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The SARS-COV-19 outbreak was first detected almost exactly three years ago in Wuhan. In large part because of PRC Government obfuscation and delay, the world was caught off-balance in ensuing months. We all know the toll in human lives and suffering that has followed.
For democratic-leaning, economically-advanced societies, the road back to a semblance of “normalcy” has been long and difficult but citizens in these countries are now embracing their return to “the new normal.” For less developed countries in the Global South, the journey has been even more arduous and painful due to constrained resources (though, interestingly, the genetic stock of African nations seems to have insulated many of their populations from the worst of Covid-19’s virulence). It is only in China — and perhaps also in North Korea but who knows what has been happening there — that the experience has been dramatically different. Xi Jinping’s “steadfast” policy of Zero Covid — and, subsequently, Dynamic Zero Covid — has resulted in coercive lockdowns of as much as 20% of the country’s population at a given time and in an ineffective vaccination program weakened by hostility to foreign-made mRNA vaccines and propaganda-induced vaccine-hesitancy among its elderly. Today, only 40% of the most vulnerable segment of Chinese seniors — those over 80 — have received two doses and a booster of the Chinese-made vaccine, a combination which has been shown to be no more effective than two doses (without booster) of the Moderna, Pfizer and comparable Western-developed vaccines.
The crippling effects of Xi’s Zero Covid and Dynamic Zero Covid policies on China’s economic performance, coupled with the unprecedented nation-wide protests against the lockdowns flaring up in late November prompted the PRC Government to suddenly drop the policies — and, in fact, any mention of these policies — in early December. As well documented in front-page reporting in today’s New York Times (After Scuttling ‘Zero Covid,’ Xi Offers No Plan), this about-face is potentially catastrophic in its suddeness: the PRC government has not readied any robust vaccination or even public education program to fill the vacuum left in the wake of Zero Covid, reliable data about infections is no longer available since government-mandated mass-testing has been dropped and people are being told to self-test at home, and Xi Jinping is nowhere to be seen, having snuck out the back door of the monument to his infallibility and PRC governmental superiority he built around his Zero Covid policy.
Xi’s Zero Covid policy has clearly boomeranged on him — and, more tragically, on the Chinese people:
- Projections of more than a million infections in coming weeks
- ICUs and hospitals already overwhelmed
- Morgues and crematoria backlogged and corpses stacked in plain view (despite PRC Govt acknowledging zero deaths)
But does the boomerang effect end there? Despite today’s excellent reporting by the Times and recent reporting by other news outlets, the scope of what is happening in China is only dimly understood outside of China. In large part, this is due to the fact that the scope is not well understood in China — except anecdotally and in felt individual experience — due to the heavy curtain of state-media censorship. The scope may be vast …
There are many reasons we should be attending closely to these developments. Humanity and empathy are high among those reasons. But perhaps the most important reason is that this could all come back and boomerang on us again, too. Unchecked spread among a vast, poorly-protected population can easily give rise to a new strain in China that could once again spread throughout the world.
What goes around, comes around. Wuhan Redux? If so, the finger of blame is to be pointed directly at Xi Jinping.
Experts predicting COVID cases in China to explode after the country ends strict zero-COVID policy (USA Today, 6 hours ago)
Scientists predict COVID surge in China this winter, with hundreds of millions of people infected (NPR, 1 day ago)
Strain on China’s hospitals may now be resulting in doctors and nurses infecting patients (BBC, 2 days ago)
Today’s post shares excellent analyses of the on-going protests in China courtesy of Foreign Affairs:
Across China, people are protesting the country’s strict “zero COVID” policy, in a rare show of dissent against President Xi Jinping’s regime and the Chinese Communist Party (CCP). The wave of outrage started after a deadly fire in the city of Urumqi, the capital of the Xinjiang region, killed at least 10 people on November 24. The city has been under lockdown for more than 100 days. Protesters are calling for an end to the zero-COVID policy—but also for greater democracy and even the removal of Xi.
As Yanzhong Huang writes, it has been clear for some time that Xi’s commitment to zero COVID is a risky move. “Having staked enormous political capital on zero COVID,” Chinese officials have had to pursue “excessively harsh measures in an effort to avoid any outbreaks that might embarrass the government.” But “Beijing’s intransigence has come at an escalating cost.”
What could mounting public distrust and discontent mean for Xi’s regime? The country’s punishing lockdowns “could contain the seeds of future political transformation,” Huang writes. If the Chinese government refuses to alter course, it could face a serious crisis of legitimacy. And Xi’s power is already being questioned as never before, Chinese dissident Cai Xia notes. Despite Xi’s outward projection of confidence, his popularity is slipping—while “in the shadows, resentment among CCP elites is rising.” As demonstrators clash with Chinese authorities across the country, we’ve compiled some of the best recent coverage in Foreign Affairs on how China’s zero-COVID policy is putting the country’s political stability at risk—and what it could mean for Xi and his grip on power. Start reading below.
I am frequently asked questions about Covid in China. The three most commonly posed questions are: (1) how and where did it originate; (2) how is Xi’s Zero-Covid policy faring and (3) what is the reaction in China among both businesspeople and ordinary citizens.
In this post, I’ll take on the first two questions but with the caveat that definitive answers to any of the three questions are almost impossible to arrive at given the complexity of the underlying facts and the fierce political skirmishing over establishing the “truth” of the matter.
I am going to stay above the fray and offer simple generalizations to put each of the first two questions into clear perspective and revealing context. On the second question, I will add substantial commentary from today’s edition of Sinocism by Bill Bishop, which has been well described as “the Presidential Daily Brief for China hands” by Evan Osnos of the New York Times. (Note: Bill Bishop gives his subscribers leave to share, on occasion, content from his newsletter which I am doing for the first time here). For anyone interested in the answer to the third question, I’d say for now that both the business response and popular response is dismal at best but would encourage you to keep an eye out for my fuller response coming soon.
