1 US keeps up pressure on China
The U.S. and its allies made several moves in the new year to put China under pressure, including:
Jan. 8
Lieutenant General James Bierman, commanding general of the Third Marine Expeditionary Force and of Marine Forces Japan, told Financial Times that the U.S. and its allies in Asia are emulating the preparations that allowed Western countries to back Ukraine in resisting Russia by getting ready for scenarios like China invading Taiwan.
“Why have we achieved the level of success we’ve achieved in Ukraine? A big part of that has been because after Russian aggression in 2014 and 2015, we earnestly got after preparing for future conflict: training for the Ukrainians, pre-positioning of supplies, identification of sites from which we could operate support, sustain operations,” Bierman said. “We call that setting the theater. And we are setting the theater in Japan, in the Philippines, in other locations.”
Bierman also elaborated on how the U.S. military has been working with Japan and the Philippines in preparing for potential conflict in the region.
Jan. 10
1. A senior official in the U.S. Trade Representative’s office told reporters that the two sides will focus on five areas during their first round of trade negotiations in Taipei between Jan. 14 and Jan. 17, including anti-corruption measures, small- and mid-size enterprise trade, good regulatory practices, certain services regulation, and trade facilitation.
The official said that the U.S. expects to move quickly with Taiwan and does not rule out “early-harvest” agreements as negotiations move forward. “We expect that with Taiwan we’ll reach agreements and they’ll be ambitious,” the official said.
2. The U.S. House of Representatives voted overwhelmingly to create a Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party.
When asked about the committee in a regular press conference, PRC foreign ministry spokesman Wang Wenbin expressed hope that those involved would view the bilateral relationship “in an objective and reasonable light,” proceed from “the U.S.’s own interests and the common interests of China and the U.S.,” and promote the China-U.S. relations “based on mutual respect, peaceful coexistence, and win-win cooperation.”
Jan. 11
1. The U.S. and Japan announced initiatives to expand their security cooperation, including:
- Upgrading U.S. Marine forces in Japan by 2025. The U.S. Marine Littoral Regiment in Okinawa will have up to 2,200 personnel and be equipped with anti-ship missiles.
- Equipping Japan with American Tomahawk cruise missiles, which will give Tokyo “counterstrike capability” to hit targets in mainland China and North Korea in the event of aggression.
- Protecting Japanese satellites, a move previously only granted to NATO allies.
At a press conference, Secretary of State Antony Blinken said, “We agree that the PRC is the greatest shared strategic challenge that we and our allies and partners face.”
Secretary of Defense Lloyd Austin said, “Japan and the United States remain united in our concern over China’s destabilizing actions, and I want to reaffirm the United States ironclad commitment to defend Japan with the full range of capabilities, including nuclear.” When asked if a PRC invasion of Taiwan was imminent, Austin replied, “I seriously doubt that.”
Japanese foreign minister Yoshimasa Hayashi said, “China presents an unprecedented and the greatest strategic challenge. Its foreign policy to recreate international order to serve its self-interest is a grave concern for the Japan-U.S. Alliance and for the whole of the international community.”
2. UK prime minister Rishi Sunak and Japanese prime minister Fumio Kishida signed a defense agreement in London that would allow both sides to deploy military forces in each other’s countries.
When asked about the UK-Japan agreement during a regular press conference, Wang Wenbin said that the Asia-Pacific region was “not a wrestling ground for geopolitical competition.” He added that China is a “cooperation partner for all countries,” and “poses no challenge to anyone.”
Jan. 12
Kurt Campbell, National Security Council Coordinator for the Indo-Pacific, told a forum at the Center for Strategic and International Studies (CSIS) that “perhaps this is the time in 2023 to build some guardrails” in the U.S.-China relationship.
“Although we believe the dominant feature of U.S.-China relations will continue to be competition, we want that to be productive, peaceful competition. And we want very much to channel that in arenas that are good for both of our peoples,” Campbell said.
