SinoInsight 1
On Oct. 30, Chile canceled the Asia-Pacific Economic Cooperation summit in November to focus on resolving unrest in the country. The cancellation affected United States President Donald Trump’s plan to sign a “phase one” interim trade deal with China at the APEC meeting, which was originally scheduled from Nov. 16 to Nov. 17.
According to a White House statement, the U.S. looks forward to “finalizing Phase One of the historic trade deal with China within the same time frame” of the canceled APEC summit. Reuters reports that the White House plans to offer U.S. locations like Alaska or Hawaii as alternative venues to hold the APEC summit which China could accept. Meanwhile, China has suggested Macau as a replacement venue.
Previously, Trump told reporters on Oct. 16 that he will not sign any trade deal with China until he meets with Chinese leader Xi Jinping.
OUR TAKE
1. Whether or not the APEC summit can be convened at an alternative location on such short notice will be a challenge unto itself. However, we believe that no trade agreement will be reached if Trump and Xi do not meet in person for the signing.
We observed earlier that the announcement of the delayed CCP Fourth Plenum came on the same day as Vice President Mike Pence’s more conciliatory second China policy speech, a sign that “both sides have likely reached a mutual understanding on how to proceed with trade negotiations while coping with sensitive political situations at home.” If the White House went out of its way to help out Xi Jinping with his political crisis at home to facilitate progress in the trade negotiations, then President Trump would likely want to meet Xi in person to sign the interim trade deal to get an opportunity learn more about the latter’s situation and figure out his true intentions.
On Xi Jinping’s end, a face-to-face meeting with Trump in the right setting would grant him an invaluable bargaining chip to use as political leverage in the CCP factional struggle.
2. For Trump, meeting Xi at a reconvened APEC summit on American soil will likely be the preferred option. The next best option is a high-level meeting with Xi in an allied country (like Japan) or on neutral territory (like Singapore). The White House will unlikely agree to a Trump-Xi summit on Chinese territory (like Macau).
For Xi, getting a state visit to the U.S. with the relevant honors would signal his negotiating prowess and would help boost his political position. This is because the interim trade deal is far from what the Trump administration originally wants and was only reached after months of delaying tactics from the CCP side. If Xi is “rewarded” with a state visit, he can sell it to the CCP as evidence of his successful handling of Sino-U.S. relations and silence political rivals who are taking advantage of the worsening Sino-U.S. relationship to attack Xi and impede his policies. Xi might not mind a meeting in certain U.S. allied countries (the PRC is trying to build better relations with Japan) or neutral territory (Singapore is close with China).
3. If Trump and Xi cannot hold a summit due to problems on the PRC side, this means that Xi’s domestic situation is very critical and political Black Swans could be just around the corner. Businesses, investors, and governments must track CCP elite politics and the factional struggle to navigate to Black Swan political risks and seize hidden opportunities.
SinoInsight 2
On Oct. 29, Cui Tiankai, the PRC ambassador to the United States, attended the Bush China Conference in Houston and delivered a keynote address.
Cui said: “Communist Party of China, as China’s governing party, has been a faithful representative and guardian of the interests of the Chinese people in the march of the past century. It has made huge sacrifices for the independence, development and rejuvenation of the Chinese nation and delivered remarkable achievements. That’s why it is so deeply trusted and widely supported by the Chinese people. To deny this is to deny China’s history of the past 100 years.”
Cui added: “To draw a line between the Party and the people is to challenge the entire Chinese nation. Claiming to welcome a successful China on one hand, and defaming and working to overthrow the very force that leads the Chinese people towards success on the other, have you ever seen anything more hypocritical and outrageous than this?”
OUR TAKE
1. Cui Tiankai’s remarks above are textbook CCP propaganda intended to conflate China and the Chinese people with the Chinese Communist Party. We previously explained why the CCP cannot claim to represent the Chinese civilization or people.
Cui’s points can be easily challenged:
- The CCP, which promotes Marxism-Leninism-Mao Zedong Thought, is not representative of China’s 5,000-year-old civilization and culture. In fact, the CCP works to systematically destroy Chinese culture, particularly during the Cultural Revolution. Authentic Chinese culture is mostly preserved in Taiwan, semi-autonomous Hong Kong, and overseas Chinese communities around the world.
