Decoding China's Power Plays: Military Purges, TikTok's US Deal, and Economic Realities

Unprecedented Shifts in China's Military Leadership

In a move that has reverberated through political circles, Beijing has initiated an investigation into General Jang Yosha, a long-time confidant of Xi Jinping and a leading figure in the People's Liberation Army (PLA). Alice Han and James Kynge characterized this as a stunning development, marking one of the most shocking events in Xi Jinping's tenure. This action involves accusations that General Jang has "severely trampled on and damaged the chairman responsibility system," suggesting a challenge to Xi Jinping's authority. The investigation has led to a near decapitation of the Central Military Commission (CMC), leaving Xi Jinping in sole charge of the world's largest military. James King noted that when an investigation is launched in China, the accused fate is pretty much sealed.

Adding to the shake-up, General Leo Jan Lee, another senior military official, is also under investigation. As Alice Han pointed out, since Xi Jinping assumed power in 2012, a total of 17 generals have been purged in the PLA, marking the most extensive purge at the general level since Chairman Mao. This extensive purge indicates potential concerns over the loyalty and unity within the military ranks.

The Geopolitical Implications of Military Restructuring

The removal of experienced military commanders raises questions about China's operational experience and combat readiness, potentially delaying any immediate plans for a showdown over Taiwan, according to Alice Han. However, she also cautioned that the new generation of generals appointed after 2027 might be more inclined toward a confrontation. James King emphasized the opacity of China's political and military decision-making processes. He expressed concern that the lack of transparency poses a significant risk, as the outside world has limited insight into the true decision-making dynamics within the Chinese military.

TikTok's U.S. Deal: A Victory with Lingering Questions

After years of contention, TikTok has reached a deal to continue operating in the U.S. by spinning off a new entity controlled by American and non-Chinese investors. This move aims to address national security concerns and safeguard user data. While seen as a victory for ByteDance and potentially for Donald Trump, the agreement raises critical questions about whether it truly severs Beijing's influence, especially over TikTok's algorithm.

James King raised concerns over whether the risks to American users have been truly expunged. He pointed out that although the ownership of TikTok in the U.S. has been given to a U.S. company, the engine of that car remains in the hands of ByteDance, in other words, the algorithm. He explains that the control of the algorithm will remain in the hands of ByteDance, with the company leasing it to the American joint venture, raising concerns that ByteDance could tweak the algorithm anytime it wants without informing the U.S. entity.

Alice Han views the deal as one where economic interests have been put above national security and privacy. She suggests that the agreement does not fully address the national security, data security, and privacy issues that were initially raised. This creates a template for future deals, mirroring historical instances where Western companies entering China were required to form joint ventures with local entities, often with ownership capped at 50%.

Navigating China's Economic Landscape

China's economic policies and performance continue to be a focal point of global interest. Despite presenting itself as a defender of global multilateral trade, China faces internal economic strains. Houze Song, China economist and director of China research at 22V Research, joined Alice Han to discuss China's economic reality, touching on trade policies, domestic consumption, and the property sector.

While China's messaging on global trade has remained consistent, its trade policy has evolved. China's record trade surplus reflects a manufacturing-first economic policy coupled with weak domestic demand. The government's focus has shifted from prioritizing growth to emphasizing technology and manufacturing, particularly to achieve tech independence amid ongoing tensions with the U.S. This shift impacts household expenditure, influenced by a weak job market and real estate challenges. While real estate decline may have triggered weak household sentiment initially, it is now more a reflection of broader growth weakness.

Looking ahead, Houze Song expects the Chinese government to double down on advanced manufacturing and technology initiatives. The key question remains whether China's economic performance can validate the optimistic expectations investors have already priced in. There is a risk of tension between the government's reluctance to stimulate the economy and the high valuation levels of Chinese equities.

Projecting the Future: Predictions and Policy Implications

Looking ahead, James King predicts a similar effort in the EU to control data collected by Chinese companies, particularly in sectors like cars and wind farms. Alice Han anticipates that Chinese tech companies will increasingly move to Singapore to de-sensitize their operations, prompted by Chinese cyber administration scrutiny of international tech deals.

China's recent military shake-up, TikTok's U.S. deal, and economic recalibrations reflect a nation at a critical juncture. These developments warrant close observation as they shape China's trajectory and its interactions with the global community.