China’s Economy: Riding the Coronavirus Whirlwind

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Now that China has gotten its coronavirus epidemic under control, there are significant cracks in Chinese Communist Party’s propaganda about the country’s economic revival.

(Photo by Stringer/Getty Images, Wuhan)

Xi Jinping, general secretary of the Chinese Communist Party (CCP), toured the country’s major industrial parks to check up on and encourage the resumption of work. As the official Xinhua News Agency reported, Xi visited the coastal area of Chuanshan in the eastern province of Zhejiang, propagandizing the CCP’s supposed success in combating the coronavirus and emphasizing the importance of getting back on the path to prosperity. Vice Premier Liu He, the chief economic adviser, accompanied him.

When it comes to foreign trade, Zhejiang is one of China’s most important provinces. The port of Ningbo-Zhoushan serves the export of vehicles produced by companies ranging from German multinationals Volkswagen and BMW to China’s own Geely and Chery. The export industrial complex is one of the vital arteries of the Chinese economy and an indicator of its growth after the pandemic’s containment.

Also in Zhejiang Province, Xi visited the model city of Hangzhou, one of the jewels of Chinese city management, where 5G technology and big data integration promote the new form of urban organization planned by the Beijing bureaucracy.

These official visits are becoming a “new normal” for the CCP bureaucracy. Behind bringing greetings is the desire to inspect the state of industry personally. Vice Premier Sun Chunlan visited the city of Xianning in Hubei Province, the initial epicenter of the coronavirus crisis. In a town near Huangjingtang, locals were encouraged to prepare the soil for the plowing that is customary at this time of year. He told local officials that now is a “critical period to resume work and production,” and that “problems of local authorities and enterprises should be solved in a timely manner.” China’s rural production is a linchpin for China, supporting precarious peasant families, providing them with jobs, and feeding the big cities.

Beijing’s overreaction illuminates the opposite of what the government would like to portray internationally: that there are significant cracks in the CCP’s propaganda about China’s supposed economic revival.

The Chinese government’s preoccupation with unearthing good economic results and supporting entrepreneurs has a clear basis: the dramatic drop in industrial production and investments in the first months of the year thanks to the Covid-19 paralysis. According to China’s National Bureau of Statistics (NBS), in January–February Chinese industry shrunk by 13.5 percent, and there was a 24 percent drop in capital investments. Urban unemployment reached a record 6.2 percent. China’s GDP is likely to be negative for the first quarter of 2020 — the first time since 1976.

According to Xinhua, the People’s Bank of China (China’s central bank), which had been preserving its monetary tools, finally announced an injection of 20 billion yuan into the markets and a reduction in the interest rate to facilitate loans to businesses. Unlike countries such as the United States or Germany, where interest rates are near or at zero, China still has room to reduce its reference rates.1 In addition, in Zhejiang, Guangdong, and Sichuan provinces, as well as in the cities of Shanghai and Tianjin, the central government took steps to help companies avoid penalties for their inability to meet contractual obligations, injecting 27 billion yuan to address the problem. All this is aimed at preventing business closures and a rise in urban unemployment.

That’s a warning sign.

In a land of economic retrenchment, whoever gets a factory running again is king. So new NBS data, even if limited, herald improvements on the horizon for the bureaucracy. As the Financial Times reports, the Purchasing Managers’ Index (PMI) — which measures capitalists’ and investors’ confidence in the economy of a given country — was at 52 points at the end of March. The PMI scale runs from 0 to 100; below 50 indicates contraction, while above 50, expansion.

There have been investments in industrial recovery too. Volkswagen, with giant factories in Zhejiang, took the first steps with its production lines. According to the Ministry of Commerce, 67 percent of China’s largest import-export companies are operating at 70 percent of capacity. The port of Shanghai, the most important in the world, began a rebound of its domestic and foreign cargo operations.

The partial recovery in port activity and commercial shipping in the second half of March illustrates two simultaneous trends. First, the Chinese government has been rewarded, to some extent, for its efforts to revive its industry on the east coast.

Second, however, the recovery from China’s industrial downturn in 2019, when the country’s growth rate was the lowest in 30 years, is going slowly. This slow pace is fueled by China’s biggest problem: its dependence on external demand, which has shrunk considerably with the spread of the coronavirus pandemic to major Western countries. Even as the foreign trade companies begin to operate again, it is still the case that nearly 35 percent of Chinese export companies are either not operating or functioning quite weakly; those still running are carrying a large amount of idle capacity.

