Taiwan, Li Qiang, RMB rally, real estate, Myanmar telecom scam - Week in Review #5
Good Friday! Welcome to Issue #5 of my newsletter. Every week, I will give you my personal weekly review of events that actually matter beyond news cycles, about China.
The profound
Taiwan KMT-TPP joint ticket did not last a weekend
First, I have a profound apology. Last week I was over-optimistic about the KMT-TPP joint ticket and underestimated the vicissitudes of modern-day politics.
Last weekend, TPP leader Ko Wen-jie announced he would still run as independent candidate representing the TPP. What follows is a round of political dramas more entertaining than what TV producers can imagine, culminating in a weird, open-forum "negotiation" at Grand Hyatt Taipei between the KMT, Ko and Foxconn founder Terry Gou on Thursday evening, which was very disappointing and unsuccessful. The relative winner from this saga may be KMT, as at least they look like less of a clown than Ko or Gou. (Gou just announced withdrawal of his presidential bid at the time of writing this post)
On Friday, KMT formally announced their final presidential ticket line-up, with Hou Yu-ih as candidate for president and media personality Jaw Shaw-kong as candidate for VP.
Still, anything could happen between now and the January election. But even if all the anti-DPP candidates still manage to converge into one force in the end, the dramas of last week only serve to tell any such alliance will be fragile.
The Taiwan drama is not the only drama of consequence for the past week. One could argue what happened at OpenAI was even more…dramatic. My lesson learned is that, in the age of social media, with constant flood of real-time but fragmented information, we’d better wait and see, rather than jumping into any conclusions too soon. Precisely because of this, I strongly believe a "slow", weekly review format is relevant for our time.
So for Taiwan, let’s wait and see. For now, a dark cloud is still hanging over Taiwan, not fading away.
The interesting
Li Qiang heads Central Finance Commission (CFC)
Premier Li Qiang takes the helms at the newly formed CFC, which is the highest regulator for the financial industry. This does not fit the usual "Xi is centralizing all powers" narrative, to the point that Wei Lingling of WSJ whined with an ill-intentioned question: "Delegating, or scapegoating?" (I can easily imagine what similarly bad take she will say if it’s Xi who takes the chair instead.)
Of course this is good news. Sure, Li will consult with and seek approval from Xi on the most important matters. But from now on, for most of the technical details and exactly which policies to implement and how to implement, he can be and should be able to decide on his own. And for a bureaucrat who spent most of the careers in China’s most financially developed regions, he should have the necessary experience for this job.
RMB rallies
RMB went through a big rally this week and had gone back up to July levels.
That this happened after Xi and Biden had an overall amicable meeting in San Francisco was no coincidence. We should note that USD has already significantly weakened the week prior due to cooling inflation data. The gap of almost a week between overall USD weakening and that of USD-RMB trading pair suggests that market participants (Chinese central bankers as well as traders) were waiting for signals from the San Francisco summit. The logic is simple: it is only after a temporary US-China detente is ensured, can China be more confident enough to launch more aggressive monetary measures, setting stage for the "final solution" to China’s real estate problems without fear of further capital outflows.
Real estate woes and new policy measures
In the last few weeks, ugly things as well as confidence-boosting policy measures have taken place at the same time in China’s real estate sector. What is going on here?
Before elaborating, I have to provide some context here, by referring to a unique pathway for social conflict resolution in China. I do not have an exact word for this yet. For now I will call it the "discontent - censorship - policy measures" reactionary mechanism, or, the "Reactionary Mechanism". What does this monstrosity even mean?
First, we need to understand for most of the time, Chinese government is only able to react to what happens. Sure, there are many long-term plans, such as the 5-year plan. But planning can only sets up the rough framework. The actual, day-to-day implementation always needs to take into account of the day-to-day events.
