March was a busy month for China’s leaders, as they pushed through a business and diplomatic relaunch of China’s flailing economy after three years of self-imposed pandemic isolation. Beijing has, it seems, discovered a new enthusiasm for foreign investment, which it hopes might help its economic recovery.
This change of tack first became apparent at two annual meetings. The first was the National People’s Congress – theoretically China’s highest political body – and the second was the Chinese People’s Political Consultative Conference (CPPCC), composed of around 2,000 delegates from different segments of Chinese society.
These two bodies endorse decisions that have already been agreed in previous Communist Party meetings, which this year included an important turnover of top personnel. This was the biggest political event since Xi Jinping’s abrupt reversal of his signature Zero-Covid policy last December, and an occasion for Xi’s new team to showcase their policies for the coming year. The message was clear: after the bruising impact of the pandemic, China was open for business.
Beijing enjoys these high-level gatherings, and there were two more in the course of March, at which the new pro-business pivot was repeated. One of these was the three-day China Development Forum (CDF), an event Beijing bills as a “high-level forum serving as an important platform for the Chinese government, global businesses, academia, and international organisations.” One hundred registered foreign participants attended the event, including Apple’s chief executive, Tim Cooke, and the head of Pfizer, Albert Bourla. They heard the new prime minister, Li Qiang, wax lyrical on the official theme of “Economic recovery: opportunities and cooperation” as Chinese officials organised sessions to address continuing anxieties about supply chains, domestic demand, fiscal and tax reform, high-level opening-up, green transformation and how to defuse financial risks.
China’s state media reported an event brimming with confidence and optimism, as they did from the third important event last month – the Boao Forum, held on the tropical island of Hainan the following week. The Boao Forum was set up after the Asian financial crisis 20 years ago and is frequently billed as China’s version of Davos. This year it attracted a handful of political leaders, including the prime ministers of Spain and Malaysia, along with the head of the IMF, all of whom, according to Chinese state media, were thrilled to see a return to business as usual in China.
Despite the official cheerleading, however, not many senior US executives showed up to either event, as the geopolitical tensions that are beginning to reshape globalisation cast their shadow over the gatherings. While China was saying it was open for business and the future was bright, many US executives were nursing the wounds of the previous three years of interrupted supply chains and political hostility, and casting nervous glances back at a newly muscular Republican-controlled House of Representatives that has China firmly in its cross-hairs. The mood for the CDF was not helped by a simultaneous raid on the Beijing office of the Mintz Group, a US due diligence firm, and the detention of five of its staff.
Xi Jinping’s other activities did little to build confidence either: his first big trip of the year, staged on March 20 between the two meetings and the opening of the CDF, was to Moscow. Xi showed no signs of remorse at the limitless friendship that he and Vladimir Putin, freshly indicted on war crimes charges by the International Criminal Court in the Hague, had declared a year earlier.
It would have been hard enough to coax foreign business back into a close embrace after Covid, but today’s landscape – deeply scarred by Covid, a shaky Chinese economy, a threatened global recession and a full-scale war of aggression in Europe – bears little resemblance to the world of business enthusiasm the Chinese media are anxious to project.
Cooke can hardly have forgotten the riots that hit Foxconn in Zhengzhou, the biggest iPhone factory in China, just four months earlier, when workers threatened with another Covid lockdown had climbed over the plant’s high fences and escaped on foot, dragging their luggage behind them.
Desperate managers had offered financial incentives to recruit new workers and even suggested that local officials should turn out to help, but as production of the new iPhone model slowed, Apple announced plans to speed up a shift in production to India, one symptom of an unease with the new uncertainties of globalisation that has been growing for several years.
Other foreign investors had been spooked by a series of abrupt government crackdowns on everything from the tech sector to private tuition. Boeing became collateral damage when China sanctioned its defence unit in retaliation for the US approving a new batch of arms sales to Taiwan. Despite the $700bn in trade between the US and China in 2022, and in contrast to the boosterish mood among Chinese officials, their counterparts in the EU and the US have been exploring how they might reduce their dependence on China in areas now considered sensitive for national security.
While Li Qiang was talking about the dangers of protectionism and economic decoupling, Japan was putting in place new controls on its trade with China, the US was expanding its ban on exports of advanced microchips to China, and Ursula von der Leyen, president of the European Commission, was arguing that the EU needed to de-risk its China relationship.
None of this is good news for Xi Jinping. Xi has consolidated his personal power and is exerting party control on all aspects of the domestic economy, but western liberal democracies have grown apprehensive that his welcome mat cannot be trusted, and his version of globalisation may not be so attractive.
China’s long boom – a key element in the party and the government’s popularity – is coming to an end. The question for Xi Jinping – one with global significance – is how he will balance his authoritarian domestic politics and assertive geopolitical posture with the immediate needs of China’s economy, which has slumped to its lowest growth in decades. The answer to that will also affect how far and how fast the age of globalisation, the foundation of China’s four decades of rapid growth, goes into retreat.
