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THIS WEEK:

South China Sea tensions shift back to Scarborough Shoal, first credit issuance contraction in nearly two decades, political rise and fall of “throwing eggs,” Beijing admits Chinese-owned ship damaged Baltic Sea pipeline, and pavilion collapses in latest extreme weather event.

1. South China Sea Tensions Shift Back to Scarborough Shoal

What Happened: Last Thursday, PLA Air Force jets allegedly conducted “dangerous and offensive maneuvers” around a Philippines military light transport aircraft in the South China Sea (SCS).

Tensions Flare: The Armed Forces of the Philippines said the maneuvers included dropping eight flares into the plane’s flight path near Scarborough Shoal on August 8. The incident occurred as the Philippines wrapped up a two-day joint patrol exercise in the area with the United States, Australia, and Canada, with China holding its own air and sea drills in the same area.
 
Beijing's Side: The Chinese side all but confirmed the August 8 incident, with the Ministry of Foreign Affairs describing the PLA’s actions as “professional” and “necessary measures” in response to Philippine intrusions into “airspace adjacent to Huangyan Dao,” the official Chinese name for the atoll. The ministry spokesperson’s statement made clear that the action was in response to the joint patrols by the four U.S. allies on August 7 and 8.
 
Why It Matters: The incident marks a possible shift in SCS tensions back to Scarborough Shoal, which China seized in a tense, three-month standoff in mid-2012 that mobilized nationalist sentiments, including a state-led wave of warmongering in China. For the past two years, the key flashpoint has been Second Thomas Shoal in the Spratly Islands. But with evidence of deescalation near the shoal in recent weeks — a recent Philippine resupply mission was completed without interference — Beijing may see the lowering of tensions as rationale for dialing up the
pressure elsewhere.
 
By Andrew Chubb, Fellow on Foreign Policy and National Security, Center for China Analysis
 
Learn More: Check out Andrew’s new report that investigates the role of Chinese public opinion in these types of crisis situations, Chinese Nationalism, PRC Resolve, and Crisis Escalation: Views from Indo-Pacific Experts.

2. First Credit Issuance Contraction in Nearly Two Decades

What Happened: Between August 13 and 15, China released its July economic data, which recorded the first credit issuance contraction in nearly two decades. 

Credit Crunch: New credit issuance plummeted to 260 billion yuan from 2.13 trillion yuan in June, well below economists’ expectations of 400 billion yuan. While the decline is partly seasonal — July typically sees weaker lending — the extent of the drop points to structural challenges, including a protracted property slump and reluctance among businesses to take on new debt. Official narratives are emphasizing a shift away from reliance on property and infrastructure, yet new growth sectors have not compensated for the decline in credit demand.

Connecting the Dots: July’s data highlights the uneven nature of China’s recovery. Industrial output growth slowed to 5.1% year-on-year from June’s 5.3%, signaling waning manufacturing momentum. Retail sales edged up 2.7%, slightly better than June but still subdued. The property sector continued to struggle, with real estate investment down 10.2% year-on-year. Rising unemployment to 5.2% from 5% in June underscores labor market challenges.

Why It Matters: The drop in credit issuance signals eroding confidence among households and businesses, raising significant concerns about the broader economic trajectory. Policymakers may resort to further monetary easing, but these measures will likely provide limited relief. Structural challenges—like weak consumer confidence, a stagnant property market, and cautious corporate investment—will continue to drag on the economy, necessitating more forceful measures, including robust fiscal interventions.

By Lizzi C. Lee, Fellow on Chinese Economy, Center for China Analysis

Learn More: In partnership with the Stanford Center on China’s Economy and Institutions, CCA published the fourth in a series of roundtable summary reports, Decoding China’s Economic Slowdown.

3. Political Rise and Fall of “Throwing Eggs”

What Happened: The Central Commission for Discipline Inspection (CCDI) reportedly issued
directives requiring cadres to disclose their involvement in guandan (translated as “throwing
eggs”), a card game popular among political and financial elites.
 
