Why we write about this topic:
That geopolitics is a subject as sensitive as it is dynamic is something we see in the news every day. An alliance that seemed ideal yesterday may already be completely undesirable tomorrow. How do we keep things in balance as a continent, as a country or even as a region? How do companies deal with this? To find out, Dr. Yuxi Nie puts the magnifying glass on the relationship between Brainport Eindhoven – which, as a high tech region, is extremely sensitive to the consequences of geopolitics – and China. In a series of articles, she keeps us informed of the progress of her research, which aims to devise effective communication strategies for Brainport. Today, part 8.
Looking back on 2022
2022 was patchy for business. We witnessed turbulent times in Sino-Dutch business relations in various industries in a tense geopolitical context. Many seemed puzzled by China’s policies, the leadership’s decisions, and the drives behind them. The various media coverage of the chip export control to China continued to unfold the geo-political tension and its potent influence on Sino-Dutch business relations. As a previous blog argues, the challenge of managing expectations and business relationships is not restricted to the case of ASML but also to many other European companies with R&D investments.
Last year, as anticipated, after China’s 20th National Congress in Beijing, the government stepped up to lift the Covid-Zero travel restrictions and “re-opened” to the rest of the world. This again confirms that though China can be extremely adaptive in its economic system under a strict political and ideological environment, politics still is the precondition of economy. However, the same questions stand. Once the domestic political structure is set, will the economy follow? Will China’s policymakers return to pragmatism, and will the entrepreneurs strike a balance between central control and market logic? If so, what would be the outlook for China in 2023?
Will the economy follow?
For both Chinese state-owned and private enterprises that have outbound investments, they found themselves coping with a complex economic and political environment since early 2020, the start of the Covid-19 pandemic. Various imposed travel restrictions and health policies led to major disruptions of the global supply chain.
“China’s lifting of Covid-Zero travel restrictions will revive the trade relations between China and Europe. In the short term, we may even look at much more vigorous trading activities between the two regions than it would have been preceding the pandemic, especially now that we could have both in-person meetings and virtual communications.”A Business Development Director in Eindhoven, 2023
Within China, the implementation of strict travel restrictions in the past three years has taken a toll on China’s economic growth. According to Capital Economics, the country’s economy is estimated to be 7% smaller in early 2023 than it would have been if the growth rate had been the same as the time preceding the pandemic. The current leadership in the third term is well aware of the economic stress. MERICS 2023 China forecast touches on these significant trends: Firstly, China has overly invested in infrastructure in the last years, whereas public services have been under-invested. In 2023, economic and social matters will be paid more attention to. Secondly, with the revived activities of Chinese private companies, the supply chain and trade patterns will also form new patterns.
Politically, the various extensive regional lockdowns since 2020 have sparked major domestic public unrest and debates on its political purposes. In addition, some of China’s pre-existing issues continue to pose great challenges to Chinese decision-makers and entrepreneurs, including the management of cross-border innovation, knowledge transfer, enforcement of IPR legislation, factionalism within the Party, and its shrinking workforce.
“This is what some economists called ‘the curse of the latecomer’. As a latecomer, China needs to learn from advanced countries not only new technologies and management know-how, but also new institutions that underly the development of new technologies and management know-how.”Prof. Xiaowen Tian, Managing International Relations in China, 2012
Thus, in legitimizing and consolidating the governing power, China’s decision-makers have strong economic and political drives to restore economic growth in 2023.
Looking externally, the last three years witnessed wider decoupling trends among major global powers. The US and China continue to compete on the global market and technological advancement. In between the US and China’s rivalry, the EU has been calling for greater strategic autonomy. With various pressing issues in different world regions, we are now living in a time of global poly-crisis, meaning that crises in multiple global systems have become entangled, and ways to solve or mitigate crises require engagement and collaboration from multiple global actors. In this context, the current Chinese leadership has shown their interest to reduce the risks of crisis and conflicts and to focus on its economic recovery ahead in the near term.
According to a recent analysis from Asia Society Policy Institute, the Chinese leadership has engaged with global leaders and addressed the importance and relevance of China’s export markets and investment opportunities, and expressed interest in leveraging its economic significance to Europe to try to decouple Europe from the United States over time. Moreover, the meetings convened between Chinese and US government leaders suggest China’s effort in reducing “where possible the collateral damage to China-EU relations” caused by Russia’s growing strategic dependency on China.
This demonstrates a shared awareness that binary perspectives may not be suitable measures to tackle various interrelated problems. More comprehensive approaches would be sought after.
The Two Sessions
With internal imperatives and external complications, we are looking at an assertive China that is to engage in global affairs economically and diplomatically in 2023 actively. Carrying distinct sets of economic goals, the Chinese transnational firms, both state-owned and private enterprises from key sectors, are expected to play an essential part in China’s desired bilateral relations with others.
In early March 2023, China is to hold its annual parliamentary meetings, the Two Sessions, during which the National People’s Congress and the National Committee of the Chinese People’s Political Consultative Conference release the government’s social, economic and diplomatic policies. Anticipating a major shift of the appointed central government positions, whether China will lean toward a state-driven economy or a competitive economy, we shall see.