China Cracks Down On Zero-Covid Protests, Hints At Exit Strategy

AUTHORITIES ARE CRACKING down on those involved in the weekend’s protests against China’s zero-Covid policy. By the standards of these things, they are taking a relatively light-handed, although still firm, approach.

Heavy police presence and the closure of streets where demonstrators had planned to gather averted a third day of protests in Shanghai, Beijing, Wuhan and other cities around the country. Authorities have questioned known protestors, tracking some down to their homes, but reports suggest those detained are being released the same day. Nonetheless, the warnings will have been sent. The censorship of social media has gone into overdrive.

The elimination of independent media and non-governmental organisations, critical conduits for turning popular discontent into organised political action in autocratic and semi-autocratic states, always made it unlikely that the weekend’s protests would develop into something more threatening to the leadership in Beijing.

The scale of the numbers taking to the streets will likely have caused surprise and concern, and the widespread student involvement may have been more alarming, given the historical role of student protest in Chinese politics. Nonetheless, neither would have been seen as being beyond the capabilities of a well-honed security apparatus to suppress.

State media are now spinning a narrative that the worst abuses of the zero-Covid regime are the responsibility of over-zealous local officials, not the central government, the target of some protestors’ ire over the weekend. Exemplary punishments for some hapless local officials can be expected.

Public health officials are reiterating that the zero-Covid policy will continue, but in mollifying terms. The frustration and anger at zero-Covid cuts across all socio-economic classes, so it is difficult to fall back on the playbook of vilifying one group as troublemakers as politically motivated or portraying the protests as the work of hostile foreign interests.

That has not stopped the Central Political and Legal Affairs Commission wheeling out the well-practiced line that it was ‘necessary to crack down on infiltration and sabotage activities by hostile forces in accordance with the law’.

More notably to this Bystander, officials are stressing the need to step up vaccination of the elderly, the most vulnerable group to the latest outbreaks of infection. Only once vaccination rates are improved can an exit strategy from zero-Covid be contemplated.

Leave a comment

Filed under Politics & Society

Covid-19 Protests Pose A Potential Tipping Point For China

THE POPULAR DISCONTENT with the restrictions on daily life caused by the zero-Covid strategy has been simmering for months. The way it is now boiling over into mass street protests across China involving clashes with authorities is unprecedented for a country where the forceful imposition of social stability is the norm.

In Shanghai, where there were minor acts of resistance during the two-month lockdown earlier this year, reports say thousands of protestors have taken to the streets over the weekend, with some overtly critical of the Party and its leader, Xi Jinping. Police were seen bundling away those inciting such sentiments.

Protestors also laid flowers in the city’s Urumqi Street in memory of the ten victims of a fire in a locked-down apartment building in the Xinjiang capital on November 24. That deadly event triggered confrontations between residents and authorities amid accusations that residents of the building had not been able to flee and firefighters prevented from arriving by the zero-Covid restrictions (both allegations denied, as would be expected in state media; however on Sunday, Beijing authorities announced a ban on barricading the entrance gates of buildings under lockdown).

Mass protest movements everywhere tend to have a trigger event, often something not so out of the ordinary but occurring at the right moment to kindle smouldering discontent. The Urumqi fire may prove to be that, although equally, the leadership will move rapidly to extinguish any movement that might challenge it.

Beyond the street scuffles from Guangzhou to Lasha and Zhengzhou, there are incipient signs of anti-regime protest in the white banners in Shanghai and white sheets of paper held by students protesting in Beijing and Nanjing, both anti-censorship symbols that were also used by pro-democracy protestors in Hong Kong. Unverified videos on social media also show students chanting in support of freedom and democracy.

The frustrations and exhaustion of coming up to three years of strict zero-Covid restrictions, quarantines and testing are difficult to imagine elsewhere, where living with the pandemic has become the standard public health policy response. Allowing some dissent to blow off steam is a necessary safety valve in China; regulating it will be the challenge for authorities.

Beijing is boxed in. Zero-Covid is a policy closely attached to Xi and one to which he has repeatedly re-committed. Politically, it cannot be jettisoned overnight.

