«China Used to be a One-Way Street of Happiness and Rising Prosperity, But That’s Over Now»
Joerg Wuttke, President of the EU Chamber of Commerce in China, sums up the 20th Party Congress and shares his views on the future economic and foreign policy under Xi Jinping.
Few Western observers have a more intimate knowledge of China than Joerg Wuttke. The current president of the EU Chamber of Commerce in China has lived in the People’s Republic for forty years, and during this time he has experienced China’s opening and rise at first hand.
Wuttke has followed the 20th Party Congress, which ended on Saturday, with some disillusionment. General Secretary and President Xi Jinping has cemented his power, and the pro-business faction of the Party has been cast out, says Wuttke in an in-depth interview with The Market NZZ, which has been lightly edited for clarity. «The echo chamber around Xi will become even tighter», says Wuttke. «You have to get used to the fact that everything will become much more autocratic in China.»
«It’s completely unrealistic to think that China can abandon its zero-tolerance policy for covid»: Joerg Wuttke.
Mr. Wuttke, what are your most important findings from the 20th Party Congress?
The most important fact is the President’s absolute, unrestricted power. Xi Jinping has managed to de facto lock out the entire Party faction of the Youth League. This was not to be expected on this scale. He has practically tailored the Politburo to himself and filled it with loyalists. A man may now become Prime Minister who previously had no national job at all and who has not grown into the office as Vice Premier. This is a break with the previous model: Premier Wen Jiabao had learned from his predecessor Zhu Rongji, and Li Keqiang had learned from Wen Jiabao. We have to state clearly today: Ideology is once again taking precedence over the interests of the economy in China.
You are referring to Li Qiang, who will probably take over as Prime Minister in March. What do we need to know about him?
He has had a usual Party career, with stations in economically strong provinces, most recently as Party Secretary of Shanghai. At the beginning, he was very pro-business there. The big break came in spring, with the omicron covid outbreak in Shanghai. Li then implemented Xi Jinping’s instructions ruthlessly and forced the metropolis into a lockdown lasting several weeks. Loyalty to the President has now elevated him to a top post in the Politburo.
In spring, there were voices saying that the lockdown fiasco in Shanghai could end Li Qiang’s career.
This episode has not harmed him; on the contrary, it has earned him the President’s favour. A fundamental change has taken place in the Party: People no longer get into top positions on the basis of meritocratic qualities, but through their loyalty to the President. The entire new Politburo is filled with men who have shown high loyalty to the President. This, of course, makes Xi’s job easier: He now has a toolbox he can handle well, and he no longer has to deal with internal Party dissenters. At the same time, the echo chamber around him is getting even denser than it already was before. That is a big problem.
Li Keqiang or Wang Yang, people with a more pro-business and pro-reform background, have left the Politburo. Has this faction been cast out?
The reformers have been totally cut off. They are veterans, they have certainly dissented with the President from time to time, but in the end, they simply belonged to the wrong circle. Even more disappointing, in my view, is that Vice Premier Hu Chunhua has also been cast out. I think very highly of him, he has done a lot of good for the investment climate for foreign companies. He is only 59, but now he didn’t even get into the Politburo, which would have been normal after two terms as Vice Premier.
What do you read into this?
It shows me that the opening up of the Chinese economy is not going to continue. We are now dealing with a situation where, in the next five months, the entire economic policy elite, which includes highly respected figures like Liu He, will step down in one fell swoop. This is dangerous, especially at a time when the Chinese economy is already crippled.
Is there anyone left in the Politburo who can be said to have a pro-business background and is not primarily a loyalist to the President?
No. The Party leader has presented his programme, you really have to pay close attention to his words now. Xi means what he says and he does what he says. We have to get away from the idea that China’s policy is still basically tailored to economic growth. In his speech to the Party Congress, the President mentioned Karl Marx fifteen times. The word «market» appeared only three times.
So ideology clearly takes precedence over the market?
Yes. Many observers have thought until today that although the Party calls itself Communist, it is basically pursuing a form of Manchester Capitalism. That is over.
What does that mean for the future of the world’s second largest economy?
We have been used to economic growth, reform and opening up for almost forty years. China was the world’s economic engine. Now the country is taking a completely new path.
Here and there you can already read about a «Return to Mao». Do you share this view?
No, I wouldn’t say that. The Mao era was characterised by instability and uncertainty for years. Xi Jinping abhors instability and uncertainty. But we have to assume that China is setting itself apart from other countries and will build a counter-model to the liberal, market-oriented model of the West. We also have to come to terms with the idea that Xi was not elected for five more years, but de facto for another ten or fifteen years.
But you would say that the growth model that has driven China over the last three to four decades is dead?
Yes. That was brought home to us symbolically with the forced departure of ex-president Hu Jintao.
How did you interpret this moment when Hu Jintao was led out of the Great Hall of the People on Saturday?
For me, it was the symbolic end of the old era. This also means that the old model, which was based on consensus between the different Party factions, is dead. Now the President has set his direction and he no longer tolerates dissent. The removal of Hu is symbolic of the fact that Xi has done away with the old politics and that de facto only he is in charge now. No senior Party official budged, no one supported Hu Jintao. Everyone sat there with a petrified expression. This was not a case of ill health on Hu’s part. I guess you have to get used to the fact that everything will become much more autocratic in China.
Only 40 years have passed since the Party under Deng Xiaoping decided, after the experience with Mao, to no longer allow a personality cult. Why has it come to this now anyway?
