China – Winning the Pandemic… for Now

Successful Containment

It appears that China has left the pandemic behind. Such was apparent when observing the hundreds of millions of Chinese citizens travelling the country during the work-free “golden week” in the beginning of October. A second wave of infection was prevented. According to Johns Hopkins University, China reported only 2,779 new Coronavirus cases and 41 deaths in December. Since the beginning of the pandemic, 96,246 people in the country – out of a population of 1.4 billion – have contracted the virus, and 4,787 have died from it (as of 5 January 2021). The figures have fallen drastically, even if the criteria used by the government to calculate them lacks transparency and should therefore be scrutinised.

Among the measures employed to com­bat the Coronavirus is the incessant “track­ing” of citizens by means of a health app that everyone must have installed on their smartphone. The app allows the government to trace chains of infection, monitor quarantine obligations and thus control the spread of the virus. Other tools are also being used. The government utilizes digital as well as physical methods to apply mas­sive restrictions on people’s freedom of movement when deemed necessary. When travelling within the country, for example, citizens are obliged to quarantine for 14 days at assigned locations that are under constant surveillance. In two cities where new infections were reported, the government also ordered mass testing: in mid-October, 9 million people in Qingdao were tested because of 12 confirmed Covid-19 cases; two weeks later, 4.7 million inhabit­ants of Kashgar were tested.

A V-shaped Economic Recovery

In China, where the pandemic began, the economy already collapsed in the first quarter of 2020, and by a spectacular 10.7 percent quarter over quarter at that. After successfully containing the infection, how­ever, its gross domestic product (GDP) rose again, in a V-shape, in the second and third quarters – by 12.4 percent and 3.6 percent, respectively. According to forecasts put for­ward by the International Monetary Fund, China’s economy will expand by 1.9 per­cent for the year and return to its old growth path in the medium term. In fact, the People’s Republic is projected to be the only G20 member to exhibit a positive growth rate in 2020. China’s share of the global gross national product will rise sharp­ly, and the balance of power in the global economy will shift accordingly.

The main drivers of the current upswing were exports and public spending. China’s government launched, and has partially implemented, an economic stimulus package amounting to around 4.6 percent of its GDP. With the aim of maintaining social (and political) stability, private households were offered tax and social security pay­ment relief, and unemployment benefits were extended. As has often been the case in moments of economic turmoil, the Chi­nese state financed investments in infra­structure, this time mainly in the health and digital sectors, through increases in its borrowing. While most foreign competitors suffered from bottlenecks due to lock­downs, Chinese exports benefited from the coun­try’s ability to deliver.

Instrumentalisation of Propaganda

When state and party leader Xi Jinping visited the provincial capital of Wuhan, the epicentre of the Coronavirus outbreak, on 10 March 2020, Beijing believed that the “victory” of the Chinese Communist Party (CCP) over the virus had already been achieved. Once again, according to the tenor of the widespread Covid-19 propaganda, China’s socialist system had proven itself superior to Western democracies, especially the US.

The real winner of the pandemic, however, is Xi himself. Media in the country spread the “chronicles of Xi’s leadership in China’s fight against the virus”, aptly illus­trating that the CCP had been assigned a subordinate role within the greater public consciousness. Xi, in contrast, was able to use the crisis to centralise ruling structures and to further consolidate his own position of power. This is particularly relevant in view of the country’s preparations for the 20th Party Congress, which will take place in 2022. The 19th Party Congress in 2017 already reaffirmed the party’s commitment to centralism and to Xi’s absolute claim to power. It did not, however, reveal any plans for Xi’s descent from leadership of the party or the state. His recent gains underline im­pressions that he is positioning himself for the post-2022 era.

In the realm of foreign policy, China is using the Covid-19 crisis to strengthen its relations with other states through “mask diplomacy”. Among other activities, this involves aid deliveries of protective medical equipment abroad. Beijing is also trying to find a vaccine for the virus. To this end, Chi­nese vaccines are also being tested abroad in return for promises of priority access to the vaccine when it is developed. China’s health diplomacy is staged for publicity and presents the country as the “saviour of the world”. In a speech on 8 September 2020, Xi said, “China has helped save the lives of tens of millions of people around the world with its practical actions.”

Political Strength at Home – Increasing Scepticism Abroad

The measures taken by the CCP to contain the Coronavirus have been met with ap­proval by the majority of the Chinese popu­lation. The mass testing, for example, is free for all citizens, and the mass surveillance actually seems to be offering many a sense of security. There is also support for the gov­ernment’s view that the Chinese sys­tem is superior. According to a poll by the YouGov-Cambridge Globalism Project, 88 per­cent of Chinese respondents were convinced of their government’s leadership in the Covid-19 crisis. Even if the pandemic has not yet been completely overcome with­in the country, as the mass tests show, the narrative of victory over the virus carries weight among the population. Trust in the government has grown.

