We start with Taiwanese President Lai Ching-te’s “Double Ten” speech last week, which commemorated Taiwan’s National Day on October 10. President Lai laid out his government’s agenda and called for cooperation to bring political unity to Taiwan. Next, we detail the dramatic rise and fall of China’s stock market in the last two weeks and why the Chinese Communist Party’s planned economy is losing trust both domestically and internationally. And last, we cover the detention of four Taiwanese business executives working at Foxconn in mainland China.
China Insider is a weekly podcast project from 91 Institute’s China Center, hosted by Miles Yu, who provides weekly news that mainstream American outlets often miss, as well as in-depth commentary and analysis on the China challenge and the free world’s future.
Episode Transcript
This transcription is automatically generated and edited lightly for accuracy. Please excuse any errors.
Miles Yu:
Welcome to China Insider, a podcast from the 91 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 US and beyond.
Phil Hegseth:
It is Tuesday, October 15th and I'm Phil Hegseth alongside 91 Institute's Miles Yu. We start this week with Taiwanese president Lai Ching-te’s Double Ten speech last week, that's Double Ten, as in October 10th, which serves as Taiwan's National Day. President Lai used the speech to lay out his government's agenda going forward and called for a new level of cooperation behind a unified Taiwan. Miles, who was actually in Taipei during the speech, explains the motivations behind the speech and the Taiwanese and Chinese reactions. Next, Miles details the dramatic rise and fall of China's stock market the last two weeks and why the CCP’s plan economy is losing trust both domestically and internationally. And how does that lack of trust manifest itself? Well, our third topic addresses just that, as Miles covers the detention of four Taiwanese business executives working at Foxconn in mainland China. Alright, good morning. Well actually, good evening, Miles. How are you?
Miles Yu:
Thank you very much, and you should explain to the audience why there's a difference between good morning and good evening.
Phil Hegseth:
Well, I'm here in the DC area, so it's morning for me. I still got my coffee. I think coffee would be the worst thing for you as it's real late in Taipei for you. I think you're traveling, you've been there for the weekend?
Miles Yu:
Pretty much. Yeah.
Phil Hegseth:
Yeah. So you were there for some interesting moments that I think are still unfolding. So excited to hear your thoughts as somebody who's on the ground during a lot of this. The first of which we can start with today is President Lai’s Double Ten speech. So that's October 10th. I think it's an annual speech, but it's historically important. So Miles, why don't you give us the background for what the Double Ten speech is, what it represents, and then we can get into what President Lai actually went over.
Miles Yu:
October 10th is the Taiwanese National Day. We normally Double Ten.
Phil Hegseth:
Right, and we covered that last week a little bit too. The rival National Days.
Miles Yu:
Yep, that's right. That's right. So the reason this is important for this year, every four year, it's important because normally you would have a new president in the election year. This year, 2024 and in January they held the president elect. So President William Lai is the new guy. And so the Taiwanese system is a little bit peculiar because the time between the election and the inauguration is unusually long, almost five months. [Oh, wow. Okay.]
Basically the inauguration took place on May 20th and then he would make some kind of a celebratory speech at the inauguration normally, and he will basically say something very general about the orientation of the new government. For specific policies, for specific details, personal appointments in key positions, that's when he would announce all that stuff on Double Ten day.
Phil Hegseth:
So it's kind of the opening speech for your administration in a way.
Miles Yu:
That's right. Exactly right. So after you form the government and you decide the main policies and you basically make a Double Ten speech and announce to the world and what your government is going to be doing and what it is you are trying to achieve. So [Got it.] this kind of like a state of the union speech, [Sure.] but it's so important for Taiwan because this is the linchpin of global security. [Yeah.] So much is at stake and he wants to make sure that he wants to express his political conviction and he wants to basically speak to his people. Also, he wants to make sure that China will not use any of the words he said or he did not say as excuse to provoke some kind of unnecessary military conflict.
Phil Hegseth:
Well, and so what did he come out and say? I know he made some controversial remarks specifically about Taiwan's status and Taiwan's status in relation to China. So can you go over what he stated? We'll talk about China's response but also Taiwan's reaction. Go ahead and lay it out for us.
