Armed mutiny can also happen in China. Plus the chip war heats up & Hong Kong issues cash bounties for democracy activists -- China Boss News 7.14.23
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What happened.
China Boss left town, and the world stopped for a few, suspense-filled days while we watched a large, Russian mercenary outfit threaten to march on Moscow.
After seizing Rostov-on-Don and vowing to overthrow the country's military command, the Wagner Group's chief warlord cut a deal and abandoned course, fleeing, early reports said, to neighboring Belarus. But the ordeal made Russian leader Vladimir Putin’s hold on the Kremlin appear weakened.
Beijing’s response was to describe Yevgeny Prigozhin's mutiny as Russia's "internal affair," as it praised Putin’s leadership and tried to downplay any potential impact on its Strategic Partnership with Moscow. Chinese state media followed with a report that Andrei Rudenko, Moscow's deputy foreign minister, paid a visit to Beijing, but did not indicate whether the meeting was pre-scheduled or an attempt to calm fears.
Then, curiously, the South China Morning Post - the oldest English-language newspaper still printing in Hong Kong, which continues to do some fine work, despite the Chinese Communist Party’s creeping censorship and draconian national security law, released a report, the only one of its kind - as far as China Boss knows - on China's confident "military grip."
It cited a People’s Liberation Army (PLA) newspaper article "published the day after Wagner forces ended their advance" that "prais[ed] the political commissar system" that promotes party loyalty and noted that China had just taken “the unusual step of promoting two political commissars to full generals.”
A shortage of similar reports about other “confident” militaries scurrying to reinforce allegiance within their armed ranks got China Boss thinking: Could an armed mutiny happen under Xi’s rule?
Why it matters.
If history rhymes . . .
Setting aside any talk of PLA divisions and vulnerabilities that Xi Jinping tried to overcome even before he ascended to power in 2012, China’s own and relatively recent history is replete with bouts of warlordism.
According to Encyclopedia Britanica, “[w]arlords ruled various parts of the country following the death of Yuan Shikai (1859–1916), who had served as the first president of the Republic of China from 1912 to 1916.” Up-and-coming rebels of the era “achieved power by backing either of various provincial military interests or foreign powers, most notably Japan.” (Emphasis added.)
Warlords who attached themselves to foreign powers "were the major enemies of China's national revolution,” but China’s communist forefathers got ahead of the threat.
They borrowed from the Soviet system of political commissars - attaching Chinese characteristics, of course - to combine disparate elements of the Red Army, the PLA’s forerunner. That system, implemented in 1929 during the early days of the Chinese Civil War, is still in place today - despite a decade of Xi Jinping’s military reforms and corruption purges.
Xi Jinping: Forever is a really long time
For a modern Chinese warlord-to-be, dictator Xi Jinping’s consistent overreach at home and abroad offers incredible opportunity. His Chairman-of-Everything approach may have helped Beijing re-centralize power, but it, undoubtedly, created a great deal of resentment among the elite who had all formed their own power bases through large networks of patrimonial alliances.
While true that Putin’s misplaced reliance on mercenaries, like the Wagner Group, which evolved to secure the state’s interests in developing countries, is far advanced of Beijing’s nascent pool of independent security contractors that work along the Belt-and-Road, Xi’s new silk route is too vast to be policed by any one state, as Wall Street Journal’s James T. Areddy writes.
James T. Areddy, WSJ:
As the Chinese enterprises expand, Beijing has encouraged a go-global push by commercial security firms such as Huaxin Zhongan Group, China Huawei Security Group and Frontier Services Group’s DeWe Security. …
The bulk of each company’s business appears to be domestic—guarding office buildings and running armored cars—but all advertise the expertise of People’s Liberation Army special-forces veterans and experience securing Belt and Road projects outside China.
Beijing's "drive to infuse political priorities into commercial enterprises" and "use of commercial enterprises to achieve aims, such as fishing boats that press territorial claims in regional waters and internet providers that assist in cyber espionage,” could, conceivably, be incubating new Wagner-type “thought-leaders.” Or maybe they’ll have more robust credentials sprouting from the China-Mexico fentanyl trafficking pipelines.
