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China Insider | China's Financial Investment Flight, Japan's LDP Leadership Election, CCP Purges
In this episode of China Insider, host Miles Yu discusses the ongoing trend of wealthy Chinese elites emigrating abroad, the implications of Japan's recent LDP leadership election, and the latest...
China Insider | China's Financial Investment Flight, Japan's LDP Leadership Election, CCP Purges
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Welcome to China Insider, a podcast from the Hudson Institute's China Center.
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I'm Miles Yu, Senior Fellow and Director of the China Center.
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Join me each week for our analysis of the major events concerning China, China threat,
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and their implications to the US and beyond.
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It's Tuesday, October 7th, and we have three topics this week.
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First, we discuss the emigration of wealth out of China over the past year and look into what's behind this continuing trend.
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Next, we visit Japan's upcoming election for Prime Minister and evaluate China's reaction to the recent leadership vote for Japan's ruling liberal Democratic Party.
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Finally, we track the latest round of CCP purges, who was dismissed and the significance of the ongoing campaign to Xi Jinping's leadership role.
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I'm going to be with you again this week, Miles.
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That's a bit with you again, Colin.
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So, first today, following China's economic decline after COVID-19 lockdowns, high youth unemployment and real estate sector collapse, China's wealthy elite have continued the trend of leaving China to the extent possible, transitioning their wealth out of Chinese-based banks.
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Two destinations abroad.
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Miles, start us off here with the latest on the Exodus of China's wealthy elite from this past year.
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And what countries are they fleeing to exactly here?
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It's been well known, first of all, foreign direct investment, foreign companies, foreign capital has been fleeing China for a number of years.
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That's because China has all kinds of laws or regulations to make a foreign investment in China increasingly impossible.
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That's why you have virtually no foreign direct investment going into China as a matter of fact, many of them are trying to get out of China.
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And so that's the fact.
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Now, another gigantic movement of capital is taking place simultaneously.
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That is, Chinese domestic capital is fleeing China on mass.
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The numbers were staggering.
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You have somewhere around 15 to 16,000 Chinese millionaires moved out of China last year or long.
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So this year, the trend continues.
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So we're talking about hundreds of billions dollars, maybe more are trying to get out of China.
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This is a reflection of many, many things.
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Number one, it shows that the fundamental collapse of confidence in the communist regime and their economic financial and political policies.
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So this is obviously is we don't have confidence in the regime that is get out of it.
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So number two, basically is real because if you have a money in China, you're a wealthy individual.
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You're subjected to extortion not only by the central government, but more from the local government because local government traditionally has been rely upon sale on resell of land and with the collapse.
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Total collapse of chance of real estate market that route of money source is gone.
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So now the local government many of them do not really have the money to pay the officer workers write the bureaucrats.
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So they increase all sorts of measures to extract and extort money from people have money in China.
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So from people having money in China.
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So that's why they feel their wealth is not protected.
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China is still a communist country.
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There is no constitutionally guarantee property protection.
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So they're free on safe.
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And I think thirdly also, even if you do not have enough money, but you want to have money, you had borrow money from the banks.
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And that's the problem because China has one of the most ridiculous, stringent currency control.
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It's very hard for you to do banking in China if the party doesn't like you.
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So many people who want to have more money and who have interpreneur of spirits, who have business model, business vision, they want to establish the foreign residency so that they can deal with the banking system.
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And that's the biggest problem.
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So that's basically pretty much like in the some of the some of the most money is because they're pushed out.
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And I think it's so as to where which country they're going to.
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I think they're going to obviously ideally wherever there is a strong property protection.
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Probably right protection that go to so traditional is going to Canada, US and the UK.
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In the last several years, however, the trend is going to a different direction.
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Most of them going to countries where there are culturally more comfortable and they're closer to China.
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And it's the easiest to go back and forth.
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And so you're talking about traditionally historically for the last 20-some years, always Hong Kong.
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Hong Kong has fallen. Hong Kong has become just like another Chinese province with Chinese comments party rule with Irish fist as my face.
