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THIS WEEK:

1. Hunan Stirs Debate About Changing Political Winds

What Happened: On February 17, the Hunan Province Party Committee launched “a great discussion campaign to emancipate the mind.” The announcement sparked a wide-ranging debate among Chinese-language commentators, with interpretations ranging from “a new Cultural Revolution” to “a new Reform and Opening.”

Plausible Theories: Most likely, the campaign is local leader Shen Xiaoming’s effort to advance Beijing’s agenda by blaming Hunan’s poor economy on his predecessor Zhang Qingwei, who may be implicated in a military corruption scandal.

• Another possibility is that central authorities prompted Shen to put out a trial balloon to see if other localities launch campaigns, revealing to Xi where his enemies lie.
• Much less likely is that it is a veiled rebuke of policies that demand more of revenue-starved local governments — but this would be a risky move for Shen.

What to Watch: Indications that the campaign has national significance would be if it spreads beyond Hunan and if Xi visits the Hunan delegation at the Two Sessions. 

Why It Matters: People inside China, including cadres and executives, are anxious for signals about Beijing’s economic plans and are losing trust in the leadership’s willingness, or even its ability, to change course. If meaningful opposition to central policies were to emerge, it would manifest in forms like this. 

By: Neil Thomas, Fellow on Chinese Politics; Jing Qian, Co-Founder and Managing Director; and Shengyu Wang, Research Assistant, Center for China Analysis

Learn More: Read the Center for China Analysis’s report on China 2024: What to Watch for the top ten reasons why Beijing faces a vexing year ahead.

2. China Pursues Closer Security Ties with Hungary

What Happened: China’s Minister of Public Security Wang Xiaohong paid a rare state visit to Budapest on Friday, meeting with Hungarian Prime Minister Viktor Orban and offering to deepen security and law enforcement cooperation.

The Details: In addition to Orban, Wang met Hungarian Interior Minister Sandor Pinter and reportedly signed a series of cooperation agreements. Wang said that he hopes the two countries will “make law enforcement and security cooperation a new highlight of bilateral relations.”

Economic Ties Strengthen Apace: Budapest has been steadily pulling closer to Beijing in recent years. Hungary is the site of Huawei’s largest logistics and manufacturing base outside China — despite EU warnings that the Chinese telecom giant may pose a risk to European security — and will soon host Chinese carmaker BYD's first European factory. 

Why It Matters: Given concerns about China’s domestic human rights record and extra-judicial reach in Europe, expanded law enforcement cooperation between Beijing and Budapest is bound to raise eyebrows in some European capitals.

By Lyle Morris, Senior Fellow on Foreign Policy and National Security, Center for China Analysis

Learn More: Read about EU’s relations with China in the Center for China Analysis report on The “Rebirth” of Europe-Taiwan Relations: Explaining Europe’s New Balance Between Beijing and Taipei by Philippe Le Corre, Senior Fellow on Foreign Policy, Center for China Analysis.

3. State-Owned Enterprises Urged to Promote AI

What Happened: The State-owned Assets Supervision and Administration Commission (SASAC) convened a meeting on February 19 to urge central enterprises to play a greater role in the development of artificial intelligence (AI).

The Message: SASAC’s Chairman Zhang Yuzhuo exhorted state-owned firms to take the lead in using AI to transform traditional industries and support the creation of an AI ecosystem. Ten state firms — reportedly including the three telecom giants—signed a letter pledging to take the initiative to develop AI applications to meet the needs of society.

Leading From the Center: China is eager to keep up with the breakneck pace of advances in AI overseas and state-owned firms have the resources to help create the hardware and infrastructure needed. At the same time, some private firms are calling for substantially more policy support for their AI initiatives.

Why It Matters: China and the United States are leading the pack in the race to develop cutting-edge AI applications. With party officials announcing top-down initiatives to harness the power of state firms, the meeting highlighted the difference between China’s state-centric strategy and the market-driven, private sector led approach in the United States.

By: G.A. Donovan, Fellow for Chinese Political Economy and Society, Center for China Analysis

Learn More: The Center for China Analysis’ newest article on the Implications of China’s AI Strategy: State Engineering, Domestic Challenges, and Global Competition by Lizzi C. Lee, Affiliated Researcher, Center for China Analysis.

4. Xi Reaffirms China’s Climate Commitment

What Happened: At a meeting of the Central Commission for Deepening Reform, also on February 19, Xi Jinping reaffirmed China’s commitment to green energy and carbon peaking despite economic headwinds.

Background: The commission, led by Xi Jinping and including Politburo Standing Committee members Li Qiang, Wang Huning, and Cai Qi, meets regularly to coordinate policy at the supra-ministerial level. In effect, its purpose is to fast-track initiatives that advance Xi’s effort to change bureaucratic norms to suit his idea of good governance.

Quality a Priority: High quality development is still a key theme for Xi. In addition to the environment, the commission also took up policies on technological innovation and self-sufficiency, land administration reform, and emergency management. 

Why It Matters: More state-driven investment in technology and innovation is in the cards, although the commission’s agenda was remarkably short on market-oriented reforms. The good news is that, at least for now, China’s green energy transition has not been sidelined by economic issues. 

By: Haolan Wang, Research Assistant, Center for China Analysis.

Learn More: Read China Will Accelerate Climate Resilience as a Security Priority in China 2024: What to Watch. 

5. The Dragon’s Spending Splurge

What Happened: Lunar New Year spending and travel exceeded pre-pandemic levels as China welcomed the Year of the Dragon, a sign that consumer confidence may be improving. 

Spending Grows: Tourism revenue during the eight-day holiday climbed nearly 8% from pre-COVID 2019, to US$88 billion. That was a 47.3% increase over 2023. 

Travel Surges: The number of domestic trips taken by Chinese travelers totaled 474 million, a 34.3% year-on-year increase and 19% higher than 2019. 

Why It Matters: The increase in consumer spending during China’s most important holiday may indicate a slow but gradual return to pre-COVID levels. However, stocks in Shanghai and Shenzhen opened lower than anticipated after the Lunar New Year break, suggesting that travel and consumption alone are not enough to remedy the deeper structural issues facing China’s economy. 

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

Learn More: Read It’s Grim out There: China’s Economy in the Year of the Dragon, A ChinaFile Conversation featuring Centre for China Analysis experts Diana Choyleva and Lizzi C. Lee.