Xinjiang, the XPCC and the code of survival
But you don’t have to look outside China for remote possibilities of a entity whose structure, tactics and function are pseudo-military. One with unprecedented strength and autonomy already exists in the country today, thanks to Chairman Xi’s extreme assimilation policies.
In 1954, the Chinese Communist Party established the Xinjiang Production and Construction Corps (XPCC) out of “demobilized soldiers of competing Civil War (1927-1949) factions,” with a “mission . . . to ‘cultivate and guard border areas,’” say Laura Murphy, Nyrola Elimä and David Tobin of the Helena Kennedy Center for International Justice at UK’s Sheffield Hallam University.
But, under Xi Jinping, the XPCC’s undertakings have expanded dramatically, and experts now consider it “a state-run paramilitary corporate conglomerate” that “functions as a regional government, a paramilitary organization, a bureau of prisons, a media empire, an educational system, and one of the world’s largest state-run corporate enterprises.”
While arguably different from a band of mercenaries, XPCC is still a strange beast. It lords over life and death in China’s Western wilds, profits substantially from slave labor, and regularly sends soldiers abroad on counter-terrorist missions. Human rights investigators say “XPCC is a colonial institution” that "operates 14 military divisions and 185 regiments.” But, perhaps, its most impressive achievement is its “sprawling” for-profit, corporate conglomerate with holdings, some say, “in more than 800,000 companies and groups in 140 countries.”
Might strain, triggered by, say, an escalation with Taiwan, lead to a formidable rebellion - not from China’s ethnic minorities or global security consultants, mind you, but from one of Beijing’s very much enabled provincial leaders? Maybe it would take less for an international fugitive with the right alliances, it’s hard to say.
But China Boss isn’t here to argue definitively for one scenario or another. The point is that, in authoritarian systems, where “might is right,” no one - not even the supreme leaders themselves, flanked, as they are, by survivors and liars, can ever be certain in knowing precisely where power begins or ends. Through that lens, we might better contemplate Yevgeny Prigozhin’s failed mutiny and China’s “confidence.”
This Week’s China News
The Big Story in China Business
CHIP WAR HEATS UP: China’s Ministry of Commerce (MOFCOM) and the General Administration of Customs (GAC) announced new export restrictions on items related to gallium and germanium in order to "safeguard national security interests."
Tit-for-tat: The restrictions were issued almost immediately after the Dutch imposed new export controls of advanced semiconductor manufacturing equipment which would apply to ASML, the global leader in producing silicon through lithography.
Message received: China dominates the global gallium and germanium supplies. Gallium is used to make chipsets for computers, mobile phones and 5G base stations, while Germanium is key to producing fiber optics, semiconductors, and solar panels.
Companies “race” to secure supplies: Euractiv reported last week that some companies were "caught out" by Beijing's sudden decision to restrict the metals and were rushing to apply for China's new export licenses and diversify supply chains.
Stings a little: Constantine Karayannopoulos, CEO of Neo Performance, a recycler of gallium and manufacturer gallium trichloride, told Reuters that the announced restrictions "[were] probably the least consequential measure (that China could take), since it does not hurt as much as much as other options.”
"On the other hand, it could give very significant impetus to North American and European governments – along with producers and consumers of high-purity gallium outside of China – to consider more seriously what it takes to establish supply chain optionality,” he said.
In other China business news
CHINA’S ECONOMY IN BAD SHAPE, FORMER INSIDER SAYS: Desmond Shum, author of elite beans-spillin’ Red Roulette, sat down with New York Times Deal Book to explain what is he thinks is really happening in China.
Desmond Shum NYT:
. . . [T]he outside world underestimates how badly the Chinese economy is deteriorating. Several things have shocked me in conversations I’ve had with businesspeople in China. A big dairy company is producing more milk powder because people are cutting back on buying milk. Normally this is one of the last things you would cut out.
BEIJING MAKES ANT PAY: The People’s Bank of China hit Ant with $985 million fine for “violations of various laws and regulations, including around corporate governance, consumer protection and anti-money laundering requirements,” CNBC’s Arjun Kharpal reported.