In a moment of historic synchronicity, on November 30, just before Xi’s Zero Covid policy went into reverse, China’s former party secretary, Jiang Zemin, died at the age of 96. Jiang was cremated at Babaoshan, the cemetery in the suburbs of Beijing favoured by China’s communist leaders, and the party leadership turned out in strength, perhaps keen to present a show of unity at a fractious moment for the nation. They praised Jiang, who had been unexpectedly promoted to lead the party on the eve of the Tiananmen Square massacre in 1989, for stabilising the country in a moment of turmoil, and for his steadfast adherence to Marxism. His other signature policies – opening China to the world and opening the party to businessmen – were given rather less space in the valedictory speeches, perhaps because these are the policies that Xi Jinping is quietly reversing.
Jiang worked closely with the pragmatic reforming premier Zhu Rongji, who shuttered China’s rust belt, opened the economy to the idea of the market and prepared China for membership of the World Trade Organisation, paving the way for the country to become the world’s factory and for the rapid growth that followed. They created the conditions for China to become a key element in – and beneficiary of – globalisation. Multinational corporations rushed to open production facilities to take advantage of the China price, and with an eye on access to one of the world’s biggest markets. Almost overnight, everything seemed to be made in China.
Jiang Zemin was a lifelong communist, but he also presided over a relatively liberal time in China, when political controls on personal choices were relaxed, when travel became easier, when culture and civil society thrived. From today’s standpoint, it seems like a distant golden age.
It had begun to unravel even before the first appearance of Covid in December 2019. Global elites had benefited hugely from globalisation, but workers in the west were hurting and the strains were evident in an upsurge of populism in western politics. Donald Trump had campaigned in 2016 on the accusation that China was “raping” the US, and the faith that growing prosperity in China would lead to political reform had faded on both sides of the congressional aisle. Even in Germany, the western industrial economy most successfully tied to China, confidence in Wandel durch Handel, “change through trade”, had begun to look threadbare. Russia’s invasion of Ukraine, and China’s tacit support, merely sharpened the apprehension in Europe that China might weaponise its economic and trade relationships in pursuit of political ambitions.
China’s policy, too, had been changing. In 2017 China unveiled a policy of industrial development called “Made in China 2025”. Xi Jinping’s consistent message to his people was that the world was hostile to China, but that the party would robustly defend China’s interests against the US, its principal enemy, and make China great again.
By 2020, China had introduced a further insurance policy in the shape of dual circulation. This, Beijing explained, meant shifting effort away from export markets in favour of expanding domestic demand, promoting state-led growth and improving China’s capacity for innovation. Dual circulation implies securing access to external natural resources while building domestic economic self-sufficiency, particularly in advanced technologies. Were it to succeed – and the US is currently determined to slow its progress through technology export bans – China would become self-reliant in resources and technology, secure in its large domestic market, and resilient to any fallout from further geopolitical deterioration.
With Xi Jinping’s muscular reassertion of party-political orthodoxy at home, and his equally robust assertion of China’s rights and values abroad, China’s ambition to reshape the global order in its favour had begun to worry western capitals.
In the US, sentiment quickly hardened into confrontation and a determination to counter the threat that China’s economic power might allow it to take the lead in advanced technologies, some with military implications, and to reshape the values and balance of interests in a world that had been US-led since 1945. Trump’s frank political hostility found expression in a series of punitive trade measures, which the new president, Joe Biden, has tightened rather than relaxed.
In the UK, the naive enthusiasm of George Osborne and David Cameron’s “golden era” of relations with China barely outlasted their tenure. The EU, China’s biggest trade partner, has been forced to rethink. In 2019, the EU’s External Action Service produced a new formula to guide future relations: China, it said, was simultaneously a cooperation and negotiation partner, an economic competitor and, importantly, a systemic rival.
In the EU, the political shock of the repression of the Uighur minority in Xinjiang and the brutal security operations in Hong Kong, the impacts of the pandemic and some unwisely aggressive Chinese wolf-warrior diplomacy resulted in the lowest popular approval rates for China ever seen among European electorates, a factor that further narrowed Europe’s political options.
When the EU sanctioned Chinese officials over Xinjiang, China countered with sanctions on several MEPs and a leading German think tank. A key trade and investment agreement, years in negotiation, abruptly died. And when China positioned itself in effective support of Russia over Ukraine, leading figures in Europe began to question whether the China game was still worth the candle.
For both the EU and the US, the shared benefits of globalisation that had worked when there was mutual trust now look very different as trust has given way to mutual suspicion and retaliatory spats. The interlinkages generated since China’s entry into the WTO in 2002, nevertheless, are too complex to untangle swiftly or easily, and western economies remain a long way from decoupling from China, despite talk of re-shoring, friend-shoring and near-shoring.
But as the US revises its approach to industrial policy and weaponises its own dominance of selected advanced technologies, the major players are unlikely to return to any deepening of economic and industrial connections. For them, the perils and vulnerabilities that globalisation has created can no longer be ignored.
Xi Jinping, however, remains confident that the world is going China’s way in what he regards as a historic shift in global power relations. He shares with Putin the conviction that the world’s troubles all begin with the US and its allies, but that the US is in terminal decline. As he bid a fond farewell to Putin after their Kremlin dinner on March 20, Xi was heard to say to his “best friend”, “Change is coming that hasn’t happened in 100 years and we are driving this change together.”
As they clasped hands, Putin responded, “I agree.”
Whatever vision of globalisation they share, it is unlikely to look the same in Washington.
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