaganda, it is a non-factor that Xi is “missing” from the front pages of Xinhua, People’s Daily, and other key official media outlets. Therefore, the “signs” of “irregularity” in the Beidaihe scheduling or official media being cited in the political rumors that are circulating are not convincing enough to prove that something has happened in the CCP’s top ranks.
2. The photos that appear to show that Xi Jinping’s image was “removed” from a propaganda poster at a military retirement home in Beijing cannot be independently verified.
It is difficult to use the photos as evidence that Xi is in trouble given the ease at which photos online can be manipulated and the lack of crucial details about the photos, such as the time they were taken and the exact location of the military retirement home. Moreover, the “vanishing” of Xi in one propaganda poster does not matter much in the larger scheme of things as long as Xinhua and other official media continue to publish special reports on Xi and stick to his propaganda line.
3. The commentary on “democratic socialism” published in the PLA Daily is much less important or newsworthy than some observers believe.
For one, the commentary is written by the Fourth Medical Center of the PLA General Hospital, and not by high-ranking Party officials or prominent writers from the Central Propaganda Department and other Party research and theoretical institutions. Authorship matters in the CCP regime, especially in discerning the importance of an article published in official media.
Meanwhile, the commentary’s call to guard against individual autocracy actually aligns with the Xi leadership’s requirement for officials at all levels to obey the leadership of the Party and avoid centers of power that deviate from CCP control.
4. Rumors that news that Xi Jinping is ill has been communicated to officials at the provincial and ministerial ranks, as well as the alleged new list of Politburo members and other personnel reshuffles, are inconsistent with the CCP’s political operations. As noted in an earlier newsletter, news that Xi is incapacitated would be quickly publicized both inside and outside China if that was truly the case given the nature of CCP elite politics. Also, a new leadership team would be rapidly unveiled while many of Xi’s allies and loyalists would be swiftly replaced. None of this has happened, which indicates that Xi is likely relatively healthy and firmly in control.
Another indirect sign that Xi is still in charge is China’s continued stock market woes. On Aug. 12, the three major A-shares indices saw declines and their collective trading volume dropped below the 500 billion yuan mark to 495.88 billion yuan, a new low since May 2022. If Xi were really on his way out, the stock markets would likely rebound as “anti-Xi” forces would be getting word out that the days of one-man dictatorship are over and China is returning to the “reform and opening up” of the Deng era.
5. Although the various political rumors circulating about Xi Jinping lack credibility, they reflect a growing desire for change among the Chinese people and increasing pessimism about China’s future.
Meanwhile, “anti-Xi” forces both inside and outside China are likely to continue shaping the narrative environment against Xi to exploit public dissatisfaction towards him. “Anti-Xi” forces likely hope to eventually weaponize political rumors against Xi at critical junctures to destabilize him.
2 Poor data leaves Beijing struggling to cover up China’s economic decline
Financial and social financing data for July
Aug. 13
The People’s Bank of China published financial and social financing data for July and the first seven months of 2024.
Financial data
- The M2 broad money supply increased by 6.3 percent year-on-year in July to reach 303.31 trillion yuan. This beat forecasts of 6.2 percent and the record low of 6.2 percent in June. Meanwhile, the M2 balance decreased by 1.71 trillion yuan compared to June.
- The M1 narrow money supply decreased by 6.6 percent year-on-year in July to 63.23 trillion yuan. This set a new record low and marked the fourth consecutive month of declines.
- New renminbi loans increased by 260 billion in July, the lowest since October 2009. This represented a decrease of 24.84 percent year-on-year (345.9 billion yuan in July 2023) and an 87.79 percent decrease month-on-month (2.13 trillion yuan in June 2024).
- Household loans decreased by 210 billion in July, compared with a decrease of 200.7 billion yuan in July 2023.
- Short-term loans decreased by 215.6 billion yuan. Medium- and long-term loans increased by just 10 billion yuan.
- Loans to enterprises and institutions increased by 130 billion yuan in July, compared to an increase of 237.8 billion yuan in July 2023.
- Short-term loans decreased by 550 billion yuan. Medium- and long-term loans increased by 130 billion yuan.
- Loans from non-banking financial institutions increased by 205.7 billion yuan in July, compared to an increase of 217 billion yuan in July 2023.
- Household loans decreased by 210 billion in July, compared with a decrease of 200.7 billion yuan in July 2023.
- Renminbi deposits decreased by 800 billion yuan in July, compared with an increase of 2.46 trillion yuan in June. In July 2023, renminbi deposits decreased by 1.12 trillion yuan.
- Household deposits decreased by 330 billion yuan in July, compared to a decrease of 809.3 billion yuan in July 2023.
- Non-financial enterprise deposits decreased by 1.78 trillion yuan in July, compared to a decrease of 1.53 trillion yuan in July 2023.
- Deposits from non-banking financial institutions increased by 750 billion yuan, compared to an increase of 413 billion yuan in July 2023.
Social financing data
- Total social financing fell to 770 billion yuan in July, compared to forecasts of 1.1 trillion yuan, 528.2 billion yuan from a year ago, and 3.3 trillion the previous month.