China’s low vaccination rates among the elderly, especially those over 80, plateauing booster rates and relatively ineffective vaccines compared to the Western mRNA shots that China refused to import make the health risks of lifting the policy unacceptably high. Hospitals would likely be swamped and a wave of mortality would undermine the Party’s narrative of its care for the people in contrast to the hundreds of thousands of deaths accepted by Western governments in their rush to open up for economic reasons.

Efforts to administer the zero-Covid policy more flexibly, including targetted rather than citywide lockdowns and less stringent quarantine rules, have been stymied by the repeated surges of infection caused by the omicron variant of the virus. Finding euphemisms for ‘lockdown’ has become a cottage industry among officials as large city after large city experiences new outbreaks requiring suppression.

The virus has adapted but China’s response to it has not.

Last week, China recorded its highest number of daily Covid cases since the pandemic began, 31,527 cases, a relatively tiny number for a country of 1.4 billion people and having an official Covid death toll of 5,200. That is three deaths per million of the population, compared with a rate a thousand times that in the United States.

China’s zero-Covid policy has saved lives, albeit at a high cost to economic activity. That cost is becoming potentially higher with reports that the giant electronics contract manufacturer, Foxconn, plans to shift half of Apple’s iPhone production from China to India in what would be Covid’s first major impact event on a global value chain.

Hitherto, the leadership has been prepared to accept the economic costs for political reasons. The question now is, how high a price in social stability on top of that will it be prepared to tolerate before the inevitable crackdown occurs.

Update: Protests in Shanghai and Beijing continued for a second night on Sunday.

Leave a comment

Filed under Politics & Society

OECD Sees Trend Decline For China’s Growth Beyond Headwinds

Chart showing OECD forecasts made in June, September and November 2022 for China's GDP growth in 2022-24

THE OECD SEES China’s economy growing by 3.3% this year, a slight uptick from its 3.2% forecast in September. However, it has trimmed its forecast for 2023 to 4.6% from 4.7% in the face of a global economy expected to slow to 2.2% growth next year from 3.1% this.

Globally, tighter monetary policy, higher real interest rates, persistently high energy prices, weak real household income growth and declining confidence are all expected to sap growth, the OECD says in its latest Economic Outlook.

Those headwinds are buffeting China, but the OECD underlines how, additionally, the persistance of the omicron variant has caused recurring waves of lockdowns in 2022, disrupting economic activity.

Growth is being held up by infrastructure investment and efforts to bail out the property sector, including more stringent implementation of credit quotas for presold housing and a lower lending rate for first homebuyers.

Monetary policy has generally become more supportive with a series of interest rate and reserve requirement rate cuts. 

Against that, a rise in precautionary household savings, spurred by low consumer confidence coupled with inadequate social protection, is holding back a rebalancing of demand towards consumption. 

However, despite recent fresh food price rises, the OECD expects headline consumer price inflation to remain benign due to measures to manage energy and food prices: 

  • Replacing part of China’s crude oil imports with discounted Urals oil from Russia is helping to contain inflationary pressure, and LNG reserves are being refilled from Russian sources. 
  • China’s large grain reserves and export restrictions in the form of quotas will continue to mitigate the impact of rising global grain prices on domestic inflation and reduce the risk of shortages. 

Lockdown-induced supply-side constraints on fresh food are the more significant inflationary concern.

The OECD also expects fiscal policy to become more supportive through cuts and deferrals of taxes and charges and spending of reserve funds. It says that a wide range of additional policies is being implemented, including ones outside the public budget. Overall, the measures are worth 1-2% of GDP.

Export growth will also likely stay low amid weaker global growth before picking up in 2024. 

Over that time horizon, the OECD expects GDP growth to gradually move back to its underlying pace, which is slowing. It is forecasting 4.1% growth in 2024. Meanwhile, infrastructure investment will pick up, partly offsetting weaker real estate investment. 

However, the OECD warns:

Continued defaults and disorderly deleveraging in the overstretched property sector may trigger failures of smaller banks and shadow banking institutions. By contrast, relaxing prudential measures and encouraging investment in real estate may fuel the bubble and cause more significant disruptions further down the road.

