The Covid-19 disease sent shockwaves throughout the world. Though it started in the city of Wuhan in Hubei, China, the virus quickly made its way to the four corners of the globe—its grasp stretching all the way from Australia to America to Europe. Even tiny, far-flung islands such as Fiji confirmed cases. No large country managed to escape its deadly clutches; the death toll as of today, April 26, reaches around 207,000 with nearly three million sick worldwide1. Leading rich democracies such as America, France, and the UK struggle to tackle the disease, which wreaks havoc in their cities and strains government budgets. In fact, all over the OECD, a club of mostly rich countries, states rushed to bail-out businesses and subsidize households facing mass unemployment; in America, the stimulus totaled over $2tn2 with a $484bn3 increase coming—around three times the money spent in the aftermath of the Great Recession.
Yet the consequences of the pandemic are not confined to its death toll and domestic economic ills; they also extend into the realm of international politics. While the Covid-19 pandemic has done visible damage to the economies and societies of the rich, liberal-democratic West, Xi Jinping’s China stays quiet in the East. As of April 26, 2020, the country claims to have seen only about 84,000 cases4—more than eleven times less than America, whose tally reaches 985,0004. Indeed, as liberal democracy scrambles to curtail the pandemic, China’s system of one-party, authoritarian state capitalism seems to be doing just fine. But make no mistake: to the contrary of the Chinese Communist Party’s bluster, the Covid-19 pandemic threatens China’s financial and strategic interests. The virus disrupts China’s global economic plans, namely its flagship Belt and Road Initiative; weakens its political standing and credibility across the world; and undermines its social model, which relies on inexorable domestic economic growth.
Start with China’s global economic plans. China is an industrial and commercial powerhouse, leading the world in both manufacturing output and exports; the country produced 28% of world manufacturing in 20185 and 13.45%6 of global exports in 2019. In comparison, the US lags in second place with only 16.6% of world manufacturing5 and 8.98%6 of exports. Thanks to such economic muscle, today, China occupies a crucial position in world trade and production—yet that will weaken in the aftermath of Covid-19. Indeed, China might lack the capital needed for its ambitious financial plans if the virus continues to rampage both at home and abroad. As world trade takes a hit, China will no doubt suffer the consequences; Adam Slater, the lead economist at Oxford Economics, reckons global commerce will probably show double-digit annual declines in the coming months7—which does not bode well for the world’s largest exporter. In fact, exports already decreased by 17.2% in the first two months of 2020 compared to the previous year9, and the nation’s economy contracted by 6.8% compared to last year in the first few months of 20208—the first time it shrank in around half a century.
Moreover, less trade and interconnectivity threaten Xi Jinping’s signature Belt and Road Initiative, which plans to forge a new world economy bound to China. The “belt” portion of the plan attempts to reinvigorate the infrastructure of the ancient Silk Road, a web of trade networks linking China to Europe; the “road” part establishes new sea routes departing from China to link-up the world. Participants in both initiatives include an array of Asian countries, some African and South American nations, and even plenty of EU members, such as Italy and Austria. For now, China takes part in joint industrial and infrastructure projects with the partnering nations and funds other activities through state loans. The Belt and Road Initiative is of immense economic and geopolitical significance to both the country and its president; it channels China’s capital and know-how toward strengthening political and economic ties with nations across the globe—sidelining the United States, the country’s chief geopolitical rival. However, the Covid-19 pandemic disrupts the project’s short-run economic goals and menaces its long-run geopolitical ambitions.
The short-term consequences of Covid-19 concern the plan’s financials. As China struggles to offset its economy’s contraction with a $564bn stimulus package9, it cannot afford to open the taps for the Belt and Road Initiative as well. With a weak banking sector, towering domestic debt as a share of GDP of 310%, and still reeling from its deficit spending in the wake of the Great Recession, the country barely handles its domestic economic woes9; it certainly cannot afford to engage in sweeping spending plans abroad. Furthermore, many of the Belt and Road’s partnering developing countries will find it increasingly hard to pay back their loans to China as the virus ravages their economies, causing even more of a slowdown in the project’s funding. The plan is key to Xi Jinping’s overall geopolitical strategy; it will eventually see the light of day despite short-term difficulties. But the Covid-19 pandemic strains China’s financials, delaying the project, and thus provides time for Western powers to reinforce their own economic agendas and institutions.
