The 20th Congress: China officially goes into a “war economy”

This column was previously published in L’Opinion on october 25th 2022

Public health, real estate and demographic crises have all come at the same time and are forcing those in power to use nationalism as a weapon, with all the risks that that entails.

As often happens in China, the most instructive part of any lengthy speech is what is left unsaid. President Xi kept to this tradition at the opening of the 20th Congress, by omitting to mention the three main concerns of the 600 million urban Chinese. Firstly, a possible way out of the “Zero Covid” policy, for Chinese internet users noticed that, at the funeral of Elizabeth II, only the Chinese representatives wore masks. Secondly, the real estate crisis that is now out in the open and threatening to affect 70% of householders’ savings. Thirdly, the fall in the number of weddings and births –7 and 10 million respectively — instead of the 20 million desired by the government.

These three crises coming at the same time have put a question mark over the implicit social pact that has prevailed in China for the last forty years: the urban population’s acceptance of restrictions on individual liberties in exchange for the freedom to become prosperous and to found a family based on a single well-educated child and access to healthcare for parents.

Confronted by the worst crisis since 1989, a new social pact could have been based on building a new environmentally-aware society, but President Xi, having learned from Europe’s fatal errors, has insisted on prioritizing energy security over climate change.

The only unifying element left is therefore nationalism, to face an enemy that has never been specifically named — the United States. The main objective is both to reduce China’s dependency on the rest of the world and to increase the latter’s dependency on China — a key element in a war economy. This is why this conflict will essentially be focused on the technology sector, since America has identified this as the main source of Chinese dependency.

Demotivated, China’s young people are discovering the “let it rot” movement, having had a taste of the “lying flat” movement during the Covid crisis.

The technology war. Taking inspiration from its successes with clean energy sources, Beijing looks like waging the technology war using an approach that is diametrically opposed to the Western way of doing things: using centralized government planning, giving priority to national self-sufficiency, selecting state-owned companies to become world leaders…

This may explain why the Chinese middle class still remain largely unconvinced by this new social contract, even though it is winning over the isolated countryside areas. The private sector seems to be passing on this, giving less priority to investment than share buy-back programs, like those of Tencent and Alibaba, to the tune of 45 and 25 billion dollars respectively. Demotivated, China’s young people are discovering the “let it rot” movement, having had a taste of the “lying flat” movement during the Covid crisis. Local councils are concerned about the future slowdown of the economy, which is only expected to grow by 2% to 3% in the second half of the decade — a level incompatible with the amount of debt incurred by their administrations.

The private sector, young people, local councils… these are all possible contacts for Westerners who, in spite of the circumstances, want to maintain contact with that part of China that wants to stay open to the outside world. Because, with regard to China, Europe should avoid repeating the mistake it has just made with Russia: “losing” it, because, when it went into a war economy, it was not taken seriously.

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David Baverez

Business angel / demon. Based in Hong Kong since 2011. Columnist, author of “Paris-PekinExpress”, “Beijing Express” and “Génération Tonique”.