Li Qiang Suspended; The Trade War Kicks Off and He May Become the Scapegoat

Chinese Premier Li Qiang, speaking on behalf of the CCP at the Two Sessions, told the Chinese people: We will meet again, and the future holds promise. (Video screenshot)

[People News] Trump’s forceful comeback has made the Sino-American trade conflict the Damocles sword hanging over Xi Jinping’s head. In the context of the current weak Chinese economy, America's trade strikes would exacerbate the situation, halting Xi Jinping's economic revitalization plans and potentially leading to an economic downturn, collapse, or even social and political turmoil within China.

The Chinese Ministry of Foreign Affairs and Xi Jinping himself have cautiously and modestly congratulated Trump on his election victory, hinting at the underlying anxiety and unease within the CCP and Xi Jinping. It seems that Zhongnanhai senses the gunpowder of a trade war and is preparing for the upcoming tariff battle between the US and China.

On November 8th, the CCP urgently planned the “three-piece tariff response set.”

The first part, on November 8th, saw Li Qiang convene an executive meeting of the State Council to review and approve policy measures aimed at promoting the “steady growth” of foreign trade. What measures were discussed? The meeting emphasized strengthening financial support, expanding the scale and coverage of export credit insurance, making full use of policy loans for small and micro foreign trade enterprises, and continuously improving financial services related to foreign trade enterprises in areas such as credit extension, lending, and repayment.

Overall, the policy focuses on banking credit support for foreign trade enterprises, boosting exports, stabilizing employment, and promoting growth.

The second part, on November 8th, the CCP National People’s Congress announced a 6 trillion yuan increment and a 4 trillion yuan stock, plus an additional 2 trillion yuan for shantytown redevelopment hidden debt agreements, totaling 12 trillion yuan, aimed at local government debt restructuring. The speculated plan to reserve 4 trillion yuan or more to counterbalance Trump’s tariff measures did not materialize.

However, the CCP may anticipate that the trade war will only commence after Trump takes office on January 20th next year, using the time difference as a buffer. Xi Jinping is currently focused on addressing the local debt drag and financial system risk issues. With the extension of local debt restructuring, fiscal resources can be allocated to supplement bank capital.

The simultaneous holding of Li Qiang’s executive meeting on foreign trade growth stabilization and the 12 trillion yuan fiscal stimulus announcement during the 12th session of the 14th NPC was, in essence, a preparation for Trump’s upcoming trade war next year.

“Transform internal debt, stabilize foreign trade” — a dual approach aimed at maintaining GDP growth at 5% this year and preemptively planning for the foreign trade tariff war. At December’s CCP Economic Work Conference, Xi Jinping might roll out further measures to confront the tariff conflict.

The third part, on November 8th, during the 2024 China Automotive Software Conference in Shanghai, the China Association of Automobile Manufacturers officially released the “Automotive Privacy Protection” label. Tesla was among the first six automakers, including five state-owned enterprises, to receive this label. Tesla is even regarded as a domestic car by the CCP.

In April, the China Association of Automobile Manufacturers and the National Computer Network Emergency Response Technical Team/Coordination Center of China issued a “Notification on the Detection Status of Four Security Requirements for Automotive Data Processing (First Batch),” with Tesla being the only foreign company compliant with all four requirements. Following this, in June, Jiangsu Province included Tesla in the government procurement list for new energy vehicles.

This is intriguing. It’s highly likely that one of Xi Jinping’s strategies for dealing with Trump’s trade war involves playing the Musk card.

Historically, Xi Jinping has been wary of Tesla vehicles. The Wall Street Journal reported in March 2021 that Xi Jinping ordered restrictions on the use of Tesla cars by military personnel and key state-owned enterprise employees, fearing that data collected by Tesla posed a national security risk. On June 8, 2022, during an inspection in Meishan, Sichuan Province, Xi Jinping prohibited Tesla electric cars from entering downtown Chengdu. Consequently, Tesla faced subtle resistance from the CCP, with bans on entering government premises and even being blocked on certain roads and airports, and faced public confrontations by nationalist internet users.

