Welcome to the 115th edition of Trade War.
China reports more alarming economic statistics. Xi Jinping market-boosting speech attacking ‘welfarism’ is published. And trade czar Liu He tries to reassure Big Tech.
Chinese Communist Party plans to block promotions for officials with family who have overseas assets. New survey shows strong pro-Russian and anti-American feelings amongst Chinese.
And bonus section: some extended thoughts from this newsletter’s author on the challenge high unemployment poses to China’s leaders.
China’s scary economic numbers
Beijing has released a slew of ugly indicators showing just how damaging the zero-Covid policy is for China’s economy, reports Bloomberg News.
“Industrial output unexpectedly fell 2.9% in April from a year ago, while retail sales contracted 11.1% in the period, weaker than a projected 6.6% drop. The unemployment rate climbed to 6.1% and the youth jobless rate hit a record. Investors responded by selling everything from Chinese shares to US index futures and oil,” reports the financial news service.
Surging unemployment is especially alarming for China’s leaders, as they prepare for a quinquennial party congress in the fall, one where Xi Jinping is expected to stay on for an unprecedented third term.
“They prioritized zero-Covid over economic growth in April, but they want both for the whole year,” Larry Hu, head of China economics at Macquarie Group said to Bloomberg. “After all, zero-Covid at the cost of surging unemployment is a hard sell politically, especially in such a year with significant political importance.”
Xi market-boosting speech attacks ‘welfarism’
The publication of a six-month-old speech by Xi Jinping in which he voiced some support for private enterprise and warned against “welfarism” suggests growing concern over China’s economic deceleration, reports Bloomberg News.
“While the speech was a reiteration of previously expressed policy, authorities chose to highlight them at a time when concerns are rising that the world’s second-biggest economy is slowing sharply -- and amid a debate over whether a split may have developed among China’s top leaders on how to respond,” reports the financial news service.
Xi’s speech, originally given last December at the annual Central Economic Work Conference, was first published in the Chinese Communist Party magazine Qiushi, then picked up in state-owned papers including appearing on the front page of the party mouthpiece People’s Daily.
“Xi said China can’t promote “welfarism” and should draw lessons from some Latin American countries that have fallen into the “middle-income trap” after engaging in populism and raising “lazy people.” The government should also not resort to “moral kidnapping” to force enterprises to make philanthropic donations,” Bloomberg reported.
Xi also expressed support for private capital saying Beijing would continue to “promote healthy development of the private sector and growth of private entrepreneurs.”
“At the same time, Xi warned that the improper accumulation of wealth poses risks to a healthy economy. There has been reckless expansion of capital in China in recent years, he said, which has been due to a lack of supervision. China should fight against monopolies, profiteering, sky-high prices, malicious speculation and unfair competition.”
Beijing to support Big Tech?
While it is hard to predict any serious policy shift, there are some signs China is backing away from its heavy-handed approach to big tech, reports ChinaFile.
The most recent example: a meeting on the digital economy held earlier in the week by the Chinese People’s Political Consultative Congress (CPPCC) where vice premier Liu He said Beijing must “support the platform economy.”
“With China’s economy reeling amid large-scale COVID lockdowns, a rollback of tech regulations could provide a much-needed boost. But given the vagueness of the language, it’s unclear how such statements will translate on the policy front,” ChinaFile cautions.
“The government is not seeking to roll back regulations that have just been put in place. Rather, it is signaling that most of the rectification has been completed, and supportive policies may be coming down the pipeline,” says Rui Ma, a China technology investor and analyst.
"Any sector that has the potential to change how people think or how society works, resists the Party’s comprehensive control, or takes too big a portion of the country’s workforce/investment will find itself in the regulator’s way," counters Xibai Xu, a researcher on China civil society.
"Private education, entertainment, online financing, social networking, livestreaming, and gaming have been hit hard so far, but more sectors will be affected. The Party may well achieve limitless control over the industries," adds Xu.
Thousands marched through streets on way to quarantine
Even as China announces progress on countering Covid and begins to ease restriction in Shanghai, large numbers of Chinese continue to be ordered into government quarantine in other parts of the country.
In a village near the northern port city of Tianjin, videos show thousands of people earlier this week being marched through streets and onto busses in preparation to enter quarantine, reports Bloomberg News’ Linda Lew.
“China isolates all Covid-positive cases and their close contacts as a way of stemming transmission. The approach was successful in quashing the initial virus outbreak in Wuhan in 2020, but has proven more difficult to use successfully on strains like omicron,” writes Lew.
“China remains staunchly committed to its zero-tolerance approach to Covid, even as highly contagious variants seed more frequent outbreaks, and as the rest of the world opens up. The country’s borders remain closed and even small outbreaks trigger an outsized response, with officials having to step up their restrictions to be able to eliminate flareups. The strategy is leaving China isolated and is exacting a growing toll on the economy and global supply chains.”
CCP to cadres: no more California condos
The powerful organization department of the Chinese Communist Party has warned China’s senior officials that they and their immediate family members are banned from having substantial overseas assets, reports the Wall Street Journal’s Chun Han Wong.
The party order, issued in March, bans the spouses and children of ministerial-level officials from owning real estate abroad and holding shares in overseas entities, and calls for blocking the promotion of senior cadres with family members holding such assets, reports the business paper.
