SinoInsight 1
The Taliban’s rapid recapture of Afghanistan came amid a withdrawal of U.S. forces that commenced in May and was scheduled to conclude by Aug. 31. America’s exit became chaotic, with many comparing scenes of people clinging to a U.S. Air Force plane preparing to take off and a Chinook ferrying American diplomats to the Kabul airport with images from the Fall of Saigon in 1975. Meanwhile, Taliban fighters seized potentially billions of dollars worth of abandoned U.S. and Afghan military weapons and vehicles.
After taking over Kabul, the Taliban announced that it would hold talks to form an “open, inclusive Islamic government.” It also pledged to protect the rights of women “within the framework of Islam” and not seek revenge against Afghan government workers or soldiers. Taliban spokesman Suhail Shaheen told BBC, “We are the servants of the people and of this country.” However, media outlets have reported that the Taliban are already harassing government workers, beating and even killing protesters, and forcing women to marry Taliban fighters in Taliban-held areas.
The Biden-Harris administration initially faulted the Trump administration for what happened in Afghanistan, but later placed the bulk of the blame on the Afghan military’s unwillingness to fight. U.S. media and pundits criticized President Joe Biden over the debacle in Afghanistan and for blame-shifting, though some legacy outlets like The New York Times argued that “calamity cannot be laid alone” at Biden’s feet.
Commentators also argue that the Biden-Harris administration’s handling of the Taliban takeover damages U.S. credibility and makes the administration’s pledge to stand by allies and partners ring hollow, particularly in the face of a rising China and on the Taiwan issue. In an interview with ABC News’ George Stephanopoulos on Aug. 18, Biden said, “We made a sacred commitment to Article Five that if in fact anyone were to invade or take action against our NATO allies, we would respond. Same with Japan, same with South Korea, same with—Taiwan.” Biden’s comments raised eyebrows at the time because America’s Article 5 commitment to Taiwan was from 1954 to 1979 and the earlier public remarks of senior officials in the administration indicated that the U.S. would not be returning to that commitment. On Aug. 19, a senior Biden administration official said U.S. policy with regard to Taiwan “has not changed,” according to news reports.
An Aug. 16 national poll found that President Biden’s approval rating had fallen by 7 percentage points to 46 percent, the lowest level since he took office.
The CCP seized the opportunity to gloat and intimidate Taiwan. An Aug. 16 Xinhua commentary titled, “The Fall of Kabul Rings the Funeral Bell of U.S. Hegemony” wrote that what happened in Afghanistan “marks the collapse of the international image and credibility of the U.S.” Global Times editor-in-chief Hu Xijin tweeted, “After the fall of the Kabul regime, the Taiwan authorities must be trembling. Don’t look forward to the U.S. to protect them.”
On July 16, Secretary of State Antony Blinken and PRC foreign minister Wang Yi spoke about “developments in Afghanistan, including the security situation and our respective efforts to bring U.S. and PRC citizens to safety,” according to a State Department statement. Per PRC state media reports, Wang told Blinken that “the United States cannot on one hand actively seek to contain and suppress China and harm China’s legitimate rights and interests, and on the other hand hope for China’s cooperation.” Previously on July 28, PRC foreign minister Wang Yi met with Taliban co-founder and political office chief Mullah Abdul Ghani Baradar in Tianjin, ostensibly to talk about U.S. withdrawal and Afghanistan’s political future.
OUR TAKE
1. The Taliban’s “benevolent ruler” rhetoric after capturing Kabul is reminiscent of the CCP following the latter’s seizure of mainland China from the Kuomintang in 1949. In particular, the phrase, “we are the servants of the people and of this country” would send a shiver down the spine of Chinese people familiar with the CCP’s similarly-worded pledge upon taking Beijing and the calamitous years that followed. It is possible that the Taliban took a leaf out of the CCP’s playbook to create a more favorable impression of its retaking Afghanistan and avoid immediate international retaliation. The CCP could have even recommended that the Taliban pursue its current strategy during their recent engagements.
Much like the CCP, the Taliban’s rhetoric is empty when juxtaposed with their actions. Nobody should believe that the Taliban have suddenly transformed into peaceful, respectable humanitarians overnight. We expect the Taliban to reimpose brutal rule over Afghanistan even as it issues propaganda to appear more “loveable.”
