With an ailing domestic economy, can China still pursue its global plans?
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With an ailing domestic economy, can China still pursue its global plans?

Soaring unemployment and a struggling economy must be tackled before its leaders can return to threats and bluster. Originally published in The Guardian.

What next in Beijing’s master plan for China’s global advancement? Anyone looking for details would have struggled to find them last week at the press conference held by Li Keqiang, with the Chinese premier much more focused on the ruling party’s perils on the home front. 

The “wolf warrior” diplomacy, the world of blustering threats that Beijing has been using to bend countries to its bidding, was absent. Instead Li’s focus in the 90-minute event was much more that of a nerdy economic policymaker. In the kind of minute detail redolent of the boss of a small provincial city, the premier listed an array of support measures for the economy: tax cuts for small business, reforms to medical and unemployment insurance, and support for the gig economy.

The reason for Li’s focus was obvious. China might have been the first major country out of (as it was the first into) the Covid-19 crisis, but its economy suffered a brutal contraction along the way, leaving a jobless rate of about 20%. 

The premier’s annual press conference, held at the end of the annual session of the National People’s Congress, China’s legislature – delayed by nearly three months because of the virus – is a keenly watched event, at home and abroad. There were no questions on Uighurs or re-education camps in Xinjiang, China’s recent border clashes with India, its trade war with Australia or the detention of a Huawei executive in Canada, issues the government didn’t want to air. Likewise, the queries on the economy, the origins of Covid-19 in Wuhan, deteriorating relations with Washington, and the new Hong Kong security law were all softballs for Li, who is effectively Xi Jinping’s deputy. 

But even if the questions from foreign and local reporters are cleared by the government beforehand, it is still the only moment in each calendar year in which a top leader appears at length in public and has to state the government’s case. The focus on the economy, then, was telling. For a ruling party that has built legitimacy on near continuous high-speed growth since the late 1970s, the current downturn is a bracing moment. Tens and perhaps hundreds of millions have lost jobs. Those still in employment have had incomes sharply reduced, cutting into consumption. With the US, Europe and Japan in deep recessions, exports cannot take up the slack.

To be sure, Beijing has not let its regional and global ambitions lie fallow during Covid-19 and its aftermath, with navy patrols in the South China Sea and the airforce sorties around Taiwan both continuing. And in Hong Kong, the most volatile issue on China’s plate, the city’s democrats have been placed firmly in the party’s sights.

With the passage of a new national security law by the NPC last week, China is making a big bet that it can stamp out its political opponents in the former British colony without killing off its vital role as a financial centre. The bill’s vaguely worded offences, outlawing subversion, secessionist sentiment and foreign interference, will be interpreted widely, as they are in China itself, to round up any critics Beijing wants to target.

The UK’s suggestion that it would offer a path to citizenship for Hong Kong holders of British national (overseas) passports wanting to leave the territory prompted a sardonic thumbs-up in Beijing. “The potential UK move has won overwhelming support from Chinese internet users,” said the Global Times, the party’s tabloid attack dog. “[They] said all traitors should be sent to the UK as they are unwanted on Chinese territory.”

But no one in Hong Kong thinks the fight will be over quickly, especially as Beijing’s plan for its takeover of the territory’s political system, and opposition to it, is so comprehensive.

“They will send down cadres from the Chinese Communist party to supervise the government, the executive, the legislature, and more importantly, the judiciary. This is only the beginning, I tell you,” Martin Lee, the barrister and veteran democrat leader said on Friday.

In his press conference, Li offered only platitudes on the US relationship but said enough to confirm that bilateral ties between the two superpowers, one rising, the other in relative decline, will not get better soon. There is no off ramp for the US and China for the moment, as it is clear that neither country is looking for one. Washington feels it is playing catch up in muscling up to Beijing, a debate that will only be sharpened in a presidential election year. And China under Xi is programmed not to take a backward step.

It is possible that the weakness in both countries’ economies could temper their hardline positions this year, because neither wants to hurt growth any more than it has been already by Covid-19. Equally, Donald Trump might slap new sanctions on China at any time in a heated election campaign, to reinforce his narrative that he has been uniquely tough on China and that Joe Biden, his expected Democratic challenger, by comparison, will be weak. Beijing has made sure to retaliate against any economic sanctions imposed by Trump so far. It is an open question as to whether their calculation will change in an election year.

One standout from Li’s appearance before the media was his focus on the importance of the private sector to China’s economic recovery. Xi’s support for the state sector, and his lip service to the private economy, which drives Chinese growth and employment, has alienated many of the country’s entrepreneurs. A number of wealthy business leaders who crossed Xi have been jailed. But Li, who has been overshadowed in office by Xi, took a different line, though whether support for the private sector can be sustained in a grim political climate, however, remains to be seen. Xi will not tolerate any rivals, especially in the form of rich entrepreneurs.

• Richard McGregor is a senior fellow at the Lowy Institute in Sydney and is the author of numerous books on Chinese politics and foreign policy

Areas of expertise: China’s political system and the workings and structure of the communist party; China’s foreign relations, with an emphasis on ties with Japan, the two Koreas, and Southeast Asia; Australia’s relations with Asia.