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THIS WEEK:

1. China Sacks Market Regulator Amid Stock Route

What Happened: China sacked its top stock market regulator, China Securities Regulatory Commission (CSRC) chair and party secretary Yi Huiman, on Wednesday. He will be replaced by Wu Qing, deputy party secretary of Shanghai.

Between the Lines: Yi’s removal follows a bruising year-long meltdown in Chinese stock markets. China’s benchmark CSI 300 index fell 4.6% last week to close at a five-year low on Friday. It is down 44% from its peak in 2021.

• The market situation is severe enough to have become a political embarrassment for Beijing. Yi’s defacto job was to prevent exactly this outcome. One of his predecessors, Xiao Gang, was also fired after steep market selloffs in 2015 similarly embarrassed the government.

The Bigger Picture: Although until now Beijing has largely refrained from attempting to intervene significantly to try to prop up markets, that appears to have changed. China’s State Council having called last month for more to be done to stabilize the stock market and boost investor confidence.

• Markets rebounded somewhat this week on the announcement that China’s “national team” of state-run financial institutions will expand stock purchases to help stabilize markets.
• China's banking regulator also said it would punish “malicious” short selling and stop “illegal behavior” sabotaging stable stock market operations.
• This follows a move by China’s central bank to cut bank’s required reserve ratios in order to inject some $140 billion into the banking system.

Why it Matters: Although stock markets aren’t necessarily correlated with economic performance, China’s struggling markets reflect souring investor confidence in China’s short- and long-term economic prospects. It’s unlikely that Beijing’s maneuvers to bolster markets can do much to address these deeper concerns on their own. 

By: Nathan Levine, Research Fellow, Center for China Analysis

Learn More: Read about how Eroding Trust Could Further Undermine Confidence in Governance and Development in China in the year ahead, in China 2024: What to Watch.

2. Can “New Productive Forces” Solve China’s Economic Woes?

What Happened: On January 31, Xi Jinping chaired a study session of the Politburo that focused on “accelerating the development of new productive forces.”

The Details: Xi defined “new productive forces” as “those for which innovation plays a leading role and that cast off traditional modes of economic growth and paths of productivity development.”

• According to Xi, these are “catalyzed by revolutionary breakthroughs in technology, innovative allocations of factors of production, and the deep transformation and upgrading of industry.”
• He said his “core measure” of success would be “a significant increase in total factor productivity.”

Between the Lines: Since Xi first mentioned “new productive forces” back in September, the concept has emerged as a potentially significant aspect of his response to China’s economic problems.

Reality Check: It’s uncertain whether Beijing can succeed in actually improving productivity, in part because it’s unclear whether Xi will let markets play a greater role as a part of any reforms.

• Xi said China should “bring forth new ideas for allocating the factors of production,” but that the Party should still “lay out” future industries and secure self-reliant supply chains.

Why it Matters: Higher productivity is one of the few ways China could genuinely improve its growth prospects over the long term.

• Look for “new productive forces” to potentially be a key theme of premier Li Qiang’s first government work report at the Two Sessions in March. It could even inform the Party’s long-delayed Third Plenum.
• Xi’s remarks suggest that in practice this would likely mean more state support for sectors including advanced manufacturing, agricultural technology, green industries, and the digital economy.

By: Neil Thomas, Fellow on Chinese Politics, Center for China Analysis

Learn More: Read why we think it’s likely China’s Economy Will Continue to Struggle in China 2024: What to Watch.

3. Beijing Lifts Foreign Ownership Restrictions to Attract Investment

What Happened: On January 25, the Deputy Director of China’s National Financial Regulatory Administration announced that foreign investors can now wholly own and control banking and insurance institutions in China.

The Bigger Picture: The government has been slowly moving in this direction for a while.

• In May 2019, China's banking regulator introduced 12 measures to open up banking and insurance, removing asset requirements for foreign banks and easing restrictions on foreign insurance brokers.
• And in September 2021, similar policies eliminated requirements such as shareholder tenure and total assets, further reducing entry thresholds for foreign insurance intermediaries and enabling them to engage in related business.

Why it Matters: China is actively working to try to attract and boost confidence among foreign investors. Recent expansions of visa-free policies and Li Qiang's speech at Davos, for example, have underscored how keen Beijing is to do so. However, recent policy measures suggest mixed signals about China's economic policy trajectory. While many seem to promote a more active market role, they are mostly tactical in nature, with Beijing's determination to maintain heavy control over the private sector economy remaining unwavering.

By: Gavin Xu, Intern, Center for China Analysis

Learn More: Read why it’s likely Xi’s Prioritization of Security Will Continue to Weigh on Growth in China 2024: What to Watch.

4. China Sees Only “Two Bowls of Poison” in U.S. Presidential Election

What Happened: As the likely candidates for the U.S. Presidential election come into sharper focus, Chinese scholars are voicing little hope that either President Biden or former President Trump will change course on China policy. 

China’s View: A recent Associated Press article highlighted the “lesser of two evils” predicament that many Chinese analysts perceive in the upcoming U.S. presidential elections.

• Zhao Minghao, professor of international relations at Fudan University: “For China, no matter who wins the U.S. presidential election, they would be two ‘bowls of poison’.”
• Sun Chenghao, a fellow at the Center for International Security and Strategy at Tsinghua University: “no matter who takes office, it will not change the overall direction of America’s strategic competition with China.”
• International relations scholar Shi Yinhong lamented “Trump is by nature volatile and cruel and is a person hard to be familiar with,” adding that, “While Beijing can expect its relationship with Washington to stay the course if Biden is reelected, it may not wish to deal with Trump’s hysteria toward China and possibly drastic changes if he returns to the White House.”

Why it Matters: While the two presumptive candidates present China with drastically different leadership styles, many observers in China believe both are equally likely to continue to pursue an approach to China centered on “strategic competition.” However, many Chinese scholars also view a Trump victory as likely to inject particularly greater uncertainty into the already volatile U.S.-China relationship due to his “unpredictable” style of leadership.

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

Learn More: Read more on how Two Elections will Challenge Chinese Foreign Policy in China 2024: What to Watch.

5. China Hands Suspended Death Sentence to Australian Writer

What Happened: On Monday, China handed down a suspended death sentence to Australian writer and blogger Yang Hengjun.

• Yang, who was also a former Chinese diplomat and agent of the Ministry of State Security, has been detained in China since 2019 on espionage charges and was tried behind closed doors in 2021.

The Details: Yang Hengjun was found guilty of espionage and sentenced to death with a two year reprieve. Often these reprieves are commuted to life in prison after the two years. 

Australia’s Response: Australian Foreign Minister Penny Wong stated the government would be communicating its disagreement to Beijing in “the strongest terms.”

• “We have consistently called for basic standards of justice, procedural fairness and humane treatment for Dr. Yang, in accordance with international norms and China's legal obligations… we will not relent in our advocacy,” Wong said.
• Yang’s sons had written to Australian Prime Minister Anthony Albanese prior to his visit to China in November of 2023 to press him to negotiate for their father’s release.  

Why it Matters: The detention of both Yang and another Australian journalist, Cheng Lei (who was released in October of 2023), have contributed to rocky Australia-China relations, which both governments have tried to stabilize following Albanese's election. Yang’s sentencing could significantly hamper that effort. The decision also reflects China’s growing internal paranoia regarding any action it deems to be espionage or deviation against the state. 

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

Learn More: For background, read How Australia’s relationship with China went down, and then up again, and what comes next, by Richard Maude, Executive Director of Policy for Asia Society Australia.