SinoInsight 1
On Feb. 22, the Beijing-based Duowei News claimed that six Chinese generals were arrested in the wake of the official announcement of former CMC chief of joint staff Fang Fenghui’s life imprisonment sentence on Feb. 20.
The six generals are Xu Linping (deputy commander of the Western Theater Command), He Qingcheng (deputy commander of the Western Theater Command), Diao Guoxin (political commissar of the PLA Ground Force), Wang Xixin (deputy commander of the Northern Theater Command), Zhao Yiliang (deputy commander of the PLA Air Force), and Pan Changjie (deputy commander of the People’s Armed Police).
OUR TAKE
We have not been able to independently corroborate Duowei’s reporting. However, should Duowei’s claim prove to be accurate, the purge of senior military leaders is in line with the current trend of the CCP factional struggle and Xi Jinping’s effort to consolidate power.
Based on the downsizing of the Central Military Commission at the 19th Party Congress and other signs, we believe that Xi’s control over the military is not yet secure. The PLA presents a coup risk to Xi, and he needs to constantly reshuffle and clean out the ranks to wither down the opposition.
SinoInsight 2
On Feb. 22, the 19th Politburo held a study session on the topic of improving financial services and forestalling financial risks.
According to state media, Xi Jinping called on the regime to:
- Guard against financial risks, and especially systemic financial risks;
- Establish a robust “creditworthy” mechanism;
- Supervision of senior officials of financial institutions and regulators should be enhanced;
- Anti-corruption efforts in the financial system should be strengthened;
- A regulatory accountability system should be established, and officials who cause major financial risks due to their lax regulation, cover-ups or decision-making failures must be held accountable and be severely punished.
- Make effort to address the situation where the costs of legal and regulatory breaches in the financial sector, and especially in the capital markets, are too low.
OUR TAKE
1. Given China’s worsening economy, Xi’s exhortations at the Politburo study session are not attempts at scaremongering. Indeed, Xi has acknowledged that China faces substantial financial risks, and there is indeed a possibility of systemic financial risks.
2. Xi’s focus on corruption and the supervision of financial regulators suggests an increase in the intensity of the anti-corruption campaign in the financial sector. Officials in the financial sector are at high risk of being investigated and slapped with punishing sentences. Financial regulation will also likely become more stringent.
3. Increased regulation, however, could make it harder for enterprises to secure financing in the short-term. Entrenched interest groups in the financial sector could also pushback against Xi’s effort to tighten regulation. Beijing continues to be stuck between a rock and a hard place on trying to rescue the economy while fighting the systemic corruption which is the root cause of current troubles.