Scott Kennedy, a CSIS senior adviser and chair in Chinese business and economics, told the forum that Campbell’s remarks indicate that the Biden administration is looking to work with Beijing while pressing China on technology export controls. “2023 will be the year of ‘co-opetition’ with China on economics and technology,” he said, adding that there would likely be more connectivity in the financial sector, not less, between the two economies this year.
Our take
1. The developments above are in line with our analysis in the Dec. 12, 2022 newsletter. We wrote, “The U.S. and its allies appear to be laying the groundwork to turn up the heat on the PRC if Beijing does not cooperate with the West’s climate agenda, adopt the West’s stance on Ukraine, and adhere to the international rules-based order.”
While we noted that the U.S. and its allies have also left “room to lower tensions with China,” they could still “quickly ramp up pressure on China if they determine that Beijing is not sufficiently cooperative or they sense an opportunity to provoke or support leadership change in the PRC.”
2. Japanese foreign minister Yoshimasa Hayashi’s observation that the PRC is an “unprecedented” and “the greatest” strategic challenge, and has a foreign policy “to recreate international order to serve its self-interest,” echoes our past observations.
In July 2018, we wrote that the CCP has been hijacking the U.S.-led, rules-based international order.
In July 2019, we outlined the CCP threat to the globe. “By virtue of its Marxist-Leninist ideology, the CCP’s ultimate goal is world domination. And as long as the CCP is in power, it will keep working towards that goal,” we wrote at the time.
As the international community increasingly comes to a consensus on the CCP threat, more countries will step up efforts to address the challenges that the CCP regime poses.
3. The CCP could view strengthening military alliances and cooperation in the Indo-Pacific region between Western countries and China’s neighbors as a modern containment strategy in the “new cold war” between the PRC and the West. The CCP could even draw references from the Russia-Ukraine conflict and suspect that U.S. efforts to bolster trade with Taiwan and enhance military support with Japan and other neighboring countries are an attempt to “Ukrainify” the region in preparation to provoke the PRC into launching regime-destabilizing acts of aggression within the decade.
PRC foreign ministry spokesman Wang Wenbin’s response to queries about Washington’s recent China moves suggests that Beijing has decided to strike a delicate balance on the topic and appear diplomatic instead of going full “wolf warrior.” The Xi leadership’s meekness, however, damages its credibility in the long run as countries realize that the CCP is a paper tiger and gradually up the pressure on China. Yet Beijing cannot stick to its previous “wolf warrior” approach lest the U.S. and its allies get alarmed and take more immediate measures to address the prospect of “imminent” PRC “aggression.”
What’s next
As external crises worsen for the CCP, Xi Jinping will come under greater pressure at home and face increased political risks. This will compel Xi to address internal dangers first so that he can better gear the regime toward handling external matters. As such, Xi will “turn the knife inward” and step up his anti-corruption campaign to “rectify” the regime and purge remnant rival factional forces.
2 CCP softens diplomatic approach as self-preservation kicks in
The PRC has been noticeably moving away from its “wolf warrior” approach to foreign policy after the 20th Party Congress. Recent examples include:
Jan. 9
1. In a phone call with Russian foreign minister Sergey Lavrov, PRC foreign minister Qin Gang said that China-Russia relations are based on “non-alliance, non-confrontation, and non-targeting of any third party.” This represented a toning down from the “no limit, no forbidden zone, and no ceiling” cooperation between both countries that the PRC started promoting in January 2021.
2. Zhao Lijian, a PRC foreign ministry spokesman and notorious “wolf warrior,” was appointed deputy head of the PRC Department of Boundary and Ocean Affairs.
Jan. 10
The Financial Times reported that a “fundamental reset is taking place in Xi’s foreign and economic policies,” citing Chinese officials and government advisers who claim that “Beijing is putting together policies aimed at improving diplomatic ties that have soured badly and boosting a deeply strained economy.”
