Anti-Foreign Sanctions Law for Hong Kong & What is the CCP’s “Common Prosperity”?
Hello, everyone, welcome to “Inconvenient Truths”. I am your host Jennifer Zeng. Today I will talk about two issues. Why did the CCP postpone the Anti-Foreign Sanctions Law for Hong Kong? Why did Xi Jinping suddenly talk about “common prosperity”, and what is the reason behind it?
Anti-Sanctions Law for Hong Kong Postponed
Now, let’s move to our first topic today.
On Aug. 20, the CCP regime postponed the decision on the Anti-Foreign Sanctions Law for Hong Kong. This law was drafted to retaliate against Western-imposed sanctions.
Initially, the CCP’s rubber-stamp National Congress was expected to formally approve the law for Hong Kong to counter actions by foreign governments.
However, the process was stopped at the last minute, and so nothing happened. No explanations were offered as to why it was postponed at the last moment.
Only 3 days ago, on August 17, the CCP was still saying that the Anti-Foreign Sanctions Law would be included in Hong Kong’s Basic Law. This law was already passed by the National Congress on June 10. But that law only applies to China.
So this time the CCP planned to have it passed by the National Congress so that it can apply to Hong Kong and Macau too. But the process was urgently called off.
Under the planned law, foreign banks and financial institutions would be in a dilemma—either violating U.S laws by following it or violating the CCP’s laws by following U.S. orders.
The United States had warned multinational firms who have business in Hong Kong that the regime may force them to comply with Beijing’s retaliation. The measures could be used “against companies that comply with sanctions imposed by the United States and other countries” when Beijing imposed the Anti-Foreign Sanctions Law.
So why did the CCP suddenly call off this law? What had happened?
The biggest possibility is, China’s economy has encountered bigger problems than what people have imagined. So the CCP cannot afford to have more foreign companies leave Hong Kong because of this new law.
Let’s see the Hang Seng Index of Hong Kong Stock Exchange in 6 months. You can see that after the sharp fall at the end of July, the index has been hovering around in a lower area, and never managed to bounce back.
Hang Seng Index of Hong Kong Stock Exchange in 6 months
As a matter of fact, for many years, Hong Kong had been playing a very important role for mainland China. At some stage, 70% of foreign investment entered China via Hong Kong.
Right now, there are about 200 banks in Hong Kong, and over 80% are foreign banks. So if the planned anti-foreign sanctions law is passed, perhaps half of these banks will choose to leave Hong Kong. So the CCP cannot afford this.
Also, Xi Jinping had been trying to maintain his image of a very tough leader who wouldn’t back down on anything, especially things related to China’s relationship with foreign countries. So this postponing of the Anti-Foreign Sanctions Law for Hong Kong must be a big blow to Xi’s tough man image. The reason he chose to suffer this setback must be that China’s economy is really in big, big trouble.
“The Third Distribution” and “Common Prosperity”
Next, let’s move to another topic. Is a new round and new format of communism coming to China?
On August 17, Xi Jinping hosted the CCP’s tenth meeting of the Central Finance and Economics Commission to discuss how to achieve “common prosperity” amid “high-quality development”, and how to prevent major financial risks.
Xi Jinping said, common prosperity is the essential requirement of socialism, and an important feature of Chinese-style modernization. We need to adhere to the people-centered development ideology, to promote common prosperity amid high-quality development. Finance is the core of the modern economy, and we need to prevent and eliminate financial risks, etc.
Xi also mentioned that this should be done through a system called “primary, secondary and third distributions”, which means to transfer wealth through taxation, social security and a social transfer system, to help those who need to become rich with precision, and to expand the proportion of the middle class, and to form an olive-shaped income structure, etc.
Olive-shaped income distribution structure means the majority of the people have medium level income; and only very few people are very poor or very rich.
I think the concept is the same in the US and other countries.
However, in CCP’s China, the same term may not necessarily mean the same thing.
As a matter of fact, as soon as Xi Jinping’s speech was done, many people started to say, does this mean that the CCP is going to practice another round and a new format of communism in China?
You know, before the CCP took power 72 years ago, it also promised that it would give democracy to people, and it attacked the ruling KMT for being a dictator.
However, as soon as it took power, the first thing it did was to take away private properties from all the landlords in the countryside, and from all the business owners in the cities. According to the CCP, under socialism or communism, everybody must own everything together; and everybody should have an equal amount of everything.
Then you know what happened. Tens of millions were starved to death during the so-called Great Leap Forward movement. And then China’s economy was at the verge of total collapse at the end of the Cultural Revolution in 1976.
The so-called “Reform and Opening to the Outside World” saved the CCP’s economy, as well as the CCP itself.
After more than 40 years, China has become the second largest economy in the world, second only to the US.
However, as China’s development didn’t base on its own innovation, but relied a lot on foreign investment, technology theft, and other unhealthy, immoral means, that kind of development wasn’t healthy, and cannot last forever. Nor does China have a real free economy or market.
So, what’s the situation now?