2. The CCP would view the fall of Afghanistan and vacant U.S. response as a propaganda coup and further verification of its “the East is Rising, the West is in decline” (東升西降) narrative. Xi Jinping would also believe that America’s Afghanistan debacle proves that “time and momentum” are on the CCP’s side despite “the world seeing turbulence unprecedented in the past century,” with “opportunities … outweighing challenges.”
The CCP is already latching on to the Afghanistan issue to advance its domination agenda. “Wolf warriors” like Hu Xinjin and state media have opportunistically predicted U.S. failure to defend Taiwan should the PLA invade, a menacing psychological warfare move designed to encourage and deepen fractures in Taiwan over the reliability of U.S. support and the prospect of “reunification” with the PRC. The people and government of Taiwan must be cognizant of the CCP’s greater propaganda game and avoid internal squabbles that weaken its resolve against the mainland threat.
Indeed, Xi and the CCP are unlikely to go beyond propaganda on Taiwan, at least for the moment. The PRC is presently struggling with a “perfect storm” of domestic and external problems, and can ill-afford to invade Taiwan. Xi is also unlikely to seriously contemplate taking Taiwan before the 20th Party Congress because regime “rectification” and stabilization are the priority as he seeks a norm-breaking third term in office. That being said, displays of extreme weakness from the U.S. are dangerous for Taiwan, and could embolden the CCP to accelerate its agenda for dominating Taiwan and push for greater international hegemony through means other than war.
Meanwhile, the CCP’s “wolf warrior” approach over the Afghanistan issue could potentially backfire if more nations recognize the true face of the regime, guard themselves against its influence operations, and strengthen the global “anti-CCP” coalition. On the flipside, rushing to kowtow to the CCP will only reinforce its biases and encourage more reckless behavior from the regime.
3. The Biden-Harris administration cannot be entirely blamed for the Afghanistan disaster, which has been decades in the making. However, the administration’s policies and projection of weakness (especially in dealing with China; see here and here) since taking office in January, as well as its lack of action to the fall of provincial capitals in Afghanistan, are most certainly crucial factors behind the Taliban’s decision to recapture the country in the manner it did.
In view of mid-term elections in 2022, probes into the legitimacy of the 2020 presidential election, and “great power competition” with China and Russia, the Biden-Harris administration could next endeavor to restore America’s damaged credibility over Afghanistan and bolster its flagging domestic support. To that end, the administration could focus on COVID-19 management (including vaccine distribution at home and abroad), climate change, social support measures, etc. as it seeks to get back in the game.
The Biden-Harris administration could possibly signal “getting tough” on China as it seeks to win over the American public (but not business groups), find bipartisan support, and reassure allies and partners (particularly Taiwan). For instance, the administration could issue a scathing intelligence report regarding the CCP’s role in covering up a “lab leak” incident in Wuhan, criticize the CCP over its human rights violations (including Hong Kong), sell more arms and dispatch representatives to Taiwan, delay doing away with the Trump administration’s tariffs, etc. But if the Biden-Harris administration prioritizes rapprochement with the PRC (see our analysis of the administration’s interim strategies), it may resist playing the “China card” even as it struggles to find “wins” to paper over its Afghanistan fiasco.
4. Businesses, investors, and governments may believe that America’s handling of the Afghanistan withdrawal is a sign that the U.S. is no longer capable of being the “world’s policeman” and that its global hegemony may be in decline.
However, it does not follow that the PRC is the better bet now. If anything, the CCP’s draconian coronavirus measures, crackdown on tech companies, and oncoming trouble in the property and financial sectors with the ticking time bomb that is Evergrande make it highly risky to bet on China under the CCP.
SinoInsight 2
According to mainland media reports, prominent Chinese economist Ren Zeping said in speech on Aug. 9 that downward pressures on the Chinese economy would gradually increase in future, shifting trends from stagflation to recession.
Aug. 17
1. The PRC National Bureau of Statistics released China’s economic data for July.
Retail sales rose 8.5 percent from a year ago to 3.4925 trillion yuan, lower than the 11. 5 percent forecasted by Reuters and down 3.6 percent from June.
