SinoInsight 1
Taiwan held its presidential election on Jan. 11. Incumbent Republic of China leader Tsai Ing-wen retained the presidency by winning almost 8.2 million votes, or over 2.6 million more than her main rival, Kuomintang’s Han Kuo-yu. Tsai’s total vote tally was also more than any ROC leader since Taiwan elected its first president by popular vote in 1996. Poll turnout was 75 percent, or 10 percent higher than the previous presidential election four years ago.
After her victory, Tsai said to a cheering crowd, “Today we have defended our democracy and freedom, tomorrow let us stand united to overcome all challenges and difficulties.” She also called on Beijing to stop threatening military force against Taiwan, and that “democratic Taiwan and our democratically elected government will not concede to threats and intimidation.”
In a statement on Taiwan’s election, U.S. Secretary of State Mike Pompeo congratulated Taiwan for “once again demonstrating the strength of its robust democratic system.” He added that Taiwan’s democracy “coupled with a free market economy and a vibrant civil society—makes it a model for the Indo-Pacific region and a force for good in the world.”
“The United States thanks President Tsai for her leadership in developing a strong partnership with the United States and applauds her commitment to maintaining cross-Strait stability in the face of unrelenting pressure,” Pompeo said in the statement.
Meanwhile, Tsai Ing-wen’s ruling Democratic People’s Party won 61 out of 113 seats in Taiwan’s legislature, down from 68 seats. The KMT won 38 seats, three more as compared to the last election.
OUR TAKE
1. The re-election of Tsai Ing-wen as Taiwan president can be viewed as a victory for freedom and democracy in the face of the People’s Republic of China’s encroaching authoritarianism and subversion in the Indo-Pacific region. A majority of Taiwanese people are aware of the fact that the island’s values and democracy cannot be taken for granted, particularly after seeing the bleak result of the CCP’s “one country, two systems” implementation in Hong Kong.
Our early read of sentiment on the ground suggests that the younger generation of Taiwanese (Gen Y and older Gen Z) believe in the preservation of democracy and are clearly aware of the CCP’s efforts to infiltrate, interfere, and subvert Taiwan’s democracy. “Anti-red/CCP” sentiments will gradually become more and more mainstream in society as the younger generation of Taiwanese gradually become the mainstream.
2. Based on our analysis, there are two main factors for Han Kuo-yu winning over 5.5 million votes and the KMT gaining three additional seats in the Taiwanese legislature. The first is ingrained political loyalties towards the KMT in the older generation of Taiwanese (Gen X). The second is the success of long-term CCP influence and interference operations (propaganda, subversion, inducement, etc.) in Taiwan.
Han and the KMT’s performance in the Taiwanese presidential and legislative elections suggest that the CCP has been able to influence and manipulate Taiwan’s heavily partisan media environment to a substantial degree despite counterpropaganda efforts by the Taiwanese government and its allies, as well as recent geopolitical developments that spotlight the CCP regime’s oppressive and pernicious behavior (the pro-Beijing Hong Kong government’s heavy-handed handling of the Hong Kong protests, the Wang Liqiang incident, mass detentions in Xinjiang, the Sino-U.S. “new cold war,” etc.). Put another way, the CCP’s preferred candidate and political party might not have won the Taiwanese elections, but the CCP’s ability to interfere politically in Taiwan should not be underestimated or dismissed.
3. The outcome of the 2020 Taiwanese elections would boost the global anti-CCP bloc and give countries more confidence in effectively countering CCP political interference. The elections’ outcome will likely also benefit Taiwan’s push to strengthen its relations and better cooperate with the international community.
Taiwan’s international standing could rise in 2020, and if so, would affirm our China 2020 outlook prediction that “despite global economic woes and geopolitical uncertainties, Taiwan’s economy will continue to grow and improve.”
4. The U.S. will likely be encouraged to strengthen exchanges and cooperation with Taiwan, as well as expand efforts to counter the CCP by leveraging Taiwan’s Chinese-language environment and culture.
SinoInsight 2
On Jan. 9, the Central Party History Research Institute updated its website to show that Wang Zhimin is now serving as the institute’s deputy director (while the post is a deputy ministerial position, Wang retains his full ministerial rank). The Central Party History Research Institute deputy director post is considered a sinecure job.
On Jan. 4, Wang was replaced as Hong Kong Liaison Office director by Luo Huining.
OUR TAKE
1. The CCP currently has no need to make concessions in Hong Kong or “admit” that it mishandled the situation because it has already failed to decisively interfere in and manipulate the outcome of the 2020 Taiwanese presidential election. Hence, the transferring of Wang Zhimin to a sinecure position instead of punishing him is in line with the CCP’s inclination to never admit to its mistakes.
2. Wang’s transfer to the Central Party History Research Institute is revealing of Xi Jinping’s present political strength.
On the one hand, Xi appears to be powerful enough to “protect” one of his own (Wang’s career progression suggests that he is in Xi’s camp) despite Wang having performed unsatisfactorily in suppressing the Hong Kong protests and preventing the city’s pro-democracy camp from gaining a historic victory in local district elections.
