Briefing #141: Xi is Deeply Entangled in a “Dictator’s Dilemma”

Dialogue China BriefingAbout China TodayOctober 15th, 2023 – Issue 141Topics in This IssueThe articles translated here do not necessarily reflect the views of Dialogue China Briefing or Dialogue China.
Feature StoryXi Jinping is Deeply Entangled in a “Dictator’s Dilemma”
Policy/Politics (Public Opinion within the Great Firewall)“Escape-style Resignation” Investigations in Progress: A New Channel to Hide CorruptionFirst-Rate Talents Make Too Little Use of Big Talent and Second-Rate Talents Monopolize the First- Rate Positions. This Has Caused Two Major DangersIn 2025, Will China and the United States Enter a New Period of Intensified Conflict?
Finance and Business (Public Opinion within the Great Firewall)Has China Engaged in a Massive Selling of U.S. Treasury Bonds?Will National Housing Prices Rise After the Policy of “Recognizing Homes but Not Loans” Is Implemented?

Feature Story
Xi Jinping is Deeply Entangled in a “Dictator’s Dilemma”Wang Dan – Radio Free Asia – September 18, 2023

On October 16, 2022, Xi Jinping presents the work report to the 20th National Congress of the Chinese Communist Party. (Agence France Presse)Li Shangfu, a member of the Chinese State Council and minister of Defense, has not made any public appearances since he attended the Third China-Africa Peace and Security Forum held in Beijing on August 29, 2023. Amid the controversy, the Financial Times, the Washington Post, and Reuters News Service all recently reported that Li has been removed from his post and is facing prosecution. From the disappearance of another state councilor – former foreign minister Qin Gang – in June to the current case of Li Shangfu, two of China’s five state councilors have mysteriously fallen from power in just three months. No official explanation has been given to the public. Considering that the purged officials occupied the highest positions in defense and foreign affairs, respectively – both of utmost importance to national security– we may deduce that Xi Jinping has started a new round of purges within the highest echelons of the Chinese Communist Party (CCP).

Why is it necessary to carry out a high-level purge? This is a question of concern to the outside world. At present, there is not enough evidence to know the specific reasons for certain, but there are some speculations by international observers that I think can be ruled out by considering them in a negative context.

For example, some people say that Li Shangfu was purged because of corruption. That sounds right. It has long been believed that the Chinese military is far more corrupt than the local governments because it is protected from public scrutiny by a veil of secrecy. Li Shangfu’s long career in charge of weapons and equipment, and his dual role as director of the Xichang Satellite Launch Center, which involves secret military budgets with huge amounts of money, made it quite easy for him to engage in corruption, and he has always been regarded as a fat cat. According to the usual practice of Chinese officials, it should not be an empty rumor that Li Shangfu has serious corruption problems. However, as a member of Xi Jinping’s inner circle, Li Shangfu must have undergone a rigorous vetting process by the Central Commission for Discipline Inspection before he was promoted to the high position of minister of Defense. If he had serious corruption problems that were unacceptable to Xi Jinping, he would not have been able to enter the inner circle of senior core leaders. So why were the so-called corruption problems of Li Shangfu only dealt with after he had served in office for less than a year? The crackdown on Li Shangfu’s corruption indirectly impinges on Xi Jinping’s authority. After all, he is a top-ranking cadre selected by Xi, so shouldn’t Xi be held responsible? Of course, it is highly likely that Li Shangfu’s final conviction will be in the name of “corruption,” but I do not think this is the real reason for his downfall. After all, Xi Jinping has long used fighting corruption as a tool of political struggle.

Some people also say that the removal of Li Shangfu as minister of Defense is meant to ease Sino-U.S. relations. The United States had imposed sanctions on Li, and as long as Li was still minister of Defense, military exchanges between China and the United States would not have been able to resume smoothly. I think this is an unconvincing explanation. First, if China really wanted to resume military exchanges, it could have sent a military leader more senior than Li Shangfu, such as the two vice-chairmen of the Central Military Commission, to meet with the U.S. military, and then it could have replaced Li Shangfu at the end of his two-year term, which would have made more sense. Second, based on the fact that wolf warrior and hard-liner toward the United States Wang Yi has returned as minister of Foreign Affairs and that Xi Jinping refused to attend the G20 Summit in New Delhi in September 2023, we do not see that Xi Jinping is so interested in restoring and improving Sino-U.S. relations that he is willing to replace his own cronies to please Washington. Therefore, the explanation that Li Shangfu was replaced to improve relations with the United States is not at all plausible.