Origins of Covid-19
I am not going to venture where even leading epidemiologists fear to tread but will confine myself to one unassailable truth. The Chinese Government has consistently and systematically denied the world community — both its cadre of scientists and its relevant governmental and non-governmental organizations — access to the sites, data and interviews which would facilitate pinpointing the origins of Covid-19. It may eventually be possible through painstaking DNA regression analysis to pinpoint the origin of Covid-19 with certainty despite this lack of Chinese cooperation. Meanwhile, the glaringly obvious question raised by China’s stance is what is the PRC government trying to hide?
Zero-Covid Thought Control
Ever since Xi Jinping held forth his Zero-Covid policy as the basis for claiming the superiority of “Chinese democracy” over traditional liberal democracy, his adherence to that policy has been “unflinching” and “unswerving.” This was especially apparent in the run-up to the 20th National Party Congress in Beijing last month, even in the face of plummeting economic performance. Emerging from that once-in-five-years leadership shakeup with a plalanx of Standing Committee loyalists in place, Xi acknowledged the economic fall-out and popular discontent by announcing on November 11th some tweaks to enforcement policies under the banner of “optimizing Zero-Covid.” The results of this ‘optimization?’ Today’s infection rate and number of partial lockdowns is, in toto, more widespread and deleterious (see below) than the earlier, traumatic nadir experienced during the Shanghai lockdown last spring. It is ironic, but not altogether surprising, that “the Emperor” insists, as a sop to his pride, that his citizens all change the way they talk and think about his Zero-Covid policy — now “optimized” — rather than that he change the policy meaningfully to ease their personal and economic lives.
Addendum: Extracts from today’s edition of Sinocism on ‘optimized Zero-Covid’
Lockdowns by another name continue in parts of several cities as daily cases are approaching the level of the Shanghai disaster earlier this year. Right now it feels like we are seeing a repeat of Shanghai in late March, when local officials tried targeted and precise measures, before realizing that Omicron overwhelms all those efforts, leaving officials with the choice between letting it start to rip or instituting suffocating lockdowns. Near term I think they will have to choose the latter as they are not where they need to be with vaccinations and hospital capacity. But even then they have a massive problem with virgin immunity, so until they are willing to tolerate larger numbers of serious illness and death, or have better therapeutics, I do not think there is a specific end date. I know it is popular now to say March, pegged to the “two meetings”, but I am not sure why that is really an end date. They really seem stuck.
China lockdowns reach record level as coronavirus cases spiral | Financial Times $$
“China is seeing a record level of lockdowns,” said Ting Lu, chief China economist at Nomura. “It’s even a bit worse than during the [spring] Shanghai lockdown because so many cities are partially locked down.”
The bank estimates Covid restrictions have hit areas responsible for one-fifth of China’s gross domestic product…
In Chongqing, another pandemic hotspot, the arrival on Monday of Sun Chunlan, a vice-premier known for her draconian approach to battling the pandemic, led to widespread panic shopping among residents, concerned about the potential for a tough Shanghai-style lockdown.
China’s Lockdowns Surge in Week Since Covid Policy Adjusted – Bloomberg
China’s top health officials vowed to stick with Covid Zero at a Tuesday briefing, saying outbreaks across the board remain “severe and complex.” Beijing is telling local governments to implement the updated guidelines, which were outlined in 20 measures earlier this month. Localities shouldn’t be excessive when it comes to Covid controls, but they also shouldn’t loosen too much either, said Mi Feng, spokesperson of the National Health Commission.
Beiijng Daily – 尹力：坚定坚决打赢疫情防控整体战阻击战歼灭战 实现防住疫情稳住经济安全发展-千龙网·中国首都网
Party Secretary Yin Li: Yin Li: Firmly and resolutely win the overall war of epidemic prevention and control, the war of resistance and annihilation, realize the prevention of epidemic situation and stabilize the development of economic security.
Comment: “歼灭战”, literally “war/battle of annihilation” seems hard to win with piecemeal shutdowns. Hearing that some beijing cadres issuing localized lockdown orders verbally only not going to inspire confidence in the “optimization” of dynamic zero-Covid on the road to reopening. why are they hiding it? from whom are they trying to hide it?
The ongoing epidemic is witnessing growing infections. The average daily new cases this week reached 22,200, nearly double last week’s level, Hu Xiang, an official of the national epidemic prevention and control bureau, said at a press conference on Tuesday.
Hu noted that the epidemic, which has hit many provinces and regions, showed complex transmission chains. Some provinces are facing the severest and most complicated epidemic in the past three years.
Densely populated cities like Guangzhou in South China’s Guangdong Province and Southwest China’s Chongqing Municipality are epicenters of the ongoing outbreaks, as the large population, high personnel mobility and frequent gatherings in key spots like schools increased the risk of epidemic transmission and the difficulty of putting the epidemic under control, according to Hu…
Citing experts who closely follow the situation of China’s epidemic, some media outlets predicted on Tuesday that this round of the epidemic would continue to expand until the middle of December.
新京报 – 北京疾控：2例重症病例未接种加强针 老人接种率偏低
Beijing official: two seriously ill Beijing patients, one 52 and the other 89, did not get the booster shot and the booster rate for those over 60 is low and for those over 80 is not even 30% 例新冠肺炎重症感染者分别为52岁和89岁，均未接种加强针, 30% 60岁及以上感染者全程和加强免疫接种率均偏低，80岁及以上感染者加强免疫接种率不足30%
新京报 – 24日起进入市属公园等须持48小时内核酸阴性证明
According to the requirements of epidemic prevention and control in Beijing, starting from November 24th, residents and visitors must hold a negative nucleic acid test certificate within 48 hours to visit the municipal parks and the National Botanical Garden.