Miles Yu:
I don't know why it's controversial. I mean controversial falls into the narrative of mainland China and other spin doctors somewhere in the world. [Yeah.] He said something that's very, very prosaic and normal, even though rhetorically very important. That is, Taiwan's foreign policy, particularly its relationship with the mainland China. There's absolutely nothing new. He has been saying this over and over again and every president in the last 20 some years has said pretty much the same thing that he has. They want to maintain the status quo, they want to be respected, they want to basically China to give up with its attempt to annex this nation. That's basically been the message of every president across the party aisles. So I don't think there's anything controversial there. China would always say he's a separatist. Every president elected by Taiwanese people has some element of being separatist. [Right.] So no matter what you say, what you not say, you will be the enemy of China. That's basically what it is.
So what is new, however, is in President Lai's speech this year that he recognized the sacrifice made by the opposition party of the KMT, the nationalists, who flee inland China after being defeated by the communists in 1949 and came to Taiwan, and 75 years there they're still here. What he's trying to say here is that you know what I'm representing the DPP, the Democratic Progressive Party, and that is what would normally call the green. The KMT the nationalist party from mainland is known as the blue. And for almost 20 years the KMT and the DPP, the blue and the red, I'm sorry, the blue and the green, absolutely hate each other. It was the opposite. They were very, very partisan toward each other. But now President Lai recognized sacrifices by the forefathers of KMT who came to this country and make Taiwan their home. So what he is trying to say is that, hey, I recognize 1911 revolution, I recognize the Battle of Quemoy in 1949 that basically eliminated the Chinese invading forces that tried to take over the Taiwanese held island of Quemoy and Matsu. And he said that was a very heroic move. But then you are not mainlanders, you're not anybody from any parts of China. You are Taiwanese now because you have built, contributed to your life, sacrificed everything for a free and independent Taiwan. And Taiwan is your motherland, Taiwan is your country.
That is a very, very soothing message for people in Taiwan who are from a different political and historical backgrounds. And the interesting thing is his tone for national unity, his call for national unity is also sort of echoed by the fact that the MC, master of ceremony, of this Double Ten celebration, which involves a lot of parades and performance of arts and scenes and dances, is the President of the Legislative Yuan, which is controlled by the blue. Mr. Han Kuo-yu was deeply blue and he was the host of the event and he said something very similar to what President Lai said. He said, Republic China is your state, is your country, and the beautiful island of Taiwan is your home. So basically they recognize, listen, this is the country and this is our home. And many of the political opposition leaders were also on the dais and of the parade of the ceremony. It is a really a remarkable beginning, I think of what’s supposed to be a very unified nation.
Phil Hegseth:
That's fascinating. And I also find that as I read more and get to know your expertise and do my own digging, the history of Taiwan's political parties, just the KMT and the DPP and just how this was all formed and the civil war in 49, all this. I would love to just do a history lesson episode with you at some point and maybe we just need to do that because we can't dive into all of it here. But it's fascinating that, so his target audience was really reunification of, or not reunification, but unification of Taiwan under the Republic of China. How did the CCP react to that? They can't be happy about a unified Taiwan seeing their homeland as Taiwan?
Miles Yu:
Yeah, I mean this is actually is very, very comic and tragic as well. Even though President Lai's speech is about promoting domestic unity of all political identifications. [Right.] And there's nothing provocative about the cross street relationship. The Chinese government reacted with violence and bullying and absolutely intransigence. I mean like what happened during the inauguration in May, this time they also wait three days and so on Monday morning, three days after the speech they conducted around Taiwan military drills and that was very, very threatening and destabilizing and menacing. So obviously people in Taiwan were outraged, but then this kind of stuff happens so often, so outraged basically dissipated within an hour or so, government protested and we had all day meeting here. The meeting went on without any glitch. Rarely anybody pay any attention to this. As a matter of fact, whenever Chinese government conduct these menacing drills against Taiwan, surrounding Taiwan with the aircraft and the ships, Taiwan’s stock market would go up. And just like what happened in the past, on Monday when China conducted a whole day military drills of intimidation, Taiwan stock market went up and interestingly the Hong Kong stock market went down.
Phil Hegseth:
Yeah, that's a perfect transition actually into the stock markets in China. So last week, I think it was last week or maybe the week before, there was a huge stock jump in China actually. The government announced some economic reforms that were supposed to bolster the economy and there was a big reaction, the stocks jumped. But last week they did the reverse, big fall. And so can you talk about Miles, what the rise and the quick fall of China's stock markets just in the last couple of weeks, what fueled the rise and the fall?
