ISSN 2330-717X

Crises Abound In China Ahead Of Party Congress – OpEd

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By Manoj Joshi*

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Politically, everything seems to be going smoothly for Xi Jinping in his bid for an unprecedented third term at the 20th Chinese Communist Party (CCP) Congress which will begin on October 16. However, even as politics remains at the forefront in China, the country is besieged by a sea of troubles.

China is currently confronting multiple challenges. Internally, it is battling the 3 D’s—disease, drought and debt—and externally, it is failing to cope with the tightening  US embargo on high-tech equipment—especially that related to semiconductors—and the restrictions placed on visas for Chinese students who have studied in specific universities that have supported China’s Military Civil Fusion strategy. It seems that the slowing global economy has begun to impact China. Exports to the United States (US) contracted in August for the first time since 2020 and imports are also contracting. All these factors paint a gloomy global picture even as domestic growth has been hit by the zero-COVID strategy and the mortgage crisis.

Disease

Tens of millions are in lockdown again, including in Chengdu, Guiyang, and parts of Shenzhen. Currently, as many as 33 cities involving 65 million people are under lockdown as China seeks to deal with the biggest COVID outbreak since early 2020. Reports suggest that cases are spreading in the community in Shanghai and Beijing.

According to Wu Qianyu of the Shanghai Health Commission, “the pandemic situation is not optimistic, both domestically and abroad.” He said that Shanghai citizens were advised not to leave the city during the mid-Autumn festival holiday this weekend. This will hit the 1 October National Day holiday week which was a major break featuring a great deal of tourism and travel.

Even as the world is learning to live with COVID through a regime of mass vaccination, China’s zero-COVID approach remains to be of imposing drastic lockdowns, quarantines and mass testing to isolate infections. China’s political approach is that its way of handling COVID has been superior because it has avoided mass deaths, but the problem remains that its population is not fully vaccinated and that it has no strategy for coping with the mutating virus that is becoming more infectious.

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China has inoculated most of its population with double doses of CoronaVac and Sinopharm vaccines. However, data suggests that the immunity obtained from two doses rapidly declines and the protection for older people is limited.

Drought

The Chinese are seeing their worst drought on record after more than 70 days of extreme temperatures and low rainfall affecting nearly half of its total land area. This has shrunk several rivers to streams, including the great Yangtze river, which has additionally led to the closure of shipping in many of its stretches. Ironically, the drought followed severe flooding in which more than 100 Chinese rivers were affected in June this year. And Guangdong province, where its powerhouse technology city Shenzhen is located, has been affected by both flooding and drought.

In the meantime, three government ministries dealing with agriculture, rural affairs, and water resources issued a notice, at the end of last month, saying that the drought and high temperatures pose a severe threat to the autumn harvest as they are affecting the Yangtze basin and southern China—the main rice-producing areas of the country.

The industrial cities of Shanghai and Chongqing have imposed power cuts because of the increasing use of air conditioners to cope with the heat. Besides urging people to use their water carefully, the Chinese have resorted to cloud seeding to increase precipitation.

Debt

China’s debt has grown exponentially in the past decade of Xi Jinping’s rule. In a considerable measure, this is because of credit pumped into state-owned enterprises in the wake of the Global Finance Crisis of 2008-2009. China’s debt is more than 250 percent of its GDP and could rise to 275 percent this year. As China struggles with COVID lockdowns and a mortgage crisis, the government is once again resorting to additional stimulus. The stimulus package may have just overtaken that of Japan which has been suffering from a chronic debt crisis for decades.

Some experts worry about the huge debt which they say will affect its stability and could also impact the world economic situation. However, others argue that since most of this debt is state-owned, it is manageable. But the fact that China’s corporate and household debt has also risen sharply is what is occasioning worry everywhere.

Technology travails 

In the meantime, the Chinese are maintaining a brave face and indicating that none of this is affecting their focus. On 6 September, Xi presided over the 27th meeting of the Central Commission for Comprehensively Deepening Reform and the key topic was “improving  the new system for mobilising the resources nationwide to achieve breakthroughs in core technologies in key fields.”

All this comes after it has become clear that the semiconductor efforts were not going anywhere. Indeed, Xi’s meeting has come after several investigations led to corruption charges against many senior officials and a bailout of one of its top semiconductor firms, the Tsinghua Unigroup.

The Chinese have spent tens of billions of dollars on the semiconductor industry but have got meagre results. What has angered officials is that this fiasco of sorts has occurred at a time when the US has been tightening its restraints on China. Xi Jinping had put down more than US$100 billion in the last decade in trying to build a domestic semiconductor industry. Now, the key funding body—the National Integrated Circuit Industry Investment Fund, aka the “Big Fund”—is also being investigated. But clearly, the Chinese have no intention of backing off and are doubling down on their plans.

China Talk, an American technology podcast, recently published a translation of a top Communist Party of China scientist providing a more realistic Chinese appreciation of the pressure they face in the wake of their estrangement from the US.

Zhang Yuzhuo is an energy scientist and the party branch secretary of the China Association of Science and Technology (CAST) whose job is to promote the party line amongst scientists, lead its initiatives in Science and Technology and popularise scientific literacy. Zhang is the senior-most CCP official in the outfit.

In a speech translated by China Talk, the Chinese scientist makes some key points

including how American containment is affecting China’s STEM efforts in multiple ways.

Zhang identified “targeted containment” which involves the US using its friends and allies in applying specific export controls.

China, even now, lacks the ability to make S&T breakthroughs because of its outdated systems which need reform. He bluntly said that “We lack major theoretical breakthroughs and leading original achievements” noting that there were other bottlenecks that hampered innovation. He went on to add that as of now “We lack strategic scientists and top technicians, training for young talent, and a reserve of outstanding engineers.” This is as blunt as a party hack can be, but it sums up China’s dilemma.

Meanwhile, the geopolitical tensions between the US and China are generating its own waves in the form of a steady exodus of technology companies from China. This is in addition to the supply chain disruptions that took place in 2020 because of COVID.  Most companies are employing the China-plus-one strategy, where the companies establish a foothold in another country, more often than not, Vietnam, and then steadily disengage from China.

This seems to be the for Apple as it chose to establish a manufacturing facility for iPhones in India, whilst its rival Google is setting up a unit in Vietnam. The tensions have been rising especially due to Nancy Pelosi’s visit to Taiwan, making many American companies even more insecure in China.

These troubles are unlikely to affect the tone and tenor of the upcoming Party Congress whose programme has probably already been scripted in advance. Xi’s supremacy is secured and it is no surprise that the slogan of the times is the need to uphold the “two establishes”—to establish the status of Comrade Xi Jinping as the cores of the Party’s Central Committee and to establish the guiding role of Xi Jinping Thought on Socialism with Chinese Characteristics for the new era.

Observer Research Foundation

ORF was established on 5 September 1990 as a private, not for profit, ’think tank’ to influence public policy formulation. The Foundation brought together, for the first time, leading Indian economists and policymakers to present An Agenda for Economic Reforms in India. The idea was to help develop a consensus in favour of economic reforms.

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