SinoInsight 1
According to a June 17 report by Bloomberg News, Xi Jinping is selecting PRC vice premier Liu He to “spearhead the development of so-called third-generation chip development and capabilities.” Liu, a close Xi ally, is also reportedly “leading the formulation of a series of financial and policy supports for the technology,” Bloomberg wrote, citing people familiar with the matter.
Bloomberg’s sources add that “about a trillion dollars of government funding have been set aside under the technology initiative, part of which will be used by central and local governments to jointly invest in a series of third-generation chip projects.”
In May, Western mainstream media outlets reported information damaging to Liu He, including CCP internal deliberations regarding third-rank vice premier Hu Chunhua possibly replacing Liu as the top PRC envoy to Washington, as well as Liu’s son’s involvement in big-money deals after Liu He became vice premier in 2018 (see here and here for earlier analysis). Observers at the time speculated about a Xi-Liu split and Hu Chunhua’s potential rise.
OUR TAKE
1. Unlike earlier mainstream media reports about Liu He, the information in the Bloomberg piece is positive for Liu and the Xi Jinping camp in general. It is possible that the Xi camp is behind the news of Liu He being tapped to lead the PRC’s third-generation chip development and capabilities, and the “leak” is intended to both refute speculation of splits in the Xi camp and float a trial balloon to gauge present intra-Party resistance towards potential key personnel reshuffles at the 20th Party Congress in 2022.
Semiconductors have become a crucial issue of regime survival for the CCP as China’s relations with the rest of the world deteriorate. The PRC is being slowly “suffocated” by U.S. chip sanctions, while countries are shifting their supply chains out of the mainland. The CCP’s looming economic and technology crisis, however, provides Xi with the perfect excuse to advocate for retaining Liu He in the top leadership even though the latter has already passed the retirement age norm for top officials. Xi has extremely few senior officials of Liu He’s caliber and loyalty to count on—aside from being a close confidant, Liu has the required economic expertise to oversee semiconductor development and related policies.
Being put in charge of the critically important semiconductor portfolio allows Xi to argue that Liu He is indispensable to the regime’s survival-dominance agenda, and gives the latter a chance of retaining his current post or even securing even higher office after the 20th Party Congress. Keeping Liu in top office would indicate that Xi Jinping has sufficient “quan wei” to overcome Party elite opposition to his rule.
2. That Xi Jinping could be signaling his desire to retain Liu He shows that Xi and his allies are still relatively lacking in influence even at this stage of his leadership. Also, Xi continues to struggle to bring the PRC bureaucracy under his sway despite nearly nine years in office.
We mentioned on several previous occasions that the Jiang Zemin faction dominates the CCP “permanent bureaucracy,” given its nearly two decades of direct influence over the regime. The unceasing anti-corruption campaign and fresh rectification campaigns targeting regime apparatuses with heavy Jiang faction influence (political and legal affairs, etc.) indicates that Xi is still hard at work cleaning out entrenched factional and interest networks.
Since taking office in 2012, Xi has reshuffled several of his allies, loyalists (or professed loyalists), and former provincial government colleagues to key positions. However, Xi’s men also need time to do their own reshuffling and get their respective bureaucracies in order and behind Party Central with “Comrade Xi Jinping at the core.” Ideally, Xi would need 15 or even 20 years (as long as the Jiang faction’s era of dominance) to groom and promote a generation of officials who are truly loyal to him rather than his factional rivals. This means that Xi must push for a third term to genuinely consolidate his rule and ensure his personal well-being after stepping aside.
The Jiang faction and the “anti-Xi coalition” are well aware that Xi is desperate for a third term, and that another five years of Xi would mean their utter demise as a political force. Hence, they have massive incentive to marginalize (force him to designate a successor and revert key decision-making to the “collective leadership”) or even oust Xi before the 20th Party Congress.
3. We noted in our 2020 Special Report that the character of factional struggle in the CCP elite has shifted from “you die, I live” (你死我活) to “perish together” (同歸於盡)—vying interests in the PRC no longer take regime survival as an imperative so long as they believe it possible to survive in a post-communist China. The various developments relevant to CCP factional struggle (domestic and external) that we have covered in newsletters since the start of this year are corroborating the analysis in our Special Report.
We anticipate the factional struggle intensifying and becoming more obvious in the second half of 2021. Businesses, investors, and governments must track CCP elite politics and create contingencies for political Black Swans in China.
SinoInsight 2
June 17
The Hong Kong police’s national security department arrested five executives and editors at pro-democracy newspaper Apple Daily and its parent company Next Digital on suspicion of “collusion with a foreign country or with external elements to endanger national security” (Article 29 of the Hong Kong National Security Act).
