INSIGHTS June 2020 Cercius Group - Insights Notes

INSIGHTS June 2020 Cercius Group - Insights Notes:

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Please visit Cercius Group Ltd homepage at https://www.cerciusgroup.com Editorial communication should be sent to: The Editor, Cercius Insights E-mail: [email protected] The communist dilemma: Can the Party avoid subversive mistakes? Editorial

As mentioned in the instant classic “The Governance of China” – and maybe not in so many words, the Party must find a stable way, and avoid making subversive mistakes 不能犯颠覆性错误. What this means is to basically avoid making decisions that would lead to regime collapse. However, it is unclear to what extent some leaders in Beijing continue to heed this warning, as shown by their recent decisions. From the moment Xi Jinping 习近平 took power back in 2013, the system became progressively more rigid and, unlike his two predecessors, a slow yet progressive emphasis on ideology made its way back to the top at the expense of the reform agenda. With the “Confidence Doctrine” 自信论 now implemented in full force, China has managed to isolate itself on the world stage and double down on its positions – whatever the cost – all the while remaining unapologetic. The “second wave” of the Cultural Revolution – spearheaded by Xi – has dramatically transformed the Party. It brought the Party closer to its former self, more focused on ideology and some form of “communist” orthodoxy. In doing so, the Party has managed to create a somewhat united front against itself in the span of only a few years. Tensions are also running high within the Party: the anti-corruption campaign has created an endless stream of “malcontents”, and the “left turn” has pushed reformers to take a back seat leaving some of them, like Li Keqiang 李克强, to sometimes break the façade and directly address the public. To be fair, this whole situation regarding the “Xi-Li struggle” 习李斗 was mainly an attempt by Li to force Xi to move and actually come up with an actual economic relief/stimulus package to “heal” the post-pandem- ic Chinese economy. The whole ordeal attracted the attention of foreign media and observers alike, some even stating that Li was actively resisting or trying to undermine Xi’s leadership. However, as the whole Party revolves around Xi – something that cannot be said for either the Jiang Zemin or Hu Jintao eras, Li Keqiang, who has been almost completely sidelined since 2015, can only make veiled comments regarding the “nation- al condition” 国情 when he is not in Beijing. As such, June has been dominated by the “1000 yuan” comment and the “street vendor economy” kerfuffle and their potential ramification for intra-Party struggles, mainly between Xi and Li – who has “spiri- tually” withdrawn from the Politburo. These tensions revealed how the system run by Xi simply cannot accommodate different ideas and is not as close to the people as it pretends to be. In the same line of thought, provinces and autonomous regions that were severely hit by floods – following heavy rains in late May – have been left without proper guidance on how to handle the current crisis. Unlike previous generations of leadership, Xi’s team was not “on-site” in order to provide some form of relief. To be fair, some are even wondering where certain Politburo members are at the moment. Back in 2003, both Hu Jintao and Wen Jiabao remained present and traveled in order to lead and manage the SARS outbreak. However, this time, not only has the “Xi-Li” administration stayed behind, some others – like Zhao Leji 赵乐际 – have literally vanished since last being seen on May 28-29. This absence simply adds up to the overall recent “loss of face” of an administration that still prefers to focus on intra-Party struggles and on “cleaning up” the public security apparatus rather than on fixing the economy. Meanwhile, and amidst the floods affecting most of central and western China, the Chinese economy is somehow finally showing signs of a recovery. However, while preliminary economic data paints China in a positive light, the macroeconomic situation is still largely uncertain. Apart from exogenous political risks – such as the recent clash with India, the anti-China sentiments which have become global, and a reignition of political and trade tensions with the US – major structural issues still afflict the Chinese economy. There are still six more months left in 2020, and the Chinese financial and monetary apparatuses will need to continu- ously monitor economic activity closely and react accordingly – with economic stimulus – in order to steer the massive ship that is the Chinese economy. All in all, data from preceding months unveiled in June suggest a small economic rebound, but make no mistake, China is nowhere near being out of the woods.

Contents The Public Security Ministry reshuffled yet again ...... 22 POLITICS OF THE PARTY-STATE ...... 2 Promoted by the “wrong crowd”...... 22 Reshuffling to what end? ...... 23 Waking up outside the red chamber: Li Keqiang’s move...... 2 The end of the line for Chen Qiufa ...... 24 Improper speech and inappropriate method .... 3 Managing the waters amidst the floods ...... 24 Going off script ...... 5 Returning to Liaoning ...... 24 Slapped in the face or pat on the back? ...... 7 A bitter failure on both sides ...... 7 FINANCE AND ECONOMICS ...... 26 A storm in the vendors’ teacup ...... 9 The Xi-Li struggle ...... 9 Overview ...... 2 6 Who is the “mole”? ...... 10 Headwinds abound ...... 27 Misguided trust ...... 11 Economic Reforms and Hong Kong ...... 29 A different shade of red? ...... 12 Shanghai at the helm ...... 29 “Show forbearance for the sake of the country” Microeconomic undercurrents ...... 30 ...... 13 Hong Kong’s misfortunes ...... 31 A “Lushan” moment from Li ...... 14 Face over substance ...... 14 CHINA AND THE WORLD ...... 33

Is Meng Jianzhu under siege? ...... 16 The Crisis on the Himalayan Border ...... 33 They came for the mishu ...... 16 Moving ever closer ...... 17 The Belt and Road Initiative in Europe: an update ...... 35 The withdrawal of Meng Qingfeng ...... 20 Reaching out through infrastructures ...... 35 A policeman from Zhejiang ...... 20 The road ahead ...... 37 What happened to Meng? ...... 21 The EU fight against Chinese subsidies .... 39

Cercius Insights June 2020

The communist dilemma: Can the Party avoid subversive mistakes?

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