SinoInsight 1
Recently, a recording of what sounds like a Chinese official addressing and taking questions from a group of people. The official talked about the Sino-U.S. trade war, the factional struggle in the CCP, and other economic and financial matters was circulated on the internet.
Below are key parts from the recording:
- “You raised the issue of increased tariffs on exports. This is how I understand it. When the United States raises tariffs, we take the tariffs with our left hand, and with the right hand increase liquidity, print money, issue tax rebates, and make up [for the tariffs] using various ways … the problem is not big.”
- “Foreign capital is withdrawing. We have about 45 million people employed by foreign companies, and these people could lose their jobs. State-owned enterprises cannot arrange [to employ] such a large number of people. Additionally, China’s export processing trade will be finished. There are tens of millions of people [employed in processing trade], and over 80 million people could be out of job. These people are still paying off home loans; you think what sort of trouble this will bring to China?”
- “Behind the employment problem is a financial crisis and a property crisis. Those two crises are ruling class — a ruling crisis. So an economic hard landing will bring tremendous change in China. This is the most crucial.”
- “Liu Shiyu, who was originally in charge of the China Securities Regulatory Commission, is now head of the All-China Federation of Supply and Marketing Cooperatives. He is establishing supply and marketing cooperatives in the various provinces across the country. Supply and marketing cooperatives is a legacy that vanished with reform and opening up, and now its back. The biggest agenda of establishing supply and marketing cooperatives is the establishment of state monopoly over purchasing and marketing.”
- “Actually the [CCP] top ranks have already made preparations early to use a planned economy of state monopoly over purchasing and marketing and a coupon economy to manage the ever-weakening Chinese economy and economic hard landing. [And if so,] don’t you say that the economic structure has to change? In a complete reversion to a planned economy, even if you want to start a business, there is nothing for you to start.”
- “Another thing. As a last resort, new currency can be issued and banks will take back the old currency. That way, everyone has to take out all their money from under the bed, otherwise the money will become invalid. With this method, a lot of underground money can be washed out and the current cash crunch problem will be resolved. These methods will be used, so everybody should make early preparations.”
- “The people’s wealth is actually the government’s debt. To reduce its debt liabilities, the government can evaporate the stock market, and also evaporate the property market to resolve its problems.”
- “I have two concepts for you. First, paper money, renminbi, those are scraps of paper, not wealth; second, the people’s wealth is government debt. Don’t think that what’s yours is yours; the government can take it away in a minute, and can do you in in a minute. The wealthy landlords and the shortsighted do not understand this. Look at Wang Jianlin (Dalian Wanda Group founder), he can be finished in a flash.”
- “I told many friends three years ago that they have to prepare for hardship ahead. Because there is a move towards a planned economy; when there is indeed a move toward the planned economy, private industry and assets will all be destroyed. The planned economy won’t let you mess up things outside its planning, and the Communist Party will monopolize all financial paths. It’s impossible for you to make money again. So thinking early about how to live, that is the real urgent matter.”
- “Another thing, if you can go abroad, go abroad. Don’t go to America because it will be the enemy in the future. Your wealth will be confiscated if you go there, so find a place in the middle. After getting your wealth out, you might as well renounce your [PRC] citizenship. With a Chinese hukou, you still have to pay taxes even though your money is outside. So real wealth is that which is not discoverable by the government, and that’s really your wealth.”
- “Also, it’s too late to deliberate the issue of [making] wealth. The next step is thinking about how to survive.”
- “First, it is estimated that the renminbi will begin to depreciate in the second half of the year, [the PRC will] use currency depreciation to deal with the United States. Second, from last year to this year, the African swine flu [has spread] to many provinces, and the disease will become more severe in the second half of the year. [Pork] imports will also be difficult and pork will be very expensive. Pork [prices] will drive up the whole CPI, and everyone will feel that inflation is just around the corner and money is not very useful. What we eat in the future is also a problem, and this could bring a lot of new understanding.”