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So it's much harder to to to to move the money to Hong Kong.
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So to go to next or next or Thailand.
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It's very close and is relatively free and but it's not as good as Japan.
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Japan is a highly sophisticated and mature country with the world law.
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So you go to Tokyo today and you say a lot of Chinese worth the Chinese.
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They're bottled properties in Tokyo and suburbs because the Japanese economy, I mean, they've been.
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What's the value of significantly.
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So the the the UN.
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The Chinese UN is sort of in a much better position to to buy in Japan where the Japanese yen is devalued.
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So that's why I say a lot of people in Tokyo you go to go to certain part of Tokyo is like in your living Shanghai.
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So a lot of people speaking Chinese and speak Chinese and so you see that trend.
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But the biggest winner of all attracting Chinese money capital is Singapore.
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Over a woman majority of Singapore people are ethnic Chinese.
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They speak Chinese. That's a language barrier. It's very important.
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Secondly, Singapore has all kinds of very interesting protection of probably rights.
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So a lot of money going to Singapore not only directed from mainland China but the huge number of them have fled Hong Kong.
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The former heaven of all kinds of capital legal or illicit and not Singapore.
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So Singapore has a record boom of Chinese millionaires.
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And so that's created kind of happy dilemma.
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That number one, you know, Singapore is very happy.
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My finance way to the bank literally.
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And secondly, it created all kinds of pulsations housing schooling.
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So you name it.
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That's why Singapore right now is having some kind of second thoughts and that to reduce the number of influx of Chinese wealth, the wealth of people.
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Now, I think you know, this trend is not really sort of temporary.
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I think it's a is a pretty permanent value because once you move your whole family out of the country, your whole wealth country is very hard for you to return.
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And I think you know, that's basically is the situation right now.
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And the numbers would certainly back that up.
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I think investment migration firm, Henley and partners has been tracking this trend since I think 2022, which at that point saw roughly 10,700 and change high net worth individuals leave the country.
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That increased by 28% to 13,800 in 2023.
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And again, last year, like you're mentioning 15 to 16,000.
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So while China still has a considerable number of wealthy elites tied to the CCP, this has been an accelerating trend over the past several years.
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But you know, since the CCP has strict limitations on withdrawals and caps monetary transfers over a certain amount for a given period miles how successful have the wealthy elites been and getting their money out of China.
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And is you know, is the CCP looking for ways to kind of address the the Exodus of to these countries specifically Singapore and Japan, like you mentioned.
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Oh, yeah, I mean China has all kinds of control mechanisms control the capital outflow flow.
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And you know, many of the people who are wealthy in China, they have connections to party members, they have all kinds of very important to what we call guanshi, right.
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That's the the personal contacts.
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On the other hand, the the Chinese system, the facility is kind of sort of a listed transaction because it's very corrupt.
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So that's what I mentioned about Chinese local officials, people who are in charge of cost and people in charge of the currency control themselves are victim of this done word economic situation because they many of them, the society has been cut and no benefit.
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So there are more in other words, there are more successful to corruption, bribery. This is one thing.
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And another thing is there's all kinds of in this way of transferring money out of China, you know gambling debt, for example, and fake lawsuit losses in foreign country.
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So those kind of things you can do it. And also October 1st is the Chinese national day.
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China has a week long celebration. Not usually is the economic policy, you know, started some 20 some years ago.
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One of the objective is to stimulate spending people spend whole week traveling and buying stuff.
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And so to stimulate domestic and international tourism, right, to make people to go.
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So in China, the most headed country in China according to Chinese propaganda is obviously in the United States.
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Secondly, second most headed country in China is Japan. That's why they have this September 3rd parade of victory over Japan.
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No, no work to it. This is some 80 years ago. So, but the Chinese people, particularly those with money, they can vote with their feet.
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You know, during this week, which actually ends today, October 7th, some 5 million Chinese tourists are going to Japan. They are in Japan.
