In this week’s episode of China Insider, Miles Yu reviews the Supreme People’s Court ruling on mandatory social security payments for employees, and what this might reveal about the current state of China’s social welfare infrastructure. Next, he covers the recent collision of two Chinese naval vessels following aggressive maneuvers near the Scarborough Shoal, and how this fits into China’s evolving gray-zone operations and Indo-Pacific maritime strategy. Lastly, Miles revisits the Chinese Communist Party’s planned celebrations for the upcoming eightieth anniversary of victory in World War II, and weighs the potential impact of rising anti-Japanese sentiment against the current popular protest movements across China.
China Insider is a weekly podcast project from Hudson Institute’s China Center, hosted by China Center Director and Senior Fellow, Dr. 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 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 threats, and their implications to the US and beyond.
Colin Tessier-Kay:
It is Wednesday, August 20th, and we have three topics this week. First, we discuss the public backlash over a recent decision by the Supreme People's Court regarding informal opt-out procedures for social security payments. Second, we unpack the recent incident in the Indo-Pacific involving a collision between two Chinese Coast Guard vessels and the impact on current tensions between the Philippines and China. Lastly, we circle back on China's upcoming anniversary celebrations for victory in World War II with the upcoming military parade scheduled on September 3rd in Beijing, and the significance of this parade celebration, in particular. Miles, great to be with you again this week.
Miles Yu:
Nice to be with you again, Colin.
Colin Tessier-Kay:
First, up this week, a recent decision by the Supreme People's Court banned informal arrangements made between companies and employees for them to opt out of mandatory social security payments and is due to go into effect on September 1st. Since the ruling, there has been substantial concern from the public anticipating the response from companies that may look to layoffs and cutbacks to cover some of these increased costs. Miles, can you start us off here with some of the background on the court's ruling and which groups are the most vulnerable once this goes into effect,
Miles Yu:
I think everybody's vulnerable. Everybody's working. Either you’re an employer or you’re an employee. Here's the reason why. This is a very forced decision by the Chinese government. The Supreme Court issued a ruling on August 1st and said: effective from September 1st, a month from then, nobody in China should be excluded from social security contributions. In other words, everybody who's working has to contribute to it. And this kind of mandatory nature of that makes a lot of people very, very upset. Now use the word concern and backlash. I use the word uproar, because it is significant. The reasons are very complicated. But, let me just try to unpack this, little by little. First of all, there are a lot of people who are not really paying this social security insurance essentially because the employers do not like it, and employees sometimes don't want to pay for it.
China is a country with a lot of social family networks. So many people cannot really afford this social security contribution. Now, the government said no more, everybody has to pay beginning September 1st. Let me just share a little bit about what kind of onus this is going to be on [an] average person. In most major cities in Beijing, Canton, and Shanghai, for example, their average salary is about 5,000 yuan and that's pretty good, right? 5,000 UN by Chinese standards is okay, and that accounts for about $25 a day. Now, by most international standards, that's basically a little bit below the poverty line. So, this is, in other words, the Chinese people's income is very, very limited. It's not really that high, which is one of the reasons why China has this deflation, because people have little money to buy to spend. Now, according to this new rule, everybody has to contribute every month about 700 yuan out of the, say average worker, 5,000-yuan salary.
That's about 14%. That's significant for a lot of working families. So, you take out 14% of your income out of 5,000, that's going to affect people's livelihood in a very major way. But, far worse than this, it's the ruling against the employers. According to this ruling, every employer says, no matter where you are, mostly medium and small companies in China, every employer must pay close to three times the contribution of the individuals. For example, we have this worker who makes 5,000 yuan a month. He pays 700 out of 5,000. The company would have to pay $1,900 to make this legal. So, in other words, the [costs to the] owners of the company are going to be enormous. So, this will basically, as you indicated in your question, it is going to basically cause number one, a massive layoff that is going to worsen the high unemployment rate in China.