Second, what’s the highest political virtue in China? I’d argue it’s the preference for stability, and aversion to 乱 chaos. This chaos-aversion is deeply ingrained in both the national psyche as well as in the minds of bureaucrats, who themselves are born and rooted in this culture. It is a social concensus, coming from a long history that is only seemingly unified and peaceful, but upon close inspection were filled with chopped heads and starved bones during countless periods of 乱. Wealth, economic development and even power, are only secondary to the fundamental question of “stability vs chaos”.
If you combine the above two observations, the necessary conclusion will be: It will take a major negative event, or series of negative events that have the potential to create social instability, to trigger the Chinese government to do something.
Here, by "negative event" I mean events that creates public discontent, that if left unaccounted for, may cascade into further public discontent and disorder. Also, counter-intuitively, a "negative event" has the hallmarks of strong censorship. You see a popular video about some bad things that is deleted? That is what I mean. But here is the kick: censorship is not the end of story. Censorship suggests that the underlying problems are big enough to warrant recognition by authorities. Censorship itself is a means for the government to prevent discontent feeding into more discontent and to shake the fundamental principle of stability. But Chinese government knows censorship can only works to a certain degree. Without managing the real problem, discontent can only grow even larger.
This is what I mean by “Reactionary Mechanism”. Because China has no open, western-style elections, where public opinions can be frequently expressed in the form of votes, Reactionary Mechanism offers a unique window into public opinions and potential policy movements. As I explained last week about "Is Xi a dictator?" question, reading public mood is very important for looking at China.
How did this mechanism work in real action? One good example is environmental protection. A few weeks ago I wrote at Baiguan:
In 2015, a highly influential and controversial documentary about air pollution, Under the Dome, gathered over 150 million views and became the most-watched Chinese documentary I ever know. Although the documentary was later censored, and the creator Ms. Chai Jing almost crucified, the message was out. Public opinions had been inexorably shaped. The same year, Xi Jinping's "Two Mountain Theory" on green development was formally written into official party document. Since then, substantive measures have been deployed to combat pollution.
Last year’s unravelling of Zero-Covid policy is also a good example. Around the time, some friends asked me when did I think the government could end Zero-Covid. At the time, I responded: it would take massive, unprecedented protests, so massive it would almost look like a "will from heaven天意" so the government will have all the necessary political backing for doing a 180 degree turn on a 3-year long policy. This was exactly the sequence of events later. Let’s review:
Between Nov 26 and Nov 27 of 2022, the biggest protests since 1989 erupted in Shanghai and across China, with some protestors chanting some very unusual political slogans. The protests were quickly put down.
Nov 30, Vice Premier Sun Chunlan held a symposium with health experts. In it, there was the first official recognition that the Omicorn strain had become less pathogenic, and that China's combat against the virus was entering a "new phase".
Dec 1, Xi told the visiting EU Council President Charles Michel that people protesting against the country’s strict Covid-19 measures are “mainly students” who are “frustrated” after three years of the pandemic, effectively recognizing the existence of the protests
Dec 7, Xi visited Saudi Arabia. On the same day, the State Council released the "New 10 Measures", effectively spelling the end of Zero Covid.
For now, just remember this counter-intuitive point: in China, bad news and good news often happen in tandem. Without bad news, there may be no good news. The worse the bad news, the more likely you will see the good news.
So now let’s turn our attention to real estate, the core issue of China’s economic woes of the day. We may once again witness this reactionary mechanism in action.
Let’s apply the framework.
Question #1, are there "negative events"? Yes, there are many negative, even ugly events that are surfacing day by day. There are more egregious ones, including a young influencer couple "Liangliang & Lijun亮亮丽君" who took a beating when asking for promised cash-back from troubled real estate Sunac.
At the same time, many fraud cases in China’s fund management market also came to light (this, this), which are indirectly tied up to the general economic malaise. As Buffet famously said, "only when the tide goes out do you discover who's been swimming naked."