根据北京市疫情防控工作要求，11月24日起，市民游客进入市属公园、国家植物园参观游览须持48小时内核酸检测阴性证明
China should optimize and adjust its COVID control measures, depending on how the pandemic situation evolves domestically and beyond its borders, a page-one Economic Daily commentary said. Still, it said COVID control is a daunting and long-term endeavor, and that officials must not slack in implementing related measures to contain outbreaks. The pieces quote Xi from his comments to the Wuhan delegation at the delayed NPC meeting in May 2020 – “针尖大的窟窿能漏过斗大的风” – a hole the size of a needlepoint can let in a huge wind”. So how are officials supposed to respond, when they are being reminded that even the slightest slackening can lead to an outbreak? They have seemingly impossible and contradictory tasks
Outbreaks Test China’s Efforts to Limit the Cost of ‘Zero Covid’ – The New York Times
“It’s maybe 10 steps forward and nine steps back,” said Chen Long, a policy analyst at Plenum, a Beijing consulting firm…
Citizens will only be reassured, said Wang Xiangwei, a Beijing commentator and newsletter ( Wang Xiangwei’s Thought of the Day on China) writer, when trusted health experts appear on television to discuss the lack of severity of the Omicron variant for those who have been vaccinated, particularly young people who also have strong immune systems. A possible candidate, he said, was Zhong Nanshan, who helped uncover the SARS outbreak in 2003 and played a key role in drawing national attention to the initial Covid outbreak in Wuhan nearly three years ago.
近期多起疫情涉及高校！教育部本月两度开会部署：防止以“优化”为名放松防控|怀进鹏|教学|无症状感染者例_网易订阅
After several recent outbreaks at colleges and Universities, The the Ministry of Education held two meetings this month to make plans to prevent the relaxation of prevention and control in the name of “optimization”
国家卫健委明确：急诊、透析室、手术室、分娩室、重症监护室非必要不封控
The National Health and Health Commission has made it clear that emergency rooms, dialysis rooms, operating rooms, delivery rooms and intensive care units are not to be shut unless necessary.
The National Health and Health Commission reiterated that it is very important for fever clinics to stay open.
Comment: Officials have really upped the rhetoric on ensuring that people have access to medical care even if there are lockdowns
新华全媒+丨不折不扣落实疫情防控优化措施——国务院联防联控机制新闻发布会回应焦点问题-新华网
Xinhua on the key takeaways from the Joint Prevention and Control Mechanism of the State Council presser, concludes with:
In the affected areas, medical institutions at risk of the epidemic should not be “shut down” or “locked down” under the pretext of epidemic prevention and control, especially emergency rooms, dialysis rooms, operating rooms, delivery rooms, and intensive care units in medical institutions. These important departments should be “not sealed up and controlled unnecessarily” to ensure the treatment of patients. It is possible to minimize the impact of epidemic prevention and control on the daily medical services of medical institutions and meet the needs of the people for medical treatment.
在发生疫情的地区，不能够以疫情防控为由对发生疫情风险的医疗机构“一关了之”“一封了之”，特别是像医疗机构的急诊、透析室、手术室、分娩室、重症监护室等，这些重要的救治科室要做到“非必要不封控”，保障患者救治。最大可能减少因为疫情防控对医疗机构日常医疗服务的影响，满足人民群众就医需求。
11.22 People’s Daily “Zhong Yin” on epidemic control and prevention work – 深入细致做好服务保障工作
The relationship between epidemic prevention and control, normal production and life, and economic and social development is complementary and dialectically unified. To better respond to and resolve the reasonable demands of the masses and solve the practical difficulties of the people is not only an inherent requirement to adhere to the supremacy of the people and life, but also the right thing to do to firmly implement the general policy of “dynamic zero-Covid”. The struggle against the epidemic in the past three years has profoundly revealed to us that only when the epidemic can be prevented can people’s lives be safe and secure; The only way to effectively coordinate epidemic prevention and control with economic and social development is to take concrete measures to reduce the negative impact of the epidemic and ensure sustained, healthy and stable economic and social development with good results.
疫情防控和正常生产生活、经济社会发展，是相辅相成、辩证统一的关系。更好回应和解决群众合理诉求，解决好人民群众实际困难，这既是坚持人民至上、生命至上的内在要求，也是坚定不移贯彻“动态清零”总方针的题中应有之义。近3年的抗疫斗争深刻启示我们：只有疫情防得住，人民生活才能平平安安；只有抓实抓细疫情防控各项举措，同时减少疫情带来的不利影响，以良好的防控成效保障经济社会持续健康稳定发展，才是高效统筹疫情防控和经济社会发展。
The government also encouraged residents in Chaoyang district to “slow down their lives” at a press conference on Tuesday, asking them to not leave the district unless absolutely necessary, use online learning, online meetings and telephone communications to reduce visits to schools and offices.
CCTV – 上海：24日起，抵沪不满5天者不得进入公共场所_新闻频道_央视网(cctv.com)
Starting 11.24, people who have been in Shanghai for less than 5 days are not allowed to enter public spaces
Chinese regulators warn IPOs of zero-Covid winners subject to tight checks | Financial Times $$
Chinese regulators have warned that a wave of initial public offerings from companies claiming to be involved in China’s booming Covid-19 testing sector will be subject to added scrutiny over concerns that their high growth is unsustainable.
According to Chinese media outlets, a community staff member later suggested that this was a non-official, self-initiated move by the property management and that it has since been corrected.
China Economy Braces for Major Disruption into Next Year as Covid Cases Surge – Bloomberg
The path to reopening “may be slow, painful and bumpy,” the Nomura economists wrote in a note, suggesting a “back and forth” approach as rising cases stir reluctance among policymakers to ease curbs quickly. Nomura forecasts gross domestic product growth of 4.3% for 2023, lower than a median estimate of 4.9% in a Bloomberg survey.
Caixin – China Fleshes Out ‘Optimized’ Covid-19 Response
On Monday, China reported two Covid-related deaths, one in Henan province and one in Sichuan province, after Beijing recorded three virus-related deaths over the weekend.
Beijing shuts parks, museums as China’s Covid-19 cases rise | The Straits Times
The municipality of Tianjin near Beijing on Tuesday became the latest to order citywide testing, after a similar announcement on Sunday by the northern city of Shijiazhuang.
