Trade War

Newsletter 176 - August 6, 2023

Welcome to the 176th edition of Trade War.

Anger flares after official suggests waters from massive floods should be diverted to protect urban Beijing and Xi’s signature project Xiong’An New Area. And mountainous, rural and poor western region of Beijing bears brunt of flood devastation in capital.

China is suffering something more serious than what one prominent think tanker has called “economic long COVID.” Investment is shrinking in almost one-third of Chinese provinces. Private companies are struggling as state firms expand. And global corporates have stopped investing in China.

State Council’s new policy package to stimulate consumption unlikely to succeed. But reform of the more than half-century old hukou or household registration policy could unleash a new wave of consumption, the author of this newsletter argues.

And a story from the 2000s when I had regular contact with missing former foreign minister Qin Gang.

Missing Qin Gang, a former foreign media worker

“I remember my interactions with the reserved but sometimes witty Qin from when his job was overseeing foreign journalists in China. There was the New Year’s party when Qin, who later acquired a “wolf-warrior” reputation, told me and another reporter we three were more similar than we realized. Eventually, he revealed the surprising fact that during his early career, he worked as a news assistant for a foreign media organization–UPI,” I write recalling a time when I had regular contact with the now missing former foreign minister.

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Anger after official calls provinces ‘moat for the capital’

An official’s call to protect Beijing and a signature development project of Xi Jinping’s from the devastating floods, rather than defend nearby provinces, has sparked anger, reports Bloomberg News.

Provinces bordering Beijing must “resolutely play a good role of moat for the capital,” said Ni Yuefeng, the Communist Party chief of Hebei province. The Xiong’an New Area, a grandiose development project Xi has described as of “millennial significance,” should be “the top priority of flood control in our province,” the party secretary said.

By Thursday, a hashtag playing off Ni’s comments had reached more than 80 million views on Weibo with many people expressing outrage.

“This official only wants a promotion, he doesn’t care whether people live or die,” one internet user wrote.

“You want to protect Beijing, Tianjin, Xiong’an and Daxing airport,” another person wrote. “Then we Hebei people don’t need you. Get out of Hebei!”

Censors banned the hashtag later on Thursday.

“The worst-affected spot of the capital recorded 29.3 inches (74.4 centimeters) of rain from Saturday through Wednesday, the Beijing Meteorological Bureau said in a social media post [Chinese]. That’s the most ever in data going back to 1883 — nearly three decades before the fall of the Qing dynasty,” reported Bloomberg.

The Xiong’an New AreaPhotographer: Mu Yu/Xinhua/Getty Images

Mountainous Beijing hardest hit by floods

The fact that the devastating floods hit China’s capital so hard, is a reminder of how big and diverse Beijing is, and how mountainous, rural and poor its western regions are. And that’s where much of the devastation happened, as you can see in these photos from photographer Sean Gallagher.

A case of ‘economic long COVID’?

Are China’s serious economic problems primarily the after effects of Beijing’s extreme controls over business and society during the pandemic? That’s what one prominent economist is arguing.

“Call it a case of ‘economic long COVID.’ Like a patient suffering from that chronic condition, China’s body economic has not regained its vitality and remains sluggish even now that the acute phase—three years of exceedingly strict and costly zero-COVID lockdown measures—has ended,” writes Peterson Institute president Adam S. Posen in Foreign Affairs.

“The condition is systemic, and the only reliable cure—credibly assuring ordinary Chinese people and companies that there are limits on the government’s intrusion into economic life—cannot be delivered. Financial markets, and probably even the Chinese government itself, have overlooked the severity of these weaknesses, which will likely drag down growth for several years.”

What Posen seems to not fully recognize in this interesting piece is that the extreme challenges facing China’s economy all began long before the pandemic. Those include Xi Jinping’s tendency to practice authoritarian economics, including by pushing for a stronger role for the party over business and society, but also the continued existence of legacy policies like the hukou that systematically discriminate against one-half of all Chinese hampering the growth of household consumption, and the toll on productivity and growth from a rapidly aging population.

China isn’t suffering from “economic long COVID;” it’s problems are far more deep-seated and have to do with the very nature of China’s party-state. And that means its growth challenges will likely extend far beyond the “several years,” that Posen predicts.

Where I very much agree with him, however, is in his call for the U.S. to be more open to “Chinese businesses, investors, students, and workers who leave [China] in search of greener pastures,” and to reverse the trend of recent years which has seen America closing its door to all things China. One big caveat: Washington must continue to expand restrictions on the export of those technologies that could affect national security, as Posen himself writes.