Number two, if you don't fire people, you need workers. The employer is going to definitely cut the salary, reduce salary to make up the loss. So, this is going to have a major impact on the whole society. So, the arbitrary-ness, and the mandatory nature of this ruling is absolutely maddening. So, there's no consultation, there is no debate. This just said, this is something [and] you have to do it. So, I'm sure the full social insurance contribution is necessary because this is for people who are in their sunset years, this is going to be important. But it's so drastic, it's so arbitrary, and I don't think people are going to be able to enjoy that once they retire, because if the government is so desperate to take such a drastic step, it is a strong indication that the China's social security fund is becoming insolvent, the reason is simple because you have a lot of [the] aging population now who have retired, particularly baby boomers.
So, they are going to draw a lot of money on retirement pension. That's one thing. Number two, China is a socialist country. You have a massive number of people who work for the government. So, they're part of bureaucracy, they're part of the military, they're part of the state-owned enterprises. You have a lot of people in China who are retired now, and their pensions were so outrageously high. I mean, that's why you see a lot of happy elderly people in Chinese parks, and they travel all over the world and create the illusion that China is a prosperous country. But those were relatively small numbers of people in terms of the whole population. However, those people are getting paid a lot. Take for example, an average worker in Beijing, he makes about 5,000 yuan. Now on average, a state-owned enterprise or the retired bureaucrat, he is going to draw a monthly pension out of social security fund about twice as much as monthly salary of about 10,000 yuan. That is outrageous. That's why with this new ruling, this new mandatory ordinance, you can see a major clash of discontent and privilege. So, that's why I think this sounds like a measure of desperation, but I think it's going to have a major impact on the social security and social stability and political order of China. So, this is going to kill a lot of small, non-state enterprises and companies. You'll see, and I think that's a very, very important movement going on in China
Colin Tessier-Kay:
To round this topic, I'd like to focus on the issues, that you brought to light, facing China's social insurance infrastructure as a system, especially considering, like you mentioned, the high rates of youth unemployment and the existing demographic imbalance. There are just simply fewer people entering the workforce and subsequently unable to contribute to current pension benefits, much less those in the future. So, it's funny to mention because the Supreme People's Court issued a statement following the ruling saying that this ruling effectively protects citizens basic rights such as social security, disperses employment risks for employers, and actively addresses the issue of an aging population. So, in addition to your response to that comment, Miles, I'd like to get your thoughts on what would be an accurate assessment or outlook, let's say, for China's social welfare system in the near future, and what kind of impact could that have on public citizenship?
Miles Yu:
Well, first of all, you can say it's for the benefit of the working people, but mostly really, it's for the benefit of the retired privileged party members and state-owned enterprises, the bureaucrats, because they draw a huge amount of pension out of the social security funds. So, basically this is the measure to squeeze the poor, to squeeze the working-class people to sustain this extraordinarily unfair pension system in China. So, it's party rule. The Chinese commune party is what they call the vanguard of the proletariat, but in fact, it's a new class. It is basically a caste system based on classes rather than race and ethnicity. So, this is going to be very, very important for the Chinese as a whole. I think you mentioned youth unemployment. the last time the government reported youth unemployment was about 20%. That's already high. So, after that, the government stopped reporting the unemployment rate for the youth altogether because the number could go much higher, according to some economists it could go as high as 46, 45%.
That's half the population. So, we're talking about the people aging, aging between sixteen and twenty-four. This is productive, most vibrant agent group in the workforce, as high as half of them are unemployed. So, they obviously are going to be out of this security system because they're unemployed, so they don't have to pay any. So, how are you going to deal with this population and when they reach their age of retirement, it's going to be a very, very difficult task to make. So, I think it really is, to solve this problem is to be transparent and to be reasonable and so do not make hasty policies like this and affect everybody's livelihood.
