China Study Group Report: Domestic Politics and Economy in China during COVID-19
Dr Teshu Singh, Research Fellow, VIF

The Vivekananda international Foundation held a discussion on the developments in China amid the COVID-19 on 4 May 2020. The discussion focused on the Chinese President Xi Jinping and China's Domestic Politics and China's experience in the resumption of economic activities post COVID-19.

COVID-19 is a Black Swan Event for China

The participants explained that the COVID-19 is a major crisis for China and Xi Jinping. It has turned out to be a ‘Black Swan’ event for China. The consequences of the pandemic are still unfolding. The handling of COVID-19 crisis has exposed the vulnerabilities of the Chinese Communist Party (CCP) and Xi Jinping. They all are aware of mishandling by Xi Jinping. It has shown the weakness of exercising excessive state control by the state. Xi Jinping did not make a public appearance for two weeks. Instead, Li Keqiang investigated the ground situation and went to Wuhan.

On 3rd February 2020, Xi Jinping informed that since 7 January he had been giving instructions to tackle the epidemic and warned the gravity of the situation. His speech was published in the Quishi Journal. Nonetheless, in reality, very little effective action was taken by Xi Jinping for first two weeks. On 20 January 2020, Xi Jinping made his first public appearance to address the crisis, in a directive advising the party committees and governments at all levels to take measures to control the spread of the disease. Thereafter, 23 January 2020 onwards, they managed to contain COVID-19 domestically. Soon one of the narratives coming out of China was that of “triumphalism”. There has been public anger, when this crisis was allowed to pester.

It was visible in the social media as well. This public anger due to handling of Hubei province peaked after the death of Dr Li Wanliang. The discordant notes coming out of China were interestingly allowed to reach to a wider audience. The writings of Xu Zhangru and Ren Zhiqiang were circulated widely in China. It shows that there is a section in China that would like the discontinuation of the party. Public discontentment of people in Wuhan was triggered by the death of Dr Li Wanliang. During Vice-Premier Sun Chunlan’s inspection of Wuhan on 14 February 2020, Chinese citizens protested ‘the communist government’s suppression of freedom of speech and its hiding of information’. Residents shouted not to believe them as they are telling lies.

COVID -19 and Xiaokang (Moderately Prosperous Society)

The participants emphasized that the COVID-19 remains a continuing setback, especially for the Chinese economy, which was already facing a problem. Notably, it is the first large economy to pull out of the crisis. The figures for the first quarter show that there was a contraction of 6.8 per cent in the Chinese Economy. Around 80 million people are without work. The economic growth of China including nationalism will become sources of legitimacy. The year 2020 is a very critical, leading to 2021 which is the centenary year celebration of the CCP. If the Chinese economy grows at 1.8 as projected by the International Monetary Fund (IMF) they will not be able to achieve the Xiaokang. It will be a major embarrassment for Xi Jinping, including the intensification of strategic rivalry between the US-China and economic decoupling of US-China. It is likely to impact Xi Jinping’s image negatively.

The other participants believed that in an attempt to reach Xiaokang; China has done well in the multilateral organisations. On the issue of per capita income, in 2020, the growth is expected to be 1.7 percent and for 2021 the projection is of 9.2 per cent. By some formula, they will prove that they have reached Xiaokang.

COVID-19 and China Dream

The participants observed that the economy is especially important to achieve the ‘China Dream’ and to keep China on track to achieve the goals of 2049. Chinese leaders had set the target of quadrupling the gross domestic product (GDP) of 2000 by 2020. It aims that by 2021 (centenary year of CCP), Chinese people would have doubled their incomes and the country would be prosperous and strong and “rejuvenation of great Chinese nation” would have been be achieved. By announcing these goals at the 18th and 19th Party Congresses, Xi Jinping had put his personal and party reputation at stake.

COVID-19 and the Chinese Foreign Policy

Post-COVID-19 China appears to be more aggressive in its foreign policy and is moving away from the Deng Xiaoping’s legacy. The participants opined that moving away from Deng’s policy had started at the time of Jiang Zemin and Hu Jintao accentuated it. Although Hu Jintao worked very hard to maintain good relations with the US, he was more aggressive toward the South China Sea (SCS) region. He even declared the SCS as a core interest.

