Xi is betting the house on the 'Fengqiao experience,' Plus EU-China trade war looms as business chiefs see 'worsening' relations -- China Boss News 5.31.24

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Fu-Xian Yi, a leading authority on China’s demographics at the University of Wisconsin-Madison, warns that China’s “persistent slowdown and rapidly aging population” pose significant obstacles to the government’s ambitious goal of “attaining high-income status within the next two years.”

In an opinion piece published by Project Syndicate last week, Yi took issue with recent Chinese government announcements for growth targets and former World Bank economist Justin Yifu Lin’s forecast “that China’s economy will grow at an average annual rate of 5-6% over the coming decade before slowing to 3-4% between 2036 and 2050.”

“By 2023, the share of Chinese people over 65 increased to 15.4%. Historically, no country has managed to achieve 4% growth in the subsequent 12 years after the elderly made up 15% of the population. The average growth rate for high-income countries during this period is just 1.8%.”

“An aging population affects production, consumption, entrepreneurship, and innovation, eroding economic dynamism. As the median age and the share of people aged 65 and older increase, GDP growth slows. Consequently, Lin’s prediction that China will achieve an annual growth rate of 5-6% between 2024 and 2035 is as improbable as an 80-year-old winning a marathon,” Yi wrote.

Yi says there is still time left to stop China from getting too old before it gets rich.

If implemented effectively, reforms could help pave the way for a more prosperous and sustainable economic future for China.

However, bold and decisive steps must be taken now, not later, to bolster the abilities of Chinese consumers and businesses to drive the economy.

“Above all, China must raise household disposable incomes and tackle its demographic crisis, both of which require a political and economic overhaul. Given that China today is even more averse to economic reforms than it was when Deng Xiaoping launched his market-oriented reforms in 1978, rapid change is highly unlikely. The required transformation may take several decades, if not longer,” Yi wrote.

Why it matters

The ‘Fengqiao experience’

One can look at Xi Jinping’s recipe for total control for evidence that China lacks the leadership to overcome its demographic crisis.

New York Times’s Vivian Wang last week said, “Xi wants to make [the] expanded control” that was central to his zero-Covid campaign “permanent” and “push it even further.”

To do this, China’s leader has “repurposed” an old Mao slogan - “the Fengqiao experience” - named after a small Zhejiang town where, in the ’60s, local party leaders demanded residents smoke out communist enemies and “re-educate” them as state-sanctioned vigilantes.

“Ultimately, nearly 1,000 people were labeled reactionaries, according to Fengqiao officials. They and their families had trouble finding work, going to school, or even getting married. Mao declared the “Fengqiao experience” a model for the country. Not long after, he launched the Cultural Revolution, another mass movement that led to a decade of bloodshed,” Wang wrote.

Although he hasn’t “called for a revival of struggle sessions,” Xi uses the phrase frequently and decidedly more than his predecessors, who mostly “distanced themselves” from the Mao era.

When Xi ascended to the leadership in 2012, references to Fengqiao started showing up all over state media.

“State media hailed China’s early success in containing Covid as proof of the Fengqiao experience’s continued utility, and “Chinese research papers described Fengqiao-style policing during the pandemic as a model for crisis management around the world,” Wang noted.

Unfortunately for Xi and today’s CCP, China is much more connected to the international community that it was under Mao.

Few foreigners, especially those that hail from democratic societies, found images of China’s zero-Covid “grid management method,” where local administrators “divided cities into blocks of a few hundred households” and assigned neighborhood workers to go “door to door to enforce testing requirements and quarantines, sometimes by sealing people into their homes,” appealing.

But even Xi recognizes that China needs foreign markets to lift incomes.

That’s mostly why the Belt-and-Road Initiative—in which Chinese investment has made significant inroads into more than a hundred countries and international organizations—is at the core of his foreign policy.

Yet another reason the BRI is so important is that it aims to help Beijing outmaneuver “the US alliance system” in the Western Pacific, while “developing China’s economic, diplomatic, and political influence on a global scale,” as Jake Sullivan and Hal Brands wrote back in 2020.

But, in terms of avoiding China’s middle-income trap, there’s a growing disconnect between how the Chinese leadership wants the world to see China and reality.

Losing friends in many places

Last November, the Pew Research Organization surveyed 24 countries to compare their global views of the US and China. It found that in 2023, “China is seen much more negatively – especially in high-income countries,” while middle-income countries tend to “evaluate the US and China similarly.”

Perhaps more telling is that Pew researchers found Xi’s approach to foreign policy made “71% [of respondents] think China does not contribute to global peace and stability.”

“Most people also think China does not take into account the interests of other countries in its foreign policy (76%), and a median of 57% say China interferes in the affairs of other nations a great deal or fair amount,” researchers said.

Last week, former Harvard professor Joseph S. Nye, Jr., who coined the term “soft power” in the 80s, said that - despite billions spent fostering relations with the Global South, building the BRI, and swinging UN votes, China still lags the US in soft power.

It’s soft power, not military and economic hard power, that “is a force multiplier” and “helps to hold alliances together” in the end, he wrote.

Viewed from that angle, China’s role as financier of Russia’s war in Ukraine hasn’t done it any favors.

According to German Lopez at the New York Times, China’s approach has “angered European leaders,” and has made “it easier for the US to adopt tougher trade restrictions and other policies designed to hurt Beijing.”

“The war united the US and its allies to an extent not seen in decades. If Russia loses, China could be stuck with a diminished partner and frayed relations with some of the world’s biggest economies,” he said.

Last week, the Group of Seven, the world’s most advanced economies, who were joined in Stresa, Italy, by Ukraine’s finance minister and the chiefs of the IMF, World Bank, OECD, and Financial Stability Board (FSB), closed ranks as tensions over Ukraine mounted.

In addition to a few unusually harsh words about China’s over-capacity trade dumping, a tactic Xi is using to keep his strait-jacketed national security economy humming, they made explicit that China’s provisions to the Russian military were in focus.

“We express our concern about transfers to Russia from firms around the world, including those in China, of dual-use materials and components for weapons and equipment for military production,” the G7 communique said.

Even Chinese scholars point out the consequences of Xi’s closeness with a ruler who “wants to go backwards and rebuild the Russian empire.”

China’s leading expert on Cold War history Shen Zhihua told the South Morning Post: “This is actually a security threat to China, but it is opposed by the US and the West.”

“In my opinion, China should stick to its foreign policy of the early days of reform and opening up, not aligning with others or drawing lines based on ideology,” he said.

This Week’s China News

The Big Story in China Business

EU-CHINA TRADE WAR LOOMS AS BUSINESS CHIEFS SEE RELATIONS WORSENING: European business chiefs are increasingly worried about EU-China relations, according to Reuters news staff, citing results from the latest European Round Table for Industry (ERT) survey of large firms.

Most of them “believe relations between Europe and China will worsen over the next three years” due to Brussels’ derisking policies and China’s “‘new era of partnership” with Moscow while it wages war in Ukraine.

A ‘new era’ of risks: On Putin’s last trip to Beijing, China and Russia upgraded their strategic partnership with a joint statement on the “new era,” which described