Kevin Rudd, global president of the Asia Society and former Prime Minister of Australia, knows China well. He wrote in yesterday’s Wall Street Journal that:”The 20th Congress, which gets under way Oct. 16th will be different (from other Congresses since the opening of the 1982 reform era). There’s only one appointment that matters now: Xi Jinping, China’s Chairman of Everything. The delegates will reappoint Mr. Xi to a third five-year term as general secretary by a vote of 2,296 to 0.”
I don’t disagree with the main point that Kevin Rudd is making here but there is also a more nuanced view that is important to bring to bear. Wednesday’s post set the table for this more nuanced view. That perspective involves understanding the seven appointments which will be announced on Sunday to the Standing Committee under Xi. The crux of the issue is whether those seven appointments represents a line-up of Xi loyalists — in which case Rudd’s take is spot on — or whether there are appointments enfranchising power-bases at odds with Xi’s direction and indicating that the Party wants some checks on Xi’s untrammeled authority.
Here’s my cheat-sheet to reading next week’s Standing Committee appointments in light of this question:
Chutes & Ladders: 20th CPP National Congress Edition
So what to watch for?
(Scenario 1) Signs that the CCP is totally bought into Xi being Chairman of Everything
— Premier Li Keqiang (aged 67 and therefore normatively eligible for another term) is gone
— No one in their early 50s joins the Standing Committee (showing Xi doesn’t want heir apparent)
— Chen Min’er, a Xi loyalist and champion of Xi’s war on poverty, is appointed
— Ding Xuexiang, a Xi loyalist and Xi policy enforcer, is appointed
(Scenario 2) Signs that the CCP wants some checks on Xi’s untrammeled exercise of power
— He Lifeng, an internationally-friendly protégé of retiring economic czar Liu He, is appointed
— Hu Chunhua, who like Xi had a stellar early career but hasn’t been close with him since, is appointed
— Li Hongzhong, party boss of Tianjin and not “a dyed-in-the-wool” Xi man, is appointed
— Li Xi, party boss of independently minded Guangdong province, is appointed
Finally, keep an eye on Chen Quanguo, party boss of Xinjiang in charge of Uyghur “reeducation,” and Liu Jieyi, head of the Taiwan Affairs Office and the political dimension of the Taiwan reunification project. Whether their stars shine brightly or dim will also give an indication of the degree of CCP support for Xi’s hardline policies on these two fronts.
So that’s the scorecard I recommend you follow. We’ll circle back next week and tally up the score after the Standing Committee line-up has been brought out, in rank order, onto the main stage of the 20th National Party Congress.
With the 20th National Congress of the Chinese Communist Party (CCP) kicking off this coming Sunday, it’s useful to step back from the game of handicapping short-term odds and to take for a moment a longer-term perspective. We can return to anticipating the likely ‘chutes and ladders’ of 20th National Congress outcomes later this week: the (near-certain) likelihood of Xi Jinping securing a third term as President, unprecedented in the post-Mao era, and an examination of the ascendent and dimming stars of various Standing Committee incumbents and candidates and what that portends for the next five years. For now, it’s useful to step back and evaluate how it came to be — and what it means for China’s future — that Xi stands on the threshold of entering the CCP pantheon with near-totalitarian power. The key question to consider is whether Xi managed to bend the CCP and the country to his will or whether Xi’s rise reflects what the CCP has willed for China’s future.
The two best authorities on this question are Elizabeth Economy (The Third Revolution: Xi Jinping and the New Chinese State [2018] and The World According to China [2022]) and Kerry Brown (Xi: A Study in Power [2022]). Informed by their insights, I will attempt a super-summary of the forty-years which have led up to Sunday’s moment in history and then tackle that key question.
~ ~ ~
The market reforms which the CCP started experimenting with behind the curtain in 1978 and which it then publicly introduced in 1982 had an extraordinary run of success in elevating China’s economy. This occurred first under Deng Xiaoping’s informal leadership from 1982 through 1997 and then continued, in somewhat overlapping fashion with Deng’s tutelage, under the more regularized leadership of, first, Jiang Zemin (1993-2003) and then, starting in 2003, Hu Jintao. By 2007, post-WTO economic reforms were coming on stream, more far-reaching liberalizations were on the horizon, and a new system of divided authority and orderly succession in the Standing Committee was taking shape. (Under this system, the posts of President and Premier as well as the seven (usually) Standing Committee slots could not be held by any one person for more than two five-year slots. If at the time of a National Congress, occurring every five years, a one-term incumbent was 67 years old or less, he (virtually always a ‘he’) would be eligible according to the “seven up, eight down” rule to serve another five year term. If he was 68 or older, however, he would be obliged to step down.)
In 2007, Western observers, myself included, could be forgiven for thinking that China was on a development path in line with Western values and the post-WWII world order. But starting with the Financial Crisis and then, over the next fifteen years, this alignment started to diverge. Progressively, in step with Xi’s anointment as President in 2012 following his leadership struggle with Bo Xilai and his subsequent consolidation of power through his signature “Tigers & Flies” anti-corruption campaign, Xi started positioning his “Rejuvenated” China as deserving equal political stature on the world stage with the United States and equal, if not superior, stature to the West in matters of values and culture. His triumphalist speech at the 2017 National Congress made this claim explicitly and emphatically for all the world to hear. The Belt & Road Initiative and the Zero-COVID policy became Xi’s monumental stages — internationally and domestically — for playing this claim out for all the word to see.
Despite serious setbacks in 2022 with an imploding real estate market and a diminished tech sector, with COVID lockdowns and social discontent, and with the embarassment which his “friend without limits” has caused Xi personally in Ukraine, Xi looks set to enter the CCP pantheon this Sunday to be installed on a pedestal he has made for himself — higher than Deng Xiaoping’s and not lower than Mao Zedong’s.