Caught up in the pandemic at a moment of extreme fragility, the global economy confronts humanity with the prospect of a new recession coming more abruptly than that of 2008. Nouriel Roubini, a leading U.S. economist, suggests that a Great Depression in 2020 cannot be ruled out, even if governments act in a coordinated way to implement monetary policies (interest rate cuts) and fiscal policies (direct cash payments to the population). British economist Michael Roberts, in a recent article, refutes the notion expressed by U.S. Treasury Secretary Steven Mnuchin that the next recession will be short lived, like the 1987 New York Stock Exchange crash. In 2020, the symphony sounds with different chords. Global value chains are affected, at a time when returns on capital are low and global profits are static because of the coronavirus, and when global trade and investment have not been increasing but rather have been on the decline. Projections by banks such as Morgan Stanley and Goldman Sachs reveal the possibility of a 30 percent drop in U.S. GDP. Economic historian Adam Tooze adds that that in the second quarter, even limited coordination between nation-states is virtually nonexistent given the ongoing disputes among the United States, China, and Germany.

In this scenario, Zhao Qinghe, an NBS senior economist, is adamant. “The epidemic is accelerating and spreading around the world, severely impacting global economic growth and trade. There is also pressure on China’s epidemic control from incoming cases, so the recovery of economic growth and supply chains face new challenges.” The bureaucracy does not hide its fear of a relapse from the pandemic.

The same NBS confesses that despite the expansion recorded in the PMI index, “We cannot say China’s economy has fully returned to normal levels based on a single month.” This is an improvement on the record drop of 17 percent in annual exports. In an effort to prevent a second wave of the coronavirus, local government moves to reopen cinemas, theaters, and other tourist attractions have been reversed, and the central government has banned nearly all entry by foreigners from the United States and the European Union.

In addition, there is the social problem of unemployment. Internal labor migration, especially movement that corresponds to seasonal employment flows, is an ingrained element of Chinese working life. There are more than 288 million migrant workers, greater than one-third of the total economically active population of 775 million. These migrants travel back to China’s interior, often 1,000 kilometers or more, at holidays and at year’s end, and then return to the regions where more industry is concentrated. These huge contingents of workers were prevented from returning to southeast China, where they work, and in many cases have lost their jobs and have had to relocate simply to survive.

Bert Hofman, director of the East Asia Institute in Singapore, acknowledges that 80 percent of the 100 million migrant workers who went inland during the holiday season have already been able to return to the provinces where they work, but “even for them, it is not clear that they will get their jobs back.”

In the overall picture, the revival of the Chinese economy may be Xi’s “Potemkin Village” — a fictional construction, physical or figurative, designed to hide an undesirable situation. Unlike Catherine the Great’s minister who built the fake villages, Chinese politicians find it difficult to believe in their own illusions. Nothing is certain and everything is quite fragile. The banner of economic revival has been a controversial point between Xi and Donald Trump, who — driven by Chinese propaganda — ignored the spread of the coronavirus in the United States and urged the fastest possible return to work. In the midst of the “trade war,” which has at its core the struggle for the technological superiority of industry and the race for the coronavirus vaccine, neither wants to come in after the other.

Mistrust of the Government’s Disinformation and Authoritarianism

Doubts about health also persist. It is impossible to confirm with certainty the degree to which China has controlled the pandemic, even if the government’s number of deaths is accurate. Portuguese researcher José Teixeira Fernandes states that there are important reasons to doubt the official Chinese numbers regarding Covid-19: “It is well known, or should be, that China controls information through a sophisticated surveillance system on and off the Internet, and severely represses critics on the most politically sensitive issues.” The province of Hubei has approximately the same population as Italy in an area of 185,000 square kilometers (Italy has approximately 300,000 square kilometers) and therefore has a much higher population density than Italy. Given the rate of transmission of the coronavirus, the data published by the Beijing bureaucracy are difficult to believe.

Mistrust sows frequent criticism of the CCP’s disinformation and authoritarianism. Vice Premier Sun Chunlan was severely criticized when he inspected the work of a Wuhan neighborhood committee that handles the needs of the quarantined population. As the Guardian reported, residents of the Qinshan district shouted at Sun: “Everything is fake! It’s just a scam!” and “We protest!” The Global Times published a recording of the incident that was posted on Chinese social media. 

 

The government, forced to respond to the incident despite taking down video records of it, admitted in an official memo that it is necessary to “face the problems in a realistic way, to gain the support of the masses.”