Another interesting piece of bad press is the unprecedented $1.5bn lawsuit between Lujiazui Holding, a key real estate vehicle of Shanghai Pudong government, and a subsidiary of Ping An Insurance, one of China’a largest insurers. Lujiazui accused the defendant of basically committing fraud by selling to them a poisonous plot of land. The defendant countered that they did disclose the land was polluted and renovation was required. The truth may be somewhere in between, but this lawsuit probably would not have taken place had land value gone up. In bad times, all sorts of "ox-ghosts and snake gods牛鬼蛇神" will jump out.
Question 2: Is censorship machine up and running? Yes, but in a subtle way. Liang Liang & Li Jun just announced they would go back to hometown, a few days after doing a performance art stunt implying they were being silenced. At the date of writing, their Weibo and Douyin accounts are still there, but on Weibo, you can’t find it on search, and can’t follow it either. On Douyin, they have been temporarily banned from live-streaming. However, it does not stop their tag showing in my "suggested search" box on Douyin. Screenshot below:
To sum up: negative public opinions have been formed, and recognized by the government.
Question 3, what are reactionary policy measures? There are many. Last Friday, immediately after Li Qiang took the chair of CFC, China's central bank and financial regulators pledged to ensure financing support for the property sector and to work together to resolve local government debt risks. There are also rumors that a list of 50 developers are singled out for support. On Monday, Sunac (the very same Sunac whose staff was accused of beating up Liang Liang & Li Jun) also announced to become the first Chinese developer to resolve the USD debt restructuring.
It does seem we are now entering a stage in Robert Wu’s Reactionary Mechanism when bad news and good news are happening in tandem and shifting gears. Combined with the improving US-China relations that I just discussed about in the previous section, we will not be surprised if more supporting measures are announced in the following weeks.
(Despite initially excruciating fears of being left unfinished烂尾, Liang Liang & Li Jun’s Sunac property actually finished roof construction in July 2023, which they happily celebrated with fireworks at the time. The beating incident this time was related to their legitimate (but infeasible) attempt to try to get the cash-back that was initially promised by the developer. So this is sort of like a sad side-note to an otherwise happy ending of an overall sad story. In some way, the story and imageries of Liang Liang and Li Jun will come to represent the collective hope and despair of the home-buying generation at the tail of the golden age of China’s real estate.)
The under-reported
Northern Myanmar telecom scam crackdown and "proxy war"(?)
Talking about mass discontent, here is another mass discontent issue that Chinese government is responding to recently. This one even carries geopolitical connotations, but is significantly under-reported by western media.
Telecom scams have long been a major source of discontent in China. Sophisticated scam operations can be highly deceptive. The devastating psychological effect of seeing hard-earned wealth being wiped out in a phone call is highly destabilizing for the society, especially for the lower strata of the society. It is also a highly scalable crime, having the potential to affect massive number of people. Moreover, the arrival of AIGC technology will make telecom scam even harder to combat (think of receiving a call from your “father” asking for a bank transfer). If Chinese government’s top concern is social stability, then telecom scam is certainly very concerning.
It’s easy for China to clear out telecom scams within China, but what about scams originating across the border? For years, Northern Myanmar on the Chinese border is a major source of telecom scam targeting Chinese citizens. It is rumored that several ethnic Chinese families over there have operated large telecom scam centers, employing tens of thousands of Chinese citizens who were duped into forced labor working there, in a state of semi-slavery.
For a while, I have been hesitant to comment on the Northern Myanmar situation, not least because of much unverified information and possible over-exaggeration surrounding this matter. For instance, there was an unverified rumor circulating on Chinese social media that on Oct. 20, Myanmar telecom crime families massacred a large number of Chinese worker-hostages, including some undercover Chinese policemen. So I waited for events to unfold instead.