This enthronement could not have been scripted by one man. The near absolute consolidation of power in the hands of one person could not be the work of one person unless there were far more evidence of resistance and rebellion in the ranks of other CCP power-brokers whose oxen had been gored. As this incisive opinion piece by Kerry Brown in yesterday’s New York Times persuasively argues, Xi’s leadership ethos is the CCP’s ethos and Xi’s laser-focus on making China “strong, respected and feared” will remain as strong even when Xi leaves the stage. It will remain for as long as the CCP can keep the lights on and the stage lit.
by Doug Barry, Senior Director of Communications, U.S.-China Business Council
(view original article in USCBC’s Fifty States, Fifty Stories series)
Policy entrepreneurs are plentiful in America. You can find them everywhere, devoting ideas and energy to getting things done. Terry Cooke founded the non-profit China Partnership of Greater Philadelphia with a focus on getting the United States and China to cooperate on climate change. Getting what he wants done has become more challenging as the two countries ping pong between cooperation, competition, and conflict.
How did he get here and how is he managing multiple challenges simultaneously? He’s been interested in global affairs for a long time, starting in 1988 when he joined the US Commerce Department as a foreign commercial service officer in Shanghai. His two-year posting there bracketed the Tiananmen Square convulsion. Years flew by with postings in Tokyo, Berlin, and Taiwan. In 2002 he took leave from the foreign service and started a consulting business focusing on Taiwan and high tech.
In 2006, Cooke joined the World Economic Forum (WEF) as Director of Asian CEO Partnership with a focus more on Japan than China. He left in 2008. “It was too much travel,” he recalled. “I worked in New York, had my family in Philadelphia, commuted to Geneva, and had responsibility for multiple events in Asia.”
One of the best parts of the WEF job was sitting in on multiple sectoral meetings with CEOs. His main takeaway was that many of these corporate leaders were talking about the challenges of climate change, not as PR or greenwashing, but about the need to transform their companies into low-carbon leaders. “I decided that was the hook that I wanted to hang the second half of my career on when I came back to Philadelphia.”
Cooke recalled his time in Berlin and the impression made by comparing what was then called West Germany with the East, which at the time was terribly polluted. When the Berlin Wall fell, the country united and the cleanup of the Eastern part of the country began. The lesson was that great progress to improve the environment is possible if the political will exists and if clear policy creates predictability for businesses and investors.
The good old days
In 2010, Cooke joined the Wilson Center, a Washington, DC think tank, as senior fellow for US-China climate cooperation. His research there led to publication of his book Sustaining US-China Cooperation in Clean Energy. Coincident with this research, Secretary of Energy Steven Chu introduced a “national labs program for the 21st century” for clean energy technologies as an outgrowth of the 10-year framework for US-China cooperation on energy and the environment pioneered by Treasury Secretary Hank Paulson in the waning years of the George W. Bush administration.
President Barack Obama and Secretary Chu worked to expand Paulson’s program, adding three US-China clean energy research centers in different industrial areas: electric vehicles initially at the University of Michigan, clean coal at the University of West Virginia, and energy efficient buildings through a Penn State-led program at the Philadelphia Navy Yard.
“Disappointing as these decisions were, there was still potential in the climate change mitigation space, even as other areas like micro-electronics drifted further off-limits.”
To support and expand the energy-efficient buildings program, Cooke founded in 2011 the China Partnership of Greater Philadelphia whose mission was raising awareness and facilitating collaboration to create and bring to market low-carbon solutions for the built environment. For the first years, things went great with lots of local and Chinese partners, mayoral visits, and stakeholders to plan low-carbon futures for urban centers in the United States and China. In 2014, China Partnership of Greater Philadelphia and its partner organization in China, the TEDA EcoCenter, were competitively selected for and awarded a prestigious U.S.-China EcoPartnership Award, administered jointly by the U.S. and PRC Governments.
“We had some fits and starts, including an unfortunate near-death experience involving IP piracy.” Isn’t this ironic given the long-standing concerns the US government and private sector have about “collaborations” that lead to forced technology transfers and outright pilfering? “It would be if that’s what happened. Instead, the main culprit was an American in an American company.” The company did not want to make a public fuss because of reputational concerns. “We had to shift focus and change our business model to make sure that would never happen again, but it was a one-off, not something endemic with the work we were doing.”
Pulling the plug on energy cooperation
If not as immediately dire, there were other experiences that could have been crippling to his non-profit. Two of them involved former president Donald Trump, who pulled the United States out of the Paris Climate Accords and in 2020 terminated the US-China EcoPartnership program just seven days before leaving office. “Disappointing as these decisions were, there was still potential in the climate change mitigation space, even as other areas like micro-electronics drifted further off-limits.”
The shifting binaries involved with competition and cooperation were making the scope for business cooperation more limited and the non-profit’s work more problematic. Competition is now spilling into the space previously marked by cooperation. The shriveling of discourse between government leaders has only made things more difficult.
“What used to be very effective work through industrial cooperation in lowering emissions is now off the table, though some academic and some intergovernmental climate cooperation continues.”
Early in the Biden administration, excitement was generated by the appointment of John Kerry as climate envoy. Kerry and his PRC counterpart, Xie Zhenhua, had worked closely and cooperatively under Biden’s vice presidency during the Obama administration but Biden administration policy would not be a simple reset to that period. While cooperation continues in areas such as scientific exchange and standards setting, industrial cooperation toward low-carbon goals now enjoys little federal-level support. This even as the planet continues to warm and nations like China and India continue to struggle reducing their addiction to coal.
Kerry recently pointed out in a Foreign Affairs article that there’s still time to avoid disaster but that in the coming years many trillions of dollars will be needed to fund and field clean energy technology. The money, he said, must largely come from the private sector which stands to gain from what could amount to a new industrial revolution.