A further rise in corporate defaults will improve risk pricing but may adversely affect banks, trust companies, and other private and institutional investors. 

The key downside risk remains Covid-19. Vaccination rates have picked up, but they remain low among the elderly, especially those over 80. Booster jabs also seem to have plateaued. Further, the effectiveness of Chinese vaccines is less than that of Western ones. 

That makes lifting the zero-Covid policy nigh impossible in the near term, regardless of its economic cost. The recent outbreaks have foiled attempts to administer it more flexibly.

Like the IMF, the OECD calls for structural reforms to strengthen the social safety net, which would help to reduce precautionary savings and rebalance demand from investment to consumption. It suggests that pension and unemployment insurance coverage should be extended to all and health insurance coverage widened.

It also suggests a series of reforms that would strengthen the private sector and lessen the dominance of state-owned enterprises, although that is not the tenor of the new era.

Leave a comment

Filed under Economy

US Further Closes The Door To Chinese Tech Companies

Screenshot of US Federal Communications Commission order baning authorisation for sale in United States of products from five Chinese tech companies, November 21, 2022

THE FIRST RESTRICTIONS on Chinese telecom equipment being used in US networks because of security concerns came from the Obama administration. The Trump administration stepped them up dramatically, particularly against kit made by Huawei and ZTE. The Biden administration has now widened the restrictions further.

On November 26, the US Federal Communications Commission (FCC) said no equipment produced by Huawei, ZTE, two companies that make video surveillance equipment, Hikvision and Dahua, and two-way radio systems supplier, Hytera, would be authorised for use in the United States, citing national security grounds.

The ban is not retroactive, so the five firms can still sell their products and services previously approved for sale in the United States. However, the FCC is seeking comment on future revisions to the rules regarding equipment already authorised to be imported or sold. To this Bystander, that appears to be a step down the path towards future revocation of existing approvals.

The FCC specifically mentioned a threat to US citizens’ data security. The five companies have previously all denied supplying data to Chinese authorities.

Hikvision is the only one of the five to respond publicly so far, saying the ruling will 

make it more harmful and more expensive for US small businesses, local authorities, school districts, and individual consumers to protect themselves, their homes, businesses and property.

Its security cameras, like those made by Dahua, are widely used by US government agencies. Many police departments in the United States use Hytera radios.

The latest bans fit a broader pattern of containing the development of China’s indigenous tech industry. The Biden administration has also expanded US export controls to prevent the sale of advanced US hardware and software to China, especially that for making cutting-edge semiconductors. 

It is also pressuring US tech companies to move their supply chains out of China. The reported decision by the Taiwanese contract manufacturer Foxconn to move half its global iPhone production for Apple from China to India would be a significant win for the Biden administration; it would also disrupt the huge networks of sub-contractors and component makers and assemblers that feed into Foxconn’s Chinese supply chains. That would diminish the economies of scale benefiting the smaller Chinese companies, which also supply indigenous brands.

US officials and the US arm of ByeDance’s short-form video platform, TikTok, are also discussing how TikTok can assuage concerns that the data it collects on its US users will not be shared with Chinese authorities. Calls for the app to be banned in the United States are increasing, particularly from Republican lawmakers. 

However, the politics of banning a popular consumer app, especially among younger US citizens who vote 2-1 Democrat rather than Republican, complicate any decision the Biden administration might take, including following through on a Trump administration proposal that TikTok be forcibly divested to a US owner.

Leave a comment

Filed under China-U.S., Technology, Trade

China Is Stuck With Zero-Covid Policy For Now Regardless of Protests

AFTER ALMOST THREE years of lockdowns and mandatory testing and quarantines to prevent the spread of Covid-19, urban Chinese are getting antsy.

The authorities have announced some easing of the zero-Covid strategy. However, a long list of changes amounts to little more than shortening the mandatory quarantine period for inbound travellers and scrapping a system where airlines are penalized for carrying infected passengers.