Now, however, Tesla is being given the green light in China, and there are reasons for this. In the long term, following the 20th Party Congress, the CCP has identified electric vehicles as a new productive force in economic transformation, needing Tesla’s industrial chain and technology to drive innovation. In the short term, Xi Jinping may need Musk to mediate in the upcoming Trump trade war, as Musk contributed significantly to Trump's election victory and may hold a government position or be a key figure in Trump’s advisory team over the next four years. The CCP views Musk as an extension of Trump’s administration and an influential force in shaping Trump’s policies.

Li Qiang played an essential role in the November 8th CCP’s urgent plan, the “Three-Piece Trump Tariff Response Set.”

In ordinary circumstances, Vice Premier He Lifeng would directly handle Sino-US trade dispute matters, as he succeeded the duties of former Vice Premier and economic czar Liu He. He Lifeng, a close associate of Xi Jinping from his Fujian circle, currently oversees finance, commerce, and real estate and has accompanied Xi on various inspections, showing his trusted status.

Recently, The Wall Street Journal published an article titled “He Lifeng: The Gatekeeper of China’s Economy that US Businesses Can’t Avoid,” stating that He Lifeng “has almost no experience in managing trade disputes or engaging with foreign investors. He has spent little time overseas, does not speak English, and his career has primarily been in the National Development and Reform Commission and local affairs.”

“Initially, his focus was on countering Western sanctions led by the US, but he has essentially become the chief architect of safeguarding China’s economy. Xi Jinping tasked him not with welcoming foreign investment, but as a gatekeeper to defend China’s system from Western influence.”

If Xi Jinping tasks He Lifeng with handling Trump and the White House hawks, the situation could worsen. He Lifeng’s rigid management approach and protectionist economic ideology would likely escalate trade tensions without yielding positive outcomes. He Lifeng would be scapegoated for the failure of the trade war, and Xi Jinping would face blame for poor judgment and leadership in a politically challenging environment where his power is already under threat.

Li Qiang, on the other hand, has a different profile. With his leadership experience in Wenzhou and Shanghai, areas within the Yangtze River Delta, and interactions with business figures like Jack Ma, Li Qiang’s thinking is relatively flexible. Additionally, Li Qiang is likely the CCP official most capable of conversing with Musk, having met him five times. After Musk’s visit to China on April 28th this year, Tesla's treatment significantly improved following a meeting with Li Qiang, immediately securing national data safety certification and approval for FSD testing from Shanghai authorities.

Since the Third Plenum, Li Qiang has appeared frequently in party media, gaining increased exposure and positioning himself in Zhongnanhai during a high-profile period. Some speculate that Xi Jinping’s power has waned under pressure from political veterans and princelings, signaling a return to collective leadership in Zhongnanhai and an unfinished transition of Xi's centralized authority. Li Qiang has thus emerged as a highly competitive successor, moving from Xi’s aide to a potential power rival.

If Xi Jinping assigns Li Qiang to manage Trump’s trade war, the benefits are significant: If successful, Li Qiang’s handling would be attributed to Xi Jinping’s wise leadership; if not, Li Qiang would bear the failure, preserving He Lifeng’s position and diminishing a rival.

But can Li Qiang withstand Trump’s tariff barrage? It is highly unlikely. Comprehensive 60% tariffs would only push the CCP’s industrial chains to relocate, decreasing employment opportunities and Communist Party revenue, further weakening domestic demand. Will Musk serve as Li Qiang’s trump card? He might play a marginal role; Trump would undoubtedly consider Musk’s interests but would not abandon principles or negotiate without limits. During Trump 1.0’s trade war, Xi Jinping’s attempt to leverage Jared Kushner failed to deter Trump’s blows.

Should Li Qiang take on Trump’s tariff battle, he is likely to become Xi Jinping’s scapegoat.

(People News Exclusive)