Contrary to what the government hoped for with its announcements about successfully containing the virus, the Chinese streets remain empty and discontented.

Another incident in Wuhan took place when the mayor pressured the population to “applaud Xi Jinping’s work to control the virus.” The result was an overwhelming repudiation on social media, forcing the central government to withdraw the symbolic act. Examples of this sort do not suggest that there’s a clear path forward for the Chinese bureaucracy, especially for Xi himself.

All this undermines the Chinese bureaucracy’s campaign to close the books on the first phase of the crisis, which has marred Xi’s image of invincibility and his efforts to present himself as the leader of the international community’s war on the coronavirus.

The Battle for Leadership Is the Battle for Xi’s Legacy

That battlefront is crucial for China. Xi believes that with global goods in short supply because of the health catastrophe the capitalists have wrought, China’s can strengthen its rising power. The “great helmsman” of China’s transformation into a competitor with the United States for the arenas of capital accumulation, involved in a direct commercial and technological conflict with Washington, has spent the years since 2012 pressuring the Chinese foreign policy apparatus to think about approaches for “global governance.” The task was titanic, because it was simultaneously accompanied by the conversion of China’s economic base from almost exclusive dependence on the export of low-value-added products to reliance on the domestic market and high-tech production. The coronavirus crisis has given China the opportunity it was waiting for. By putting the trade and technology war with the United States on hold, China was able to show itself — in the face of Trump’s “denialist” nationalism — more capable of leading the “globalist” line of efforts to contain the pandemic.

In early March, the situation was favorable for China. When no European state responded to Italy’s urgent requests for medical equipment and hospital supplies, China pledged to send 1,000 ventilators, 2 million masks, 100,000 respirators, 20,000 sets of protective clothing, and 50,000 test kits. China also sent medical equipment and 250,000 kits to Iran and Serbia, whose president called European solidarity a “fairy tale” and proclaimed that “China is the only country that can help us.” Poland and Hungary did the same; both countries are part of the 17+1 initiative, a group of central and eastern European states linked to Chinese development projects.2 China also promised each of the 54 African countries 20,000 test kits and 100,000 masks. In a phone call with Donald Trump himself, who had been referring to Covid-19 incessantly as the “Chinese virus,” Xi volunteered to help the United States with whatever was needed to contain the pandemic — which got a tweet of praise from Trump.

This supremacy in international aid results from China’s material production capacity. It was already the world’s largest producer of surgical masks. In times when production is being adjusted to warlike rhythms, China has increased that capacity tenfold, according to Foreign Affairs magazine. China, in addition to producing half the world’s N95 respirators, produces the vast majority of the active pharmaceutical ingredients needed to produce antibiotics, which are necessary to combat secondary infections that weaken the body against the coronavirus. Meanwhile, the United States cannot even meet its domestic demand and is still experiencing exponential growth of the pandemic, which Trump says will mean bleak weeks in April. China’s Covid-19, by contrast, appears to be under temporary control.

All this creates a favorable framework for the Chinese bureaucracy, but still positions it far from the privileged place and international prestige it seeks. The medical and hospital supplies China sends abroad are criticized continually for their low quality. Countries such as Holland, Turkey, and Spain have reported problems with defective Chinese products such as N95 masks and diagnostic tests. Linked to this, there are complaints that the apps China uses to identify and track coronavirus in individuals are also used to extract confidential information and store it in the police database. And China continues to persecute its critics on social networks and within the CCP itself — as in the case of Ren Zhiqiang, a CCP member who disappeared after criticizing Xi’s handling of the pandemic.

China’s authoritarianism, the poor quality of its exported equipment, and overall economic uncertainty hold back the Asian giant on the pathway to its goal of reshaping global geopolitics. Ultimately, the signals coming from the Chinese economy open the field to a bigger game: which power will be better prepared for what promises to be the deepest economic recession since the 1929 crash? The class struggle in China has not yet issued its verdict on the new crisis that is coming. The bureaucracy celebrates the social silence it achieves with its policies. But as the German poet Heinrich Heine wrote, “Nothing is quieter than a loaded cannon.”

First published in Spanish on April 1 in La Izquierda Diario.

Translation: Scott Cooper

 

Notes   [ + ]

1. Translator’s note: Reference rates are benchmarks used to set other interest rates.
2. Translator’s note: Cooperation between China and Central and Eastern European Countries, also known as China-CEE, China-CEEC, and 17+1, is an initiative by China’s Ministry of Foreign Affairs that promotes business and investment between China and Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, North Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia, and Slovenia.

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