I recently visited 6 cities in China. Make no mistake about it, China is alive and kicking [Covid-19]. China appears to be unstoppable! There are cranes everywhere. China’s GDP grew over 6% last year and is forecast to grow 5% this (calendar) year. In real terms, this translates to over $1 Trillion dollars of growth. Or, equal to more than the economy of Italy or Russia added per year. It’s staggering.
But at the same time, there is an ever-present awkwardness and sense of resilience in China. To understand what I mean here is an example of rap song by a Chinese nationalist group “CD Rev”. It suggests a nefarious plot being hatched in US labs against China.
The rhythms of the song beat to a lyric that translates to: “How many plots came out of your lab; how many dead bodies are there hanging with a tag; what are you hiding; open the door to Fort Detrick”! Mr. Zhao Lijian, China’s foreign ministry spokesman endorsed this song; and declared “it speaks our mind”. The song doesn’t say it, but in private they claim that the US sent operatives as part of its delegation to the Wuhan International military games to spread Covid-19 a few months before the virus broke out in Wuhan.
Here are some observations from my trip.
US Mainstream media continues to hyper-inflate news about China with rumors of Covid-19’s re-emergence. But everywhere I visited was busy and dynamic. Massive investments are visible. While there is broad scale use of masks in many public places, Covid-19’s impact has diminished.
There is economic momentum. Factories seem packed, and their parking lots are full. China added 12 million people to its employment rolls last year and is on track to do the same this year. The roads and airports are full.
China’s recent growth rate is lower than its historic rates. But note that China’s economy is so large, that even a lower rate is still an incredible level of growth – by any standard. It’s a healthy rebound. And it indicates economic resilience. I do wonder if this growth is sustainable. Given a huge drop in birth rates, and significant reduction in migration from western China, where will all these new workers will come from?
I did manage to see several technology start-up (factories) in rural areas. It seemed to me that the government is moving new enterprise to rural areas – not the other way around.
Local governments in far flung places are being pushed to spur enterprise and economic growth. This has led to corruption and ‘bridges’ to nowhere type projects. Overspending by local governments has left about a third of China’s major cities struggling to pay interest on their debt. In one extreme case, in Lanzhou, the capital city of Gansu province, interest payments are equal to 74% of fiscal revenue. According to S&P Global calculations, two-thirds of local governments are now in danger of breaching unofficial debt thresholds set by Beijing. This signifies severe funding stress, with their outstanding debt exceeding 120% of income last year. This situation has created a ‘soft underbelly’ that could become a massive issue in the future if China’s growth rate slows down.
Rumors of a property ‘collapse’ or ‘bubble’ have been over blown. In fact, national government policy supports property purchases – especially among new urban residents and young adults. This is a clear signal to banks. Which also means real estate risks have somewhat diminished for now, despite rumors of large-scale real estate collapse in China these past few years. Real estate is selling.
China’s national monetary policy indicates a controlled inflation scenario targeted at 3% against what markets are predicting to be a 5.5% economic growth rate – and there is solid liquidity in key segments (including government). On paper at least it’s a healthy scenario – that any country would dream of!
China remains a huge energy market – as the world’s largest energy importer and continued increase in energy demand. There is a huge emphasis on investment in sustainability, and renewable energy systems. Roads have many EV’s – especially in major cities. “New Energy” enterprises are springing up. The central government is taking an active role as a Venture Capital investor. Yes, governments are taking partial ownership and providing capital. There are broader targets imposed across the economy to reduce ‘energy intensity’.
The government appears stable. There is widespread ‘positive’ support (in private conversations). It looks like the government has ‘managed’ the crisis well and the country is moving forward. There is no visible instability – at least in major urban areas. I saw no graffiti or visible anger. (I do realize that this is not the case everywhere i.e. Hong Kong or Urumchi). The government has full control.
Note that as China rebounds, China has gone on the offensive. Chinese sources have been amplifying a claim that Covid-19 came from the US. They are using everything from rap music to fake Facebook posts. Chinese propaganda efforts have been successful at convincing their domestic audience to be skeptical about international criticism of the country’s role in the Covid-19 pandemic. In fact, there is visible resentment of what “Trump and his side-kick Pompeo” did to undermine China!
This theory is being peddled by Chinese tabloids (like the Global Times). The newspaper suggested that (an American researcher) Dr Baric created a new human-infecting coronavirus, citing a paper he co-authored about the virus’s transmission from bats. The newspaper also launched an online petition calling for Chinese netizens to sign an open letter demanding a World Health Organization (WHO) investigation into Fort Detrick. People could “sign” the letter with a single click, and the appeal reportedly gathered more than 25 million “signatures”.