Although we still cannot know the truth behind Li Shangfu’s fall from power, the rapid-fire replacement of two state councilors within three months gives us the impression that Xi Jinping is very distrustful of the senior cadres around him and he has adopted an iron-fist approach. In my opinion, Xi Jinping has now entered a typical “dictator’s dilemma”: he is full of suspicion, delusional about being persecuted, and he has become isolated, purging his own loyal followers at every turn. From Qin Gang to Li Shangfu, the way Xi Jinping cleanses the top echelons of the Communist Party is becoming increasingly reminiscent of Joseph Stalin’s purges before World War II. Without any warning and on the spur of the moment, Stalin would be seized by a whim and condemn former close colleagues to death or to exile. Such a pattern will certainly have a chilling effect within the CCP and will give rise to intense anxiety among senior Communist Party cadres. But such chilling effects may not be desirable. First, if all of your close associates are in a state of panic, always worrying about their respective security, how can they still do their jobs properly? Second, in order for officials who face serious problems to protect themselves in a perceived life-and-death struggle, the possibility greatly increases that they will turn on their boss. It is certain that Xi Jinping, who is deeply enmeshed in a “dictator’s dilemma,” will become more isolated and less able to access complete and accurate information, and thus the probability that he will make bad decisions increases exponentially.Policy/Politics (Public Opinion within the Great Firewall)
“Escape-style Resignation” Investigations in Progress: A New Channel to Hide CorruptionZhai Xingli – Southern Weekend – September 11, 2023

The case of Zhang Huayu, former vice president of China Everbright Bank, is characterized by the Central Commission for Discipline Inspection as a typical case of “escape-style resignation.” (People’s Visual)Summary:
In present-day Chinese officialdom, the evasion of punishment for violations of party discipline and state law by means of early retirement or resignation is known as “escape-style resignation.” After resignation, these officials generally go to work in enterprises with which they had business relations prior to their resignation, receive high salaries, and utilize their influence to give full play to their “residual passion” while in office. The given reasons for such resignations mainly include early retirement due to illness, seeking one’s own employment, going into business, pursuing academic studies, pursuing one’s ideals, and so on. During their tenure in office, these officials refrain from or minimize corrupt activities to avoid detection. However, after resigning, they often indulge in corrupt practices, which is one of the most prominent characteristics of such “escape-style resignation.” This kind of corruption has a long time span and strong anonymity, and the resignation and realization of benefits is often cloaked in the garb of compliance with the laws and regulations of civil and commercial affairs, thereby lowering the risks and costs for individuals involved in misconduct and violations.（Read The Original Text）Policy/Politics (Public Opinion within the Great Firewall)
First-Rate Talents Make Too Little Use of Big Talent and Second-Rate Talents Monopolize the First- Rate Positions. This Has Caused Two Major DangersLiu Yidong – Beijing Cultural Review – September 15, 2023

The focus of the new round of global competition is the competition among the major powers; the key to the competition among the major powers is competition in science and technology; and the core of the competition in science and technology is competition for talents. (World Wide Web)Summary:
The “Several Measures on Further Strengthening the Cultivation and Utilization of Young Scientific and Technological Talents” were recently officially released. However, changing the undesirable academic atmosphere and letting the truly capable first-class talents stand out is still a serious problem. This article points out that the key to success is to choose the right people. A major problem in China’s academic circles is that second-rate talents occupy the positions and resources of first-rate talents, while the real first-rate talents are underutilized, which results in two major dangers: first, a distortion in the normal talent-selection order, a wasting of resources, and suppression of outstanding talents. The second is the setting of lower-standards, which sets a bad example and leads to a “reverse elimination” of talents. The author suggests that recognizing top talents does not require that they excel in every aspect; an evaluation of their outstanding original innovative achievements is sufficient to identify them. This approach can be referred to as “recognizing talent by their top achievements.” The criterion for identifying first-class talents is the “one-sword doctrine,” i.e., making a breakthrough achievement after ten years of sharpening the sword, which can “stand the test of time” in the history of science and technology. A growing number of scholars should be supported and encouraged not only to be multi-skilled but also to be multi-talented. This is true for those in science and engineering, but it is also true for those in the liberal arts.（Read The Original Text）Policy/Politics (Public Opinion within the Great Firewall)
In 2025, Will China and the United States Enter a New Period of Intensified Conflict?Huang Renwei – International Relations Circle – September 10, 2023