Only the reduction in the strictness of quarantines triggered by second-order contacts touches daily life. None of that deals with the food shortages, price gouging and difficulty getting medical treatment when residents are confined to their homes, whether that is called a lockdown or voluntary static management.

Many of the changes direct local authorities to cope with local outbreaks rapidly and effectively without resorting to lengthy citywide shutdowns, as happened in Shanghai earlier this year.

To officials, the changes may seem substantial, and the initial steps along the path to ending zero-Covid that will be long, and needs to go through more extensive vaccination of the elderly, whose vaccination rates are still too low to allow living with Covid in the way that other countries have decided to do

The discontent that bubbled over into the streets of Guangzhou is only the latest example of how this discontent is starting to manifest. As with the recent protests in Lhasa, this one appears to have involved many migrant workers. For that group, a lockdown cuts off the ability to work and a livelihood that is already precarious.

With Covid workers being attacked and barriers pulled down, it could as readily be called a riot as a protest. Such social instability will worry senior leadership as it knows it has to stick with zero Covid for now, regardless of the cost.

Economic costs can be swallowed, however reluctantly, but social instability is altogether more undigestible. Arrests as a result of lockdown protests are starting to tick up.

The 17,000 new Covid infections that China reported on Monday were the highest daily total since late April. The outbreak in Guangzhou accounts for most of them, but there have been surges in Beijing and Chongqing.

Leave a comment

Filed under Politics & Society

Xi And Biden Say The Right Things But Change Little

Chinese President Xi Jinping meets with US President Joe Biden in Bali, Indonesia, Nov. 14, 2022. Photo credit: Xinhua/Li Xueren

THE MEETING BETWEEN Xi Jinping and US President Joe Biden on the sidelines of the G20 summit in Bali, Indonesia (seen int eh photo above) exceeded the low, very low expectations that had been set for it.

That is not to say that agreements of substance came out of it. They did not. Yet the right things were said on both sides so that the China-US relationship does not get any worse.

The ‘facts on the ground’ may yet prove to belie that. The meeting lasted some three hours, indicating the range of issues that divide the two powers — Taiwan, Ukraine, North Korea, Uighurs, Hong Kong. The list goes on.

That Biden was accompanied by his Treasury Secretary, Janet Yellen, Secretary of State Antony Blinken and National Security Advisor Jake Sullivan was another indication of how broad the range of economic, diplomatic and security areas in which the two countries are facing off has become.

The two sides’ readouts of the meeting make for illuminating comparisons. Most notably on the use of nuclear weapons in Ukraine.

The US version said the two leaders agreed on the importance of not using nuclear weapons there, implying some divisions between China and Russia and that Biden had some leverage; the Chinese version said nothing on the matter.

However, separately, the Foreign Ministry says Beijing will increase, not decrease its relationship with Moscow. Yet, why wouldn’t it if a supply of needed raw materials is available at war-discounted prices? Undoubtedly, China would prefer peace to war, but a frozen conflict would be an acceptable status quo for it.

Xi also made it clear that Taiwan was China’s first red line. Biden restated that nothing had changed in regard to its One China policy, which is at odds with the increasingly supportive stance the United States is taking towards the island. When he gets home, Biden will be facing, in all likelihood, a Republican-controlled House of Representatives in 2023 and 2024 that is likely to be even more hawkish on China than the outgoing one.

The one consequence of the meeting is that there will be more dialogue between the two sides at senior official level. That will not in itself improve the tenor of the bilateral relationship but it may keep it from deteriorating and encourage some baby steps in confidence-building.

Leave a comment

Filed under China-U.S.

Covid Outbreaks Across China Stress Zero-Covid Policy

GUANGZHOU IS STRUGGLING to avoid being the next Shanghai in the sense of being forced into a citywide lockdown to curb a flare-up in Covid-19 cases.

The city reported 2,377 new locally transmitted infections on November 7, up from 1,971 the previous day. Two weeks ago, day-on-day increases were in the double digits.

Guangzhou’s cases account for one-third of new locally transmitted infections across the country. According to China’s health authority, there were 7,475 reported cases nationally on November 7, up from 5,496 the day before. That is the highest daily total since May 1.