Xi’s economic goals are to “restore robust growth to China’s slowing economy, improve the lot of hundreds of millions of Chinese rural workers, stabilize the ailing property market and shore up a crisis afflicting the finances of scores of local governments,” said the officials and government advisers.
The officials and advisers add that Xi’s diplomatic goals are to “improve relations with some countries in the West, after a period which has at times left Beijing feeling uncomfortably isolated. The focus is on ties with Europe, which have been badly damaged by China’s support for its partner Russia throughout Moscow’s war against Ukraine.”
PRC officials also told Financial Times that Beijing is re-evaluating the benefits of its close relationship with Moscow after perceiving a likelihood that “Russia will fail to prevail against Ukraine and emerge from the conflict a ‘minor power,’ much diminished economically and diplomatically on the world stage.” To reassure Europe, Beijing is attempting to show willingness to use its closeness with Moscow to restrain Putin from using nuclear weapons, according to Chinese and European officials. Beijing is also positioning itself as a potential peacemaker who is willing to help the postwar reconstruction of Ukraine, Chinese officials say.
Jan. 11
The Wall Street Journal reported that the PRC will likely appoint foreign vice minister Xie Feng to replace Qin Gang as its new ambassador to Washington, citing people familiar with the matter.
Xie is a “more nuanced operator than some of his openly caustic subordinates,” and his appointment would continue a “gradual tempering of the abrasive ‘wolf warrior’ style that has defined Chinese diplomacy in recent years,” according to the Journal.
Our take
Just as we anticipated in early October 2022, Xi Jinping would “dial down ‘wolf warrior’ diplomacy even more” after securing his political objectives at the 20th Party Congress. Increasing external pressure against China (see newsletter item one) and the need to rescue a rapidly deteriorating Chinese economy make it even more imperative for Xi to adjust his abrasive foreign policy to restore friendships with other countries, attract investments, and avoid a lasting and crippling “containment” of the PRC by the U.S. and its allies.
The “leaks” of Xi’s plan to “rehabilitate” the PRC’s foreign and economic policies to prestigious Western media outlets appear to be part of the Xi leadership’s propaganda effort to ensure that the West does not misunderstand what Beijing is doing and “mistakenly” ramp up pressure against China. By clearly and prominently telegraphing its intentions, the Xi leadership is also likely looking to hype up China’s prospects as it rolls back “zero-COVID” and hopefully reverse the trend of capital outflows.
Businesses, investors, and governments should not be optimistic because Beijing is currently walking back its “wolf warrior” approach. As we wrote in May 2019, “The CCP is notorious for pulling off delaying tactics when its survival is at stake. Delaying tactics buy the Party breathing space and allow it to stay in the game against overwhelming odds. As the Party ‘lives to fight another day,’ it will simultaneously seize opportunities to dominate.”
Put another way, the CCP can be expected to revive its “wolf warrior” diplomacy and resume its revisionist agenda after it believes that it is in the clear of the current “changes unseen in a century.”
3 CCP strengthens its grip over big private companies
The CCP authorities recently continued to bring private capital under its control by taking shares and inserting Party cadres in large companies.
Alibaba, Ant, Jack Ma
Jack Ma, the founder of Alibaba and Ant Group, made moves to relinquish his control over the latter company.
On Jan. 7, Ant Group announced that its founder Jack Ma and nine other major shareholders have agreed to not act in unison when exercising voting rights, but instead vote independently. Ant added that the voting adjustment will not change the financial interests of its shareholders.
On Jan. 8, Alibaba Group announced on the Hong Kong Stock Exchange that Jack Ma would no longer control the majority of voting rights of Ant Group held by Hangzhou Junao and Hangzhou Junhan. Reuters calculated that the changes meant that Ma’s share in Ant had fallen to 6.2 percent, down from over 50 percent of voting rights.