COVID-19 and the US-China Trade Dispute

The participants underscored, that there is a bipartisan support in the US that China is the number one challenge and there is a need for hardening of stance towards China. In the post-COVID-19 world there is going to be intensification of the US-China rivalry.

COVID-19 and the US-China Decoupling

The participants were of the opinion that the decoupling between the US-China is going to take place in a big way. In six to eight months down the line, they will be still dependent on each other. The decoupling will take longer than expected. In the first quarter the decoupling between the US and Chinese economies shifted into overdrive. There has been a decrease in the Chinese direct investments and venture capital investments. The Chinese direct investment in the US fell to just USD 200 million in the first quarter of 2020, down from an average of USD 2billion per quarter in 2019. The Chinese venture capital investments into the US also fell off, from USD 4.7billion in 2018 to USD 2.6 billion in 2019. The fall in the investments can be attributed to the tightened scrutiny by the Committee on Foreign Investment in the US and a range of economic factors. The US venture capital investments into Chinese companies declined to an estimated USD 5billion, down from USD19.6billion in 2018.

Overall, however, US investments into China has shown resilience, putting about USD14 billion into initiatives in the country. This was up from USD 13 billion in 2018 mainly because of big-ticket projects such as US carmaker Tesla’s new factory in Shanghai, the expansion of General Motors’ car joint venture, Universal Studios’ moves in entertainment and other initiatives. In the first quarter of this year, US investments into China was USD 2.3 billion in new projects announced, down slightly from a quarterly average of USD 2.8 billion in 2019.

COVID-19 and the One Belt One Road (OBOR)

The participants underlined that amid the COVID-19, China has still invested in 48 countries in the OBOR projects. While China may have an advantage as of today, Chinese position will a face problems because of there is a backlash against China as also there is a decline in the Chinese economy and their ability to pursue OBOR projects will become difficult. China will likely face reverse debt trap as there was a decision in G20 to put a moratorium on bilateral government loan repayment as part of an “action plan” to tackle the coronavirus. Since China is part of the G20 they are bound to follow it.

Chinese Economy and the Upcoming National People’s Congress

The participants mentioned about the likely debate within China on the question of the GDP growth in the upcoming NPC. With bleak prospects for an early economic recovery, Chinese economists are debating whether they should be reporting China’s growth target in the NPC report or not on 22 May 2020. Ma Jun Member of the Monetary Policy Committee of the PBOC, recommended that it be dropped because growth rate will depend on how the pandemic develops in Europe and the USA. (Eventually, in the NPC meet, no forecast of economic growth was made). Xu Xiaonian, a Professor of Economics and Finance at the China Europe International Business School, said that so long as the pandemic in Europe and America is not over, Chinese export companies will have no orders, workers will have no wages and there will be no consumption and a recession is inevitable. He reiterated that “We are not only short of food and oil, but we are also short of markets; we are short of orders. Our per capita GDP is one-fifth of that of the United States and one-fourth that of Europe. The domestic purchasing power cannot support our enormous manufacturing capacity.” He added “We still lack raw materials, especially the technology-intensive basic raw materials, which must be imported from South Korea, Japan and Germany. We lack technology, and technology cannot be developed rapidly when we close the door.”

The slow pace of recovery has prompted another major development. The Chinese businessmen Jack Ma (Ali Baba) and Lui Chuanzhi (Lenovo) signed a nine-point letter to Li Keqiang on 26 March 2020 that suggested comprehensive economic reforms. In these nine points, one of the points was the release of the princeling Ren Zhiqiang.

Criticism against Xi Jinping amid the COVID-19

The participants highlighted the growing criticism of Xi Jinping’s handling of the pandemic. The discontentment had increased with the onset of coronavirus, particularly; party controlling everything, expanding party surveillance and discontinuing policy of Deng Xiaoping. Social credit system and facial recognition system were particularly criticized.

To list few of the criticism against Xi Jinping, at the height of the novel coronavirus outbreak in China, Zhao Shilin, a retired Minzu University professor and former member of the Central Committee and Deputy Director of the Culture and Arts Commission, published two public letters to Xi Jinping regarding the government’s response to the outbreak. The first letter, on February 23, stated that the government had “missed the most important ‘golden window’ of time to combat the epidemic—the time around the Chinese New Year… [resulting] in the epidemic spreading with great ferocity. The costs of this mistake are enormous. The lessons we must learn are “unspeakably painful”, the losses, immeasurable.” Censorship and obfuscation of information about the virus’ spread and severity have been widely blamed for its rapid transmission in the early stages of the outbreak. He identified five-factors responsible for such a situation namely, stringent security, ensuring party preeminence with the party’s central authority topping the list. He said that people within and outside the system are calling for reforms.