Miles Yu:
China is officially a socialist country and communist country. The fact that it has a stock market system is kind of really weird and bizarre.
Phil Hegseth:
In and of itself it’s an oxymoron.
Miles Yu:
China has two major stock exchanges. One is in Shenzhen, another one is in Shanghai. Somehow there's special arrangement, so Hong Kong stock market is also connected to these two system. Normally what happen is the stock market is sunk into the savings of average Chinese. And foreigners are not actually allowed to buy what we call the A shares. So foreigners are only allowed to buy what called the B shares, which is significantly smaller than A shares. So a lot of Chinese people put their money into the stock market. And the stock market because of lack of information and because of a lack of transparency, and so the market has lost its appeal. That's why stock market in recent years have gone down by a significant amount, something like that, some 60 to 70%.
So the stock market is very, very bad for Chinese with the A shares. Now of course, consumers confidence overall in addition to stock market has gone down dramatically as well. Because of the COVID zero policy, because of the unpredictability of Xi's policies. So people just don't want to do anything risky and people do not want to buy stock, and do not want to spend money to buy durable goods. That's really created a problem we now know as a deflation. Prices dropped and the factory closed their shops and that also bring in a higher unemployment rate. So in order to stimulate this market situation in China, about 10 days ago, the Chinese government announced a major package of plans [Right.] that basically says that Chinese government is going to allow state owned banks to lend money to people and they can use that money to buy stocks. And this is really basically gambling. It's a state sponsor, [Yeah.] almost elicit gambling. [Right.] So because of that, everybody going to get cheap money from the Chinese banks and they're putting the stock. That would create the hike and overnight Chinese stock market just shot up as much as like 20%.
Phil Hegseth:
Yeah, it was big.
Miles Yu:
Yeah. This is to create a national craze for stock market. Everybody virtually overnight becomes a speculator on the market. So people who have no interest in playing stocks right now, jumping into it, keep in mind -
Phil Hegseth:
Also just to jump in, was it strategic or is the timing coincidental that that was announced and the jump happened and it was all surrounding Golden Week, right around China's National Day?
Miles Yu:
Oh, that's partly related. I mean, people do not want to spend the money on something that they're not sure anymore. And this created this stock market rally for a couple of days. What's really interesting is because of the suddenly available money from the bank at low interest, people go there to borrow money to play in the stock market and they use the stock market holding to borrow more money from the bank. The bank is where you do this kind of stuff. This is basically ponzi scheme. [Yeah.]
And many people like college kids, they cannot really afford to buy any stock. All of a sudden they jump into the stock market and in debt, hoping the market will go up within a couple of days. Yes, market went up dramatically, but then suddenly it crashed. It crashed very badly and the people feel cheated and a lot more people are in debt right now. Now this kind of policy is foolhardy and really, really anti-market. The same thing happened in 2015. That time market crashed as well because of the wild speculation, the wild availability of cheap money. So that is in a real sense, I mean half of a nation is just full of gamblers and that's why the A share is now in big trouble. And incidentally, international capital did not fall for this kind of a trick at all. While this Chinese A share went up, Wall Street remained unmoved, unfazed and basically very stable. There is no dramatic craze, there is no dramatic move either way, it's been rather stable. So that's why people in the know, understand the game. The game is that the Chinese government is running out of ideas, so they start to work on bad ideas.
Phil Hegseth:
Well, is that kind of the explanation for why it didn't last? People just eventually saw through the facade of this?
Miles Yu:
Yeah, I think that definitely is the case, but more importantly because people just couldn't believe this is true. And so there's a lot of hesitation and speculation and suspicion. Ultimately it's a lack of transparency, lack of market mechanism that caused this up and down quickly.
Phil Hegseth:
The Chinese economy is large, it impacts the world. So did these kind of stock rise and falls, do they impact the global market or is the global market just smarter than this? To know that these kind of things, since they're government backed and government fueled, it's just going to be an up and down. They don't get involved.
Miles Yu:
As I alluded to earlier, there's very little impact on global market, which is actually very interesting because it could point to something that's bigger than just this sheer reality. And that is this. Chinese economic performance and Chinese stock market right now, it's in the league of its own. It has very little to do with the global market and global stocks, and that is the truth, and I think people should start to think that the market within the Chinese system is already decoupled from much of the rest of the world, and therefore there's very little leverage China will still have on international capital, not only international capital, most of Chinese who have money in China. There are ways, all kinds of ways to get out of China, and that's why capital flight is a really big deal. Ultimately it is about the Chinese communist system unable to synchronize with the international free trade system. That's the cause of the Chinese economic woes.
