[Analytics] How will China’s role in the global economy change when faced with pandemic backlash?

Beijing is bracing for repercussions following the coronavirus, but it is determined to maintain China’s integral role in the global economy. Realignment of global value chains will speed up post-crisis, but China can leverage its advanced infrastructure and industrial capabilities, experts say. Zhou Xin specially for the South China Morning Post.

Consensus is growing in Beijing that the coronavirus pandemic is set to make the world more hostile towards China, undermining the accommodating international environment that underpinned the country’s spectacular rise from a closed communist backwater into a global economic powerhouse.

The global health crisis, which has killed more than 200,000 people and infected nearly 3 million worldwide, has many in China wondering how the nation can continue to thrive amid an international backlash over its handling of the virus, which first appeared in the central city of Wuhan.

One of the most pressing challenges facing the central government will be the acceleration of global value chain realignment, which may hit China’s job market in the short term and marginalise its role in the global economy in the long run, according to Chinese researchers and analysts.

While Beijing is politically and ideologically at odds with Western liberal democracies, it is determined to stay embedded within the global market.

Whether China can maintain its position in the global economy, or if it will be isolated after the pandemic is brought under control, will be one the most important consequences of the crisis.

Huang Qifan, who as the former mayor of Chongqing oversaw an economic boom in the city, said in a speech earlier this month that the traditional “horizontal” distribution of the global value chain was facing an overhaul, as the coronavirus had exposed its weakness and it would be replaced by “vertical” integration in specific regions.

The future production landscape would be dotted with “production bases”, areas with a radius of 50km to 200km that concentrate 70 per cent of a value chain’s core parts and semi-finished products, he said. These areas, with easy access to global transport networks and located in favourable business environments, will be the future.

China, with its advanced infrastructure and industrial capabilities, has the chance to elevate its role in the global economy as long as it can prove its sincerity in opening up to the outside world, Huang said.

“The pandemic has exposed weak links in the old globalisation model … China and other countries must rethink and readjust global industrial layout,” Huang said.

“However, the adjustment is not total negation of globalisation … such a move would be shooting one’s own foot. The right approach is to open further instead of taking a 180-degree turn.”

Huang’s view is in line with Beijing’s pledge that China will remain investor friendly and open its market further to foreign businesses. Samsung, for instance, has received special approval to send in 200 workers to Xi’an, the capital of Shaanxi province, to complete the expansion of its chip manufacturing plant there.

While threats about decoupling and isolating China are grabbing headlines, the nation remains the world’s biggest manufacturer and the world’s largest consumer market – something that is not lost on multinationals.

Tesla had its best month ever in China last month selling more than 12,000 cars, an increase of 450 per cent from a year earlier, bucking a 40 per cent plunge in China’s overall car sales.

“Elon Musk danced in public when the first Model 3 was delivered this year – you can see how happy he was,” said Chen Fengying, the former director of the World Economy Institute at the China Institutes of Contemporary International Relations.

“China remains a market that can’t be neglected.”

Chen said the coronavirus could speed up formation of regional economic blocs, with three likely to emerge in North America, Europe and East Asia.

“China will be the centre of gravity in the East Asia bloc … that has been decided by China’s industrial system and the vast market size,” he said.

China’s first-quarter GDP shrinks for the first time since 1976 as coronavirus cripples economy
China has the ability to link Japan and South Korea in the north and Southeast Asia in the south, he added.

The shift was already being reflected in China’s trade relationships. In the first quarter of this year, the Asean bloc replaced the European Union as China’s biggest trade partner.

Ding Yifan, a researcher affiliated with the Development Research Centre under the State Council, said China’s industrial power was too big to fail.

China has proved its international competitiveness in “almost every industrial sector” from telecom equipment to high-speed railway, he said, and that competence remained amid the pandemic.

“China’s early days of economic development did rely a lot on foreign investors … and every time western countries talk about leaving China, China gets really anxious,” Ding said. “But in fact, it doesn’t matter any more. China has built up its own industrial system.”

President Xi Jinping has listed “protecting a stable supply chain and a value chain” as one of six priorities in the fallout from the coronavirus, showing the president’s determination to maintain China’s role in the world economy.

Beijing is simultaneously strengthening its commitment to its political model.

Xi said at the last meeting of the Politburo, the centre of power within the Communist Party, that China must make “ideological and work preparations” to respond to changes in the outside world that could last for a long time to come.

The comments were a marked shift from the central leadership’s previous view that China was in a historic “period of strategic opportunity”, thinking that has been fading from official statements since last year.

China’s war of words with the United States has added to the perception of growing hostility and further fanned nationalist sentiment at home.

One populist theory circulating on Chinese social media, dubbed “the Manchus breaking into the Great Wall”, compares China’s role in the world today to that of the Manchu people, who in the 17th century conquered China.

China’s governance, institutions and culture are looked down upon by the US-led liberal democracies just as the Manchu, a nomadic group outside the Great Wall, were seen as barbarians by the Ming dynasty.

The right option for the Manchu people was not to accept the Ming system, but develop their own military power to conquer the ruling dynasty. Once the Manchu broke through the Great Wall their institutions and cultures became the standards.

The theory follows that China should use its economic and mercantile might to dominate the world and fight for its own moment of “breaking into the Great Wall”, snatching centre stage and proving the superiority of Chinese governance and institutions over the West.

In a recent article circulated widely on Chinese social media app WeChat, the author Lu Shihan asked: “Why is China always put at a disadvantaged position in global public discourse, why do so many people believe China-bashing information from Western countries and why is no one giving us fair recognition even we have achieved so much? Why can’t we win other people’s recognition of our culture even when we are already the No 2 economy?”

Lu said the answer lay in the fact that China was culturally different to the US and Europe.

China is seen as a barbarian country just like the Ming saw the Manchu as barbarians – whatever we do will be seen as wrong,” Lu said.

China’s best chance of prospering was by growing its economic might and helping Chinese companies conquer the world market with Chinese products like the Manchu conquered China with their warhorses, the author said.