With reference to Xi Jinping’s remark that the battle against coronavirus ‘is a grand test of the capacity of our nation’s system of governance’, Zhao Shilin bluntly declared, ‘Regrettably, I must say, you’re scoring zero so far!’ Stating that ‘people from within and without the system are calling for systemic political reform’, he said these must include implementing the ‘socialist core values of freedom, democracy, equality, and rule of law’ and guaranteeing political rights of citizens, like freedom of speech. In the second letter, he reiterated, ‘There should be more than one voice in a healthy society to demand free speech’.

Many others posted similarly critical articles, risking certain punishment. Xu Zhiyong, a former lecturer at the Beijing University of Post and Telecommunications, urged Xi Jinping to step down for his ‘inability to handle major crises’. He called Xi Jinping’s political ideology ‘confusing’, his governance model ‘outdated’ and said he had ruined China with ‘exhaustive social stability maintenance measures’. For the public’s sake, I’m asking you again: Step down, Mr Xi Jinping.’ Tsinghua University professor, Xu Zhangrun’s essay captioned, ‘Angry People No Longer Fear’, went viral on China’s social media. It blamed leaders, such as Xi Jinping, of being out of touch with the peoples’ needs and perpetuating an elite ‘small circle of leaders’ and alluring in ‘big data terrorism’. The article called Xi Jinping a ‘political tyrant’ and declared ‘the sun will eventually come to this land of freedom!’

Zhang Wenbin, a student of Shandong University, in a post on social media asked Xi Jinping to step down. There were other students also who asked Xi Jinping to step down. The other acts were subtle protests by official and party members asking Xi Jinping to step down. On 22 March 2020, Cheng Ping, a princeling, posted a letter in circulation on Wechat that included a number of issues regarding handling of Coronavirus and asked for an immediate meeting of the Politburo. The letter/post had 13-point agenda including whether Xi Jinping should continue as the leader of the CCP or not.

Criticism against Xi Jinping and Historical Parallel

The participants recapitulated that there appears to be some similarity between the 1989 incident and the present situation in the party. During the 1989 Tiananmen Square incident, millions of Chinese people took to street in Beijing to demand political reforms. This was the largest political protest in China after the formation of PRC. The protest was sparked by the death of Hu Yaobang (CCP General Secretary who stood for reforms). Peng Liyuan (Xi Jinping’s wife) sang songs for soldiers to celebrate their victory. Xi Zhongrun (Xi Jinping’s father) was against Deng Xiaoping’s orders to kill the protestors. As a punishment he was thrown out of CCP leadership and exiled to south for 10 years. Those who survived the massacre were suppressed. The party hardliners dominated the Chinese politics. This is similar to the development in the CCP today with inner party factions whom Xi Jinping is trying to crush.

COVID-19 and Steps taken by Xi Jinping to Downplay his Criticism

The participants expounded on the methods and strategy adopted by Xi Jinping. In an endeavour to counter these reactions coming from all quarters in China, the National Supervisory commission that was handling the case of Dr Li Wanliang, on 19 March 2020 said that police bureau had removed the reprimand meted out to Dr Li before he died. The police department of China's Wuhan City tendered an apology to Dr Li’s family for "inappropriate handling on the matter." Compensation to his family members was also given. Separately, police took action to arrest people who had criticized Xi Jinping and they were banned from using social media.

In Hong Kong, on 18 March 2020, officers from China's top internal security force - the People's Armed Police – joined Hong Kong police on the frontlines to oversee and control anti-government protests that peaked last year. On April 18, 2020, the Hong Kong police arrested 15 prominent pro-democracy leaders for “organizing and participating in unlawful assemblies” during the widespread protests in 2019. This followed several days in which the Chinese government’s representative in Hong Kong reinterpreted Hong Kong’s effective constitution to interfere in domestic issues.

China continued its hard stance on Tsai Ing-wen and Taiwan. The PLA Daily in a news item opined that the pressure for “force reunification of Taiwan” is rising. Beijing also blocked calls between WHO and Taiwan during COVID.