The executive and editors are:
- Cheung Kim-hung (Next Digital chief executive)
- Tat Kuen-chow (Next Digital executive director)
- Ryan Law (Apple Daily chief editor)
- Cheung Chi-wai (Apple Daily chief executive editor)
- Chan Puiman (Apple Daily deputy chief editor)
On the same day, Hong Kong police raided Apple Daily’s headquarters with more than 500 members of the Police Tactical Unit and national security officers.
Police action against Apple Daily drew widespread local and international backlash. Eight Hong Kong media unions issued a joint statement criticizing the move, noting that the police action will panic the industry and cause media outlets and the public to worry about the “weaponization” of the Hong Kong National Security Law. The Hong Kong News Executives’ Association also expressed concern in a statement, but stressed that journalists must abide by the law. Meanwhile, the United States, the United Kingdom, and European Union issued statements condemning the national security action.
The people of Hong Kong showed their support for Apple Daily by buying up copies of the newspaper. A day after the raid on June 18, Apple Daily printed up to 500,000 copies to meet demand.
June 18
The Hong Kong District Court found five of eight defendants involved in the “721” Yuen Long Incident guilty of rioting and wounding offenses. The court revoked bail for all defendants except Choi and postponed sentencing until July 22.
The Yuen Long Incident on July 21, 2019 saw over a hundred men in white shirts indiscriminately attack anti-extradition bill protesters in black shirts and passers-by at the Yuen Long MTR station and its vicinity. At least 45 people were injured by the attackers, including one pregnant woman, according to news reports. Members of the public identified the white-clad assailants as triad members, something that the Hong Kong police later confirmed. The public also accused the police of colluding with triad elements because they took 40 minutes to respond to reports of indiscriminate attacks and did not arrest the triad elements; the police were even filmed having a chat with club-wielding men in a white shirt before letting them off.
The actions of triad elements in Hong Kong during recent pro-democracy protests and in attacking persecuted groups like Falun Gong suggest that they are aligned with the Jiang Zemin faction.
OUR TAKE
1. The punishing of five men involved in the Yuen Long Incident and the crackdown on Apple Daily is the latest in a series of contradictory messages from Beijing on Hong Kong that clarify Xi Jinping’s intentions for the city. In consideration together with Beijing’s rectification of the Hong Kong and Macau apparatus and marginalization of Hong Kong elites (particularly the “Ding Rights” incident in March), the Yuen Long guilty verdicts suggest that the Hong Kong extradition bill touted by the Carrie Lam government back in 2019 likely did not originate from Xi, but from his factional rivals.
The “anti-Xi coalition” has strong incentive to incite trouble in Hong Kong with the goal of forcing Xi to clamp down tightly on the city (via the national security law, changing election laws, suppressing press freedoms, etc.) and reinforce the image of him being an iron-fisted dictator. U.S. sanctions and international condemnation of Xi’s actions in Hong Kong further undercut his “quan wei” and make the Hong Kong issue a negative part of his political legacy. Worse for Xi, eroding the “one country, two systems” model essentially dooms any prospects of seeking “reunification” with Taiwan under the system while making it harder for the CCP to “assimilate” the ROC through non-kinetic means. Yet Xi’s only option is to get tough on Hong Kong lest the city transforms into an “anti-Xi” and “counter-revolutionary” base from where his domestic and foreign enemies can undermine his leadership.
Xi’s Hong Kong moves suggests that he is primarily concerned with bringing the city under control and not ruining Hong Kong’s status as a financial hub. Local establishment elites appear to be realizing what Xi is up to and the fate of the current Hong Kong government leadership. On June 8, Charles Ho, the former chairman of the pro-Beijing Sing Tao News Corporation and a National Committee Member of the Chinese People’s Political Consultative Conference, criticized Hong Kong leader Carrie Lam during a radio interview for lacking vision, refusing to heed advice, and in insisting on pushing the hugely unpopular extradition bill. Ho then urged the Hong Kong people and particularly those who migrated recently to not be too hasty in abandoning the city, saying, “see who’s becoming chief executive in two years before making a decision [to immigrate].”
What Xi might want, however, differs greatly from what he can realistically achieve. As long as Xi heads the CCP and the Party controls Hong Kong, draconian rule will predominate because neither the Party nor Xi can afford to break character without endangering the regime. Investors and governments will be put off from Hong Kong, resulting in its inevitable decline under stronger Party leadership.
2. The police arrests and raid of Apple Daily verify our China 2021 Outlook forecast, namely, that the CCP “will keep using the Hong Kong National Security Law to suppress freedom of speech in the city” while “media outlets who dare to speak out will be targeted to intimidate the rest.” Xi Jinping is undoubtedly looking to check dissent and control public discourse in Hong Kong ahead of the CCP’s centennial celebrations in July.