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Errors by Beijing add to global challenges

Xi Jinping has had a bruising few months. Whilst his policy errors are not as gross as those of Russian President Vladimir Putin, they are still serious for the wider world.

| 6 min read

The Chinese President’s two main policy errors are the public agreement with Russia, announced at the Winter Olympics in Beijing, and his anti-Covid strategy. Whilst his policy errors are not as gross as President Putin’s they are serious for the wider world. The first prolongs the war in Europe and leads to more tensions between China and the West, generating more mutual suspicion in the process. The second has a direct impact on western economies, limiting deliveries of important finished goods and components from China to the West. This too will lead to more suspicion and a wish to reduce western dependence on Chinese supply.

China is not ready yet to challenge the democracies head on. The country needs more trade and export earnings from the West to finance its rise from poverty – and to pay for the large modernised armed forces it is developing. Beijing still needs access to various western technologies.

Beijing Keeps low profile regarding Ukraine

It is notable that President XI tries to avoid all mention of Ukraine, yet it is the biggest preoccupation of his main ally, Russia. China has made limited low-profile statements about the desirability of peace and negotiated settlement, whilst staying neutral in United Nations (UN) votes. China is offering some economic help to Russia as an alternative trading partner to the West, but Beijing is careful not to infringe western sanctions. China does not seem ready to back Russia at the cost of economic damage to itself. China is also clearly more watchful and respectful of the West now it has seen the extent of the response to Russian action from President Biden and the allies.

Many people catching Covid-19 are taken from their home and put into inadequate accommodation to recover as best they can.

China sees Ukraine through the prism of Taiwan. it does not welcome the Russian attempt to seize all, or parts, of Ukraine being handled so badly that it increases the sensitivity of democracies to a possible future threat to Taiwan. Russia allows the West to improve its responses in a live situation and to consider how to re-arm.

Chinese official language is sparse and careful about respecting sovereignty – but leaving open how you define a sovereign area. The Chinese approach to Russia will be to help in private, where it can, to try to avoid too much collateral diplomatic and trade damage from the crisis and hope it soon passes. President Xi’s poor timing of his strong alliance with Russia to give more news content to the winter Olympics is probably best not mentioned in China.

Covid strategy is economically damaging

More important for China is President Xi doubling down on the “Zero-Covid” strategy, used to brutal success in 2020. In recent weeks, large cities including Shanghai have been in lockdown – a move which will have disrupted trade and economic output considerably. We await the April figures to see the level of damage to growth.

Many people catching Covid-19 are taken from their home and put into inadequate accommodation to recover as best they can. The Covid-free majority face very strict controls under house arrest, with some difficulties for the state in keeping them supplied with food and other necessities. Social media is heavily censored, but there are some suggestions from western journalists living there that there is a volume of criticism about what is happening from people growing tired of further lockdowns.

China will face more months of sporadic and unpredictable disruption to economic activity.

China does not seem to be taking up the western way out, of driving for near 100% vaccination coverage and then allowing milder versions of the disease to circulate whilst people resume a more normal life. Until policy flexes in that direction, China will face more months of sporadic and unpredictable disruption to economic activity. It is building on a wider story of China as an unreliable trade partner – and hastening the search for alternative sources of supply.

Third term likely for Xi

It seems likely President XI will hold things together long enough to secure a near-unanimous vote allowing to continue in office this autumn. If he does this by not admitting the need for policy change on Covid-19, he will do more economic damage and add to the numbers of those in China who disagree with him whilst mainly keeping quiet.

The Covid experience reinforces the damage being done to the economy by more reliance on nationalised industries, price controls and government interventions – as a complement to more aggressive regulation and taxation of entrepreneurs. China is experiencing a coarsening of the economic dialogue which will mean slower growth and more internal tensions to come.

President Xi does have his critics within the top group of senior figures in the Communist Party. If more think that his mistakes are proving costly, he may not secure as many of his supporters in key positions making more compromises necessary for future rule. This will be sorted out in private before the 20th party Congress.

From China and the world’s point of view, allowing a bit more private opposition and criticism at the top would be a good thing. Our base case assumes President Xi will get much of what he wants and will be in danger of making further mistakes as his position keeps him more distant from the others. He has run an anti-corruption campaign to get rid of opponents.

China is no longer on the path of liberalising and becoming more open to differing opinions. The West’s strategy of encouraging China to be a good world citizen by allowing its privileged World Trade Organisation terms is being modified in the light of events. The world is retreating into blocs in a fit of onshoring investment and shortening supply chains.

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Errors by Beijing add to global challenges

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