COVID-19 and Aggressive Chinese Stance towards India

The participants mentioned the recent People’s Liberation Army (PLA) maneuvering at the India-China border. The Chinese army has begun major military exercises in the high-altitude Tibet bordering India, deploying latest weapons including the Type 15 light battle tank and the new 155-MM vehicle-mounted howitzer
The PLA Tibet Military Command started its New Year exercises in which it has deployed helicopters, armoured vehicles, heavy artillery and anti-aircraft missiles across the region from Lhasa, capital of Tibet to the border areas with elevations of more than 4,000 meters, according to a report in the state-run Global Times.

Earlier in March 2020, an Artillery Brigade of the 76th Group Army in the Western Theatre Command carried out ‘live-fire’ exercises the PLA’s Tibet Military Region and a week earlier the PLA Rocket Force carried out high-altitude ‘live fire’ exercises at 4,500 meters in Tibet. These were clearly intended to convey to Japan, Vietnam, Taiwan and India, as well as the US, that China retains the capability and intent of becoming the dominant power of the Indo- Pacific.

On 27 April 2020, the Chairperson of the Block Development Council of Nyuma-Changthang reported that around 300-500 Chinese military vehicles were seen in the Tashigong area opposite Demchok. Flying activity by fighter jets during the day was also reported.

COVID-19 and Chinese Behaviour along the India-China border and the South China Sea

The participants explicated that the Indian and Chinese soldiers were involved in scuffles on two occasions. The location was 1120 km apart, in north Sikkim (Naku La sector, ahead of Muguthang, a pass at a height of more than 5,000 meters) and Eastern sector of Ladakh. Around 150 soldiers were present and four Indian and seven Chinese soldiers were injured during the confrontation it was resolved at the local level. The Chief of Army Staff said that “such kind of incidents are managed by established mechanism wherein local formations from both sides resolve issues mutually”. After 22 rounds of talks, the India-China boundary remains unsettled, therefore such incidents keep on happening. But an incident of this nature has occurred after a long time. The palpable reason for this could be the decreasing snow levels. Given the spread of COVID-19 in both the countries the scuffle did not escalate. This year marks the 70 years of India-China relations; China will try to avoid any negative development in the bilateral relations. The Chinese spokesperson of the Ministry of Foreign Affairs has denied that China is adopting an aggressive posture. They tried to underplay the incident. These incidents have to be managed as they arise so that “differences don’t become disputes”. Meanwhile we need to speed up development of infrastructure on our side. Overall, it is unlikely that the scuffles will lead to deterioration of bilateral relations but it does indicate that something is brewing on the other side.
In the South China Sea, China has set up two new administrative structures under the local government in Sansha, Hainan Province. The PLAN had expelled the guided-missile destroyer, USS Barry, from the Paracel Island in the South China Sea on the pretext that the US was intruding into the Chinese waters. China has prohibited fishing activities in 12th parallel including regions near the Scarborough Shoal, the Paracel Islands, and the Gulf of Tonkin on the pretext of conserving rocks. In these developments, China is using its military to send a message that it is capable of operating even at a longer distance for a longer period to challenge the other claimants and the US.

COVID-19 and Xi Jinping’s Strengthening of Position

The participants alluded to the fact that although Xi Jinping was reticent in the initial stages of the outbreak of the pandemic but later during the course of the COVID-19, he became more active and worked towards increasing surveillance within the party. He appointed his loyalist to important position. He ordered the arrest of princeling Ren Zhiqiang to indicate that he will not allow any criticism against him.

In order to keep a closed surveillance, he took two concrete steps; first on April 17, 2020, he created “Safe China Construction Coordinating Small Group”. The group comprised of Xi Jinping’s loyalists, each of the nine members is selected by him. Xinhua, reported that the new organisation’s declared task is to: “Prevent and crackdown on activities that endanger the political security of the country”! With reference to the Party's anxieties about domestic social unrest, the group held its first meeting on 21 April 2020. It is headed by Guo Shengkun, Politburo Member and Secretary of the Political and Legal Affairs Commission, which is at the apex of China’s security apparatus.

