New Minister of Defense and more signs of a PLA purge; Foreign Affairs Work Conference; Reprieve for gaming?; Jimmy Lai

Happy New Year! I hope all of you had a nice holiday and will have a wonderful 2024. It was not as slow as I hoped while I was on vacation so there is lots of catching up to do over the next few days.

Summary of today’s Essential Eight:

1. New Minister of Defense and more signs of a PLA purge - Admiral Dong Jun is the new Minister of Defense, replacing Li Shangfu. Dong is the first naval officer to get that job. Dong, a member of the Central Committee, has not been named a State Councillor or a member of the Central Military Commission. Those appointments will likely happen at the National People’s Congress in March and whenever the Third Plenum meets. Also in the last several days three senior executives from the military industrial complex lost their positions as delegates to the CPPCC, and nine PLA officers, including several from the Rocket Force as well as ones with experience in procurement, lost their positions as delegates to the NPC. No explanations were given, but the removals are a clear sign that at least some of the rumors of a significant purge in the PLA and military industrial complex have been accurate. Given the number of senior officers and executives involved, and the likelihood that we only see the ones senior enough to join bodies like the NPC and the CPPCC, there may be a much larger network of officers and executives involved. That would likely point to this case, or cases, being more about corruption rather than some vast espionage network that fed secrets to the US. Either way, this is messy for Xi and shows how deep the rot remains in the PLA after a decade of anti-corruption work and political rectifications, but ultimately these cases may work to Xi’s benefit both in terms of demonstrating the power he has to purge, and to cleanup any problems around weapons systems that could cause problems for the PLA in any future combat operations. The lessons about the problems corruption have caused the Russian military in Ukraine must be very stark for Xi and the PLA.

2. Foreign Affairs Work Conference - Xi convened the Central Conference on Work Relating to Foreign Affairs December 27-28. In the Xi Era these conferences have met about every five years. These meetings matter both for summing up the accomplishments to date and for articulating top-level assessments of the state of the world and the opportunities, challenges and tasks ahead for PRC diplomacy. The readout from last week’s meeting of course praises the accomplishments in the Xi Era since 2012 but also reads to me like the leadership is very confident in the direction of PRC diplomacy and the increasing opportunities to reshape the global order to the PRC’s benefit, with much appeal to the Global South and the rest of the world that is not America and its allies. It says China has gained “greater moral appeal 道义感召力” and that it is imperative that “on major issues concerning the future of humanity and the direction of the world, we must take a clear and firm position, hold the international moral high ground, and unite and rally the overwhelming majority in our world 在关乎人类前途命运和世界发展方向的重大问题上，要旗帜鲜明、站稳立场，牢牢占据国际道义制高点，团结争取世界大多数“.

There is no talk of risk. The readout states that “that great transformation is accelerating across the world. Changes of the world, of our times, and of historical significance are unfolding like never before, and the world has entered a new period of turbulence and transformation 世界大变局加速演进，世界之变、时代之变、历史之变正以前所未有的方式展开，世界进入新的动荡变革期” and that “China faces new strategic opportunities in its development 我国发展面临新的战略机遇”. It also states that “China calls for an equal and orderly multipolar world and a universally beneficial and inclusive economic globalization 我们倡导平等有序的世界多极化和普惠包容的经济全球化”. And Xi Jinping Thought on Diplomacy is here to lead the way, as it "reflects the Chinese Communists’ worldview, perception of order, and values, accords with the common aspiration of people in all countries, and points the direction for the progress of world civilizations 体现了中国共产党人的世界观、秩序观、价值观，顺应了各国人民的普遍愿望，指明了世界文明进步的方向". Expect much more assertive and comprehensive efforts to reshape the global order over the next several years, and do not be surprised if the PRC makes much more progress than US policymakers expect. Xi and his team are selling what a lot of countries want.

3. Walking back draft gaming regulations that tanked stocks? - There are signs that policymakers are trying to undo the damage to market confidence from the shock release of draft new gaming regulations that if implemented in a worst case scenario could materially hurt business for some game companies. The regulator issued the draft on the Friday before Christmas, dropping a load of coal in the stockings of any fund managers with PRC game stocks in their portfolios going into Christmas, then after the damage was done started leaking that there is much room to “shape” the draft, and then today we learn that the official responsible for the draft is no longer in his job. We should know for sure how responsive regulators are by the end of the month, when the period for comments on the draft ends. The draft was very well thought out in terms of targeting specific game mechanics that are gambling-like, and those kinds of mechanics do not see to mesh will with "spiritual common prosperity". But evaporating $80B USD in market cap in a vibrant industry in a day due to a regulatory draft that shocked everyone does not seem to mesh with improving confidence.