Cooke worries that the emphasis on zero-sum competition with China over recent years will make broad cooperation in climate change extremely difficult. “The competition drive is spilling into areas that used to be defined by cooperation,” he said. One example is the network of 11 national-level eco parks organized through the Greater Philadelphia-Tianjin EcoPartnership. Germany invested in one such park in 2020, focused on green maritime technology, to the tune of more than $3 billion. The PHL-TJ EcoPartnership had defined a focus on energy-efficient, securely smart and healthy buildings at sustainable-city scale for this network of 11 eco-parks. The emphasis was on large-scale opportunities supported by very large companies and leavened by the innovation of smaller, entrepreneurial companies. “Given the problems in the bilateral relationship, that large scale opportunity has receded for the foreseeable future at least.”
Enter the contradiction
Cooke is highly attuned to the potential for contradiction between commercial competition and climate cooperation, worrying that when Kerry steps down, the space for commercially led environmental solutions to be applied at scale and speed in the two largest global economies will shrink even more.
“What used to be very effective work through industrial cooperation in lowering emissions is now off the table, though some academic and some intergovernmental climate cooperation continues.” He concedes that the continuation of even these relationships is not assured given the political environment in both countries.
“My organization was about creating a platform for a US-Sino Eco-Park in China bringing advanced energy efficiency services and technologies to the park. That is viewed negatively now in Washington. What’s disappointing is that other countries friendly to us are now established in China in commercial areas that we’re better at but won’t be able to contribute to because official reluctance for cooperation.”
Cooke says: “The United States needs to be smart about its clean energy approach to China. Yes, China wants to dominate an emerging 21st century industry. But if we out-innovate and out-compete China technologically, we can access their market profitably and also collaborate commercially to forestall the worst effects of climate change. Is it really in the US interest not to have active engagement with China, aside from discrete small companies that are more easily taken advantage of? I’d prefer to see us going in with a convoy approach of large companies and smaller innovators protected by US government policies and focused on delivering measurable, low-carbon solutions at a globally impactful scale. To my mind, this is a huge missed opportunity.”
Cooke’s non-profit, which he recently rebranded as ReGen250 to accommodate additional, non-China-focused environmental programs, continues to assess options for low-carbon partnerships with China. What elements would a US private sector partner want to support that his organization could strongly endorse? “Alternatively, we can just decide we’re only going to focus on local programs in the Mid-Atlantic to increase access to a greener built environment.”
What about the Department of Energy’s prior interest in cooperation? “I have had some high-level discussions within the Department. The entire group that previously supported the commercial exchange at this high level between the national government and subnational actors, including Eco-Partners and city level groups, is not active right now. It was disappointing to learn that.”
“Despite the challenges in the US-China relationship, subnational initiatives, especially in energy and climate change mitigation solutions, should be encouraged and supported.”
Despite the setbacks, Cooke believes there are still areas for engagement with China regardless of the government in power. One involves people-to-people exchanges, albeit challenging at the present moment given China’s zero-COVID policies. Examples of programs that deserve to survive are the adoption of Chinese children, music (he helped the Philadelphia Orchestra create an artist residency program in China) and artistic exchange, student exchange, and most importantly, business. He believes that the once promising universe of business cooperation has constricted but there still remain spaces outside of sensitive technologies where businesses can and must connect.
As a member of the local ecosystem that support US-China commercial relations, he’s not giving up. Rather, he envisions the different China business-related ecosystems across the United States networking and sharing best practices. He said that one such effort was made recently at a Midwest university, but he expressed some disappointment at the fact that the focus turned out to be on a recently discovered vulnerability involving WeChat. It was a security-led briefing, not the commercially minded dialogue that is needed.
Cooke isn’t ready to walk away from his gift of multi-stakeholder cooperation on climate change or the imperative for non-profits like his to act locally and globally. “Efforts at the subnational level have an important place in helping American companies navigate a complex environment in China. They have a great potential impact because they can organize a well-protected convoy in the place of one isolated boat, big or small.”
“Despite the challenges in the US-China relationship, subnational initiatives, especially in energy and climate change mitigation solutions, should be encouraged and supported.”
(view original article in USCBC’s Fifty States, Fifty Stories series)
Over 10 years, Xi Jinping has methodically amassed power. Beginning with an unprecedented consolidation of military support, Xi then launched his ‘Tigers and Flies’ campaign, sidelining his political rivals along with officials accused of corruption. Over many years he patiently laid the groundwork to elevate Xi Jinping Thought to match the official stature of Mao Zedong Thought, and edge out Deng Xiaoping Thought, in the CCP’s ideological pantheon. He then overturned international commitments regarding Hong Kong, and brought that free-wheeling and Westernized city to heel with the introduction of a new security law. At the last 19th Party Congress in 2017, Xi tossed aside Deng’s “hide-and-abide” (韜光養晦、有所作為) approach to international relations and gave a triumphalist speech, announcing that China had not only arrived on the world stage but that it deserved central position on that stage. With the outbreak of the Covid-19 epidemic, Xi used sharp-elbow tactics to block scientific investigation into its origins in China and ordered sweeping zero-Covid lockdowns to highlight his government’s ability to take more effective action than was possible for democratic governments in the US and the West. The Winter Olympics were meant to be Xi’s star-turn to demonstrate — more to the Chinese people than to international audiences (many of whom undertook diplomatic boycotts of the Games because of oppression of Uyghurs in Xinjiang and other issues) — that he was a flawless and unrivalled champion. He even went so far as to claim that the authoritarian system he presided over represented a superior form of democracy to Western liberal democracy.
Along this path to unrivalled power in China, Xi first jettisoned the system of collective rule by the Standing Committee of the Politburo which Deng had put in place to guard against recurrence of unbridled rule by any one individual, epitomized by the last years of Mao’s rule. Longer term, Xi’s aim in amassing power has been to discard the limit of a president to two five-year terms, another safeguard Deng put in place and which he himself observed.
The announcement of leadership for the next five-year term will happen at the CCP’s 20th Party Congress in Beijing this autumn. At that meeting, Xi is widely expected to be named for a precedent-shattering third term. This will mark a historic high-point for Xi. His systematic consolidation of power has been designed, in part, to create an air of inevitability about this outcome. While his selection is still overwhelmingly likely, a number of significant fissures have appeared in recent weeks which crack this façade of total control.