The punishment was actually a cause for optimism among some analysts who’ve been watching for signs that Beijing’s crackdown on Jack Ma’s companies could, after two-and-a-half years, finally be over. But China Boss thinks PBOC might like to drive another nail into the Chinese fintech industry to rid itself of competitors.
Law and International Xi
HONG KONG PUTS HK$1M BOUNTIES ON DEMOCRACY ACTIVISTS: According to Hong Kong Free Press (HKFP), police issued HK$1 million bounty each for 8 self-exiled activists, including Nathan Law, Ted Hui and Elmer Yuen, two days after the city marked the third anniversary of Beijing's national security law.
‘Pursued for life’: Hong Kong’s Chief Executive John Lee said the “only way” the eight could “end their destiny of being an abscondee . . . is to surrender” and said they would be “pursued for life.”
NEW CHINA TRAVEL ADVISORY: The US State Department issued a new China travel advisory recommending Americans reconsider traveling to the PRC, Hong Kong, and Macau due to "arbitrary law enforcement and exit bans and the risk of wrongful detentions," the Associated Press said. Read the “Level 3” advisory here.
China law risk: The US National Counterintelligence and Security Center issued a bulletin to inform businesses of the risks associated with new Chinese legislation enacted recently. See the full bulletin here.
Geopolitics
YELLEN’S YELLIN’ AT CHINA: The New York Times reported that on the first day of her trip to Beijing, Treasury Secretary Janet Yellen "criticized punitive measures the Chinese government has taken against American firms" with "a forceful objection."
Just talking: Former Treasury official Mark Sobel told the Times that while "Yellen's trip will likely turn down the temperature on the economic relationship for a bit . . . [it] will hardly change the underlying dynamic and trajectory."
CHINA, NATO TRADE JABS: Chinese officials slammed a NATO communique labeling China "as a major challenger to the military alliance's interests and security," Aljazeera said. The "strongly worded statement" was released midway into the Alliance’s two-day summit held in Lithuania. Read the entire communique here.
NATO wants to open an office in Japan: Politico’s Stuart Lau reported that “[d]ivisions" had "open[ed] up over NATO's Asian outreach” before the summit even began. French president Emmanuel Macron has blocked a new NATO liaison office in Japan. Meanwhile, the Chinese mission to the EU promised "a resolute response" to “[a]ny act that jeopardizes China's legitimate rights and interests,” and said China opposes NATO's "eastward movement into the Asia-Pacific region, Aljazeera said.
IRAN JOINS CHINA’S SHANGHAI SECURITY ALLIANCE: Iran gained full membership in the Shanghai Cooperation Organisation last week in what Bloomberg described as “another step toward ending its global isolation.” Bloomberg analyst Sudhi Ranjan Sen said that Iran's acceptance into the group, which also includes India and Russia, "is further indication that countries are willing to engage with it" despite UN sanctions.
Best Reads
No Job, No Marriage, No Kid: China’s Workers and the Curse of 35 (Li Yuan, New York Times): With a weak job market and a historically large brood of graduates, Chinese workers in their mid-30’s are increasingly worried about job security and basic life decisions.
The End of Optimism in China (Michael Schuman, The Atlantic): Waning interest in education, entrepreneurship, and, even, starting families, seems to suggest Chinese attitudes are taking a darker turn.
The secret life of China’s Banksy (Ian Williams, The Spectator): Chinese political artist Badiucao sat down with Williams to talk about his work, life, and the CCP.
Middle Kingdom Surreal
‘YOU CAN NEVER BECOME A WESTERNER’: Top diplomat Wang Yi tried to influence regional friends with a "common roots" approach at a forum attended by representatives from South Korea and Japan in the Chinese coastal city of Qingdao.
“No matter how blonde you dye your hair, how sharp you shape your nose, you can never become a European or American, you can never become a Westerner. We must know where our roots lie,” he said.
GET YOUR ‘XI JINPING THOUGHT’ FLOW CHART: Kudos to German Chinese Economics and Business professor Doris Fischer for finding this gem. See it here.
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