Beijing’s economic self-harm – Minxin Pei

At the beginning of March, the National People’s Congress, the Chinese parliament, approved the fourteenth five-year plan. This strategy should have shown that China has a long-term economic vision and that this will allow it to thrive despite the geopolitical challenge with the United States. But immediately Beijing began to undermine its chances of success.

The heart of the fourteenth five-year plan is the “dual circulation” strategy, based on which Beijing will seek to strengthen growth by focusing on domestic demand and technological self-sufficiency. This will make the country less dependent on foreign demand and its main trading partners – except the United States – more dependent on the market and its increasingly tech-savvy companies. China had been working on the plan for a while. At the end of 2020, President Xi Jinping had concluded a general agreement on investments with the European Union. Xi had made some concessions, but it was worth it: the agreement could not only strengthen ties between China and the European Union, but also sow discord between Europe and the United States. Now, however, Xi himself is undermining the work he has done.

In recent weeks, China has blacklisted various representatives of the European Parliament and Canadian and British MEPs, as well as academics and research institutions in Europe and the United Kingdom. The sanctions are retaliation: the European Union, the United Kingdom and Canada have sanctioned a small number of Chinese officials involved in human rights violations against the Uyghur and largely Muslim minority of Xinjiang.

Whatever message the sanctions are supposed to send, they are unlikely to be worth the price Beijing will have to pay. So far Canada, Europe and the UK have been fairly neutral in the US rivalry and it is in Beijing’s interest that they remain so. China can afford an economic move away from the United States, but not from the other major Western economies. The agreement with Brussels has yet to be approved by the European parliament. But, as a sign of protest against the Chinese measures, the parliament canceled a session in which it would be discussed. And some MPs argue that China should ratify the World Labor Organization’s forced labor conventions first.

China is also attacking some large companies worried about the accusations of the use of forced labor in the Asian country, undermining its economic prospects even further. In 2020, the Swedish clothing company H&M announced that it would no longer use cotton produced in Xinjiang, because it is difficult to verify the production conditions. As discussions about Xinjiang cotton flared up, H & M’s statements became topical again. Major Chinese online trading platforms have withdrawn H&M products. A movement is also gaining momentum calling for a boycott of the Swedish company and other Western brands that reject Xinjiang cotton, such as Nike, New Balance and Burberry.

China believes its scare tactic will be successful, but it may overestimate itself. Just as Western multinationals want to sell their wares to Chinese consumers, Chinese companies need these multinationals to continue sourcing from them. Furthermore, while it is true that the size of the Chinese market is so attractive that multinationals make concessions, it is not worth destroying the reputation of Chinese companies in the West, where they make most of their profits. H & M’s two main markets are the United States and Germany. China is the third largest market, but in 2020 it accounted for only 5 percent of the total turnover. H&M can afford to lose its Chinese market access, but its 621 Chinese suppliers may not be able to give up on a customer like H&M. An exodus of Western multinationals from China would force production and distribution chains to relocate, leading to the loss of millions of jobs.

China can still back down. For starters, it could allow a group of independent experts to investigate cotton fields in Xinjiang. If you don’t resort to forced labor, that’s the best way to show it. And it could improve relations with Western companies and governments. A similar initiative, however, is unlikely: Beijing remains convinced that the Chinese market is too important for Westerners to be abandoned. But she should remember that, not long ago, she was sure that the United States couldn’t do without China, and she was wrong. Today not even China can do without the West.

(Translation by Federico Ferrone)