- An examination of the PRC’s dismal human rights record shows that the CCP strives to control and suppress the Chinese people, not guard their interests.
- Cui claims that the Chinese people “deeply trust” and “widely support” the CCP. But Chinese people with the means and CCP officials continue to vote with their feet by migrating to other countries in vast numbers each year.
- There is nothing “hypocritical” or “outrageous” in recognizing that China and the Chinese people are successful due to their hard work and endeavor while acknowledging that China and the Chinese people could be even more successful if the CCP was not in charge.
2. Cui’s remarks above, and particularly his assertion that “to draw a line between the Party and the people is to challenge the entire Chinese nation,” indicates that the CCP is feeling increasingly worried and paranoid about ideological conflict with the United States.
We noted an ideological turn in U.S. policy towards China in August 2018, and explained why the CCP fears an ideological battle with America in May this year. The recent controversy over a South Park episode on China, as well as the NBA and Activision Blizzard’s self-censorship over support for the Hong Kong protests show that the ideological turn in the Sino-U.S. relationship has moved down to the grassroots.
3. We believe that the ideological turn in the Sino-U.S. relationship will become more and more prominent going forward. And ideological conflict between the PRC and America will imperil trade negotiations and any rapprochement efforts. Multinational corporations and countries will eventually have to pick a side to minimize losses as the PRC-U.S. rivalry escalates and geopolitical uncertainty rises.
Businesses, investors, and governments must account for growing ideological confrontation between the U.S. and the PRC to avoid political risks in China and seek out other opportunities.
SinoInsight 3
On Oct. 28, anti-corruption authorities in Luoyang City dismissed Kang Fengli, the bank chairman of a local Henan Yichuan Rural Commercial Bank branch, and took him away for questioning. The next day, depositors rushed to withdraw their savings after rumors spread that Kang had been arrested and the bank was going to shut down. On Oct. 30, the Luoyang anti-corruption authorities officially announced that Kang had been placed under investigation for “suspected serious violation of discipline and rules.”
After the bank run incident broke out, the Yichuan Party and county local authorities jointly issued an urgent notice refuting the bank run and claiming that “the bank belongs to the country and won’t encounter problems.” The Yichuan police also announced on its WeChat account that it had arrested a 29-year-old woman for “fabricating facts and disrupting social order” by spreading rumors about the imminent collapse of a rural bank (the bank in question was not named). Meanwhile, at least one Henan Yichuan Rural Commercial Bank branch deliberately stacked walls of cash behind its counter as if to show that it was not short of money, according to a widely circulated photograph on Chinese social media.
According to Chinese commercial security service Tianyancha, many of Henan Yichuan Rural Commercial Bank’s shareholders were listed as “untrustworthy” by the Chinese courts.
OUR TAKE
1. We have repeatedly warned about severe risks in China’s financial system this year. In our China 2019 outlook, we noted that “some financial institutions may go bankrupt.”
Several bank-related incidents have affirmed our analysis:
- In May, PRC authorities took control of Baoshang Bank in Inner Mongolia for a year.
- In July, the Bank of Jinzhou in Liaoning Province was “rescued” by three state-owned financial institutions.
- In August, Shandong authorities took over Hengfeng Bank.
- In September, Peng Chun, the chairman and CEO of China’s sovereign wealth fund China Investment Corporation warned that bank bankruptcies could become a “fact of life” and “financial failures” on the mainland could become the norm.
2. We believe that the CCP is still able to mobilize funds to rescue small banks from bankruptcy and revive depositor confidence in the short-term. However, the CCP’s ability to carry out financial rescue will diminish over time with the Chinese economy deteriorating rapidly and with the spread of financial risks. The CCP regime can still mobilize the armed police or the military to deal with bank runs, but the mobilization of security forces instead of financial support would indicate that the CCP is facing an unprecedented crisis and risks.
Businesses, investors, and governments need to decipher political and financial danger signs in China from open-source information to be forewarned about impending trouble on the mainland and make preparations.