The political ramifications of Covid-19 for China relate to the virus’s long-term consequences on the Belt and Road Initiative and the effect this will have on China’s geopolitical standing. If this pandemic showed anything to the international community, it was the potential consequences of overdependence on China; when the country shut down its factories to prevent the spread of the virus, Europe and America suffered supply-chain shortages, forcing them to reconsider their economic ties with Beijing. In France, the finance minister, Bruno Le Maire, raised questions of national sovereignty; he said France needed to assert itself in industries of strategic importance, such as aerospace and medicine, instead of delegating them to other powers—chief among them China.10 In America, the virus made experts fret about the country’s dependence on Chinese drug manufacturing; by one estimate, 80% of antibiotics used in the US are produced in China11—a significant liability in wartime, according to some policy wonks.
The pandemic vindicates a broader set of worries on China’s role in the world economy: its abuse of intellectual property laws, its subsidizing of domestic industry, and the West’s colossal dependence on the nation for raw materials and other intermediate products. The worries are inflamed by China’s suspiciously shiny official figures of the country’s Covid-19 cases. At roughly 84,000 confirmed cases as of April 26, the numbers appear remarkably modest for a country of 1.3bn people—especially when considering advanced democracies such as the United States report 985,000 cases, Germany 158,000, and the UK 153,000. America and Australia are demanding an international inquiry into China’s handling of the outbreak and the origins of the disease—a sign of mounting pressures. A new Hong Kong study concluded China’s number of Covid-19 cases in its first wave might have been 232,000, four times the official statistic at the time of around 55,00012, which bolsters claims of foul play. And no one has forgotten how China initially silenced doctors and others who warned of a novel coronavirus in Wuhan.
The example of recent concerns in the UK over Huawei, a Chinese company that represents the digital side of the Belt and Road Initiative, demonstrates how suspicions of China’s official figures and handling of Covid-19 may disrupt diplomatic and economic relations, jeopardizing China’s larger geopolitical strategy. While the UK’s Prime Minister, Boris Johnson, agreed in January to let Huawei build some of the country’s non-critical 5G infrastructure—going against Donald Trump’s America’s wishes—the government’s position today is now once again under scrutiny. Some rebel members of Johnson’s own Conservative Party want a harder stance on China, which means rethinking the two countries’ economic ties, including Britain’s policy on Huawei13; China’s alleged dishonesty in reporting Covid-19 cases may support the argument made by some Western politicians that Chinese firms and officials are simply untrustworthy, and cannot hold the keys to strategic industries such as telecommunications. Even the UK’s foreign minister, Dominic Raab, said business would not resume “as usual” after the pandemic14, implying a loss of trust and highlighting a weakening relationship. Mounting worries of outsized economic influence, a loss of credibility in reporting information of the pandemic, and calls for national economic independence threaten China’s geopolitical strategy—its plan to economically and politically intertwine the world even more with Beijing through the Belt and Road Initiative. Just as the country might have stepped in to fill the large gap in world leadership left by America’s bungled response to the pandemic, Covid-19 casts significant doubts on whether China has the capacity—or even deserves—to assume the mantle.
Finally, and most importantly, the Covid-19 pandemic undermines China’s one-party, state-capitalist social model. China’s social contract sacrifices some individual freedoms common in Western countries, such as the freedom of assembly, in exchange for durable economic growth; according to the country’s rhetoric, only Chinese authoritarianism is capable of mobilizing resources efficiently enough to provide such rigorous progress. In theory, as long as Chinese citizens get richer, and as long as they do not push for liberal democracy, the system works and everyone is content. When China feels the people are not holding up their end of the bargain, it intervenes; on April 15, the government arrested fifteen of Hong Kong’s most famous democracy proponents for organizing dissent14. So far, nothing new: China has been cracking down on Hong Kong’s protesters since demonstrations began in June of 2019, with over 7000 arrests.14 And no one has forgotten what happened in Tiananmen Square in 1989, not least the Chinese.
But with Covid-19’s disastrous effect on China’s economy, its social contract might come under renegotiation in another way: people may wonder if the governing Chinese Communist Party (CCP) is honoring its agreement to provide prosperity in exchange for them relinquishing their political liberties. Chinese citizens benefited from extraordinary growth that outshined that of the United States and Europe for the last half-century; they enjoyed an incredible average year-on-year increase in GDP of 10% since 1978, according to the World Bank15. But they also lack certain rights enjoyed by Americans and Europeans. Thus, they may come to reconsider their bargain with the government if it fails to deliver on the promised economic growth. The Chinese economy powered through nearly fifty years of crises—including the SARS epidemic and the Great Recession—but crumbled at the feet of the pandemic. Indeed, the economy shrank by 6.8% compared to last year according to official statistics and urban unemployment could reach 10% this year, according to The Economist Intelligence Unit19—and that figure leaves out the millions of unemployed migrants stuck in their rural villages. What is more, the road to China’s economic recovery looks shaky.
