Trade War

Newsletter 175 - July 30, 2023

Welcome to the 175th edition of Trade War.

The mysterious disappearance of former foreign minister Qin Gang is unlikely to affect policy-making but doesn’t reflect well on Xi Jinping’s management. And Politburo meeting closes with broad call for more stimulus but is short on specifics.

Chinese stocks surge widening divide between bull and bear takes on the economy. Regulators meet with brokerages with aim of keeping markets buoyant. But broader trend shows global funds abandoning China.

Authorities give tech companies green light for new deals. And Biden prepares for broader technology curbs.

• China’s global popularity sinks according to Pew survey

• Chinese and Russian officials visiting Pyongyang are ‘enablers for North Korea.’

• And Foreign Affairs commentary calls for a “prompt divorce” between the U.S. and Chinese economies.

The mystery of the missing minister

The mysterious disappearance of former foreign minister Qin Gang may not affect policy-making, but it doesn’t reflect well on Xi Jinping’s management.

"Xi handpicked Qin Gang not to make foreign policy but to serve as the implementer-in-chief of Xi Jinping Thought on Diplomacy," points out Asia Society Policy Institute fellow Neil Thomas, speaking to the BBC. "It is Xi and his inner circle who make major foreign policy decisions."

But the sudden substitution of Qin with former foreign minister Wang Yi, revealed in a terse announcement (Chinese) and likely a temporary move until a new minister is chosen, does highlight the capriciousness of China’s political system.

“We will unite more closely around the Communist Party’s Central Committee with Comrade Xi Jinping at the core,” Wang said in one of his first public comments after his appointment.

"The Qin Gang affair is not good for the Chinese Communist Party's image abroad and even internally," says Asia Center senior research fellow Jean-Pierre Cabestan.

"It highlights a certain level of instability in the leadership, possible policy disagreements, unprofessional high-level official promotion methods and a degree of political opacity that does not fit well with China's ambition to become a global power."

It also doesn’t reflect well on the top leader’s management.

“Xi’s defeats are setbacks that all Chinese people can feel and see. Economic growth numbers can be fudged but ultimately people know what they know—and they know that they have less money in their pockets. They can also see the public flip-flopping on COVID, and few will have missed the strange departure of his foreign minister,” writes Council on Foreign Relations senior fellow Ian Johnson.

“One factor unites these failures: a sense that Xi is increasingly isolated and no longer listening to the excellent advice he could get from the Chinese bureaucracy.”

Politburo meeting sends mixed signals on economy

A meeting of the Politburo of the Communist Party last Monday ended with a promise for more stimulus measures but few concrete details.

The economy is facing a “tortuous” recovery, reported the official Xinhua News Agency, following the meeting.

“The Politburo urged a ‘proactive’ fiscal stance, ‘prudent’ monetary policy, a stable yuan, livelier capital markets, measures to defuse mounting financial risks, and improvements in business and consumer confidence,” reports Reuters.

“On the fiscal policy front, it flagged unspecified reductions in taxes and fees and the issuance of special local government bonds, which usually fund infrastructure investment,” but also suggested that any pump-priming by the PBOC or interest rate cuts, are likely to be modest, the news service reported.

Chinese President Xi Jinping attends the joint press conference of the China-Central Asia Summit in Xian, Shaanxi province, China May 19, 2023. REUTERS/Florence Lo/Pool/File Photo

Optimists vie with pessimists as stocks surge

While Beijing was cautious in voicing support for a looser economic policy at the recently concluded meeting, that didn’t stop stocks from rallying. It has also widened the divide between those analysts optimistically predicting a lasting economic bounce back and those who think China’s economy will continue to underperform.