40 years is long enough to erode the memories of many people. But what is very important is that Xi always says what he thinks. He has always done that, but for a long time it was not noticed in the Western world. The collapse of the Soviet Union had a fundamental impact on him, and he described the three Russian traumas early in his term in office: First, Khrushchev’s criticism of Stalin was the original sin for him. Xi would never do such a thing with Mao, and he did so consistently. The old formula of «70% good, 30% bad» set up by Deng with regard to Mao was never heard of again under Xi. Secondly, Perestroika and Glasnost were, in Xi’s view, the catastrophe that led to the failure of the Communist Party of the Soviet Union. The third Russian trauma for Xi were the oligarchs who became filthy rich under Boris Yeltsin and became a countervailing power to the state. That scenario was out of the question for Xi, which he consistently demonstrated, especially with Jack Ma, the founder of Alibaba. Xi is extremely consistent, you have to admire that, and at the same time he is also driven by history. He has studied the fall of the Soviet Union, and he has drawn the conclusion that this will not happen under his rule in China. On the contrary, he wants to show that communism will become a counter-model to capitalism.
What does this mean for China’s relationship with the rest of the world?
China’s foreign policy will become even more assertive and confrontational. Xi used the word «struggle» seventeen times in his speech to the Party Congress, twelve times in an international context, mostly directed at the USA. China wants to be unassailable and more self-sufficient, it wants to fight for future markets and technologies. In this context, the term struggle also has an absolute claim: There are only winners and losers. Rhetoric and propaganda are used to rally the people behind the Party. The Party leadership shows a similar self-confidence as Germany at the beginning of the 20th century. Just as imperial Germany rubbed up against England back then, China is rubbing up against America today. One could say that Xi Jinping is a man in a hurry: He wants to go down in the history books as the statesman who reestablished China as a great power.
A few weeks ago, the Biden Administration significantly tightened sanctions in the field of high-end semiconductor technology. Was that a shock for Beijing?
Yes, that was the mother of all sanctions imposed on China so far. It is a hard blow to the Chinese attempt to become a high-tech country. China is being cut off from top-end technologies in semiconductors and will not be able to close that gap for the foreseeable future. This is hitting them hard. The Chinese have perceived the American action as an escalation; in my view, the rift between the US and China can hardly be mended anymore.
So far, China has not taken any countermeasures. Why?
This sanctions battle is about David and Goliath, with China for once being the David vis-à-vis the US. What should they do? If they punish American companies in China, it will cost jobs in China. The most likely thing Beijing will try is to impose restrictions on rare earths. At the same time, they know that Washington can always go one step further with their sanctions. In the past, China has tried to deepen its economic ties with Europe to cushion the sanctions from the US. But the hardening of foreign policy rhetoric makes a rapprochement with Europe almost impossible, especially since China’s position in the Ukraine war does not go down well at all in European public opinion.
How is the war in Ukraine being handled in public discussion in China today, eight months since it broke out?
You can already feel that Russia is now being praised less and NATO is being insulted less. The proposed NATO accession of Sweden and Finland has impressed many people here in China. It is also becoming clear that they have completely misjudged Russia. Seeing how Putin is on the losing side and how his big army fails to win against the technologically highly equipped, motivated Ukrainians is a kind of realism shock for China. China and Russia are not allies from a strategic point of view. The only thing that unites them is their anti-Americanism.
Regarding the zero-tolerance policy on covid, there was some hope that China’s leadership would find its way to a more pragmatic approach to the pandemic after the Party Congress. What do you think of that?
That is wishful thinking. It's completely unrealistic to think that China can abandon the zero-tolerance policy. The elderly are not vaccinated enough for that. It would take a huge vaccination campaign, with a different mix of vaccines, but that has not been done so far. The Party Secretary from Shanghai has made a career out of his tough lockdown policy: that tells you everything. But of course it is a disastrous policy, which is also increasingly met with incomprehension among the population. People are starting to get nervous about whether this is going to continue for the next years. You can’t really travel around the country. When I travel from Beijing to Tianjin, I have to go into quarantine for seven days after my return. If my colleague wants to go from Chengdu to Chongqing, which is two hours by train, he has to quarantine for two days in Chongqing and then again for two days in Chengdu. This is a disaster for the service sector, where we see an increasing number of unemployed.
Under these circumstances, it is probably impossible for the economy to get going again, right?
The economy is guaranteed to remain depressed. The industrial sector is relatively well positioned, there we know the principle of «closed loops», people live partly in the factory. But the service sector has a big problem, and that weighs on people’s sentiment. China used to be a one-way street of happiness and rising prosperity, but that’s over now. People are holding back their consumption spending because they don’t know where the journey is going. This is also evident in the property market, which has plummeted by 25 to 30% in some cases and which accounts for almost 30% of China’s gross national product. The government can’t fix that so easily by building some new highways and opera houses. A lot really would need to be done, especially in the area of insurance systems, so that people feel secure in case of unemployment or illness. At the moment, China lives primarily from its export boom; exports to Europe create 16 million jobs here. Some segments that are also doing quite well thanks to state subsidies, for example the automotive sector. But consumer sentiment is bad. In his Sunday speech, the President did not once mention the word consumption as a stimulus tool for the economy. Not once.
H0w's the unemployment situation?
The officially reported figures are problematic because they only include urban areas. 50% of the population is not counted at all. Some economists here believe that unemployment among young people aged between 16 and 24 is around 30%. Nobody can really prove it. The young generation has an incredibly hard time entering the workforce. If you can’t find a job, you’re being sidelined, and next year another 10 to 11 million young people are coming out of colleges. The idea that so many young people, especially young men, don’t have a job worries me. In the medium term, that can become a problem.
Joerg Wuttke