On the other hand, Wang’s transfer to a sinecure job suggests that Xi might not have enough “quan wei” just yet to remove factional opponents in key Hong Kong posts (such as Hong Kong and Macao Affairs director Zhang Xiaoming) and install Wang in their stead.
There is a third possibility: Xi needs to calm things down in Hong Kong for the time being, gather fresh intelligence on the ground, and figure out more clearly where things stand before making a definitive move. Xi could make personnel changes again after hearing reports from the new Hong Kong Liaison Office chief Luo Huining.
3. Whether or not Xi has sufficient “quan wei” will determine whether the CCP adopts a tougher or softer approach to Hong Kong in the days ahead. How and when Xi deals with Zhang Xiaoming will offer clues as to how he decides to handle Hong Kong; if Zhang is sidelined, then Xi could be looking to “soften” the CCP’s Hong Kong policy (at least from surface impressions) and prioritize the swift restoration of Hong Kong’s economy.
It should be noted that the Hong Kong people will unlikely abandon their cause (five demands, pro-democracy, anti-CCP, etc.) regardless of what the CCP does in terms of Hong Kong policy. There could be reduced street protests, but the Hong Kong people could get more involved in legislative politics as they seek a political and social breakthrough in the city. The CCP would find itself in a very awkward position if the Hong Kong pro-establishment camp is soundly defeated at the 2020 Hong Kong legislative election.
SinoInsight 3
Signs have emerged recently which suggests bad times ahead for Shenzhen’s property market.
On Jan. 8, the Shanghai E-House Real Estate Research Institute released its Q4 2019 report on rental yield in 50 Chinese cities. According to the report, rental yields in Shenzhen were only 1.4 percent, or second from the bottom of the list of 50 cities.
On Jan. 9, the Shenzhen Housing and Construction Bureau issued a draft notice and solicited comments on the reconstruction of existing commercial and office buildings into rental housing. The draft notice addressed the issues of vacancies in commercial office buildings, proposed to allow existing commercial office buildings to be converted into homes for lease, and proposed financial incentives and subsidies that Party Central could offer to those who went ahead with the conversion.
On Jan. 10, CBRE Group published a review of Shenzhen’s property market and its outlook for 2020. According to the CBRE report, the supply of new office space in Shenzhen reached a record high in 2019 with more than 2 million square meters of space available. The vacancy rate increased by 8.7 percent year-on-year and reached a high of 20 percent at the end of 2019, while average rental fell by 2.4 percent from a year ago.
On Jan. 11, the China Banking and Insurance Regulatory Commission held its 2020 National Banking and Insurance Industry Supervision and Management Work Conference. During the conference, the CBIRC emphasized the need to guard against and resolve financial risks, including clamping down on the sale of property for speculation (房住不炒, or “houses are for living in, not speculation”) and the strict prevention of illegal funds flowing into the property sector.
On Jan. 12, “Data Treasure,” a new media under the state-run Securities Times, published a ranking of housing prices in 320 Chinese cities in 2019. According to the list, the average price of second-hand housing in Shenzhen reached 65,516 yuan at the end of 2019, or a year-on-year increase of 8.65 percent. 2019 also saw Shenzhen overtake Beijing as the city with the most expensive housing prices. In a comparison with three other first-tier cities, second-hand housing in Shenzhen cost 4 percent more than those in Beijing; 20.3 percent higher than those in Shanghai; and 83.4 percent higher than those in Guangzhou.
OUR TAKE
1. The information above are further signs that China’s economy is rapidly worsening and the property bubble is in danger of bursting.
2. Shenzhen’s high property prices and low rental yields are the result of the weakening renminbi and economic deterioration. On the one hand, the People’s Bank of China’s efforts to increase liquidity and devalue the RMB have caused large sums of money to flow into real estate, causing property prices to soar. On the other hand, high property prices in Shenzhen have been contributing to the “hollowing out” local industry as corporations increasingly cannot afford rent; in December 2019, Huawei, which does not seem to be lacking in funds, moved its data center out of Shenzhen amid speculation that it could also move its headquarters in the city.
3. Presently, the benchmark interest rate for three-year bank deposits is 2.75 percent. Rental yields in Shenzhen are as low as 1.4 percent, which is far below the bank’s current interest rate.
The Shenzhen local government’s plan to convert empty office space into rental homes is an attempt to resolve the vacancy and rental problem. The conversions, however, will likely affect current rental rates in Shenzhen and drive rental yields even lower, which will in turn affect property prices.
4. Local issues are not the only factor affecting property prices in Shenzhen. Property prices in neighboring Hong Kong also affect the property market in Shenzhen, and the Hong Kong economy has seen the most serious recession in a decade due to the Sino-U.S. trade war and the anti-extradition bill protests. According to Hong Kong media reports, Hong Kong property company Ricacorp Properties said that the average price of new homes in Hong Kong fell 25 percent in 2019 (or by HK$3.72 million to HK$10.87 million). Also in 2019, the average price of new homes in Hong Kong fell to a four-year low, the largest decline since 2006.
Unless there is a reversal in the Hong Kong situation or the Sino-U.S. trade war, Hong Kong’s property market should continue to worsen in 2020. And the worsening Hong Kong property market will likely cause property prices to fall in Shenzhen, which will in turn affect national property prices in China.