ZERO-COVID
While undoubtedly successful in limiting the number of infections, hospitalizations, and deaths in the first two years of the pandemic, Xi’s Zero-Covid policy has created a raft of problems for China more recently, most notably during the highly-transmissible omicron phase. While incidences of infection, hospitalization and death have been dropping worldwide, they have been surging in China, with the number of confirmed cases more than quadrupling from mid-February to mid-March of this year. Elderly citizens are especially at risk due to their low rates of vaccination and hospitals have already become overwhelmed, due in part to the low number of hospital beds on a per capita basis in China. While it can be argued that the Zero-Covid policy ‘bought time’ for the development of vaccines, Xi’s championing of the locally developed Sinovac vaccine and his refusal to permit the use of more clinically-effective vaccines developed in the West, has blunted that advantage somewhat since the Sinovac vaccine is notably less effective against the omicron variant. The Zero-Covid policy has also meant that there is practically zero immunity in the Chinese population as a result of exposure to the virus as it becomes endemic worldwide. If SARS-COV-2 can be compared to a flame, China’s population is like a vast field of tinder. Finally, the economic and social costs have become glaringly apparent with the lockdown of an entire province, Jilin, in the northeast and the of Shenzhen and Dongguan – China’s two largest manufacturing hubs for information and communications technology (ICT) — in the south.
While Xi will, with considerable justification, continue to claim credit for his “triumph” over the coronavirus, China is by no means out of the pandemic woods and the setbacks of the last month make his strident claims ring more hollow, both internationally and domestically.
REAL ESTATE
In September last year, Chinese real-estate development firms began to feel the severe discomfort of a massive hang-over following years of real-estate speculation partying. The problems were most evident in real-estate giant Evergrande but soon spread to a host of other significant players in the field such as Fantasia, Modern Land, China Property Group and Xinyuan Real Estate Group. At the institutional level, the problems hitting the $5 trillion sector were the result of a unique PRC nexus of aggressive real estate development, lax banking, and local government incentive structures. More simply, the problems resulted from “unrestrained borrowing, expansion as an end-in-itself, and corruption.”
While the PRC Government claimed this week that the real-estate free-fall has been “stabilized,” pricing data from real estate developers across the country continue to show sharp deterioration. Also this week, Evergrande announced a further delay in sharing its plan for restructuring and for paying back bonds and other financial obligations. The government has strong reason to put on a brave face while throwing up a curtain of opacity around the problem. Property-related industries account for more than 30% of China’s economic output. Continued problems in the sector could drag China’s growth below the optimistic, post-pandemic official target of 5% growth, a minimum level which must be maintained in the years ahead for China to escape the ‘middle income trap.’ More immediately, it risks alienating an important swath of the urban public, 80% of whose household wealth is tied up in real estate and who see their property values plummeting. (A particularly aggrieved segment of this population are buyers who have paid up front to the developers, as is common in China, for a property not yet built and for which construction has halted indefinitely while values continue to slide).
While Xi has voiced loud promises to not let the bottom fall out of this sector and to support homeowners currently caught in the fallout, there is little evidence on the ground of these promises translating into reality. Meanwhile, the situation risks alienating the public and sowing dissent among officials.
‘COMMON PROSPERITY’
As measured by the Gini coefficient, China ranked fourth in the world in 2022 for greatest wealth disparity and inequality (after South Africa, Namibia and Sri Lanka). While Deng Xiaoping had announced famously in the late 1980s that “to get rich is glorious” and to “let some get rich first,” the extreme degree of inequality persisting in China four decades later is a source of growing social and political concern. The heady days of 10% growth have long ago disappeared and Chinese who thought they would be boarding on a later rail-car in the national train of prosperity now worry that the train may have departed, stranding them on the platform.
To counter this source of social unease, Xi unveiled with great fanfare in 2021 a policy of ‘Common Prosperity.” Writ large, this policy was meant to cement Xi’s place — side-by-side with Mao and with Deng slightly in the background – in China’s pantheon of modern heroes. In this telling, Mao was the one who roused China to throw off its ‘Sick Man of Asia’ bondage to foreign imperialists and to stand up. Deng contrived a transitional stage of capitalist-style wealth-creation for enough Chinese that China could attain wealth and power (富权). It was left to Xi to complete this project of national rejuvenation, by reinstituting a Marxist “Common Prosperity’ for all Chinese and returning China to the center of the world stage.
Without getting into either the ideological weeds (such as Xi’s ‘Dual Circulation’ strategy) or deep into the tangle of economic measures (e.g., restrictions on overseas listings by Chinese companies, user-data and other controls put on Chinese Big Tech firms, clampdown on student test-prep and video game commercial sectors, etc) which Xi embraced in 2021 to advance his Common Prosperity agenda, the general effect was felt quickly and keenly in the form of abrupt economic slowdown. In the first quarter of this year, the Common Prosperity program has been ‘walked back’ by numerous party officials who have emphasized that it represents a historic project more than an immediate project. Premier Li Keqiang, in his lengthy speech to 3,000 deputies at the opening of the National People’s Congress earlier in the month, mentioned Common Prosperity only one time. For educated Chinese — who have been skillfully parsing official pronouncements closely ever since the Cultural Revolution for clues about where the country is headed — this lack of visibility and endorsement for Xi Jinping’s signature program represents a remarkable degree of push-back for Xi by top-level leaders.
UKRAINE
Chris Buckley’s report in last Friday’s New York Times traces the contours of what is potentially the most damaging crack to appear in Xi’s carefully-crafted, monolithic façade of power and control. The article details the war of words that has erupted on the Chinese internet following the warning delivered by a respected scholar and politically-connected insider, Hu Wei, to the effect that China “risked becoming a pariah if it didn’t denounce Russia’s invasion of Ukraine.” As was covered in last week’s post and as continues to play out this week, Chinese officials have contorted themselves by claiming to be neutral and wanting peace while following Putin’s lead in not calling the ‘special military operation’ either a war or an invasion, in not objecting to Russia’s violation of Ukraine’s sovereignty and territorial integrity, and in amplifying Kremlin disinformation about U.S. bio-military labs in Ukraine.
