Xi's Latest Military Purge, Assessing Effectiveness of Tariffs, and Capital Repatriation
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Welcome to China Insider, a podcast from the Hudson Institute's China Center. I am Miles Yu, Senior Fellow and Director of the China Center. Join me each week for our analysis of the major events concerning China, China threat, and their implications to the U.S. and beyond. Hello, thank you for joining me again this week on my podcast, The China Insider.

This week, I'd like to first discuss the latest political spasm in Chinese politics, that is the purge of another high-ranking military leader by Xi Jinping, this time the demise of Admiral Miao Hua. Now, Miao is spelled M-I-A-O, it's like a cat's call. And why this matters? Then I'd like to dive into a couple of hotly debated economic and trade issues during this highly political season of the American administration's transition.

First, the issue of tariffs on Chinese imports. Second, the Chinese government's notorious restrictions on capital repatriation for foreign investors. Let me first discuss the peculiar purge of Admiral Miao Hua last week. A few days ago, rumors went wild in Beijing about Admiral Dong Jun, Xi Jinping's third defense minister in a year, being purged.

The Chinese government rushed to condemn the Western media for lying about Admiral Dong's purge. And they said, in fact, the real military leader that was purged was not Admiral Dong at all. Instead, it's another Chinese admiral by the name of Miao Hua.

Now, what is really interesting here is that China's defense minister, Mr. Dong, is not really that important at all. Minister Dong is in fact a powerless public relations front desk receptionist for Xi Jinping. He is outside the power center. The defense minister of China is not even a member of the Chinese Communist Party's Politburo. He's not even a member of the

People's Liberation Army's command headquarters, the Central Military Commission, the CMC. The guy who has confirmed the purge, Admiral Miao Hua, is much more senior, more powerful than Defense Minister Dong, who is Admiral Miao's protege, in fact. Admiral Miao is one of the six members of the all-powerful CMC.

the head of the even more powerful political work department of the CMC in charge of personnel vetting and promotion and ideological loyalty to Xi Jinping himself. Another interesting thing about this purge is that Admiral Miao has always been considered someone who is super loyal to Xi Jinping. And indeed, he is the most trusted Xi loyalist inside his inner core, inside the military.

Many analysts are puzzled by this. However, if you know the inner logic of the CCP and the history of the CCP's political and military purges, the demise of Admiral Miao Hua can be perfectly explained. It goes something like this: The supreme leader would be catapulted to supremacy of power by the most loyal subordinate. Along the way, the most loyal subordinate would gain enormous power and clout.

The power and influence of the most loyal subordinate would then spook the supreme leader, and the empowered and influential most loyal subordinate would be very quickly perched on trumped-up charges, usually colluding with foreign governments, attempting to stage a coup, or Xi Jinping's most favorite shenanigans, corruption. This has always been the pattern of the CCP dictatorship, from Mao to Xi.

Without any exception, the purchase of Mao's most loyal subordinate in 1950s was Marshal Peng Dehuai and Mao's right-hand loyalist Marshal Lin Biao in the 1970s. They all fit into this pattern. So I'm not surprised at all that Admiral Miao Hua was purged last week. He's simply too powerful, threatening the supremacy of the supreme leader. This, my friend, is the logic of dictatorship.

Now let me move the topic to another direction, that is the tariffs on Chinese imports in the new Trump administration and why they are the necessary evil the US government must consider. The imposition of tariffs on Chinese imports into the United States has been a topic of contentious debate. President Trump has vowed to impose 60% of all Chinese imports to the United States.

Critics argue that tariffs burden American consumers with higher prices, harm the U.S. economy, and disrupt the global trade system. However, this perspective neglects several compelling arguments in favor of tariffs. In my view, tariffs on Chinese imports are not only justified but necessary to address China's predatory trade practices.

bolster the U.S. economy, and safeguard the integrity of global trade. Let me now analyze in greater detail the reasons why I think tariffs are needed for America as I see it. Reason number one: The tariffs are a move to address China's exploitative trade practices. China's economic ascendancy has been fueled by tactics that distort the principles of fair trade. State subsidies for industries

Currency manipulation to keep the yuan undervalued and lax enforcement of intellectual property laws have enabled Chinese products to flood global markets at artificially low prices. This undermines competition and devastates industries in countries like the United States. Tariffs serve as a corrective measure to counterbalance those distortions.

By raising the cost of Chinese goods, tariffs level the playing field and compel China to reconsider its exploitative trade strategies. Reason number two. Let's now get a bit more nuanced about the claim that tariffs significantly raise costs for American consumers. I think such claim overlooks the discretionary nature of many Chinese imports. Products such as clothing, electronics, and handicrafts

are often non-essential purchases or can be sourced from alternative suppliers. Additionally, Chinese imports are not irreplaceable. Many goods currently imported from China can be manufactured domestically or sourced from other countries with fewer trade imbalances.

Conversely, China's reliance on U.S. exports, including high-end semiconductors, precision machinery, and aviation parts, are far more critical to China's economy. This asymmetry provides the U.S. with substantial leverage to pressure China into fairer trade practices without devastating impacts on American customers. Reason number three.

Tariffs on Chinese imports will also boost domestic manufacturing and employment. Higher tariffs create an incentive for foreign companies, including Chinese firms, to relocate their manufacturing operations to the United States and to bypass import taxes. This shifts with invigorating American manufacturing, creating jobs and expanding the tax base.

The resurgence of domestic industries would not only reduce dependency on foreign production but also strengthen the U.S. economy by fostering innovation and increasing productivity. Tariffs, therefore, serve as a catalyst for economic rejuvenation. Reason number four. High tariffs may also offset tax reductions and increase disposable income. Here's why.

