20th Party Congress: Xi's bid for a third term is starting to look fragile -- China Boss update 1.21.22
Update
What happened last week.
President Xi Jinping "warned the Chinese Communist Party’s top provincial and ministerial officials not to waver on anti-corruption efforts and to strictly follow Beijing’s strategic decisions as his administration prepares for a crucial party congress slated to convene this year," The South China Morning Post reported. He also said that there would be "no mercy for those found in violation of party rules and the country's laws.”
Why it matters.
That President Xi must still struggle on with “corruption” purges in the fight for Beijing after nearly a decade in power is telling, especially with the omnipresent and highly sophisticated surveillance and propaganda systems he controls.
Can the Chairman of Everything really accomplish in ten months' time what he has failed to do these last ten years to secure his position for life at the 20th Party Congress in November? With the spread of Omicron that has made a joke of his Covid-zero policy, massive debt defaults now threatening to spill over into the greater Chinese economy as a result of his credit crackdown, and major trading partners alienated by his Wolf Warrior diplomacy, Xi's political prospects are looking increasingly fragile.
Omicron.
China’s Covid-zero policy is being questioned for its effectiveness by international scientists and for its harshness by ordinary Chinese people. Prof Jin Dong-yan, of Hong Kong University’s School of Biomedical Sciences, told the Guardian:
In the long run … the zero tolerance policy is not sustainable and unnecessary, and the arrival of Omicron might make it even more challenging. But China is too big a ship to change direction. It does not have the wisdom or capability to do it as neatly as Hong Kong or Taiwan. It is challenging and costly either to maintain it or to give it up.
Huang Yanzhong, director of the Centre for Global Health Studies at Seton Hall University in New Jersey, told The South China Morning Post:
In the long term, I don't know what the Chinese strategy is. And I would hope that they have a strategy as to what they plan to do as this virus [becomes] endemic.
We don't know if the pandemic will last two or three more years and this is going to also make China isolated on the international stage.
And the South African virologist who first identified and warned the world about the Omicron tweeted last month:
Although Chinese authorities still insist on reporting unrealistically low numbers of infections, we do know that Omicron has been spreading quite rapidly across China in the past two weeks.
Per the China Boss newsletter on Monday (1.17.22):
At time of post, four major Chinese port cities had announced Covid outbreaks. Tianjian, Shanghai and Dalian confirmed presence of Omicron, while health authorities in Ningbo - the world’s third biggest container port - say they’re dealing with the Delta variant.
China’s capital Beijing has also reported its first locally transmitted Omicron case just as officials were preparing to receive Olympic athletes. The city has since ordered a “snap lockdown” that sealed off an entire office building in the west of the city with work colleagues of the individual who tested positive for the variant still inside.
Draconian measures like the “snap lockdown” mentioned above and a widespread lack of compassion are starting to wear at ordinary Chinese, as well as the country’s intellectuals. In the latest example, people in Hong Kong became “outraged” as pet owners began “surrendering their small pets after the government ordered a cull over Covid-19 fears, euthanizing around 2,000 hamsters, rabbits, chinchillas and guinea pigs,” CNN reported. Anxieties ran so high that the Hong Kong Animal Law and Protection Organization (HKALPO) ran a social media campaign telling people that, legally, they did not have to surrender their pets.
China’s plan to stick with Zero-Covid in 2022 will continue to anger millions, and, while Chinese citizens cannot cast votes, the lack of popularity and effectiveness of Xi’s policy will almost certainly be used against him by his rivals.
Financial contagion.
Last week, Bloomberg reporters noted that "[f]inancial contagion is roaring back in China’s property industry, putting renewed pressure on Xi Jinping’s government to do more to insulate the nation’s stronger developers."
Bloomberg:
“The spread of the crisis from weaker names to investment-grade names reflects how long these companies can survive without policy support,” said Anthony Leung, head of fixed income at Metropoly Capital HK. “The best credits can last the longest, but as time goes by and the support doesn’t come, even the strongest cannot survive.”