Second, on 27 April 2020, Radio Free Asia reported that after removing Sun Lijun, the Deputy Minister of Public Security, Xi Jinping’s followers held three emergency meetings: an emergency meeting of the Ministry of Public Security on April 20, an emergency meeting of the Secret Service Bureau of the Ministry of Public Security on April 21, and an emergency meeting of the CCP Political and Legal Affairs Commission on April 22. At the Secret Service Bureau’s meeting, Wang Xiaohong, Executive Deputy Minister of Public Security and Director of the Secret Service Bureau stated, “(We) must increase the monitoring of the ‘top leaders’ decision-making power, staff appointment power, and financial approval power, to let the ‘top leaders’ get used to working and living under monitoring.” At the emergency meeting, Wang Xiaohong also hinted that it was the Secret Service Bureau that arrested Sun Lijun.

The last two developments, apart from widening inner factional fracas show that Xi Jinping’s woes are far from over. It is also a clear warning from him to his party members to fall in line.

COVID-19 and the Chinese Economy

The participants elucidated that on 15 February 2020, Xi Jinping told the ‘top echelons of the party’ that it is important to continue to work. This was through a directive; by 01 March 2020, most of the SOE’s assumed work; one of the ways they did was through the use of data. They used colour coordinated QR codes with red, green and yellow colour. It was operated by AliPay, Tencent and people were incentivized to use data. The QR code used by Ali Baba and Tencent was operated by the state. They incentivized to resume all kind of production activity whether it was COVID related or export-oriented work. They used data in a big way. There were other protocols such as instructions on how to use public transportation etc.

COVID-19 and the Fiscal and Monetary Measures

The participants analysed the fiscal and monetary measures of around RMB 2.6 trillion that were announced. Lowering the cash reserve ratio of the banks as also of reverse repo auction and a number of tax measures that were introduced. New developments were seen in terms of tax measures. A large percentage of labour (about 80 %) needs to be absorbed to solve the unemployment problem. The production units have been asked to meet the targets. The factories that meet the target were earmarked for giving a credit line to run their workforce.

China’s ratio of tax revenue to GDP limit is similar to that of India i.e. between 17-18 per cent. The fact that most of tax relief measures were designed to prevent significant loss of revenue is a direct result of China’s share of tax revenue in GDP being 18.9 percent which is low compared to the OECD average. India’s ratio is similar at 17.2 per cent and suggests that it will be difficult to forego significant tax revenue. The tax cut has not been much. In terms of futuristic policies, all Chinese citizens have been encouraged to use only Chinese products in order to increase domestic consumption. They are forced to take holidays in China, drink Chinese Milk etc. Many other measures have been taken to uptick the domestic consumption.

COVID-19 and Emphasis on Rural Economy

During the COVID-19, China gave a lot of incentive to its rural economy and e-commerce was also made to penetrate in the rural economy. This is to compensate for the losses incurred during the lockdown period. The Chinese government will give a big incentive to the rural consumption in coming days.

COVID-19: Major themes that emerged during the economic recovery
  1. There was a wide use of big data that led to more and more centralization.
  2. SME’s became the focus.
  3. In terms of handling of the labour, there was a return to Dawei system of allocation of labour by the state.
  4. There was temptation of the state to direct private enterprise.
  5. On domestic consumption, foreign companies will find it difficult to sell in China.
  6. The policies such as Made in China 2025, internet plus, all will be tweaked to accommodate the needs of the rural economy.
  7. The focus is now shifting of the Centre to implement these plans not just in major cities of China but also in smaller cities, towns, and rural areas to encourage domestic consumption while looking to revive the rural economy. These issues might be discussed in the annual China parliament meetings due to happen later in May 2020.

To sum up, it was agreed that the COVID-19 has put China in flux. Although the critical mass is building against Xi Jinping in China it is not strong enough to overthrow him. With all the constitutional changes he has done during the 19th Party Congress, Xi Jinping is likely to be in power until 2027. The aggressive foreign policy postures by China are to reinstate its position and signalling as well indicating that they have not become weak and can directly challenge the US in the South China Sea. The Chinese economy is the first economy to resume after COVID-19. There are many stimulus packages given by the Chinese government and the economy is likely to get back in full swing by the last quarter. China is giving a major attention to its rural economy at this point of lime. With the reference, to the e-currency, slowly they are moving toward internationalization of RMB. Despite the 70th anniversary of India-China relations this year, there has been a spate of incidents starting from April onwards; there is a need to be vigilant at the borders and also upgrade the infrastructure at the border areas.

(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct). (The paper does not necessarily represent the organisational stance... More >>


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