Investment and trade in the Asia-Pacific region – The China of Xi Jinping

In a series of four articles, we at Shared-an-Ambassador will attempt to shed light on the generally darkening geopolitical horizon in the Asia-Pacific region in order to provide interested parties with a basis for assessing the risks of their economic activities. Xi Jinping’s China is the main contributor to the gloom. India is making economic progress, but with problematic domestic political developments. In non-Chinese Asia, including the heavyweights ASEAN, Japan, Korea and Australia, there are at least glimmers of hope. Once again, China is the primary actor that decides whether conflicts around Taiwan and Korea develop into major crises with global consequences.

The first briefing deals with China.

The China of Xi Jinping

The impending ban on TikTok in the USA is a beacon. Although around 60% of the company is held by international, primarily American investors, the substance and its distribution is controlled by China. This popular online amusement monster is part of the flooding of social media to increase the global influence of Chinese soft power and is also a direct channel from the millions and millions of users to the Chinese surveillance state. This is why the US House of Representatives took action with a large, bipartisan majority to ban it. The aforementioned investors will use their combined lobbying power to bring about a different result in the US Senate. Nevertheless, the ban will probably find a majority there too. Its adoption by other Western countries, including the EU, is then only a matter of time.

Entertainment from Asia has  spilled over to the rest of the world before.  Manga from Japan, for example, or films and pop music from Korea. So why a political ban against the superficially harmless app TikTok? Because the product comes from a country that has become a political and military monster under Xi, threatening peace and the prevailing order in the Asia-Pacific and beyond. This has contributed to the downward trend in the Chinese economy and the withdrawal of Western players from the People’s Republic. 

This also applies to Switzerland in particular. Two significant articles appeared in the same issue of the NZZ on 16.3.24: ‘Swiss companies are putting their China business to the test: after years of euphoria, there is increasing disillusionment in business circles about China. Swiss companies are also reacting with uncertainty. With Sandoz and Lonza, two heavyweights have recently even decided to pull out’.  

As well as: ‘Hong Kong’s bankers (including UBS, as is well known) are trembling at the new law on (Chinese) national security’.

Politics under Xi

In recent years, Xi has gone from being the primus inter pares in the Chinese leadership clique, as we have known it since the death of Mao, to being the new Mao.  Only his words count. His picture hangs everywhere, his writings are the bible for the party, for schools and universities and are imposed on the masses in the workplace and with their daily bread. Under Xi, internal security has grown into total surveillance of all citizens, open dissent is impossible and national minorities, not just the Uyghurs, are mercilessly sinicized. 

For the first time since Mao, Xi has banned the prime minister, the country’s number two and traditionally responsible for the economy, from holding his own press conference after this year’s People’s Congress. Xi had already made sure that the compliant Li Quiang was given this post, who submitted himself accordingly with gestures of humility. The globally broadcast scene when Xi publicly humiliated former President Hu Jintao at a previous congress is unforgettable.  In Asia in particular, such an exposure of publicly losing face, is understood by everyone  Xi saying there can be  no God other than me. 

The military under Xi

The Chinese military budget is growing by almost 10% year to year. However, it by no means includes all military spending. In particular, it does not include all military R&D and the coast guard, which is being expanded to fortify the South China Sea and spearhead an attack on Taiwan. 

However, the current economic downturn means that the defense budget will also be affected. According to his statements to representatives of the military at the People’s Congress, Xi wants to compensate for this with increased production figures for low-cost equipment. Like Putin in Ukraine, he is relying on mass production in the event of a conflict, accepting large initial losses as a result of the technological superiority of an adversary. We will explain what this means for an attack on Taiwan in a separate article. 

Economy under Xi 

The complete subjugation of the Chinese economy to political dictate, coupled with the well-known factors that are devastating to the economy of the People’s Republic, has led to a significant sell-off by global investors. Within a week at the beginning of the year, a two trillion dollar sell-off on Chinese stock exchanges caused the MSCI China to plummet by 60% since its high in 2021.  Many investors and observers now consider China uninvestable, as was expressed at a recent Goldman Sachs conference in Hong Kong.

The fact that the central government in Beijing recently forced some highly indebted provinces to radically cut infrastructure projects should be of interest to all industries. As is well known, activity in the real estate sector has been at rock bottom for some time anyway. As a result, order volumes for companies are falling drastically, exemplified by Schindler in China.

A final comment on Switzerland’s official China policy: against this backdrop, Bern’s dual focus on China is surprising. Politically, by classifying the country as a ‘priority’ in Asia in its 2024-27 foreign policy strategy. Economically, with Switzerland’s desire – contrary to all Western partner countries – for an expansion of the bilateral free trade agreement. This at a time when illegal Chinese mass dumping is breaking the neck of Meyer-Burger, a solar panel company based close to where this writer lives. Several hundred European jobs are disappearing as a result. 

Photo by Kevin Bluer on Unsplash