The growing risk of financial contagion underscores the challenge Xi faces as he overhauls the residential property market, especially at a time when outbreaks of omicron in the country are darkening the outlook for the economy. Xi is seeking to reduce the threat of a real estate meltdown to the financial system, as well as narrow the gap between the country’s rich and poor.
Meanwhile, China has been making successive cuts to “lending rates as authorities ramp up their efforts to stave off a sharp economic slowdown,” CNN reported.
CNN:
The People's Bank of China on Thursday cut its one-year loan prime rate by 10 basis points to 3.7%, the second cut to the rate in a month. December's cut was the first time the central bank touched the benchmark lending rate since April 2020, when China was in the throes of the initial coronavirus outbreak.
The central bank also trimmed its five-year loan prime rate by five basis points to 4.6%, the first cut to that rate since April 2020.
The real estate credit crackdown is another massive failure on Xi’s part that makes him politically vulnerable. Over 70% of household savings in China are invested in housing, and prices there are falling so quickly that local authorities are struggling to find ways to stop them.
Alienation of trading partners at a time when China needs them most.
Although China has been trying for many years to move away from export-driven growth, experts say that’s unlikely to happen in 2022 if domestic demand continues to lag.
CNBC:
Despite global disruptions of supply chains during the pandemic, China’s trade surplus rose to $676.43 billion in 2021— up from $523.99 billion in 2020, and the highest on record going back to 1950, according to official data from Wind information.
“Exports will still continue to be a very important growth driver for the Chinese economy in 2022,” Zerlina Zeng, a senior credit analyst at CreditSights, told CNBC on Wednesday.
But in case you think a trade surplus is great news for China, think again. As Michael Pettis, professor at Peking University and a senior fellow at the Carnegie-Tsinghua Center for Global Policy, explained in the Financial Times this week:
Pettis, FT:
If a rising share of China’s total income had been going to ordinary households, the resulting reduction in investment by property developers could have been balanced by a rise in consumption. But that’s not what’s happened. In the past two years, partly as a consequence of the Covid pandemic, growth in wages has actually lagged behind growth in GDP. The share Chinese workers have received of what they produce has declined rather than increased, and with it so has the share they are able to consume.
This is why China’s monthly trade surpluses have nearly doubled in the past two years. Larger trade surpluses, driven by a declining household share of GDP, allow Chinese manufacturers to absorb weaker domestic demand without reducing output. Without these surpluses, Beijing would have to allow debt to rise even faster if it didn’t want factories to fire workers.
But wait - hasn’t China has been pissing off many of its most important trading partners with One-China policy bullying, ridiculous Wolf Warrior posturing, aggressive economic coercion, and - since there’s no other way to say it - hostage-taking over the past few years of Xi’s “leadership”?
The answer to that is a resounding “YES.”
New York Times (Sept. 17, 2020):
After rebuking a senior Czech lawmaker for visiting Taiwan this month, the Chinese foreign minister, Wang Yi, received an obscenity-laced public letter that punctuated just how far China’s standing in Europe has fallen.
“You should be ashamed,” another lawmaker, Pavel Novotny, an outspoken district mayor in Prague, wrote, calling the Chinese “impudent, thoughtless, uncouth clowns” and demanding an apology.
The outburst was not an isolated one.
In country after country, China is facing rising anger over its policies and its behavior — from trade to human rights — a major setback on a continent that Beijing has viewed as a more pragmatic, and thus more willing, partner to provide ballast against sharply deteriorating relations with the United States.
The Guardian today also reported that Australian Prime Minister Scott Morrison "has taken aim at China for ‘economic coercion’, foreign interference and cyber attacks in a speech to the Davos World Economic Forum."
The Guardian:
Australia has been the target of Chinese tariffs on key agricultural exports, such as barley and wheat, due to a long series of grievances including “interference in China’s Xinjiang, Hong Kong and Taiwan affairs” and “spearheading the crusade against China in certain multilateral forums”.
Morrison told the forum that the global strategic environment had “deteriorated” with the world becoming more “fragmented and contested particularly here in the Indo-Pacific, which has become the world’s strategic centre of gravity”.