After more than 40 years of the CCP style high-speed development, the gap between the rich and the poor is bigger than ever. While most of China’s wealth is now in the several hundreds of top CCP officials’ families’ hands, some of the so-called “private companies” are indeed doing better than others.
So, the so-called “common prosperity” is just taking away richer people’s wealth, but will this taken away wealth be given to poorer people? Who knows?
So what are the “primary, secondary, and third” distributions that Xi Jinping talked about?
It is a concept crafted by a Chinese economist called Li Yining. He became very famous in China when I was still in Peking University. Actually, he was the head of Department of Economic Management, School of Economics of Peking University during the late 1980s and every 1990s.
According to Li Yining, the primary distribution is “naturally” done by the market. Businesses that do better make more money, employees who work harder earn more bonus, etc.
The secondary distribution is done by the taxation system. The government collects tax from businesses and people, and then invests it in public services, welfare systems, social insurance, etc.
Then what is the third distribution?
It is called “custom and morality” distribution, meaning, out of your “custom”, or high standard of morality, you should donate your money to poor people.
You might think, oh, what a great idea. We are talking about charity.
Yes, here in the US, maybe the “morality distribution” can be charity. But in CCP’s China, when the party has all the power, “Charity” can be another term for “robbery”.
Don’t believe it?
Immediately after Xi Jinping talked about the “third distribution”, on the following day, Aug 18, Chinese technology giant Tencent announced that it would donate 50 billion yuan ($7.7 billion) to the “common prosperity” cause, to support Xi Jinping’s call for “morality distribution.”
Please note that Tencent didn’t donate the money to any specific people or organizations, but only vaguely said the money is for the “special plan” to achieve “common prosperity”.
Who is the owner of the “common prosperity” concept and cause? Xi Jinping.
So where will the 50 billion yuan go? To the CCP’s pocket.
Actually, this is the second time that Tencent made this kind of “morality donation” in only 4 months. It had donated 50 billion yuan already 4 months ago.
By the way, Tencent’s revenue in the second quarter of this year is about 140 billion yuan. So out of 140 billion, it has “donated” 100 billion, that’s 70%. Shouldn’t the CCP give Tencent a “Morality Medal”?
Last week I talked about the CCP’s “drunken boxing”: the CCP seemed to have been targeting one industry after another without any purpose, or obvious agenda. So Tencent’s gaming industry was also one of the CCP’s targets. People said that Tencent “donated” the money in order to make peace with the CCP.
Winnie the Pooh has the most cookies on his plate, and the poor rabbit has only one, Alibaba’s Jack Ma has a little. But Winnie the Pooh is pointing at Jack Ma and saying to the rabbit, “That capitalist took away your cookies. ”
There are also people who said that the CCP is talking about “common prosperity” to fool the public again. Let’s see this cartoon. Winnie the Pooh has the most cookies on his plate, and the poor rabbit has only one, Alibaba’s Jack Ma has a little. But Winnie the Pooh is pointing at Jack Ma and saying to the rabbit, “That capitalist took away your cookies. ”
So the continuation of this story is, in the name of “common prosperity”, Winnie the Pooh will take more of Jack Ma’s cookies, and put them into his own plate, not in the poor rabbit’s plate. But he will tell the rabbit that Jack Ma is the one who the rabbit should hate.
So that’s the idea of “common prosperity”.
By the way, the Wall Street Journal published an article about Jack Ma recently, and revealed two stories about how Jack Ma had annoyed Xi Jinping.
Once was in 2015, at an event in Seattle, during Xi Jinping’s visit to the US. Everybody was given 2 minutes to speak, but Jack Ma spoke for 10 minutes about how China views the world and what Chinese companies could do to improve U.S.-China relations, etc.
Another occasion was in China last summer. Jack Ma invited medical workers for a hot pot banquet to show his appreciation for their role in fighting the pandemic. It was said that as many as 6000 people participated in that event in the real world, as well as online.
So Xi Jinping was not happy. According to WSJ, “Beijing took credit for China’s Covid-19 response, and some officials thought it wasn’t Mr. Ma’s place to thank front-line workers.”
I think it is indeed true that Jack Ma has annoyed Xi Jinping for being too high profile, for taking away more public attention, for being loved more by some westerners.
But how about the other industries that were also cracked down on by the CCP? (P9) Take the English training business New Oriental I talked about last time for example. Have you ever heard about who is the founder of New Oriental and what he has said? Probably not. He has been very low profile compared to Jack Ma. But his business was targeted all the same.
So the real reason is, yes, like the Wall Street Journal said, “China has Only One Leader”, and that “one leader” is not doing that well now, and needs someone to be its scapegoat.
So for Chinese businesses, the warning message is, it could be your turn soon; and for foreign businesses, the warning message is, is China the same China you once understood? Probably not.
The share price of Tencent since 2005
Maybe many investors have already realized this. That’s why $1.5 trillion has been wiped out from Chinese technology stocks so far in the market. And this is the share price of Tencent since 2005. So virtually all gains have been wiped out; and its price has gone back to where it was in 2005, 16 years ago.
Well, does that mean the banquet is over?
Let’s wait and see.
8/23/2021*
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