Now, I am not expert on diplomacy, nor on Myanmar affairs (although interestingly I actually took a weeks-long business trip into the villages and jungles of Myanmar in 2013). So I will just lay out the sequence of events that I can confirm here for your own judgement:
Aug 15 & 16, law enforcement agencies from China, Thailand, Myanmar, and Laos met to combat gambling fraud syndicates.
Late October, codenamed Operation 1027, one of Myanmar’s most powerful ethnic armed alliances launched a coordinated attack on a dozen military outposts in northern Shan State, along the country’s eastern border with China. The rebel’s goal is to eradicate "oppressive military dictatorship", and combat "online fraud along the border", according to a statement from its organisers, the Three Brotherhood Alliance.
Oct 31, China’s public security minister, state councilor and Xi protege, Wang Xiaohong met with leading members of Myanmar’s military government to discuss the restoration of “peace and stability” along their shared border.
Nov 1, editorial from Global Times directly linked Wang’s visit to telecom scam.
Nov 17, one of the crime bosses for telecom scam committed suicide, while his family was handed over to China.
Nov 21, China announced that Myanmar has handed over to China thousands of telecom fraud suspects.
I don’t know about you, but when I look at this sequence of events, I can’t really scrub from my head the similarity here compared with US crackdown on Mexican narcos. Just like Mexico to US, Myanmar is this weaker southern neighbor to China, harboring similarly destabilizing activities for Chinese citizens.
The similarity is stark, but so is the difference. Here the Chinese agents are not seen blazing guns or flying helicopters across the border. What China seems to be doing is much more subtle.
The successful crackdown on telecom scam was well received on Chinese social media, thus fulfilling the intended political purpose. And the same time, this has been achieved without being apparently contrary to China’s long-held foreign policy of non-interference. It’s very sophisticated. I’d describe this as "Mission Accomplished".
Honorable mentions
Visa-free for 6 countries
In a great piece of news, Ministry of Foreign Affairs just announced that citizens from France, Germany, Italy, the Netherlands, Spain and Malaysia will enjoy visa-free access to China. I hope more such kind of policies can be rolled out in the future. People-to-people exchanges are crucial for peace and understanding.
Stock price surge at China’s SME stock exchange
Stocks at two-year old Beijing Stock Exchange (BSE), a stock trading board for small-cap and even mini-cap companies hit an all time high both in terms of stock price and trading volume. The backdrop for this is strong policy support. But I’d say the immediate trigger is the improving sentiments and softer monetary environment. Why has the action taken place in those mini-caps but less so in the big cap market? Because we may be at the early stage of improving sentiments, and only smaller-liquidity assets are responding, for now.
Let’s wait and see.
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Thank you for sharing your perspective. The main reason why the Western media ignores the widespread victimisation of laobaixing in China and elsewhere is primarily due to a declining overall interest in China. This also applies to the visa issue. Visa-free travel would never have been considered if there was a significant influx of foreigners into China. In fact, the opposite is true.
It may be hard to believe, but up until 2013, editors of major Western mainstream media outlets refused to publish articles that portrayed China in a negative light.
In my opinion, the current situation can be attributed to the implementation of the Central Committee's instructions outlined in Document No. 9, published in April 2013. These instructions untenably accused the West of attempting to bring about regime change in China. Document No. 9 marked the beginning of China's decoupling from the rest of the world in terms of social, political, cultural, and academic spheres. It also led to an unnecessary and excessively aggressive foreign policy stance from China, with lower-level diplomats needlessly engaging in offensive remarks and insults, which would have been unacceptable during Qian Qichen's tenure.
As a result, whether justified or not, China is now generally perceived as hostile. It makes me wonder if the Central Committee had considered the inevitable economic impact Document No. 9 would have.
Keep up the good job!
Robert, you might want to look up some of John Mearsheimer's speeches or writings in Australia about how the economic rise of China itself, irrespective of what China may or may not do is a threat to the USA. It's the thinking that drives the pivot to Asia among neo-conservatives and "realists" in the DC beltway.