By the time a new administration takes office in 2025, both the far right of the Republican Party and the establishment wing of the Democratic Party will inevitably launch an onslaught of attacks on China. (New York Times)Summary:
The U.S. Secretary of State, Climate Envoy, Secretary of the Treasury, and Secretary of Commerce all recently visited China in succession, signaling that Sino-U.S. relations have entered a period of stabilization. An important reason for this change in the U.S. attitude is the upcoming 2024 U.S. elections, when the Biden administration will need China’s cooperation on issues such as the economy and climate. However, some people believe that the competitive situation among the major powers has not changed. So how do we understand what has happened? According to the author, the 30 years from 2021 to 2050 will be a period of strategic stalemate between China and the United States. China will face exclusion from the U.S.-led Western system and it will have to shift from integration to a process of shaping and changing the existing international landscape and system. Only if China maintains its upward momentum and reaches a state of equilibrium with the U.S. will the degree of structural conflict between China and the U.S. decline and change from limited confrontation to compromise and cooperation. Furthermore, the author has outlined three distinguishing characteristics of the different stages of the strategic standoff between China and the United States. The author suggests the following: During the intensification phase, we should deal a sharp blow to the adversary. In the stabilization phase, we should focus on having a reasonable, advantageous, and restrained approach, maintaining and expanding the areas of cooperation. It is essential that this stabilization phase be prolonged as much as possible so as to delay the phase of explosion of a strategic showdown between China and the United States.（Read The Original Text）Finance and Business (Public Opinion within the Great Firewall)
Has China Engaged in a Massive Selling of U.S. Treasury BondsDi Dongsheng – Di Dongsheng’s Research on the Global Political Economy – September 11, 2023

If this can be used as a basis for creating a pool of international assets that is more reliable than the purchasing power of the U.S. dollar and has a wider and deeper market, then the entire world will be free from rule by the dollar. (Reuters)Summary:
According to the U.S. Department of the Treasury, as of the end of June 2023, China’s holdings of U.S. Treasuries had fallen to $835.39 billion, a 17.5 percent contraction. Some media outlets interpreted this as a significant sell-off of U.S. debt by China, or even a countermeasure against the U.S. However, the size of China’s U.S. debt holdings has declined by 17.5 percent, and the main reason for this decline in China’s holdings of U.S. debt is the fall in U.S. bond prices, not actual selling behavior. In fact, from the end of March 2022 to the end of June 2023, China’s net sales of long-term U.S. debt of $23.57 billion accounted for only 15.7 percent of the change in the size of its holdings, with the remaining 84.3 percent driven primarily by the decline in U.S. bond prices. Some expect that the massive U.S. debt and irresponsible monetary policy will lead to a global sell-off of U.S. debt, thus affecting the hegemony of the U.S. dollar. At present, however, there is no asset that can replace the U.S. dollar and U.S. bonds as the benchmark for the value of the international monetary system. Eurozone Treasuries cannot be considered a reliable substitute due to the lack of fiscal unity among its member countries. In China, local debt is substantial, while national bonds are small in size, leading to an unreasonable debt structure. Therefore, there is no real competitor to the U.S. dollar and U.S. treasury bonds. This is also why the BRICS countries are exploring the creation of a new international asset to reduce the dominance of the U.S. dollar.（Read The Original Text）Finance and Business (Public Opinion within the Great Firewall)
Will National Housing Prices Rise After the Policy of “Recognizing Homes but Not Loans” Is Implemented?Xie Jiu – Sanlian Life Weekly – September 5, 2023

A Chinese flag flies in front of a construction site in Guangzhou. Guangzhou and Shenzhen announced on August 30, 2023, that they will begin implementing a policy of “recognizing homes but not loans,” providing more concessions to first-time home buyers. (Reuters)Summary:
The policy of “recognizing homes but not loans” has been implemented in first-tier cities, aiming to free up demand for home improvements that has been suppressed by the policy of “recognizing homes but not loans.” The policy allows people who have a loan history but do not own a local home to be treated as first-time home buyers to enjoy lower downpayments and interest rates, thus providing more opportunities for people in tier-one cities who have a need to upgrade their homes. However, whether this policy will change the downward trend in the property market is highly uncertain. Reduced downpayments means higher monthly repayments, thus increasing the financial burden on home buyers. Against the backdrop of the current downturn in the economy and the real estate market, highly leveraged home purchases have become riskier, and home buyers may face the risks of negative equity in the event of a fall in property prices. Also, for those with a need to upgrade their homes, liquidating smaller properties can be a major challenge. The economic downturn has reduced the demand for smaller properties at the lower end of the market, which, in turn, affects the entire chain of property upgrades. In addition, implementation of this policy may trigger a series of market reactions, which will affect the future direction of the property market. All in all, although the policy of “Recognizing Homes, Not Loans” may have a certain stimulating effect, its long-term impact on the property market is still unknown due to the various uncertainties and challenges. The future direction of the market is still filled with variables and uncertainties, requiring further observation and analysis.（Read The Original Text）