Colin Tessier-Kay:
Turning to our next topic today, a little over a week ago, two Chinese Coast guard vessels collided just off the Northern Batanes islands in a series of highly aggressive maneuvers taken to harass a Philippine Coast Guard ship that was also in the area. The Philippine vessel captured footage of the event, and the video has since gone viral pretty much around the world, and has made headlines as the latest incident resulting from China's Indo-Pacific coercion and larger gray zone operations. Miles, can you give us a bit more information on the incident and why the Batanes Islands and Scarborough Shoal in particular, and anything else that we should take away from this incident?
Miles Yu:
Well, Scarborough Shoal is about 80 miles off the coast of the Philippines coastline, and somewhere like hundreds of miles away from the Chinese coastline. So, by international law international arbitration rulings, this definitely falls within the Philippines exclusive economic zone. So, the Chinese said, no, this is ours, so they occupied that place during the Obama administration, and the US government didn't do much. So, this is one of the reasons why the Scarborough show incident was so significant. Now we're going to begin to push back, but it's getting hard. China occupied that place, and however, there's some Filipino representation in that place. So, basically from time to time, the Philippine maritime forces, for mostly [the] Coast Guard would descend to supply to that place to sustain their representation there. But the Chinese government basically has done its utmost to destroy that, and to harass the Philippine vessels going on virtually on a monthly basis.
This time is very different. On August 11th, a Chinese coast guard cutter CCG3104, and the Chinese Navy guided missile destroyer, the Guilin (桂林), collided in the high speed maritime interception near the Scarborough Shoal, in pursuit of a Philippine Coast Guard vessel delivering aid to fishermen there. So, the collision caused severe damage to the gutter's ball, and it's almost beyond recognition for that vessel. And the destroyer's hull suffered deep dents. So, there's a lot of footage released by the Philippine Coast Guard. I'm sure people were listening to this program and many other programs [have] already seen that on many platforms or YouTube, you can find it easily. This is very noteworthy because number one it is a high-risk naval tactic in play. The collision stemmed from aggressive gray zone maneuvers, as we know it is like a blocking and high-speed pursuit, and also something like attacking suddenly changing course and to cross the stern of the Filipino Coast Guard cutter, a very small vessel.
And so, this kind of maneuvers involving military or Coast guard actions is something we call gray zone, basically is actions amounting to full scale, sort of, harassment, short of a real warfare. So, this is very dangerous, and it has caused a lot of unintended escalations there. Secondly, this incident indicated that China is willing to use military grade assets in civilian enforcement. China normally says this is kind of a maritime law enforcement using military militia, but this one involves a high value PLA navy destroyer indicating that there is a China's totally willing to escalate both its capability and risk. So, this is a very, very, very dangerous movement. But, most importantly, you see the Chinese military people, they're full of road rage.
They are not professional drivers and pilots. Remember several years back we had this EP-3 incident caused by the Chinese fighter jet pilots, unprofessional road rage and causing a collision between the US EP-3 plane and the Chinese fighter jet. So, this is, again, such collisions raise questions about coordination [and] decision making within Chinese joint maritime operations. For such a crash to take place, it really, really shows how poor China's seamanship has become, and it's during daytime and [it’s a] multi-ship interception mission. So, it is not a very good driver. So, I don't want to perpetuate the stereotype that Chinese are not good drivers, but here I'm particularly pointing out the Chinese military. They are motivated, they constantly play brinksmanship, and this is very dangerous. It has dramatically heightened regional tensions, because soon after this incident, the United States Navy deployed two US warships USS Higgins and USS Cincinnati, and the US coast guard showed support for the freedom of navigation and deterrence. So, this has basically created a new flashpoint for US-China-Philippine dynamics, and not only this, universally across Asia and also Europe officials, military leaders condemned such behavior, because it is going to cause a major problem for the international community as a whole.