- “One more thing, everything we do now will not change the fundamental situation now with China. That is because of the intense struggle at the high-level [of the CCP]. The struggle will become fiercer and fiercer, and into whose hands [power] will fall to in the future, this case, nobody knows who will take over. Commoners will find [the factional struggle] impossible to contemplate and cannot grasp the big picture.”
- “I reckon that the U.S. stock market will fall next week because the coming changes are huge. The U.S. has begun to consider imposing 25 percent tariffs on another $325 billion worth of Chinese goods. If China responses in a relatively tough manner, then America will designate China as a currency manipulator. In this case, it’s not just a 25 percent tariff, but an increase of 40 to 45 percent. [The Sino-U.S. relationship] will completely break at that time, and we will return to the Mao era.”
- “Now there are three forces struggling [at the high-level of the CCP]. Of course there are those forces who do not want a planned economy, where whether or not [those forces] can change the climate is uncertain. It is dangerous for us to discuss which road to take, so let’s not go into this matter.”
- “Presently, [the CCP authorities have made] many reform measures as a show to the Americans and complement the Sino-U.S. trade talks. Actually when the talks are successful, [the CCP] may not necessarily act in accordance [with the reform measures] … Do you think that the government acts in accordance with the documents it issues? There is no such thing…”
OUR TAKE
1. From the issues discussed (the CCP’s economic and financial strategies, factional struggle, etc.), it is possible that the person in the recording is a senior CCP official who is at least at the vice-ministerial level, or a technocrat official in charge of economic work or related fields. The audience to whom he is addressing could be Chinese businessmen.
While the recording was only circulated recently, it appears to have been made sometime in May before U.S. President Donald Trump announced additional tariffs on the remaining $325 billion worth of Chinese goods (May 5) and before Liu Shiyu was purged on May 19.
2. Many of the points made in the recording are what we previously analyzed or predicted, and some of the things have already come to past.
In our China 2019 outlook, we predicted that:
The CCP factional struggle will escalate.
The renminbi will likely “drop below the level of 7 yuan to the U.S. dollar.”
China’s “wave of unemployment will become more serious.”
“Food shortages may worsen, and the price of staple food may rise sharply.”
On Jan. 27, we analyzed that Liu Shiyu’s move to the All-China Federation of Supply and Marketing Cooperatives indicates that “the CCP is preparing in advance for the worst should Sino-U.S. trade talks irrevocably break down.” Also, the CCP is “making emergency preparations to resolve social unrest in the event that Sino-U.S. trade talks fail and the regime is forced to partially ‘close up’ China.”
On May 1, we wrote that: “The CCP will likely delay the full implementation of the trade agreement, and then find ways to delay again during the mediation phase when the U.S. enforcement mechanism kicks in. Ultimately, the CCP will do its best to give Trump an ‘empty’ victory in the trade war while exploiting delays to put itself beyond defeat and advance its domination agenda.”
On June 6, we wrote that “the CCP could rollout a gold-backed currency to replace the dollar in the global financial system and win the ‘currency war’ with America.”
The recording indicates that the CCP regards the U.S. as an enemy. We have alluded to this in our response to an open letter to President Trump titled “China is not an enemy” that was signed by a hundred U.S. scholars, former diplomats and military officials, and business leaders.
3. The recording notes that the factional struggle in the CCP is very intense and alludes to its “you die, I live” nature, observations which we have made in multiple articles.
SinoInsider has been consistently tracking and analyzing the CCP factional struggle. Our understanding of the factional struggle has allowed us to forecast China and its geopolitics with a high degree of accuracy. Experts who claim that there is “no discernible opposition to Xi Jinping” or that “there is no evidence” of internal power struggles in the CCP, as well as those who accept such analysis, are prone to Black Swans.
Businesses, investors, and governments must acknowledge and have an accurate read of the CCP factional struggle to make avoid risks and discover opportunities before the advent of tremendous change in China.