Nonetheless, there is a considerable dis­crepancy between the perceptions of the Chinese population and the perceptions of those abroad. In a Pew Research Center survey carried out across 14 industrialised nations, 61 percent of respondents thought that China handled the virus poorly. More­over, an average of 78 percent of respond­ents questioned Xi Jinping’s ability to do the right thing when it came to global is­sues. This damage to Xi’s image is pri­marily due to China’s behaviour through­out the pandemic. Although massive propa­ganda campaigns proved successful domes­tically, they appear to have been counterproductive in terms of furthering the country’s foreign policy, especially in relation to in­dustrialised nations. In countries through­out Africa, Asia and Latin America on the other hand, the Chinese narrative may have achieved greater success in catch­ing on.

The reasons for growing scepticism tow­ard China in the West are probably not only to be found in its handling of the Covid-19 crisis. Human rights violations in Xinjiang and Tibet are being viewed with an in­creasingly critical eye, as is the situa­tion in Hong Kong. The demonstratively con­fron­tational behaviour of Chinese diplomats (following “wolf warrior diplomacy”) also plays a major role, as does Beijing’s more robust foreign policy in the South China Sea and its approach towards neigh­bouring states such as Taiwan and India. Finally, the rising Sino-American conflict has sharpened the view that security chal­lenges are emanating from China.

Ambitious Development Plans – Problematic Implementation

Due to the pandemic-related dip in growth, China will just fall short of its self-imposed target of doubling its national income between 2011 and 2020. However, all other long-term development plans remain on course. By 2025, China plans to be the world leader in ten value-added industrial sectors. By 2035, the country aims to double its national income yet again, while also setting the standards for global technology. And in 2049 – one hundred years after the foundation of the People’s Republic – China hopes not only to be modern, strong and prosperous, but also to assume its posi­tion as the leading industrial nation. In order to stay on course, the recently adopt­ed Five-Year Plan strikes remarkable new chords. Changes to China’s orientation are no longer to be simply benchmarked by achieving certain quantitative growth tar­gets, but are instead to follow qualitative guidelines. For example, the process of tech­nological innovation is to gain such depth and breadth as to decrease China’s dependency on foreign countries. The new guideline of “dual circulation”, which will consist of domestic and foreign trade, aims to elevate domestic demand to a level that constitutes it as the engine of growth.

However, it is not clear how these guidelines differ from aspirations, which China has pursued (in vain) for 15 years, to balance China’s economic growth. Over the course of the pandemic, the already limited pro­gress in China’s desired macroeconomic rebalancing has vanished into thin air. The share of private consumption in aggregate demand remains at a historically, uniquely low level of less than 40 percent. Mirroring this, China’s gross fixed capital formation is far too high; it is inefficient, a drain on resources and the cause of growing internal debt. China’s economic growth, driven by investments and exports, is therefore un­sustainable, to such an extent that declin­ing economic growth rates, if not collapses, are inevitable in the medium term. Prod­uctivity growth and the number of people employed have been stagnating for several years. Internal debt has risen to 280 percent of GDP, and a growing number of state-owned enterprises are technically insolvent.

To avert a financial and debt crisis, China would need to make a macroeconomic turn­around. Such a change of course would require a redistribution of income in favour of labour and the rural population, notice­able improvements in public pensions and health care, and the rapid reduction of in­dustrial and real estate overcapacity. Wheth­er the party and the state are politi­cally and ideologically capable of changing course is, however, questionable in view of the so far hesitant approach apparent in Chinese eco­nomic policy. Reforms are not the priority of the Xi administration, which has been in office since 2012, as it prefers to strengthen the CCP’s claim to leadership. Accordingly, the national economy has made a comeback over the past decade, and market re­forms have been scaled back.

Against this backdrop, and in the face of an increasingly confrontational environ­ment within the global economy, China is not well positioned to meet the economic and structural challenges that lie ahead. With declining economic growth and a budget spread thin, China will face dif­fi­culty in financing its increased spending on health, retiree pensions, and the en­viron­ment and climate. It is hard to imagine how China’s ambitious development plans can be realised in this context.

Conclusions for German Foreign and Security Policy

In view of the economic difficulties ahead, China’s leadership is eager to capitalize on the opportunities arising from its current burst of strength. It is therefore to be ex­pect­ed that Beijing will act even more self-confident than it already does. Germany and the EU are also likely to feel the effects of this change, especially when the human rights situation in China or arbitrary acts by the Chinese authorities are brought to the table. This makes a strong and united EU stance vis-à-vis China all the more im­por­tant. Germany should also continue its current restructuring of German-Chinese relations. This means that Germany must practically bring to bear the European strat­egy, according to which China is a coopera­tive partner and economic competitor, but also a systemic rival – especially with respect to its model of governance. This can only succeed in the European context as part of a larger restructuring of European-Chinese relations.