- Net government bond financing in July was 690 billion yuan, compared to 410.9 billion yuan in the same period last year and 850 billion yuan in June. Net government bond financing accounted for 89.61 percent of the increase in social financing in July.
Foreign investors pull record amount from China
Aug. 9
The State Administration of Foreign Exchange released data showing that foreign direct investment into China decreased by $14.8 billion in the April-June period. This was the largest recorded outflow of foreign investment and only the second time this figure was negative. Also, foreign direct investment decreased by $4.6 billion in the first six months of 2024, reaching the lowest level since the outbreak of the COVID-19 pandemic in 2020.
Foreign investment into China has slumped in recent years after reaching a record $344 billion in 2021.
Shares trading volume falls below 500 billion yuan
Aug. 12 to Aug. 14
The trading volume on mainland stock markets fell below 500 billion yuan for two days, hitting a new low since May 2022.
- Aug. 12: The Shanghai Composite Index fell by 0.14 percent to 2,858.20 points and the Shenzhen Component Index fell by 0.24 percent to 8,373.47 points. The combined trading volume on the two exchanges was 495.9 billion yuan.
- Aug. 13: The Shanghai index rose by 0.34 percent to 2,867.95 points and the Shenzhen index increased by 0.43 percent to 8,409.22 points. The combined trading volume on the two exchanges was 477.3 billion yuan.
- Aug. 14: The Shanghai index fell by 0.6 percent to 2,850.65 points and the Shenzhen index fell by 1.17 percent to 8,311 points. The combined trading volume on the two exchanges was 477.5 billion yuan.
Also, the Shanghai index closed below 2,900 points for eight consecutive trading days since Aug. 5.
Our take
1. The PRC’s latest financial and social financing data indicate a worsening of China’s economic decline. In particular, the M2 and M1 figures, as well as the drop in RMB deposits, hint at persistent deflation and credit contraction.
The CCP authorities have attempted to downplay the situation by glossing over the figures and obscuring certain data. We have observed that the PBoC has not been releasing the month-on-month figures and year-on-year comparisons for the increase in RMB loans and deposits since February 2024. Instead, the central bank only lists cumulative balances and cumulative increases for RMB deposits and loans. Meanwhile, state media reports on the latest figures focused on the 13.53 trillion yuan increase in RMB loans and the 10.66 trillion increase in deposits for the first seven months of the year, but conveniently ignored the fact that the increase in RMB loans in July was the lowest since October 2009. Further, state media partially attributes the slowdown in the M2 and M1 to the authorities “squeezing out of excess” (擠水分) in financial data, including the cancellation of manual interest adjustments.
The whitewashing of China’s poor economic and financial data, however, will likely only mislead the general public about the actual economic situation until things become untenable. The propaganda also has no effect on serious investors both inside and outside China; this can be observed from the record outflow of foreign investment in the second quarter of the year and the sluggish trading volume in the stock markets.
2. China’s financial and social financing data for July suggest that Beijing’s “historic” real estate stimulus policies introduced in May and the central bank’s rate cuts in July had minimal effect in boosting economic recovery.
Some brief takeaways from the financial and social financing data for July include:
- Loans and social financing were mainly driven by the issuance of government bonds.
- Household loans have further contracted compared to a year ago. Long-term loans, which reflect mortgage lending, only increased by 10 billion yuan despite the introduction of stimulus policies. Taking an average new home price of 9,836 yuan per square meter in the first half of the year, an average home size of 90 square meters, and a down payment of 20 percent on homes, this means just 14,000 households nationwide applied for mortgages in July. In comparison, Shenzhen alone sold more than 3,000 homes in a single month during the peak of China’s real estate boom.
- Loans to enterprises and institutions, including loans to public institutions, increased by just 130 billion in July, or a 45.3 percent decrease compared to the same period last year.
- The 5.21 percent decrease in non-banking financial institutions loans in July compared to the same period last year reflects an “asset famine” where financial institutions are less willing to invest amid the economic downturn.
- Non-banking financial institutions aside, deposits in other sectors are also decreasing. This indicates that residents and businesses are reluctant to take out loans, opting instead to make early mortgage repayments, significantly pay down other loans, or purchase wealth management products, which in turn leads to a reduction in deposits.
Weak economic data in July suggests that Beijing will struggle to hit its growth target for the year in a convincing manner. This is especially so given the limited time remaining in the year and the downward trajectory of various indicators. The CCP authorities will inevitably fudge the official data and claim results, but the discrepancies between the official numbers and the lived and observable reality will likely be quite noticeable. This would further erode investor confidence in China and undermine the CCP’s legitimacy.
Current economic and financial trends could eventually lead to the outcome we laid out in the June 20, 2024 newsletter. We wrote: “The Xi leadership and the CCP will likely sustain a severe blow to their ‘quan wei’ and political legitimacy if the policies and measures issued at the Third Plenum fail to turn around the Chinese economy. A collapse in confidence in Xi and the CCP among domestic and foreign investors could exacerbate China’s current economic and financial woes, pushing the CCP regime to the brink.”