On Jan. 13, several Western media outlets reported that the PRC authorities had acquired special stakes, or “golden shares,” in two Alibaba subsidiaries (Youku Film and Television and Guangzhou Lujiao). The stakes, which are generally equal to about 1 percent of a company, grant board representation and/or veto rights for key business decisions to the government or government-backed firms or funds that hold them.
Shaanxi non-public enterprises
Mainland media reported on Jan. 10 that the Shaanxi provincial Organization Department had selected 25 young CCP cadres from provincial work units to serve as first secretary of Party organizations in key non-public enterprises in the province. One of the 25 cadres, a deputy division director of the Shaanxi provincial education department, was sent to the Xi’an branch of SF Express Group, the largest express logistics service and solution provider in China.
The Shaanxi authorities said that the stationing of cadres in non-public enterprises was done to strengthen Party building in non-public enterprises and “new economic organizations, new social organizations, and new employment groups” as part of “new deployments and new requirements” made at the 20th Party Congress. The move was also made in accordance with the “two unwaverings” (“unwaveringly” support private and public companies) and to help promote the development of private enterprises.
In a Weibo post on Jan. 13, former Global Times editor-in-chief Hu Xijin slammed the Shaanxi authorities for the move without naming them directly. He wrote that it is an “important policy orientation of the country” to restore private enterprise confidence and encourage them to develop freely. Hu added that the coastal provinces were not stationing cadres in non-public enterprises. Later, Hu’s post was blocked or deleted.
Platform economy
On Jan. 7, Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission and People’s Bank of China Party secretary, told state broadcaster CCTV that the “special rectification” of financial businesses of 14 platform companies had been “basically completely,” with a few outstanding issues being promptly resolved. Guo added that the authorities will make the regulation of platform companies more predictable in the future and will promote their sound development.
Guo also noted that the central bank will increase support for private companies as part of an effort to support the economy.
Background
The CCP’s effort to extend its grip over private enterprises through Party building work precedes Xi Jinping. Xi strengthened this effort after taking office.
Our take
1. Given that Xi Jinping has been prioritizing economic rescue after the 20th Party Congress, the CCP’s recent moves to tighten its sway over private sector entities is less an attempt to bring back the planned economy to China and more to preserve and strengthen Party rule amid tough times.
Beijing is also looking to allow major tech companies like Ant Group to go public and bring in much-needed funds after ensuring that they will not pose a political threat to the regime through the so-called “disorderly expansion of capital.” Moreover, Jack Ma’s ceding of control over Ant affirms our previous analysis that Xi was targeting the factional forces behind the company and preventing them from profiting off a record public listing while saddling Beijing with financial risks.
2. It is unclear whether the Shaanxi authorities’ decision to station officials in private enterprises was an “innovative” move by local officials in a less economically developed area to highlight their “political correctness” to Beijing and build political capital, or part of an initiative that Beijing is suggesting that local authorities should pursue, or a bit of both. From Hu Xijin’s commentary, it seems that the first scenario is more likely.
Regardless, the end result will likely be what Hu pointed out, that is, private companies will lose confidence as Party culture-adhering officials intrude in their business and private sector development gets stifled. Instead of preserving the regime, Beijing’s effort to step up Party building in “non-public enterprises” will worsen the economy and increase political risks for the CCP.
Xi’s plans to resuscitate the Chinese economy will be set back further if local officials in other less economically developed regions decide to emulate the Shaanxi authorities in the hopes of scoring political points.
3. Businesses, investors, and governments who are planning for China’s economic recovery post “zero-COVID” do so at their own peril. The systemic deficiencies of the CCP authoritarian dictatorship ensure that Beijing’s efforts to revive the economy will be far less effective than advertised and often prove self-destructive.
What’s next
The CCP will further boost its control over large private firms in China. These companies, and especially those with the ability to influence the masses like internet firms, will likely be made to sell “golden shares” to the authorities. With “golden shares” in hand, the CCP will strive to ensure that those companies develop in a manner that fulfills the regime’s political needs.