“Xi seeks to minimize geopolitical risks for the Communist Party amid concerns that officials with overseas financial exposure could become a liability if the U.S. and other Western powers impose sanctions against Chinese leaders and their relatives, similar to what was done against Moscow following Russia’s invasion of Ukraine,” the Journal reports.
“Leading cadres, especially senior cadres, must pay attention to family discipline and ethics,” Xi said earlier this year. Officials must “lead by example in managing their spouses and children properly, being a dutiful person and doing things in a clean way.”
Pro-Russia and anti-US
A recent large scale online survey shows that Chinese feel very positive about Russia, even following its invasion of Ukraine, while having very negative feelings about the U.S.
“In fact, of the 25 countries respondents were asked about, Russia was the most positively perceived country, while the U.S. was the most negatively perceived,” the survey report (pdf) by the Central European Institute of Asian Studies states.
“The Chinese public was not disturbed by the Russian aggression [in Ukraine], and even appeared to support Russia.”
“Much of the pro-Russian feeling is about resentment toward the US and dislike of neighboring countries, rather than based on accurate understanding of Russia,” tweets Yinan He, an international relations professor at Lehigh University.
What’s a global recession with slow China growth?
“If we are headed into a global recession this one will look very different than the previous iterations. Why? China’s slowing growth,” tweets Josh Lipsky, director of the Atlantic Council’s GeoEconomics Center.
Jobs situation ‘complicated and grim’
In a recent interview with Swedish business daily Dagens Industri, I shared my thoughts on the latest (very bad) unemployment numbers out of China. Here are my responses to the paper’s questions:
• Youth unemployment is officially over 18% now, and expected to continue up. How serious is this for the government, short and long term?
DR: As Li Keqiang said, the unemployment situation is “complicated and grim.” And the high level of joblessness for youth is a particular worry for the government – to a degree, people have become more inured to older people being without work or without full time work during the reform era, but that is not true for the youth. Every year, officials announce the number of college graduates China will have and the challenges they will face employing them, a sign of the importance that is put on youth employment. And of course, youth in China have a history of protest which is a constant source of concern for the Chinese Communist Party.
The unemployment is of particular concern in the short term during this politically-sensitive year which will see a quinquennial party congress and Xi Jinping likely try to stay on for an unprecedented third term. High levels of unemployment could cause some degree of social unrest and certainly social dissatisfaction and complicate this delicate political transition.
In the longer term, China’s transition to a more service-driven economy including pushing workers into the precarious gig economy, away from its older more manufacturing-driven one, an economy that has been facing falling productivity, and an aging working population which is less skilled, all but guarantees that unemployment and underemployment will be huge challenges for the government and party for many years to come.
• Chinese unemployment numbers are notoriously misleading. Do you believe the true numbers to be even higher?
DR: The reported number for overall unemployment is certainly understated. The fact that it does not count most migrant workers, who together make up over one-third of China’s working population, ensures that the real rate of joblessness is much higher – how much higher however, it is impossible to know.
• Is there a risk that Chinese families, who have spent much money on expensive university educations for their children, will start to openly criticize the government? Could it be seen as a broken promise?
DR: That is certainly possible. As we have seen in previous years when parents protested against new education policies that would make it harder for their children to get into good schools, issues surrounding education and children are near and dear to the hearts of all Chinese parents and important enough to spark protests.
Notable/In Depth
“The current dynamics in U.S.-China relations suggest that there may be a need to prepare for a new bevy of potential black swans from technology competition to major military contingencies,” write CSIS’ Michael J. Green and Scott Kennedy.
“The good news is that almost all business leaders the authors have engaged on these scenarios were already used to thinking about black swans…The bad news is that very few corporations engaged in China have contingency plans or long-term strategies to hedge against the downside risks of growing geopolitical competition.”
With the aim of propagating CCP ideology and Xi Jinping Thought, “the shrill call of the loudspeaker, once a staple of political and economic life in pre-reform China, is a sound now returning to the countryside,” reports China Media Project’s Stella Chen.
“Whereas its propaganda for foreign ears stresses China’s desire for global harmony, at home it not only allows but even encourages the expression of caustically nationalist views online, especially on topics such as Hong Kong, Taiwan, covid-19 and Ukraine,” reports The Economist.
“The Great Translation Movement (tgtm) provides the non-Chinese-speaking world with a rare glimpse of how the Communist Party distorts online discourse among its citizens at home and abroad, where many get their news from Chinese social media.”
"In China, I’m a ‘negative example’ of a writer, a writer lacking the right type of energy,” says author Yan Lianke in an interview with Mekong Review. “I have no influence whatsoever [in China]. Chinese people can’t even read many of my works because they aren’t available, so what influence can I possibly have?"
Author Peter Hessler discusses his years in China and the political pressures that brought him to leave last summer earlier than planned, an experience described in a recent New Yorker piece, in this podcast with fellow writer Evan Osnos.
Montana picture
Look who I saw last Sunday morning.
Tiff, this was a really interesting Trade War, and I thought your transcript of your own interview really added and fit in nicely. SJGRB
Where have I heard this before?
Oh, right!
1990. China's economy has come to a halt. The Economist
1996. China's economy will face a hard landing. The Economist
1998. China's economy’s dangerous period of sluggish growth. The Economist
1999. Likelihood of a hard landing for the Chinese economy. Bank of Canada
2000. China currency move nails hard landing risk coffin. Chicago Tribune
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2002. China Seeks a Soft Economic Landing. Westchester University
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2014. A hard landing in China. CNBC
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