Colin Tessier-Kay:
Yeah, and I'd like to stay with that for a second here, because prior to the incident, I believe by at least a week or so, and following intelligence reports that the two Chinese vessels involved in this incident were deployed to the area, even at that point. President Ferdinand Marcos issued a statement saying that the Philippines would be unable to stay out of any war over Taiwan. And it was not so much a direct response, but you could very much define what was the catalyst of that statement. And certainly while the statement itself likely did not provoke the specific action taken by the Chinese vessels, it brings into context the larger regional dynamics at play here, like you mentioned. So Miles, from your perspective, what is the impact of this latest incident on the larger Indo-Pacific relations dynamic, including consideration of Taiwan based on President Marcos's statements, and where does this leave the Philippines currently in terms of their options? Will there be a shift in their approach to future encounters?
Miles Yu:
Well, the Philippines, basically the Filipinos, they have virtually no option in this scenario. It's not just the Philippines, Japan and many other countries would have no options as well, because military action against Taiwan is going to cause a strong military response first from the United States, secondly, from its treaty nations, that would include Japan, Philippines, and South Korea. So, in other words, this might cause a chain reaction. Now, President Marco's remarks are also based upon the fact that you have tens of thousands, if not hundreds of thousands of Filipino workers in Taiwan. So, he particularly mentioned the fact that any military action against Taiwan, particularly the joint fire strike against the island of Taiwan, it's going to affect the people's livelihood living and working in Taiwan. So, he was talking about the symbiotic relationship between that military action and the benefits and the welfare of the Filipino citizens in Taiwan.
Secondly, as you notice, operationally speaking the Philippines occupy a very important place in the Taiwan scenario, no longer just Japan. Of course, the US military has heavy assets deployed in Thailand, in Taiwan, in Japan, particularly Okinawa, that area. But also, nowadays, if you look at it, the Philippine Islands, the northern part of Philippines is actually closer to Taiwan, are much more important, much more make more sense, and much more survivable in other words. So that's why, that's the reason why in recent years, the military exchange, the joint drills and the military operations between the US military and the Philippine military or have been very robust already through the Taiwan scenario. And this is not empty talk because Secretary of Defense Pete Hegseth has said many, many times, and he personally visited the Philippines and the US military, and the Filipino military have constant exchange and joint operations. So that's very obvious.
And I think not just the Philippines; I have to point out many countries would have to join in too. Now, countries like England, France, Germany, Australia; the leaders have said repeatedly or even indicated strongly that if the US takes the lead in the pushback against Chinese military action against Taiwan, they'll join too. So, this is an international thing because over one third of global trade, over one third of global trade passes through that area, South China Sea [and the] Taiwan Strait. So it's very, very crucial. It's for international order, not just for the interest of the United States, for the interest of everybody.
Colin Tessier-Kay:
And we'll certainly be interested to see how this develops at least in the near future between the Philippines and Taiwan and China. But, turning to our final topic for today, China is set to hold a military parade on September 3rd to commemorate the anniversary of the victory in World War II. This will supposedly be the first military parade since Xi Jinping came to power. I had to double check that stat, and the first in the CCPs history as well, specific to the celebration of the victory over Japan. So, Miles, we've been tracking these celebrations and related preparations on prior episodes of China Insider, but what is significant about the upcoming celebrations in Beijing?
Miles Yu:
Well, it's important for the Chinese Communist Party because it wants to showcase its strength and project the image of confidence and invincibility. This is a typical Chinese play. You say that this is the first time, as a matter of fact, this is actually not the first time Xi Jinping in 2015, ten years ago, he had a similarly huge military parade in Tiananmen Square to mark the 70th anniversary of the end of World War II in Asia. So, in that parade, which is similar to this year's parade, only Putin showed up [out] of any major countries, plus, oddly enough, the president of South Korea. So, a lady who later would be convicted of a crime.