The Chinese state broadcaster CCTV even aired an hour-long special report, “The Dark History behind Fort Detrick”, focusing on breaches of containment at the lab in 2019, to bolster claims of lax lab security echoed by Chinese officials and state media. A related hashtag had more than 100 million views on Weibo, China’s Twitter.
“We see a more sustained campaign involving broad-based accounts to promote the narrative,” about Fort Detrick, says Ira Hubert, a senior investigative analyst at social analytics firm Graphika. Experts say Beijing is seeking to bring non-Chinese audiences into the dispute about Covid-19 origins to further muddy the waters. A clear example unfolded in July, when Chinese state media outlets began reporting on criticism written in a Facebook post by “Wilson Edwards”, a user claiming to be a Swiss scientist.
“Mr. Edwards” argued that Washington was “so obsessed with attacking China on the origin-tracing issue that it is reluctant to open its eyes to the data and findings.” But the Swiss embassy in China later said that there no Swiss citizen with that name and urged Chinese media to remove these “false” news reports.
Experts believe “Wilson Edwards” likely does not exist but is instead a fictitious propaganda profile. His Facebook page launched on the day that he published the Covid-19 post. A new Twitter account under the name of “Wilson Edwards” also tweeted out the same message on that day.
Post-Covid-19, there is a lot of push back, resentment and a real desire for what the Chinese see as ‘revenge’!
Popular culture globally is now woven with propaganda! China is no exception. There is an uptick in China’s information campaign. It signals a real change in Beijing’s propaganda strategy. As one analyst suggested, Chinese propaganda “is not about telling a story, but creating a whole new narrative i.e. creating a story.”
Which brings me to one other ‘angle’ to China’s visible resentment: Taiwan. From Chinese perspective it would be ‘sweet’ revenge if China took over Taiwan! The Chinese government’s rhetoric on Taiwan has now gone into over-drive. There is a real risk that China will walk into Taiwan in the same way that Russia walked into Ukraine. And, much like Russia, the Chinese government would have wide-scale popular support doing so. The Chinese government is watching Russia’s involvement in Ukraine, to gauge their own movements on Taiwan.
Which brings me to how ridiculous US policy has been this past decade. Trying to tame a tiger (that China has become) is not trivial. Reports by US government agencies on the origins of Covid-19 have not moved the needle inside China or what ordinary Chinese believe happened. From an economic standpoint, the Chinese (and all other sanctioned nations) have found a work around.
Some places, I visited had evidence of visits from other ‘foreign’ buyers. I looked at photographs on walls with visitors from everywhere: Iran, Russia, North Africa, Central Asia, Latin America, Europe. I stayed in busy hotels owned by chains that also owned properties in Cuba (and none in the U.S.) with many (non-American) foreign visitors.
In private conversations, it became clear that China was developing a dual track ‘export’ operation. One track to serve “American/ Western” customers with a clean supply chain. And a second track to serve “non-Western and an internal military market” that would be immune to sanctions. Two parallel systems – operating side-by-side.
China has bailed out Russia when its pipelines to Europe blew up, by buying huge volumes of natural gas. And China is a major trading partner of Iran. Given China’s huge economy it is serving as a great substitute to the West. In other words, China is making “Western Sanctions” meaningless…. even worthless and thus breeding further resentment around the world (while making China a ‘savior’ partner). This has created a unified (anti-US) block which by the way accounts for most of the globe’s economic growth (which is not in Europe or North America). At best sanctions have become a nuisance, at worst Western sanctions are used by (sanctioned) governments to blame the West for all economic (and mismanagement) ills. US policies are poorly thought out.
All this has created a conundrum. On the one hand there is a real ‘argument’ for maintaining constructive engagement with China and promoting bilateral trade. The sheer size and growth rate of China as a market are compelling. On the other, China’s national policy and (cultural) rhetoric has becoming polarizing and this is the same in the US. The days of Beyonce and Eric Clapton touring China or Chinese bands traveling to the South by Southwest festival in Austin, Texas are long gone. There’s a lot of bad will.
There is a need for a complete re-set and re-think of what this relationship should entail (not only with China, but a whole host of sanctioned ‘enemies’). Whatever Trump did or didn’t do, his destructive behavior (and rhetoric) should be placed in the dustbin of history. It’s time for the more difficult task of rebuilding, re-engaging, and re-establishing pragmatic engagement. This is my message to both sides. Make no mistake about it, the downside risks are huge. It’s time for seasoned, reasonable, and experienced diplomats to kick into overdrive. Let’s send Eric Clapton and Beyonce back to China!
There is an old wise saying: you attract more bees with honey than vinegar! We should really ask ourselves whether our policies have been effective? What impact have they really had? How have we ‘moved’ the needle on anything that is important to us? It’s very clear there is a sub-culture brewing in both the West and China that is becoming increasingly polarized. Is that what we really want?