Xi's iron grip questioned after ministers disappear, plus 'worst capital outflows' since 2015 & Shenzhen 'steels itself' against sanctions after Huawei chip -- China Boss News 9.22.23
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What happened.
A Wall Street Journal report has revealed that “an internal Communist Party investigation found former Foreign Minister Qin Gang to have engaged in an extramarital affair that lasted throughout his tenure as Beijing’s top envoy to Washington.”
“Senior Chinese officials—including ministers and provincial leaders—were briefed last month on the party’s investigation into Qin . . [and] were told the formal reason for Qin’s dismissal was “lifestyle issues,” a common party euphemism for sexual misconduct . . . The officials were further told that the probe found that Qin had engaged in an extramarital affair that led to the birth of a child in the U.S.,” WSJ said.
The development followed earlier reports which stated US intelligence officials believed Defense Minister Li Shangfu - not seen since late August - was being removed from his post and that local sources familiar with the matter said he was under investigation for corruption in relation to “procurement of military equipment.”
“The fact that these people who have fairly high profiles, the Foreign Minister and the Defense Minister whose job is to engage with foreigners, the fact that they can simply vanish without explanation only reinforces outsiders views that China is opaque. In fact - it is increasingly so under Xi Jinping who places a great premium on secrecy and protecting the party's secrets,” WSJ’s Chun Han Wong noted.
Why it matters
‘A bad summer’
“There are decades where nothing happens; and there are weeks where decades happen," Russia's revolutionary leader Vladimir Ilyich Lenin once said.
Lenin's words might add some meaning to the otherwise unexplained mysteries of elite disappearances in the PRC, especially at a time when Chinese leader Xi Jinping just can’t get a break.
Flood disasters, lagging economic progress coupled with a massive debt crisis, tech and trade wars with the US, and Russia’s war in Ukraine might make for sensational headlines, but they’re an autocrat’s worst nightmare.
Leading expert on Chinese law and New York University professor Jerome Cohen, may have put it best after telling the Guardian last week that “there’s a lot of signs of dissatisfaction” with Xi’s leadership in China.
“It’s obvious he’s had a bad summer,” he said.
That would be an understatement - yes - but much of it appears to be Xi's own doing.
“The major challenges Xi is facing seem to be the ones created by his iron grip on power. When you make your circle of trusted advisers smaller and smaller, it’s hard to get good [intel],” Asia Society’s Rorry Daniels said.
Still, poor administration is one thing, but swiping left on two hand-selected ministers within the space of a few months quite another.
Li’s removal more consequential, experts say
Asia Society’s Lyle Morris listed 9 reasons on LinkedIn why China’s investigation of Li Shangfu is “a big deal.”
In sum, coming on the heels of Qin Gang’s removal, it’s another loss of face for Xi who promoted Li as the Minster of Defense only six months ago. The move also coincides with another “abrupt purge” that Xi carried out against “two generals leading the country’s Rocket Force” - an elite unit which oversees China's nuclear and missile arsenal.
In his concluding remarks, Morris took inspiration from Mario Puzo’s The Godfather to suggest why Xi would be unlikely to “completely root out” PLA corruption.
“They are a singular power structure within a monopolistic governance structure (CCP). Like the Corleone family, you can selectively remove actors whose corrupt practices become too large to ignore to 杀鸡给猴看 [lit. Kill the chicken to scare the monkey] and hope the message gets through. But the organized crime system stays intact,” he wrote.
In a phone interview with VOA News, Ying Yu Lin, an expert on Chinese military affairs at Tamkang University in Taiwan, said that the Li Shangfu case “shows the People’s Liberation Army may be in an unstable state.”
“Xi might hope to create a high level of obedience within the military by abruptly replacing top-level officials like Li," he noted.
Former editor of a CCP newspaper Deng Yuwen told CNN that disappearing ministers “rais[ed] questions about Xi Jinping's rule” and his "slate of loyalists” inside the party:
“Two state councillors single-handedly promoted by Xi had run into troubles within six months, no matter how hard the authorities try to defend it, Xi could not escape the blame.”
But James Char, a research fellow at the S. Rajaratnam School of International Studies in Singapore, took a broader view, noting the ministers’ expulsions were but “a symptom of the one-party centralized rule in China.”
“Until Xi Jinping has the gumption to reform the entire political system…I’m very sure this kind of purges will just keep happening,” he said.
This Week’s China News
The Big Story in China Business
‘WORST CAPITAL OUTFLOW’ SINCE 2015: Bloomberg has reported that "China is witnessing the biggest flight of capital in years, creating concern for authorities as it worsens pressure on the beleaguered yuan.”
Official data released last week shows that money is leaving China's financial markets in astonishing sums - $49 billion last month - the "largest since December 2015,” news staff said.
The “exodus” has helped drive the yuan to its lowest level against the dollar in 16 years, analysts also noted.
“The risk is that the currency weakness further saps the market’s appeal and results in an acceleration of outflows that can destabilize financial markets,” they wrote.
Difficult to stem the tide: In previous bouts of large outflows, Chinese regulators were able to slow the tide with various measures that addressed the perceived causes of China’s long-standing capital flight problem.
But Gary Ng, senior economist at Natixis SA, a French bank, told Bloomberg that the same might not work this time.
“Due to the divergence in monetary policies and the current macro environment, it is unlikely that China has reached the turning point with enough incentives to attract capital back,” he warned.
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