House of Cards: Guandan originated in Jiangsu province and received official recognition from the General Administration of Sport in 2022. In a sudden turn of events, the Beijing Youth Daily published a series of critiques targeting the game’s culture from August 5th to 8th, culminating in a bold call for its elimination due to an association with “lying flat,” bureaucratic decadence, and the formation of political cliques. An alleged CCDI document claims that Xi Jinping personally ordered a stop to the game, citing concerns about its potential to foster corruption among officials.
 
Coordinated Criticism: The coordinated nature and pointed criticisms of the Beijing Youth Daily op-eds suggest a deliberate campaign against guandan.
 
Why It Matters: Xi Jinping’s alleged aversion to guandan stems from his understanding of the power dynamics inherent to elite social circles. He likely views guandan’s popularity as a symbol of patronage forming within political elite networks. By swiftly moving against guandan, Xi is sending a clear message: even leisure activities are under scrutiny, and any potential challenge to his authority will be met with decisive action.

By Shengyu Wang, Research Assistant, Center for China Analysis

Learn More: CCA Fellow Neil Thomas commented that Xi increasingly discourages internal policy discussions in his review of July’s Third Plenum.

4. Beijing Admits Chinese-Owned Ship Damaged Baltic Sea Pipeline

What Happened: Beijing acknowledged that a Chinese-owned ship, the Newnew Polar Bear,
damaged the Balticconnector natural gas pipeline between Estonia and Finland in October 2023. 
 
Ongoing Investigation: The pipeline, crucial for Finland’s energy supply, was sliced when the ship’s anchor dragged along the seabed. While China claims the damage was accidental, both Estonia and Finland are conducting a joint criminal investigation centered on the Hong Kong– flagged vessel. The South China Morning Post reports that Chinese authorities conducted an internal investigation, concluding the damage was due to a severe storm. This report has been shared with European governments but remains unofficial and inadmissible as evidence in the ongoing investigations.  
 
Reluctant Cooperation: Despite China’s initial pledges of cooperation, including assurances of compliance with European probes, both Tallinn and Helsinki have yet to receive the necessary legal aid from Beijing. Estonian and Finnish authorities have pressed China for more information, but requests for evidence from the ship and its crew remain unanswered, adding to growing frustration in both capitals.
 
Why It Matters: The incident has heightened concerns about the vulnerability of undersea infrastructure, particularly in a geopolitical climate already strained by China’s close ties with Russia. As investigations continue, the situation underscores the challenges of international cooperation in addressing breaches of critical infrastructure.

By Jie Gao, Research Associate, Center for China Analysis

Learn More: Both Estonia and Finland’s relations with China were both discussed in CCA Senior Fellow Philippe Le Corre’s The Beijing Moscow Axis: Evolving European Perspectives.

5. Pavilion Collapses in Latest Extreme Weather Event

What Happened: A lightning strike in Changzhou, Jiangsu Province, caused a pavilion sheltering a group from severe storms to collapse, resulting in six deaths and ten injuries.

Yellow Alert: Last Sunday evening, the Changzhou Meteorological Bureau issued a yellow alert, China’s third-highest alert level, for severe convective weather. The bureau said that despite technological advances, forecasting convective weather remains difficult and is like “using a big net to catch small fish.” It further advocated vigilance and responsiveness.

Resilience Required: The pavilion’s collapse is China’s latest infrastructure disaster this year. In July alone, 1.1 million people were relocated, 12,000 houses destroyed and a further 157,000 damaged, and 2.42 million hectares of crops affected due to extreme weather. After the pavilion’s collapse, local authorities in Changzhou began a comprehensive review of public facilities to ensure the safety and resilience of infrastructure in the face of weather disasters. The review is ongoing.

Why It Matters: Last Monday, the Ministry of Emergency Management announced that during August, more extreme weather should be expected across large areas of China. As extreme weather events become more frequent due to climate change, it is imperative that China prioritize the development of climate-resilient infrastructure and procedures for disaster management and response.

By Taylah Bland, Fellow on Climate and the Environment, Center for China Analysis

Learn More: Taylah explains how "China Will Accelerate Climate Resilience as a Security Priority" in China 2024: What to Watch.