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So this is a huge number of Chinese tourism. So Chinese propaganda really does not work effectively because people do not believe in the regime in a fundamental way.
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Now, what do the people doing in Japan? They buy stuff. They're scouting the possible escape routes.
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So this is basically a very big phenomenon. So people lost the Chinese, lost confidence in Chinese Communist economic policy, but also politically, there are some unspoken ways to get out.
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And they also, they show their sort of decent treatment with the regime in a very indirect way.
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I think that's a great segue actually into our next topic for this morning.
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Last Saturday, Japan's ruling liberal democratic party held elections for their new leader and saw a hardline conservative, a sonai, Takaiichi emerge as the new party leader after two rounds of voting by lawmakers and rank members.
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Pending a successful election for Prime Minister at the end of this month, she stands to become Japan's first female Prime Minister and will succeed current PM Ishiba.
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Miles, before we bring China into the conversation here, can you tell us a bit more about Ms. Takaiichi and her platform and how likely is the LDP to hold the seat of Prime Minister with her in the race given the other candidates that are running.
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Ms. Sanei, Sakaiichi is a very unique and a rising star in Japanese politics.
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Most people say, oh, she would be the first female Japanese Prime Minister. That's true.
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But also, what distinguishes her from the rest of the crowd is that she has a very distinguished political stance.
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She is strictly following the line of the former Prime Minister Shinzo Abe, which is a very strong on defense and a very strong on China and a very strong on US, Japan, bilateral defense and security relationship.
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And domestically, she is also very tough. She is absolutely a staunch story against illegal immigration in Japan.
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And she also is tough on crime.
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So in all aspects, she will be regarded as a conservative and a nationalist.
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And she will represent something you would say, make Japan great again, not kind of a political line.
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So we'll see.
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And this is also in sharp contrast to Prime Minister Shikoshiro Ishiba's cabinet, the one he just about to end.
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Ishiba's cabinet is very ambiguous in many ways.
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And it was known as pro-China, even though I don't even know what that means because in Japan, there's really no pro-China, pro-China experts or policy makers.
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But relatively soft, so we say.
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So I think you know, challenges of course, facing packages also very, it's quite daunting, I would say.
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And trade relationship with the United States is the one and how to specific implement the Ishiba, Kishida, defense and security policy.
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And not another issue.
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That's basically what we're talking about.
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Japanese has already abandoned it's a purely defensive posture toward China and post-war work to security arrangement.
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Now he's focusing on developing cornerstrike, a preventive, an empty-strategic capabilities in Japanese defense system.
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That's going to be talking about money.
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That's going to talk about tax and that's going to talk about coordination and with alliances.
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But I think that she's going to pursue continuing to pursue the Abe-Kishiba line.
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That is to strengthen US-Japan relationship and also in the meantime to strengthen Japan's NATO relationship.
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And also Japan is going to lead the Asian sort of pack of nations that are bullied by China.
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And that's very very important.
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Finally, I think this package has one thing that's very pronounced.
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That is, she's very close to Taiwan.
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And she visit Taiwan many times and she's very likely to continue the Abe line that whatever happened to Taiwan will happen to Japan.
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And whatever Taiwan is facing, so is Japan.
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So that kind of a policy, I think it's going to be very interesting and it's going to potentially change the entire dynamic of security and defense in Asia Pacific.
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It's certainly reassuring to hear as far as the end of Pacific strategy is concerned.
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And of course, as with all regionally relevant elections, China has been carefully following these developments and has shown expected unease following the LDP's elections.
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This past weekend and to build off what you were saying miles, despite historical tensions, current Prime Minister Ishiba did make more concerted efforts to re-normalize.
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I guess you could say the China-Japan relationship with cautious strides, including meetings with then primarily Chiang and President Xi Jinping last year at the APEC summit.
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So, Miles, let's dive in here.
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What has been China's reaction to Ms. Takahichi's election?
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And you hinted a little bit about what we can expect in terms of the next iteration of China-Japan relations.
