Commentary
Chinese leader Xi Jinping and his fellow communists know how to leverage Chinese xenophobia to distract rising discontent among the Chinese people. With a nod to lucky No. 3 in Chinese numerology, Beijing frequently plays three cards in its geopolitical card game to focus on long-standing foreign adversaries (enemies) to distract the masses from economic difficulties.
Let us briefly examine those three cards and then identify the underlying economic problems that the CCP and its state-run media have been desperately trying to obfuscate recently.
The 3 Foreign Policy Cards
Attention given to three countries, in particular, is a surefire way to capture the attention of Chinese conditioned over the years to view these three as key adversaries in 2023.The India Card
Mao Zedong developed the so-called “Five Fingers Policy” in the 1940s. This policy considers Tibet as China’s right hand with “five fingers” on its periphery—Sikkim, Arunachal Pradesh, Bhutan, Nepal, and Ladakh—and that it was China’s duty to ‘liberate’ these areas. This policy was ultimately aimed at India.Multiple military skirmishes during the Xi era, as well as a border war in 1962, have been fought over disputed territories along the militarized Line of Actual Control (LAC) that separates China from Indian-controlled territories, including the Seven Sister States of northeast India (Arunachal Pradesh, Assam, Meghalaya, Manipur, Mizoram, Nagaland, and Tripura), Sikkim, the Siliguri Corridor, Utter Pradesh, and the western states of Jammu and Kashmir, Himachel Pradesh, and Uttar Pradesh. Saber rattling by the People’s Liberation Army (PLA) along the LAC is a frequent diversion for the CCP that routinely captures the attention of the Chinese public.
The Japan Card
Chinese enmity toward Japan seemingly knows no bounds, largely due to Japanese atrocities committed during the Second Sino-Japanese War, eight examples of which are summarized by the History Collection here. Chinese memories from that era have been kept alive by the survivors as well as the CCP, who exploits anti-Japanese sentiments whenever deemed appropriate.Take, for example, this quote from People’s Daily on May 21 after the completion of the G-7 conference hosted by Japan: “Japan, as a country whose militarists once launched wars of aggression, should have exercised caution in its words and deeds (before calling attention to the ‘China threat’).” It’s good press in China to cover the ongoing psychological warfare/encirclement strategy practiced by the PLA Navy (PLAN).
The PLAN has periodically dispatched surface action groups to circumnavigate Japan (for example, on Oct. 21, 2021, July 1, 2022, and May 15, 2023). More recently, PLA General Li Shangfu—China’s state councilor, defense minister, and one of the seven members of China’s Central Military Commission—made this shocking public statement while meeting Japanese Defense Minister Yasukazu Hamada in Singapore. As reported by Nikkea Asia here, in referring to the “Diaoyu issue”—the Chinese name for Japan’s Senkaku Islands—he essentially stated that the territorial dispute over those islands has not, in fact, been resolved (doubtless to the surprise of most Japanese): “The Diaoyu issue is not the entirety of China-Japan relations.”
Any condemnation of Japan resonates with many Chinese, and the CCP often plays this card to distract from domestic issues.
The Taiwan Card
Perhaps the most important of the foreign cards to be played is Taiwan in the context of U.S.-China relations. As the de facto guarantor of the status quo in the Taiwan Strait, the entire panoply of the Chinese communist state—diplomats, PLA generals, state-run Chinese media, and Xi himself—frequently expresses ire, anger, and threats at the United States for “interfering with internal Chinese affairs,” as the CCP refers to what it deems to be virtually U.S. support for the wayward Chinese province of Taiwan. A good example was this blaring headline from China’s Diplomacy in the New Era on June 4: “Washington should never cross Beijing’s redline” on Taiwan.PLA confrontations with U.S. and other military units operating in international waters around Taiwan make for good distractions, too. An example was the June 3 “drive-by” at-sea incident in which a Chinese guided-missile destroyer violated international rules and crossed the port bow of a U.S. guided-missile destroyer at very close range. Taiwan is the ultimate trump card to be played by Beijing whenever a distraction is needed.
Lastly, there was this combo-card played by Beijing in July 2021. The Center for Security Policy reported: "China has threatened to ‘nuke Japan continuously’ if Japan supports the US in protecting Taiwan from a Chinese invasion.” Call it the CCP’s twofer card. This is apparently what passes for civil discourse by the Chinese communists.
What Are They Hiding?
There are some big, big cracks in the façade that represents Zhōngguó, the land the CCP built at the point of the bayonets of the PLA. These cracks are appearing despite continuing efforts to withhold and misreport financial and other data and information that would help outsiders determine the true state of the Chinese economy.
The trumpeted economic bounce-back after Xi abruptly terminated his signature (and economy-killing) “zero-COVID” policy petered out quickly in the first quarter of 2023. As a result, the authorities have resorted to priming the pump by lowering interest rates on bank deposits. There have already been two cuts this year.
As reported by Reuters on April 24, interest rates on bank deposits were cut a roughly 10-basis-points. The reason given was typically opaque: “With margins at record lows, ‘banks have no choice but to appropriately lower deposit rates as the government continues to push financing costs steadily lower to aid the real economy.’”
The second round of cuts was initiated on June 8, as reported by Reuters: “The state-backed banks cut rates on demand deposits by 5 basis points and three-year and five-year time deposits by 15 basis points.” The expectation (hope?) was expressed that these cuts “could ease pressure on profit margins and reduce lending costs.”
In April, the expressed reasons for the cuts were “businesses grappling with debt risks, structural woes, and a slowing global economy,” while the June reasons shifted to “grappling with tumbling exports, a sluggish housing market, and a high unemployment ratio.” However, the June report may have given the game away, as an expert was quoted as predicting “a 50 basis points cut in the reserve requirement ratio (RRR) soon to support local government bond issuance.”
The canary in the coal mine is local government debt—bonds—as much of China’s economic growth is hidden behind a Great Wall of Debt.
According to Reuters in March, China has “massive local-government debt, which is more than $9 trillion and growing.” Local government financing vehicles (LGFVs) have $790 billion worth of onshore bonds coming due this year alone. LGFV’s inability to service these debts drives the rate cuts, as the ripple effect of looming defaults poses a great danger to the entire Chinese banking sector. And most people worldwide have no idea just how dependent Chinese economic growth is on real estate development funded by LGFVs.
Concluding Thoughts
Beijing’s saber-rattling of late is at least partially intended to distract Chinese citizens from increasingly significant economic woes. There are other cracks in the Chinese economy besides the near bankruptcy of local governments that are becoming apparent, including the following:- China’s exports fell 7.5 percent from last year in May (from CNN on June 7).
- China’s imports dropped for a third straight month, declining 4.5 percent (from Pro Farmer on June 7).
- A 17 percent decline in China’s year-on-year trade surplus in May (from Trading Economics on June 8).
So when People’s Daily reported on June 8 that the United States is “endangering peace in Asia-Pacific,” reasonable China watchers might infer that China’s problems are actually much closer to home.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