Many districts in Guangzhou have imposed curbs of varying severity as city authorities undertake the Sisyphean task of enforcing the zero-Covid policy to be as undisruptive as possible. So far, central Haizhu is the only district in total lockdown.

Elsewhere in the city, some compounds and neighbourhoods have been sealed off with restricted food and other courier deliveries, public transport services have been suspended, entertainment venues and restaurants closed and daily testing introduced.

The Guangzhou outbreak is particularly threatening economically as the city and its surrounding region is a major manufacturing hub. The rest of the world will feel the knock-on effects via supply-chain disruptions.

Further north, Zhengzhou, the capital of central Henan province and home of the giant Foxconn electronics factory, is under some lockdowns, while in Beijing, which has seen a minor flare-up in new cases, selective lockdowns are being imposed.

The outbreak in Hohhot in Inner Mongolia remains the second most serious after Guangzhou’s, with 1,760 new local cases reported for November 7, up from 1,013 a day earlier. Hohhot has been locked down since early last month.

However, the dispersion of new cases across the country indicates the strain the zero-Covid policy is under, regardless of the ‘unswerving‘ official commitment to it.

Incidences of public pushback are increasing, with a street clash between residents and health workers on Monday in Shangdong province leading to seven arrests, according to police.

Leave a comment

Filed under Politics & Society

China’s Central Bank Faces Policy Redirection By Investigation

People's Bank of China headquarters in Beijing

THE ANTI-CORRUPTION INVESTIGATION of Fan Yifei, one of the six deputy governors of the People’s Bank of China, may suggest that all does not bode well for the central bank as Xi Jinping starts his second decade of leadership.

Xi has been investigating more than two dozen financial regulators, state banks, insurers and investment funds since last year to assert Party authority over a financial sector that Xi far from trusts. Fan is the most senior of several financial officials detained over the past year.

Fan spent most of his career as a banker with the Construction Bank of China, so there may be skeletons not as deeply buried in his cupboard as he may have thought. Over-closeness of party cadre to private sector business is now deeply out of favour.

Yet there a clues that there may be policy motivations behind his investigation. Earlier this year, the Central Commission for Discipline Inspection, the country’s top graft-buster, criticised the central bank for failing to meet Party objectives.

The central bank’s top leadership has been a stronghold of economic reformers and advocates of internationalisation of the Chinese financial system, a policy direction for which Xi has little instinctive enthusiasm.

The PBOC’s internationally respected governor, Yi Gang, and its party secretary, Guo Shuqing, were removed from the Party’s central committee during the 20th Party Congress last month. That is seen as a prelude to them leaving their positions early next year when senior government jobs get reallocated.

Their replacements are likely to be men who will ensure that the central bank — and the financial sector it regulates — fall into line with Party goals, just as the technology sector has been ‘rectified‘. This Bystander expects to be hearing more about financial inclusion for common prosperity.

Fan’s case is the more interesting because he was the vice-governor responsible for payments and financial technology, which involved overseeing the development of the central banks’ digital currency, the e-CNY or digital yuan. It is an area in which the PBOC has built a substantial lead over other central banks. Fan’s last public appearance, in September, was to announce a further expansion of its trial.

Leave a comment

Filed under Banking, Financial Services

China’s Zero-Covid Policy Is Here To Stay For Now

HOPES THAT CHINA’S zero-Covid policy is about to be lifted remain just that, hopes. China will continue to adhere to the policy — ‘unswervingly’ was the word used by health officials at a briefing today.

Hu Xiang, from the National Health Commission’s disease prevention and control bureau, said:

Previous practices have proved that our prevention and control plans and a series of strategic measures are completely correct…The policies are also the most economical and effective.

The second sentence strikes this Bystander as the more salient. The economic cost of putting cities and factories under prolonged lockdowns had been advanced as the reason that Xi Jinping would ease the stringent restrictions he has imposed since the get-go to control the pandemic.

That may have temporarily boosted the share prices of Chinese equities, much in need of a lift, but ignored that politics and Party survival trump economics in Xi’s China, and the continuing under-vaccination of the population and the relative inefficiency of the vaccine that has been given.