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Should she win the general election, but what might that look like going forward from there?
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I think China, I mean, this is actually quite ironic.
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China, I think, has the correct perspective.
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Japanese leadership change, that is, China doesn't believe there are hawks, there are doves in the Japanese high level political leadership level.
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They believe every one of them is hawk against China.
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And Ms. Takahichi is openly explicitly, explicitly, tough on China.
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But then everybody else, they are just a nicer way to express the harsh line against China.
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Koizumi, for example, another example is Ishiba himself, the current Prime Minister Ishiba.
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He was known as somebody who is very selfish on China, but then when you enter the office of Prime Minister, you have to deal with the real threat of China, and therefore he turned to the center and right.
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So this is going to be the perspective from China.
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So they keep a watch for eyes on Takahichi, however, and to see how she's in the handle.
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And China also has some leverage too.
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And I think Takahichi is going to face a tough interlactor, shall we say, across the sea of Japan.
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Going beyond Ms. Takahichi, there are four other candidates in the running currently, some of whom are from the LDP as well.
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So to round out this topic for today, Miles, how does China view the other candidates that have declared for the ballot?
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And does Beijing have a preferred outcome in the upcoming general election?
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I mean, they would like to have, you know, Hayaashi, Nōmōtegi, and former minister to be in place, because at least in appearance,
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their sounds are very soft on China.
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Koizumi, of course, is a number two contender, and he was defeated by Takahichi.
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Koizumi is a song from Prime Minister Koizumi, and he's very articulate, but he's probably his young and inexperienced, so that's one reason why he didn't win.
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The Japanese politics is full of a faction or unified. It all depends on how well-known it worked that you are, to a larger degree, of course.
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So we'll see, we'll see what will happen.
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Japanese politics is also very important, because Japan is China's largest regional rival, and Japan has enormous power to take initiatives, even more so than the United States.
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You look at all the US policies in the Pacific. It's all initiated by Japan. You know, they're so-called free and open Pacific.
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That is the idea coming out of Prime Minister Abe, and quite the regional security dialogue, we say, dialogue, as well as the alliance of Japan, US, Australia, and India.
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That was the brainchild of Prime Minister Abe. So many of the things that regarding regional security are initiated by Japanese.
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So I think they're going to play a much more positive and active role in this regard.
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We'll stick with the election process as it unfolds here over the next few weeks. But turning to our final topic for today, Xi Jinping's purge campaign continues as the CCP recently replaced the head of its international department, Liu Jianchou, following a two-month absence from the public eye.
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Liu was tapped to be the likely next foreign minister, as far as some rumors have uncovered, but was detained back in July following an overseas trip and hasn't been seen or heard from since.
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So Miles, walk us through what happened here. Who is Liu Jianchou, and what's significant about his dismissal from the party?
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Liu Jianchou was a seasoned diplomat first. He served in the Chinese foreign affairs department, the Ministry of the MFA for many years. At some point, he was a spokesperson, so a lot of foreign journalists knew him as such.
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He was also China's top diplomat, dispatched to some of the most sensitive and important countries, most prominent in his own case. He was dispatched as ambassador to the Philippines and Indonesia, particularly with Indonesia emerged as the key Asian countries in China's diplomatic priorities.
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So he was there to take on pretty tough assignments. Before he was downfall, he was the Minister of International Liaison Department.
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This is a party organization, not semi-intelligence organization, semi- Liaison, mostly sort of intelligence, dealing with parties to party.
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For example, the Chinese Communist Party and the North Korean Communist Party and the Cuban Communist Party, but it's sort of a part of the United Front, broadly defined effort.
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So, and then he disappeared in late July, and of course now he's detained, and his position was replaced by somebody else.
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This is very interesting because Liu Jianchou has been widely viewed as the foreign minister in waiting.
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That basically obviously would not happen. Foreign Minister Qinggang was purged suddenly and disappeared, becoming non-person. And that position was vacant. That position was sort of taken off on the side by the party bureau member Wang Yi, Wang Yi was a former Foreign Minister.