Revenue generated from tariffs can offset reduction in other forms of taxation, thereby providing financial relief to American households, particularly middle-class families. This redistribution of revenue could increase disposable income for many Americans, mitigating the slight price increases on certain imported goods.

In essence, tariffs can function as a tool to fund public services and reduce physical deficits without placing undue strains on American customers. Reason number five: High tariffs on Chinese imports may also promote quality and safety in consumer goods. Chinese imports have long been criticized for quality and safety issues.

ranging from defective electronics to contaminated food products. Tariffs encourage customers to opt for higher-quality, domestically produced alternatives that are safer, more reliable, and longer-lasting.

By prioritizing quality over cost, Americans can foster a culture of value-driven consumption, ultimately benefiting both consumers and domestic producers. And finally, reason number six, tariffs are actually a strategic foreign policy tool.

The current trade tensions did not rise unilaterally. They are the culmination of decades of Chinese economic aggression. By imposing tariffs, the United States is responding to a long-standing imbalance rather than instigating a trade war. Tariffs signal to China that the U.S. will not tolerate predatory practices that undermine its economic basis and global trade norms.

Furthermore, a firm stance on trade issues strengthens the United States' position in international negotiations and demonstrates its commitment to protecting its economic sovereignty. So, while tariffs on Chinese imports may pose short-term challenges, they are a necessary and strategic tool to address China's unfair trade practices, bolster the U.S. economy, and promote a fairer global trade system.

By countering China's exploitation, encouraging domestic manufacturing, and prioritizing quality and safety, tariffs pave the way for a more resilient and equitable economic future. The United States has the leverage and economic rationale and moral imperative to use tariffs as a force for positive change, ensuring that trade benefits

or participants rather than enabling one nation's predatory ambitions. Okay, let me discuss this week's next topic, which is the last one, that is the Chinese government's practice of draconian restrictions on foreign capital repatriation.

or the near impossibility for foreigners and foreign companies to take your own money invested or earned inside China, out of the country, back to your own bank in the United States. This has been a problem. You've been hearing this from the people in Wall Street all the time. Foreign investors have long been drawn to China by the promise of its vast market and economic potentials.

However, a darker reality lies beneath the surface, that is, the Chinese government's insidious policy of restricting foreign investors from repatriating their profits and capital. This practice effectively traps foreign investments within China, holding them hostage.

to the whims of the Chinese Communist Party. It is a fundamentally anti-market policy that exposes the true nature of the CCP regime and underscores the risks of investing in China. The Chinese government's restrictions on outbound foreign capital flow mean that foreign investors often face insurmountable barriers when attempting to transfer their profits or even their initial capital out of the country.

These restrictions are enforced through opaque regulatory hurdles, burdensome approval processes, and stringent foreign exchange controls. As of recent years, capital controls have tightened further, with the state administrations of foreign exchange or SAFE imposing even stricter limits on the amount of foreign currency that can be transferred out of China.

For example, in 2022, foreign investors reported delays of months or even years of receiving approval to repatriate profits, forcing them to leave their earnings within Chinese banks and reinvest them domestically.

This policy leaves foreign investors in a very precarious position. They can pour money into China but find themselves unable to withdraw it when market conditions deteriorate or political risks escalate. Taiwanese businessmen in China, which collectively account for over $200 billion in investments, are particularly vulnerable.

Many of these companies are integral to China's supply chain, yet they are effectively trapped, unable to relocate their capital to safe jurisdictions due to the CCP's restrictions. This creates a scenario where businesses must continuously reinvest in China, even when faced with declining returns or rising political tensions, such as the ongoing geopolitical standoff over Taiwan. But why does this matter?

Well, the CCP's policy of restricting capital outflow is a direct affront to the principles of a free market. It violates basic property rights and undermines the confidence of international investors. Unlike in other major economies where capital can freely flow in and out based on market dynamics, China's system is designed to trap foreign investments.

This not only exposes the authoritarian tendencies of the CCP, but also serves as a warning to potential investors. The inability to repatriate profits fundamentally alters the risk-awarded equation of investing in China, turning what might seem like lucrative opportunities into financial traps and nightmares. Now, you probably want to ask, well, Miles, enough of all this big talk.

What are the specific cases about this Chinese trap? Well, cases are countless. Consider the example of South Korean companies that invested heavily in China during the early 2000s. Many of these firms, such as the retail giant Latte, faced immense political pressure during the theater missile defense dispute in 2017.

Lotte's inability to freely repatriate its capital exacerbates its losses, as it was forced to shut down over 80% of its stores in China without a viable exit strategy. Similarly, multinational corporations like Tesla, which have heavily invested in China's manufacturing sector, face long-term risks

should the geopolitical tensions worsen or if the Chinese government arbitrarily tightens restrictions further. The CCP's policy of restricting the outbound flow of foreign capital is barbaric, fundamentally anti-market, and illustrative of the regime's authoritarian nature. By trapping foreign investors and their profits within China, the government undermines trust and exposes the dangers of doing business under its rule.

Investors must carefully weigh those risks and consider the broader implications of engaging with a regime that prioritizes control over economic principles. The global community, too, must recognize this policy for what it is, that is, an egregious violation of market norms that cannot be ignored.

Well, all right, friends, that's all the writing I have done for today. And that's all the time I have for today. So hope to be with you next week. Goodbye and God bless America. Thank you for listening to this episode of China Insider. I'd also like to thank our executive producer, Philip Hexeth, who works tirelessly and professionally behind the scenes for every episode to make sure we deliver the best quality podcast to you, the listeners.

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