So, basically China was very isolated, no military, no major national leaders showed up. China basically wants to beef up its image as the Chinese communist party is really sort of, I will say this, on a serious program, it's really shameless in terms of portraying itself as the core force of fighting against Japanese in the Chinese Theater. This is completely false. Over 99%, even more of all the fighting between China and Japan was not done by the Chinese Communist Party. It was done between the Chinese nationalist government, the KMT led military and Americans against the Japanese. So, because it is the policy of the Soviet Union not to let any communist forces in Asia to fight against Japan, because the Soviet Union and Japan had a neutrality pact signed in April 1941. That neutrality pact was strictly enforced by the Soviet leadership. So, until the very last day of the war, when the Soviet wanted to explore the victory after you had dropped the bomb on Hiroshima. So, this is a very, very strange and absurd claim and narrative portrayed and carried out by the Chinese government, Chinese communist government. So, that's why you will see a lot of backlash internationally. Hopefully, no western leaders or any leaders of democracies will go there to basically be complicit. It is a falsehood of CCPs own version of World War II.
Colin Tessier-Kay:
I'd like to run out of this kind of topic that we've been tracking by tying it back to our prior discussions involving the rise of anti-Japanese sentiment during the celebrations. I think with the level of preparations for these events and celebrations in Beijing, it's almost Olympic level with some of the things going on. But, insofar as the impact these celebrations will have on the public discourse, can we expect an escalation of these sentiments over the next few weeks? And will that at all conflict with the other current movements, public movements that are gaining momentum over other issues like the wage worker movements among others?
Miles Yu:
That's a good question. I think right now, because China is a closed society, the Chinese government controls virtually all channels of information. So, China currently has a nationwide anti-Japanese propaganda, which is the enforced win with this movie about the Japanese occupation force entering Nanjing in December 1937 when the capital of China failed to the Japanese invasion. So, the amount of history, the xenophobia feeling nationwide against Japanese is such that no Japanese citizen is safe inside China today. So, it is bizarre to see how a whole nation could be mobilized and brainwashed by communist party propaganda. And so, the purpose of that is obvious to me. That is, to fan anti-Japanese sentiment and portray Japan as the lucky or running dog of America, the United States, who is the ultimate enemy and adversary of the Chinese Communist Party. So, it's been going on for decades. This is a sort of a traditional trick, and I think completely disregards the fact that Imperial Japan before 1945 is totally different from democratic Japan after World War II.
Japan in the last eight years has become a remarkable democracy, a modern state with industry, innovation, and good citizenship globally. So, Japan has apologized to China many times, and has contributed tremendously through its no condition, no strings attached to aid to China in the last forty years. You name it, major projects, major projects in China, public works are pretty much donated by the Japanese government. So, China basically right now, [has] completely blurred the line between Imperial Japan that invaded China, [and] did tremendous harm to the nation and post-World War II Japan. So, all of this is to portray this democracy as the same as the fascism and the military regime. So, I think it's going to backfire eventually.
Colin Tessier-Kay:
And with that, we'll certainly track the celebrations coming up, but Miles, is there anything else that's important here that you would like to add?
Miles Yu:
Yes. One very important fact we should keep in mind, the Chinese Communist Party has killed more Chinese in its seventy-five years of rule than all the Chinese killed by foreign invasion since the opium wars. That's since the 1840s, all of them combined. So, the scale of Chinese Communist Party carnage imposed on its own people is actually in the millions. During World War ii, Nazi Germany killed six million Jews, which is a holocaust. The Chinese government kills Chinese people in peace time more than ten times. That number, the publicly accepted number today, is that 70 million Chinese perished under communist rule in peace time. So, that number is several times bigger than the number of Chinese that died during the eight years of war against Japan. So, in other words, Japanese kill far fewer Chinese than the Chinese Communist Party itself. The history of the People's Republic China under Communist Party is the bloodiest chapter of all human history. Keep that thought in mind and you'll understand the absurdity of a Chinese Communist party staging this parade in Tiananmen Square on September 3rd.
Colin Tessier-Kay:
It is certainly a sobering statistic and a very important context to keep in mind as we track these celebrations going into September and the rest of the month, but that's unfortunately all the time we have for this week. Thank you as always to our listeners for joining us. And thank you Miles for your expert insight in this week's conversation. Always great to hear from you, and we'll check back in again with you next week.
Miles Yu:
My pleasure. See you next week.