Phil Hegseth:
Yeah. Well, and that again leads perfectly into our third topic in terms of just not being able to trust China with transparency in international business. And we saw last week, four executives from Foxconn, which is Taiwanese owned company, were arrested in China. So Miles, I think there's a little bit to unpack here. First, what is the connection between Taiwan and China in terms of economic ties and Taiwanese companies in China?
Miles Yu:
Taiwanese investment in mainland China has been a major engine for China's economic takeoff in the last quarter of century. So before COVID, Taiwanese investment, out of all Taiwanese overseas investment, account for a very big portion of the Taiwanese overseas investment. Something like 80 to 85% of all Taiwanese investment are in China, which is a really dominant [Yeah.] trend.
Now China began to act crazy and to crack down on free market. So Taiwanese businesses were hit really bad. So now very few people in Taiwan are interested in investing in China at all. So China market remain remarkably unattractive to Taiwanese business. The statistics are very stark. After COVID, the Taiwanese investment in China dropped so much that the last quarter of 2023, only 11% of Taiwanese overseas investment went to China. That is a drop from some 80% right. This quarter, the immediate quarter, the Taiwanese government had this statistic that shows only 8.7% of all Taiwanese overseas investment went to China. So that trend continues to go down. So it's very interesting to see what a robust economic connection relationship has absolutely gone sour. One of the many reasons is because Chinese government do not treat Taiwanese businessmen fairly equally. [Right.]
They look at the Taiwanese business investment in mainland China as a pawn, some kind of bargaining chip to adversely influence Taiwanese politics. So they keep harassing them and right now they're beginning to harass Taiwanese businessmen’s personnel directly. As you mentioned in your lead to this story, four of the Foxconn's employees in China were arrested and the charges were very unclear. Now, Foxconn is not one ordinary Taiwanese enterprise. Foxconn is a main maker of the main components of Apple. As a matter of fact, Foxconn operates the world's largest Apple assembly factory in the worldZhengzhou, Henan province. So this is such a big hit for the Taiwanese company. And of course it is also send a warning to Apple, because Apple is now beginning to divest from China. Not totally, but they are developing plan B, and now if you crack down on Foxconn, Apple's entire business operation in China will be in jeopardy.
Phil Hegseth:
Maybe this is obvious, but is all this tied together? I mean, you saw Lai’s speech, Double Ten, talking about unification of Taiwan. This all seems related. If they become more unified, shift more towards the West, it would make sense that China would be less trustworthy with business professionals and business ties with Taiwan in China. So do you see more of this on the horizon or is this an isolated incident?
Miles Yu:
No, I mean this is not isolated at all. This fits into the pattern, [Yeah.] not just against Taiwanese business, but against all international corporations in China. Everybody's trying to get out. Only a few years ago, over 80% of Taiwan investment went to China, but now it's only about a little bit over 8%. So that drop [Yeah.] by more than 10 fold is a very telling story. It just tells Chinese economic reality and China's political reality, how important that is. And I think pretty much China wants to, even though China wants to be decoupled from the rest of the world.
Phil Hegseth:
Where is all that Taiwanese business going instead?
Miles Yu:
Mostly went to Southeast Asian countries.
Phil Hegseth:
Like which in particular?
Miles Yu:
You see a dramatically rise in Taiwanese investment in countries like Vietnam, Malaysia, and Indonesia.
Phil Hegseth:
Well, I think as we showed today, these three topics are all very intricately intertwined in terms of timelines, importance, and storylines. I appreciate you staying up late and joining me early in the morning. Miles, travel safe, thank you for your expertise and thanks for reporting from on the ground with us this week.
Miles Yu:
Thank you very much and glad to be with you as always. Thank you for listening to this episode of China Insider. I'd also like to thank our executive producer, Philip Hegseth, who works tirelessly and professionally behind the scenes for every episode to make sure we deliver the best quality podcast to you, the listeners. If you enjoy the show, please spread the words. For Chinese listeners. Please check our monthly review and analysis episode in Chinese. We'll see you next time.