Beijing has made much of how few of its citizens have died from Covid-19 (less than 29,000 deaths is the official number) compared to the rest of the world (more than 1 million in the United States, for example). It has paraded such numbers as a sign of the Party’s care for the people and the superiority of China’s governance over other systems. It will not readily give up that narrative.

China has administered 3.5 billion doses of vaccine. However, swathes of vulnerable elderly remain un- or under-vaccinated, and millions of all ages are at risk from the new variants against which indigenous vaccines are not particularly effective.

Lifting zero Covid would raise the likelihood of hundreds of thousands, perhaps millions of deaths, a politically unacceptable risk to the leadership. The fragility of public health services, especially in third-tier cities would also be exposed again.

A further concern is that lockdown fatigue among the public may turn into something more threatening than displays of angry frustration, which are widespread.

The approval for the German vaccine BioNTech to be given to ex-pats, announced after German Chancellor Olaf Sholz’s visit, may be a sign that Beijing’s resistance to foreign vaccines is waning and that large-scale imports that would provide widespread protection for the general population may be coming.

However, it would still likely not be until next spring at the earliest that vaccination levels would be at levels that would allow more leeway in keeping more of daily life going when new infection outbreaks are detected.

In the meantime, there will likely be small, cautious steps in the direction of more flexibility in zero-Covid implementation. It has already been announced that more international flights will be allowed, although that will have a de minimus impact on domestic lockdowns as quarantine restrictions will still apply.

Local authorities will also be pressed by Beijing not to be overzealous in their imposition of zero-Covid measures when local outbreaks occur. However, local officials know that in the Xi era, careers are not damaged by erring on the side of caution when it comes to implementing the leader’s flagship policies.

1 Comment

Filed under Politics & Society

Pragmatic Scholz Visit Offers Beijing Some Hopes

German Chancellor Olaf Scholz seen with China's President Xi Jinping in Beijing on November 4, 2022

GERMAN CHANCELLOR OLAF SCHOLZ’S meeting with Xi Jinping elicited a statement that the two countries should have ‘economic ties as equals, with reciprocity’.

Beijing will be pleased by that, and it will take some of the sting out of the soon-to-be-published China Strategy paper that is expected to align Germany with the US view of China as the primary geopolitical threat to the West.

It will also give Beijing some hope in its efforts to reverse the gradual convergence of the EU’s view of China with that of the United States and undermine Brussels’ efforts to adopt a more values-based approach to relations with Beijing by promising that German industry’s supply chains and economic interests in China are secure. China is Germany’s largest trading partner.

Scholz has been criticised domestically and internationally for his visit to Beijing, the first by a G7 leader since the coronavirus pandemic.

In an opinion piece published by the US political website Politico, Scholz criticised China’s Marxist-Leninist trajectory and said that German industry needed to reduce dependence on China, especially in cutting-edge technologies.

However, before his visit, Scholz had pushed through approval of Cosco taking an ownership stake in the port of Hamburg, Europe’s third-largest, although, under pressure, he reduced it to a 24.9% stake from the 35% sought.

Scholz also defended his visit to China by suggesting that talks with Xi were necessary to understand better China’s position towards the West and Russia’s invasion of Ukraine and what cooperation was possible.

The readouts from the two leaders’ meeting contained an intriguing reference to the situation in Ukraine.

We should jointly oppose the use or threat of use of nuclear weapons, refrain from using nuclear weapons or fighting a nuclear war, and prevent a nuclear crisis on the Eurasian continent.

If that was intended as a message for Xi’s friend, Russian President Vladimir Putin, it has, presumably, also been transmitted privately.

Scholz, who was accompanied by a delegation of German industrialists, also secured approval for the Covid-19 vaccine made by Germany’s BioNTech for use by foreigners living in China and said that should be the first step to broader approval, a hint of how zero-Covid might be eased.

The next question in Beijing will be how much, if any, of the cooperative talk with Sholz can be carried forward into whatever meeting takes place between Xi and US President Joe Biden at the forthcoming G7 meeting.

1 Comment

Filed under China-E.U.