The national producer price index (PPI) rose 9 percent year-on-year, with PPI in May and June being up 9 percent and up 8.8 percent respectively. Also, prices in the means of production increased by 12 percent from the previous month, but only 0.3 percent from a year ago.
2. Mainland media reported on a recent article by Xu Gao, an aide to the president and chief economist of BOC International (BOCI). Titled “The Excessive Cooling of Internal Circulation” (過度冷卻的內循環), the article noted that China’s macroeconomic data for July 2021 showed weakening across the board except for import and export data, with domestic demand weakening to worrying levels.
Xu Gao acknowledged in his piece that his optimism after the release of China’s first-quarter economic data has failed to be substantiated. He believes the “excessively cooled” domestic circulation is due to extremely tight domestic macroeconomic policies, and that the same policies are preventing external circulation from driving internal circulation (per Xi Jinping’s “dual circulation” policy).
3. Xi Jinping presided over the tenth meeting of the Central Financial and Economic Affairs Commission. The meeting focused on the two major issues of promoting “common prosperity” (共同富裕), as well as preventing and resolving major financial risks while doing well in financial stability and development. The Xinhua report of the meeting mainly reported on the part of the meeting promoting “common prosperity,” while devoting only two paragraphs to the latter issue.
Key points in the meeting include:
1. The CCP’s “Second Centenary Goal” is meant to promote “common prosperity” for all and consolidate “the Party’s long-term governance.”
2. The CCP wants to create more “inclusive and fair conditions, unblock upward mobility channels, and create opportunities for more people to get rich.”
3. The CCP will “persevere in public ownership as the mainstay” alongside the “common development of multiple ownership economies,” and will allow “some people to get rich first.”
4. The CCP will establish a “scientific public policy system” and form a “reasonable distribution system for everyone.” The focus is on strengthening the establishment of “basic, universal, and comprehensive people’s livelihood guarantees.”
5. The CCP will establish basic institutional arrangements that coordinates and supports primary distribution, redistribution, and three-fold distribution (分配、再分配、三次分). Also, the CCP will increase the regulation and improve the precision of taxation, bolster social security, payment transfers, etc.
6. The CCP will expand the proportion of middle-income groups and “form an olive-shaped distribution structure with a large middle and small ends.”
7. The CCP will promote the “equalization of basic public services, increase investment in universal human capital, and improve the system of elderly and medical security, the system of underwriting assistance, and the system of housing supply and security.”
8. The CCP will encourage high-income groups and enterprises to “give back to society more.” The CCP will also look to “clean up and standardize unreasonable incomes, rectify the order of income distribution, and resolutely ban illegal income.”
9. The CCP will protect property rights and intellectual property rights, protect legal enrichment, and promote the regulated and healthy development of various types of capital.
10. The CCP will promote “common prosperity” of the people’s “spiritual life” (人民精神生活) and strengthen core socialist values. The CCP will also strengthen the promotion of “common prosperity” in the public discourse.
Preventing and resolving major risks
The 19th Party Congress regarded prevention and resolution of major risks as one of three “tough battles,” and the Party has since “achieved initial results over the past few years.”
Also, the State Council’s Financial and Economic Affairs Commission advanced its work in accordance with the basic principles of “stabilizing the overall situation, overall coordination, policy categorization, and precision ‘bomb disposal’’” (穩定大局、統籌協調、分類施策、精準拆彈), thus “safeguarding the bottom line of preventing systemic financial risks.”
OUR TAKE
1. Our pessimism about the Chinese economy has been affirmed by China’s latest economic data, the observations of Chinese economists, and the CCP’s policies. Beijing can only tout China’s recent trade figures as progress, but growing trade has not done much to rescue the country from broader economic deterioration.
Meanwhile, Xi Jinping’s newly implemented “dual circulation” policy is already running into challenges. The CCP’s latest census reveals a demographic crisis, and Chinese people are consuming less due to the COVID-19 pandemic, inflation, and rising unemployment. Lower consumption and a shrinking population in turn undermines the CCP’s selling point of “mega-scale” markets. Foreign investors have also become hesitant to put more capital in China in light of Beijing’s crackdown on the technology sector and private tuition; as the economist Xu Gao noted, the CCP’s policies are preventing external circulation from driving internal circulation.