Morrison said the region had become “highly contested” due to increased use of “grey-zone tactics” seeking to “coerce and intimidate”.
“There are tensions over territorial claims, there is rapid military modernisation, there is foreign interference occurring in nations right across the Pacific and here in Australia.
“There’s malicious cyber threats and attacks that are taking place, disinformation, economic coercion.”
In response, Morrison said Australia had sought a “web of alignment” with nations that wanted to cooperate to “favour freedom and the rule of law”, including Pacific nations, Asean and the Quad group with Japan, India and the US.
And back in October - polls in Canada revealed a “hardening position on China among Canadians,” the Globe and Mail said. That survey was taken one week after the release of Michael Kovrig and Michael Spavor, “who had been jailed for years by Chinese President Xi Jinping’s government in what Ottawa criticized as ‘hostage diplomacy.’
Globe and Mail:
Opposition to Huawei’s presence in 5G has increased to 76 per cent of respondents from 53 per cent in a 2019 poll. Huawei’s 5G technology has been banned in other countries over fears that the Chinese Communist Party could use it for spying purposes. In the latest results, only 10 per cent of respondents say Huawei should be allowed to supply gear for 5G, down from 22 per cent in the 2019 poll.
Nearly seven out of 10 Canadians oppose deepening business ties by negotiating a free-trade deal with the Chinese government. Sixty-nine per cent say Canada should delay negotiating a trade deal, up from 47 per cent in a 2019 survey. Only 19 per cent support proceeding with negotiations, down from 43 per cent in 2019.
Eighty-seven per cent of Canadians support, or somewhat support Canada joining with the United States, Britain and Australia “to contain China’s growing power.” Nine per cent oppose or somewhat oppose this. Last month, the U.S., Britain and Australia struck a new defence pact, AUKUS, to counter China’s growing influence in the Asia-Pacific region.
The survey found that after the release of Mr. Kovrig and Mr. Spavor, Canadians were more than three times more likely to say that relations between the Canadian government and the Chinese government should be unfriendly rather than friendly. Forty-three per cent of respondents opted for unfriendly and 12 per cent for friendly. Another 42 per cent picked neutral.
Xi’s short-sightedness, here, also can’t be making him too many friends among the influential princelings that are heavily vested in China’s global trade relationships.
To watch.
Although the wave of the CCP’s magic propaganda wand might make them seem to disappear, there is little sign that pressures mounting under Xi’s Zero-Covid and “common prosperity” credit policies, as well as his Wolf Warrior diplomacy, will abate in 2022. Little wonder, then, that the Chinese leader continues to find “corruption” among CCP elite to purge. Note: China Boss highly recommends substituting “opposition” for “corruption” anywhere you see or hear PRC officials and state media use the term.
In his international 2022 New Year’s address, Xi “hailed 2021 as ‘a year of milestone significance’” and “called for more strenuous efforts to foster a stable and healthy economic environment, a clean and upright political environment, and a peaceful and prosperous social environment, so as to "welcome the successful convening of the 20th national congress with practical actions" in November, Nikkei Asia staff reported.
But Xi’s message was quite different for the local audience.
Nikkei Asia:
In a separate New Year's greeting to the nation Friday, Xi vowed to meet the world's expectations for the Beijing Winter Olympics in February despite the absence of some global leaders.
During his nationally televised address, Xi also reiterated hope for reunification with Taiwan under his long-term vision to realize the "great rejuvenation of the Chinese nation." The president touted the "one country, two systems" policy governing Hong Kong and Macao, saying its long-term success could be achieved only through concerted efforts. …
"The complete reunification of our motherland is an aspiration shared by people on both sides of the Taiwan Strait," Xi said, referring to the self-ruled island that China regards as a renegade province. "I sincerely hope that all the sons and daughters of the Chinese nation will join forces to create a brighter future for our nation."
The Olympics open Feb. 4, and Xi said China was prepared.
"We will spare no effort to present a great games to the world," he said.
With all that’s going wrong with China these days, I think Xi can kiss the political usefulness of those “great games,” whether at home or abroad, goodbye.
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Have a nice weekend.