As mentioned previously in this article, China cannot pursue the same stimulus methods of rich Western countries and will face a hard time recovering for multiple reasons. First, because it already substantially subsidizes its industry, it is unclear how much China can expand aid to companies to reignite production; the low marginal effect of more state spending means this may not yield much of an increase in supply. Furthermore, since business relies so heavily on the government, the lack of subsidies because of limited means might cost some corporations their livelihoods. For instance, Chang’an automobile, a Chinese car manufacturer, received Rmb2.87bn in state subsidies in 2018—more than its profit of Rmb680m18. So far, the government has only engaged in relatively modest spending, rolling out a $564bn stimulus package—nothing compared to America’s $2.4tn cannon or even Germany’s $810bn spending plan20. (Keep in mind Germany is also a much smaller economy, with only around $3.9tn in GDP compared to China’s $13tn). It may be a sign that the state does not have the means to do more. Without increased government sponsorship to offset the pandemic’s toll on commerce, businesses such as Chang’an—which already rely enormously on state aid—may not survive, increasing unemployment and reducing production.
Second, most American and European stimulus is carried out through loans by a strong financial sector. However, China’s financial sector deals with a nation crippled by debt (310% of GDP) and has more than quadrupled in size since the Great Recession15. It will have a hard time amassing the capital necessary to make extensive loans to companies, and the government might not have the money to step in considering the industry’s massive increase in size compared to the last downturn. Third, the country must reckon with a weakening in global demand and trade. As an export-centered economy (exports comprised almost 20% of China’s GDP in 201816), the slump in demand abroad and barriers to trade amid the pandemic will make it harder for China to sell its goods, strangling production. Further, since Chinese citizens still face restrictions at home, it is unlikely that domestic demand can compensate for the decrease in outside demand. Finally, China lacks a proper, national welfare estate. Its safety-net is fragmented and scattered across the country’s various counties, each with their own schemes. Migrants from rural areas often do not receive benefits when they move to cities17, leaving millions to survive the pandemic’s downturn with just their (often meager) savings. Without government help—and barred from working due to social-distancing measures—some may not survive, exacerbating social tensions.
Recessions are useful in demonstrating the flaws in a nation’s economic system. This one is no different. The pandemic and the ensuing economic crisis expose inherent flaws in the Chinese state-capitalist economy: its overdependence on government help, the desperate state of its financials, and its lack of a robust welfare system. Without adequate government aid, businesses in China may never recuperate; and the other danger is that the country’s financial sector is not capable of financing lavish subsidies in such times of high debt. Plus, with global demand taking a turn for the worse as the pandemic causes more and more countries to lock down, choking consumer spending, the government is left with an even larger burden to bear. Western countries will probably have it easier: they do not subsidize their industries nearly as much as China, meaning they have more room to help businesses. They also benefit from strong financial systems, which are now regulated to have enough capital on hand in times of crisis. And when the going gets tough, at least the most vulnerable citizens get cash transfers, unemployment benefits, or other forms of relief to ease some of the pain. But China does not have such privileges—and it has a difficult social contract to uphold, one with a hard trade-off between liberty and economic growth. Today, in the face of the pandemic, the one advantage of the Chinese social model over the West’s, its reliable economic growth, comes under question, paving the way for perhaps a more moderate compromise between the rights of the people and the reach of China’s one-party state. Already social unrest is high, with tensions still searing in Hong Kong and recent protests in the southern city of Guangzhou demanding rent reductions.19 Though the CCP will stay, if economic growth does not pick up after Covid-19—and as this article shows, it probably will not to the same extent as before—then the party might be forced to settle for a more moderate leader, and revise some terms of its social contract.
China will try to exploit the US and Europe’s disarray in the face of the pandemic. It will paint itself as a model nation that effectively managed Covid-19 and its consequences; in fact, today it tries to boost its soft-power with calculated aid shipments to vulnerable countries, so-called “mask-diplomacy.” But overall, the pandemic engenders losses for the entire globe—not just the West. China will therefore emerge weaker in the post-virus world: its financial capabilities strained, its geopolitical plans disrupted, and its political credibility exhausted. Most of all, Covid-19 unveiled the real China hidden behind the curtains; it demonstrated to both audiences at home and abroad its economic vulnerabilities and the financial limits of its state. Perhaps China will reorganize itself and legislate a larger stimulus package to fight off the recession. Perhaps it will manage to salvage the world’s trust and continue with its geopolitical ambitions. And perhaps the Chinese people will not use their stronger bargaining power to negotiate a more liberal social contract. International politics is filled with uncertainty, and one cannot predict today the makeup of the post-pandemic world. One thing is certain, though: for all its damage to the West, the Covid-19 crisis does not benefit China. It remains to be seen what America and its allies will make of this.
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