SinoInsight 1
On Nov. 7, Lin Rui, a senior official in the Ministry of Public Security, was promoted to deputy minister of the MPS.
Lin’s appointment comes amid Xi Jinping’s purge of the domestic security and legal apparatus. In recent months, dozens of public security bureau directors and deputy directors have been removed, and some have committed suicide.
OUR TAKE
1. Lin Rui is a former colleague of Xi Jinping when the latter was Fujian governor. He spent most of his career in the Fujian public security system, and was promoted to Xiamen public security bureau chief (Oct. 2013) after Xi became Chinese Communist Party General Secretary. In 2014, Lin was jointly appointed deputy mayor of Xiamen.
On June 2018, Lin Rui was transferred to the MPS and served on its Party committee and as an aide to the public security minister. He also served jointly as Party secretary and bureau head of the MPS’s internet security bureau.
Lin’s latest promotion means that he rose from a bureau-level official to the vice ministerial-level rank within a span of just five months.
2. In the past month, several former or current public security officials were either investigated or found to have committed suicide:
Oct. 7 – Meng Hongwei, an MPS deputy minister and Interpol president, was investigated. (For analysis on Meng, see here and here.)
Oct. 29 – Du Baojun, a deputy director of the Hohhot (Inner Mongolia) public security bureau, was dismissed.
Oct. 30 – Meng Jianwei, a deputy director of the Inner Mongolia public security bureau, and Zhang Jianming, a deputy director of the Hebi (Henan) public security bureau, were investigated.
Nov. 1 – Li Zhibin, a deputy director of the Inner Mongolia public security bureau and director of the Hohhot public security bureau, took his own life.
3. In late January 2018, the CCP launched an anti-Mafia “sweeping black” campaign. We wrote then that the “sweeping black” campaign is an effort by Xi to “clean out the domestic law and security apparatus of Jiang faction influence.”
SinoInsight 2
On Nov. 6, People’s Bank of China governor Yi Gang introduced “three arrows” to support the financing of Chinese private firms, namely, more readily available credit, bond issuance, and equity financing.
On Nov. 7, PBoC Party secretary Guo Shuqing told a central bank publication that the PBoC is considering a new loan policy to private enterprises. A third of big banks’ new loans to companies should go to private firms, while two-thirds of small and medium-sized banks’ new loans should go to private businesses. Also, at least 50 percent of new loans of new loans by the banking sector should be made to private companies after three years.
OUR TAKE
1. The effects of the Sino-U.S. trade war are becoming more obvious, resulting in a further deterioration of the Chinese economy and decreasing investor confidence.
Beijing is looking to rescue market confidence and the PBoC appears to be preparing to print more money to cope with risks and prevent large-scale corporate closures. In particular, the CCP is looking to prevent the forced selling of pledged shares of listed companies and the triggering of financial risks.
2. Yi Gang’s “second arrow” is the equivalent of the PBoC providing “insurance” to the buyers (financial institutions) of private bonds. Put another way, financial institutions are encouraged to purchase private debt because the central bank is preparing to print money in the event that private firms cannot make payments. However, this policy could create another financial risk in China where fraudulent behavior is rampant.
Yi’s “third arrow” is akin to the PBoC setting up a special fund to resolve the issue of pledged shares forced selling by printing money. Securities companies now cannot force the liquidation of pledged shares as the stock markets continue to plummet. Instead, the special fund will decide what to do with the pledged shares, and the central bank will subsidize the losses incurred by securities companies.
Because more than 70 percent of pledge shares funds come from the banks, the total market value of pledged shares is over 4 trillion yuan, or close to 10 percent of the market value of A-shares. While 4 trillion is only a small proportion of the over 250 trillion yuan in banking assets, the risks, once triggered, may explode the banking industry’s implicit debt problem and result in a crisis.
3. Guo Shuqing’s commitment of lending to private firms is akin to a “blank cheque” that cannot resolve the more immediate liquidity problems which private enterprises are facing. Also, Guo’s pledge will be difficult to realize in the CCP system.
4. The PBoC’s planned moves indicate that the CCP dares not reduce its fiscal expenditure as it seeks to maintain power. The regime cannot directly slash taxes for enterprises, and can only issue “blank cheques” and print more money as a stop-gap measure to troubleshoot private sector woes.