4 Hong Kong court rejects gov’t judicial review of Falun Gong case
On Jan. 12, the Eastern Magistrates’ Courts in Hong Kong rejected the Hong Kong justice department’s application to review the verdict of a Falun Gong case in June 2022. The court had earlier ruled that Falun Gong practitioner “Ms. Dong” (董女士) was not guilty of a charge by the Hong Kong Food and Environmental Hygiene Department, who accused her of “displaying posters without permission” at Tung Chung Station Bus Terminus.
Background
From May 27 to May 28 in 2021, the Hong Kong Food and Environmental Hygiene Department, Lands Department, and local police appeared to carry out a joint operation to confiscate material being exhibited by Falun Gong practitioners in many parts of the territory. At least seven Falun Gong practitioners received tickets from the Food and Environmental Hygiene Department as part of the joint operation, according to incomplete statistics compiled by Dajiyuan (Chinese language edition of The Epoch Times). “Ms. Dong’s” case was the first to go on trial.
Macro view
The Jiang faction has continually sought to export the persecution of Falun Gong to Hong Kong ever since Jiang Zemin launched the anti-Falun Gong campaign on the mainland in July 1999. Over the years, the Jiang faction succeeded in leveraging its sway over the Hong Kong authorities to harass Falun Gong practitioners in the territory.
For instance, the Food and Environmental Hygiene Department under the Leung Chun-ying administration confiscated a large number of banners and display boards belonging to Falun Gong practitioners in Hong Kong in 2013. That same year, two Falun Gong practitioners applied for judicial review of their case, and the Court of First Instance of the High Court ruled in favor of the practitioners in 2018. However, the Hong Kong authorities later successfully appealed against the case. Falun Gong practitioners then submitted an application to the Court of Final Appeal for permission to review the government appeal, but were informed on May 13, 2022 that the Court did not accept the application, according to overseas Chinese language media reports. Jiang faction number two Zeng Qinghong is believed to be Leung Chun-ying’s political backer.
And in the recent case, the Food and Environmental Hygiene Department and other government agencies under the Carrie Lam administration moved to confiscate material from Falun Gong practitioners in 2021. Lam appears to be a Jiang faction associate.
Meanwhile, the Hong Kong government under incumbent chief executive John Lee removed a bill that would enact Article 23 (which could lead to the banning of Falun Gong in Hong Kong) from a list of legislation to be deliberated and passed in the current legislative session in October 2022. In December 2022, a Hong Kong court found guilty three men who destroyed a Falun Gong information booth in the city. John Lee appears to belong to the Xi camp.
Why it matters
The Hong Kong authorities’ treatment of Falun Gong in the territory is a key indicator for gauging the progress of factional struggle in the CCP elite and in determining how China’s political future could shape out.
Our take
If the Xi leadership had intended to crush Falun Gong in Hong Kong like the Jiang faction appears to be encouraging it to, it would have taken advantage of National Security Law’s passage in 2020 to do so.
Rather, the Eastern Magistrates’ Courts’ decision in the recent Falun Gong case, as well as other efforts by the current Hong Kong authorities to “carve out space” for Falun Gong, suggest that Xi Jinping is retaining the “Falun Gong card” in Hong Kong should he need to “play it” against the Jiang faction (see here, here, here, here, here, and here).
While the current Hong Kong authorities may have “carved out space” for Falun Gong in the territory, they have refrained from publicly affirming Falun Gong or actions that could be interpreted as taking a firm stance on the persecution. This is observed from the Court of Final Appeal not accepting an application by Falun Gong practitioners for permission to review a government appeal that overturned an earlier court verdict in favor of the practitioners.
As the “Falun Gong card” involves a third-rail issue for the CCP regime that concerns its ideological and moral legitimacy, whether or not Xi actually plays it depends on how dire his personal political situation is.