Economics and finance, Government and governance, International relations | Asia, East Asia

25 March 2021

In the short term, a successful COVID-19 response and recovery will allow China to temporarily strengthen its position, but in the long term, its problems aren’t going anywhere, Stephen R Nagy writes.

As vaccinations spread and the COVID-19 pandemic is slowly brought under control, China seems to have been more resilient to the pandemic when compared to the West, at least superficially.

Throughout 2020, China adeptly pivoted away from its initial missteps handling the COVID-19 pandemic, with the government accruing ever more support from its citizens in spite of the draconian measures it used to suppress the spread of COVID-19.

A recent survey funded by the Canadian Institutes of Health Research illustrated this, finding that “Chinese citizens hold very high levels of satisfaction with the performance of their national government during the pandemic.” This echoes pre-pandemic surveys that show high confidence in the Communist Party’s leadership and the one-party political system among ordinary citizens.

Chinese citizen support for the government has been further buttressed at home with economic growth returning to 90 per cent of pre-pandemic levels. In fact, at China’s Two Sessions 2021, Premier Le Keqiang announced in his March Government Work Report that economic growth would be more than six per cent in 2021, an economic boom compared to what the United States and Europe are likely to face while they are still battling the COVID-19 crisis.

Still, the pandemic has accelerated many pre-existing problems, both in China and in the Indo-Pacific. Chinese economic recovery has been uneven and driven by an extensive fiscal policy response. Consumption figures are down compared with 2019, the unemployment rate is up, and government, corporate, and household debt is high compared with pre-pandemic levels.

Exacerbating these COVID-19 induced indices are American policies which emerged during the Trump administration and continue in the Biden administration. The most impactful of these has been the trade war, which restricts access to sensitive technologies and adds tariffs to products exported from China. These act as downward pressures in the Chinese economy and create a disincentive for non-Chinese businesses to locate their businesses in China.

The Chinese Government has responded with a Dual Circulation Strategy to boost domestic consumption while recalibrating its relationship with the global economy. As part of this strategy, China aims to build its own semi-conductor industry, along with related technologies, to mitigate its dependence on the United States and its allies such as Taiwan, Japan, and South Korea.

More on this: How feasible is decoupling from China?

This is a tall order, with key suppliers such as Taiwan Semiconductor Manufacturing Company (TSMC) set to build a research hub in Japan and the United States actively stepping up talks with Taiwan to secure the supply chain.

Thanks to structural issues associated with demographic change in China and the increasing role of state-owned enterprises, downward pressure on the Chinese economy is likely to continue to slow economic growth even as China enjoys a post-COVID-19 economic boost.

Amplifying these downward pressures are broader trends in the Indo-Pacific. These include selective supply chain diversification, growing mistrust of Beijing’s long-term intentions, and the convergence of like-minded countries to constrain China’s behaviour.

In 2020, China’s reputation weakened considerably due to region-wide assertive behaviour and what it’s adversaries believe to be targeted and performative ‘wolf warrior diplomacy’, and a 2020 survey shows Chinese unfavourability ratings at record highs.

Seen alone, the survey could be taken with a grain of salt, but its results are also reflected in the Institute of Southeast Asia Studies’ The State of Southeast Asia: 2021 Survey Report and the Lowy Institute’s Asia Power Index in which China scores low on trust and soft power.

More on this: China’s COVID-19 diplomacy in the Pacific

With the Chinese Communist Party’s domestic legitimacy linked to this assertiveness and this year marking the 100th anniversary of the birth of the Party, compromise in its geopolitical periphery remains unlikely. This means such high unfavourability ratings are here to stay in 2021 and beyond.

Clearly, China’s use of economic coercion, its assertive behaviour geopolitically, and its apparent wolf warrior diplomacy during the pandemic period, especially when seen alongside its longer-term behaviour in the Indo-Pacific, have sharpened views on China’s intentions for the region.

As a result, the Quadrilateral Security Dialogue, or the ‘Quad’, has become more cohesive, with India, in the past its least active member, becoming a more enthusiastic participant in the emerging institution.

Countries outside the Quad, such as Canada, have gotten involved too. The country ‘bolted’ into the most recent Sea Dragon 21 exercises with a submarine and even countries as far afield as Germany, France, the Netherlands, and the United Kingdom have taken more proactive postures in the Indo-Pacific with China in mind.

The signing of the September 2020 Resilient Supply Chain Initiative and Japan’s April 2020 Supplementary Budget supporting supply chain diversification and re-shoring of Japanese businesses are clear evidence that countries see the need to diversify the global production network away from a network dominated by just one economy.

This shift is related to geopolitics, profitability, and the recognition that another COVID-19 style shock to a single global production network is a serious risk.

For China, the COVID-19 pandemic has been one step forward and two steps back. It has allowed China to temporarily strengthen its position in its periphery with assertive foreign policy, and at home it has accrued valuable political capital with its coronavirus response and eonomic recovery.

Still, the initial mismanagement of the outbreak and its problematic diplomacy have left China more isolated internationally, and it has consolidated like-minded states against its behaviour. In 2021 and beyond, these external pressures will only increase the downward pressure on the Chinese economy, doing it harm in the long term.

With The New Normal: In Focus section, Policy Forum is rebooting our coronavirus pandemic coverage to address the changing situation. We hope you find the discussion valuable, and invite you to join in the conversation.

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4 Responses

  1. Dr. Tim Dosemagen says:

    Excellent overview!

  2. Nicolas Correa says:

    It is interesting to see the suggestion that countries such as Japan are looking for market alternatives for China as a result of the Pandemic. This shows how China could be impacted in a unique way that other countries are not, meaning that it is hurting in ways beyond the first few issues mentioned in the beginning of this article (low consumption, higher unemployment, higher debt).

  3. Yuki Kakiuchi says:

    I was surprised at the new offensive Chinese foreign policies, “wolf warrior diplomacy”. Also, Chinese economic recovery is surprisingly fast, and I found it convincing that people are satisfied with the government for the economic growth. I wonder how China got economic recovery at such a high speed.

  4. Jo Nakada says:

    It is intriguing to see that countries not part of the Quad—especially considering the fact that there is a barrier of land between Europe and the Indo-Pacific—are taking enterprising stances in the Indo-Pacific, with forceful Chinese behavior in consideration. Moreover, it will be interesting to see how the US interacts with other middle powers outside the Quad such as Canada and South Korea or even economic unions like ASEAN to deal with this security competition with China in the Indo-Pacific.

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