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Now he's the foreign minister, foreign affairs are within the Chinese Party bureau. So as I say on this program, Wang Yi is not a very nice figure in our conversations because basically he's a very disgusting individual in my view.
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So now that position of Chinese foreign minister is gone. So he's vacant.
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Liu Jianchou, what was his reason for being purged? Very people know exactly. Corrosion of course is always the underlying charge, but nobody really believed that's the primary reason for any of the purged individuals, the highest level senior comes party leaders.
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I think you can look at the trend Xi Jinping regards himself as a genius of all things, particularly he wants to be viewed as a world leader. He wants to be viewed as an expert on international affairs.
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And not basically the problem because if you are in charge of any aspect of foreign affairs like Liu Jianchou himself or defense minister because Chinese defense minister is basically ceremonial position to deal with international counterparts.
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So the real power of Chinese military is not in defense minister's hands. He's in the Chinese Central Military Commission. That's the same thing Xi Jinping himself is a chairman of that organization.
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So that's why you see the Chinese defense ministers, the Chinese foreign ministers work disproportionately purged because those guys who are dealing with international affairs.
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That's basically is my take on this whole issue of purging.
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Yeah, it's pretty clear that if you if you deal with any kind of foreign affairs within the CCP, you're almost damned if you do, damned if you don't in the way that Xi Jinping could potentially frame any context of corruption, true or false, you know, and to give a little bit more context, the old frequently met foreign dignitaries in his role within the international department.
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And I think most recently in the UK where he himself studied international relations at Oxford and is fluent in English as well.
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And some are calling this like you mentioned the most high level diplomat to disappear since foreign minister Chinggong back in 2023.
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So to round us out here today, Miles, what does Leo's dismissal say about the ongoing CCP purge campaign because it seems like Xi Jinping is really just trying to consolidate all sent you know authority within the foreign affairs wing of the CCP under himself similar to the CMC.
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And to the extent that we know outside of Wang Yi, is there a current heir apparent to the role of foreign minister now that Leo is off the table?
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I don't say anybody read and horizon. First of all, you know, who wants to be in that position and almost certain to be purged.
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And to add what you said about Lu Jiantao's profile international arena, he went to UK, but also came to the United States, I remember him to Washington DC, all this engagement geniuses really love him.
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So to give him a lot of form to talk, you know, in their in the tank tanks and some other institutions as if he's something.
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But the more he talked, the more indendial he is because Xi Jinping said I'm supposed to give the directions to the world.
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I'm supposed to tell the international community what the US-China relationship is all about.
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So that's a problem. And the you mentioned about the fact that he spoke foreign English and that's a problem because a lot the genius in Beijing Xi Jinping, doesn't speak a word of any foreign language.
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So that's a problem. So then your question about what does it mean? What does reflect reflected the fact that Xi Jinping lives in absolute paranoia like all dictators.
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And he's suspicious of anybody who is somebody who is capable of taking any individual initiative, even the initiative to interpret the Xi Jinping thoughts and not basically is a taboo.
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So basically what you have here is a policy rigidity and where everybody is afraid of being perched.
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Everybody's trying to figure out what does the great leader Xi Jinping really means.
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So you basically talking about what is the reflection of is the reflection of the fact that China is a communist dictatorship with a tyrannical ruler at the top.
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And that's basically is what China is all about.
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Well, that's a great place to leave it off for our time this week. Thank you to our listeners for joining us again.
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And thank you Miles as always for lending us your expert insight and analysis on these critical issues. Looking forward to next week's discussion.
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All right. See you next week. Colin.
Topics Covered
China Insider podcast
China emigration trends
wealthy elite leaving China
CCP purges
Xi Jinping leadership
Chinese millionaires abroad
Singapore as a destination
Japan Prime Minister election
Sanae Takaiichi
US-Japan relations
Chinese economic policies
capital outflow from China
Hong Kong migration
Chinese tourism in Japan
property rights in Singapore