Xi runs the very real risk of drastically slowing economic activity in China with his policies, and lack of economic “circulation”—the “life blood” sustaining the regime—threatens the CCP’s survival. However, Xi’s personal interests, factional struggle considerations, and a hostile geopolitical environment has left the CCP General Secretary with no choice but to bring the economy more closely under the Party’s command and eliminate financial risks even if it means sacrificing growth.
Herein lies Xi Jinping’s great dilemma. The CCP’s post-Cultural Revolution political legitimacy was established on being able to bring economic prosperity to the Chinese people. Rapid economic deterioration, increasing unemployment, and coronavirus lockdowns will exacerbate social contradictions and eventually compel the Chinese people to question the CCP’s competency. The tenth meeting of the Central Financial and Economic Affairs Commission (see the next point for analysis) indicates that Xi is resorting to classic communist “redistribution”—“robbing” the minority “landlord” class (China’s wealthy elite) to benefit the 1 billion people in the middle and lower classes—to appease the masses, create “paradise on earth,” and consolidate his and the Party’s control. But “redistribution” runs the risk of further stifling economic activity and engendering fierce elite pushback against Xi. As Xi runs into one “Catch-22” after another from working within the system and with personal political risks piling up, Black Swan events will present him with two options—keep the Party and inevitably perish, or abandon the Party and possibly survive.
2. The CCP has long fallen back on the concept of “keeping pace with the times” (與時俱進) to justify questionable policies, such as recruiting capitalists into the Party. Xi Jinping’s “common prosperity” idea is the latest iteration of “keeping pace with the times” to give grounds to a modern-day wealth confiscation and transfer from the rich and powerful to the masses as Beijing looks to avert a popular uprising.
Here, we decode the 1o points listed under the “common prosperity” in the news section:
Point 1: Maintaining political power is the CCP’s main goal, and providing “common prosperity” to the masses is the means by which the Party plans to achieve its goal. This is in line with the CCP’s “survival-dominance dynamic”; to survive and dominate, the Party can make all sorts of promises and sacrifice anyone.
Point 2: The CCP indirectly “admits” that social mobility “under socialism with Chinese characteristics” is poor, exclusive, and unjust. What the Party does not say is that its monopoly of resources and political system created the social contradictions in Chinese society in the first place, and the worsening of those contradictions is endangering the regime.
Point 3: The CCP is looking to assure capitalists that its increasing leftism is not meant to eliminate private ownership but rather to clamp down on financial oligarchy and ensure more “fairness” in society. There is also a factional struggle element here; those with the proper affiliations will be allowed to “get rich first” while those aligned with Xi’s rivals will be targeted.
Points 4 to 9: To resolve government fiscal shortages and divert funds to its social security projects (including poverty-alleviation and pensions), the CCP is looking to crackdown on high-income groups (corporate executives, celebrities, etc.), increase taxes on the rich (taxes on real estate, luxury goods, inheritance, etc.), and extract more profits from state-owned enterprises in the name of providing “common prosperity” for the masses.
Point 10: The CCP is looking to control the public discourse on bridging the rich-poor gap, win mass support, and consolidate its political power.
3. There are two likely reasons why CCP devoted more attention to “common prosperity” than the prevention and control of financial risks at the tenth meeting of the Central Financial and Economic Affairs Commission.
First, the CCP has already been harping on financial prevention and control in recent years. The core outlook on the problem—maintaining financial stability and delaying an explosive debt crisis—remains unchanged, so Beijing has nothing much to add on that front.
Second, the CCP is well-aware that China’s financial risks are immense and the situation could get out of hand at any moment. To cover-up the problem, avert the triggering of systemic financial risks, and reassure the masses that “all’s well,” Beijing minimized attention to financial prevention and control, and instead focused on the feel-good “common prosperity” policy. And should financial risks explode, the CCP has laid the groundwork to sacrifice the wealthy elite and emerge as the “people’s savior.”