SinoInsight 1
On Jan. 29, state media announced that Qi Yu, the former deputy director of the CCP Organization Department, was appointed Party secretary of China’s Ministry of Foreign Affairs (MoFA) and principal of the foreign ministry’s Party school.
Qi’s appointment surprised many observers because he spent most of his career in a Party organ responsible for controlling and reshuffling personnel and is an outsider to the state-run foreign ministry.
OUR TAKE
1. The MoFA has always used a “double head” system where the post of foreign ministry and MoFA Party secretary are held by two different officials. After the announcement of sweeping Party and state institutional reforms in March 2018, many ministries and commissions started implementing a “double head” system. This appears to be in line with Xi’s push to strengthen Party Central’s control over all governing bodies (“strictly govern the Party,” “the Party leads everything,” etc.).
2. After Xi took office, Qi Yu was transferred to the Organization Department of Jilin Province. The Jilin officialdom saw many purges and reshuffles during Qi’s two-and-a-half-year stint (2013-2015) in the northeastern province. In Dec. 2015, Qi was promoted to Central Organization Department deputy director. Qi Yu’s latest move to the foreign ministry is a promotion because the MoFA Party secretary is a ministerial-level position.
Xi Jinping appears to have placed an official whom he trusts to oversee the regime’s diplomatic apparatus. Qi’s transfer to the foreign ministry could lead to frequent personnel changes in the diplomatic apparatus in the future.
3. Based on our research of the CCP factional struggle, we believe that Xi is starting to gradually clean out the PRC’s diplomatic apparatus with Qi Yu’s appointment as MoFA Party secretary. For a long time, the diplomatic apparatus has been under the sway of the Jiang faction.
Rectifying the diplomatic apparatus, however, will likely not be an easy task for the Xi leadership because there are not many candidates with strong professional skills and ample diplomatic experience who can replace officials that are close to the Jiang faction.
4. Qi Yu is an official from the 1960s generation. This means that he could serve in the 20th Central Committee (the 20th Party Congress is slated for 2022)—if the CCP is still in power at that time.
SinoInsight 2
On the evening of Jan. 30, Chuying Agro-Pastoral Group announced that it was revising its 2018 performance forecast to a net loss of 2.9 billion yuan to 3.3 billion yuan (nearly double the expected net loss projected in Q3 2018). The company was one of nearly 200 listed companies on the mainland that suffered huge losses in 2018.
Chuying Agro’s net profits in 2017 were 45.188 million yuan. The firm made news in 2018 for paying its bond investors in ham.
OUR TAKE
1. The fact that A-shares listed firms have taken a hammering in 2018 suggests that the economic downturn in China is very severe. Listed companies could potentially have serious debt problems, and the massive pledged shares minefield is at risk of imploding.
2. Chuying Agro is the “leading pork producer stock” in the A-shares market. The company’s major shareholder (who owns 40.20 percent of Chuying’s total shares) and other shareholders once pledged up to 98.65 percent of the shares they held, and these pledged shares are at risk of being triggered by margin calls and face forced liquidations. In 2018, Chuying was overdue on paying its debts.
3. According to Chuying’s revised 2018 performance forecast, its losses were in part attributed to diminishing business reputation and assets, as well as a decline in operations. The performance forecast also noted that a shortage of funds and “untimely” supply of feed led to a “higher than expected” death rate of its pigs and its huge losses. However, the forecast did not mention the pig mortality rate.
Assuming that Chuying’s actual losses for 2018 was 3.1 billion yuan (the median of 2.9 billion yuan to 3.3 billion yuan), and with the average pig price at 11.25 yuan per kilogram (as of Jan. 31, 2019) and an average pig weight of 50 kilos, then the company lost nearly 2.76 million pigs to starvation last year. Given this estimate, some Chinese observers have questioned why Chuying did not sell half its pigs to feed and keep alive the other half of its stock.
Hence, we believe that Chuying’s reason that a “higher than expected” pig death partly led to increased losses last year is suspect.
4. We believe that Chuying’s losses are mainly down to its diminishing business reputation. It cannot be ruled out that the firm’s majority shareholder had engaged in under-the-table capital transfers, and shifted the burden of increased debt and losses to minority shareholders. Put another way, the mainland stock markets suffer from a reputation of being worse than casinos, and the CCP faces a difficult task of restoring market confidence.