As argued last week, this has the potential to grow into a strategic blunder for China with significant geopolitical fall-out. It may affect not only Xi’s ambitions to retake Taiwan – the last territorial piece in his China Rejuvenation plan – but to bear long term costs for China as a rising power in the Indo-Pacific region and for its standing in the world at large.
None of this is to suggest that Xi will not get his third term as President this fall. It is only to say that the carefully-cultivated blooms of infallibility and inevitability are now off the XJP rose.
Xi has been in power for less than half of Putin’s tenure (18 years as President and 4 years as the power behind the throne for Medvedev) but there are doubtless people in Zhongnanhai wondering to themselves, post-Putin’s invasion, whether Deng didn’t get it right with his moves to limit the untrammeled exercise of power by an individual leader.
On February 4th, at the conclusion of their day-long summit in Beijing, Vladimir Putin and Xi Jinping declared that the friendship between Russia and China “has no limits.” That same day, the Beijing Winter Olympics officially began, ending a little more than two weeks later on February 20th. On February 24th, Russia’s full-scale invasion of Ukraine began.
There has been extensive analysis of the three major miscalculations Putin has made up to this point: (1) his overestimation of the readiness and effectiveness of his military machine; (2) his underestimation of the resilience and fighting spirit of the Ukrainian people; and (3) the speed and scale with which NATO and EU countries, along with many others, have come together to sanction Russia and to support Ukraine (in all ways short of direct military involvement on, or in the air above, Ukrainian territory). It is too early to tell whether a fourth major miscalculation may have to do with Putin’s misplaced faith in the degree of economic, financial and trade support which China would provide Russia to backfill against these sanctions).
But what about Xi Jinping? What is his calculus for advancing (his interpretation of) China’s interests through this crisis? And what miscalculations has he appeared to have made so far?
Xi’s first miscalculation was immediate and damaging. He is known to have had some discussion with Putin on Feb. 4th about the imminent “special operation” in Ukraine. It is not clear whether Putin lied to him or Xi simply failed to ask the right questions to take Putin’s measure. In either case, Xi Jinping is known to have been caught by surprise and ‘perturbed’ by the scale, duration and ruthlessness of Putin’s “special operation.” As described in my February 4th post “Four Seismic U.S.-China-Russia Shifts,” Putin’s move forced Xi, unexpectedly and very publicly, to choose between his new-found friendship without limits and adherence to China’s mantra-like stated policy of non-interference in the affairs of sovereign nations, as enunciated in 1954 in Zhou Enlai’s Five Principles of Peaceful Co-existence (and championed explicitly with regard to Ukraine’s territorial integrity following Russia’s annexation of Crimea in 2014)
Evidence of Xi’s miscalculation of Putin’s intentions in Ukraine became apparent in the initially hesitant and fence-sitting response by the PRC officials during the first two weeks of the crisis. On the one hand, Chinese officials refused to refer to the invasion publicly with any term other than Putin’s Orwellian “special operation” terminology; pivoted reliably to blaming the crisis on NATO rather than Russia aggression; blocked a series of actions from being taken against Russia in the U.N. Security Council; amplified Russian disinformation about the U.S. operating bio-military labs in Ukraine (a play out of the FSK, formerly KGB, playbook which suggests that Putin is contemplating the use of bio- or chemical weapons and is ready to throw sand in the world’s eyes by blaming the U.S. and/or NATO for their eventual use); and has even embedded Chinese journalists with Russian military units on the ground in Ukraine. On the other, China says its the friend of both Ukraine and Russia; talks about the need for the cessation of violence; offers publicly to mediate between the two sides while not actually taking any steps toward a mediation effort); and repeats the mantra of its Five Principles of Peaceful Coexistence as if Putin’s actions in Ukraine were taking place in some parallel universe.
There have been other related miscalculatiions. For instance, the PRC Government has been repeatedly caught off balance by the Biden Administration’s aggressive use of classified U.S. intelligence findings, with his Administration quickly de-classifying key reports and pushing the information out into the public sphere, both domestically and internationally. This began with President Biden’s sharing in real-time with the world the U.S. intelligence community’s pre-invasion assessments that Putin had made the decision to invade. This very public use of previously hush-hush intelligence findings marks a clear break from past White House precedent and has also been aimed at China in recent weeks: first, in divulging the fact that Xi Jinping had prior knowledge of the invasion from his Feb. 4th meeting with Putin and that Xi had, in fact, asked Putin to hold off on initiating that military operation until after the conclusion of the Beijing Winter Olympics; and, second, in disclosing publicly on the eve of Secretary of State Anthony Blinken’s March 14th meeting with China’s top diplomat Yang Jiechi the fact that Beijing had received requests from Moscow for military and economic assistance to aid its war effort. These and other revelations have punctured China’s contrived public posture and shown that, behind the peaceful resolution rhetoric and thin veil of neutrality in the conflict, the reality is that China is not sitting on the fence but has indeed been coming down on Russia’s side.
The initial confusion in China’s response and now the growing evidence of China’s support, up to a point, for Russia were probably to be expected : under-the-table support for Putin was inevitable given the top-down nature of Chinese government decision-making and the personal investment which Xi had made in Putin and Russia just weeks earlier. Just as powerfully through, China wants to keep some fig-leaf semblance of its Five Principles of Peaceful Coexistence policy because its repudiation would roil China’s international relations, among others, with its Belt & Road Initiative partner countries. Equally, it does not want to run afoul of the trip wire of U.S.-led financial and economic sanctions by aiding Russia overtly with military aid, financial relief or with trade in sanctioned commodities like microchips, especially following the stern warning delivered by Secretary Blinken earlier this week.
Over the last week, there are signs that the Beijing leadership is trying to “elevate” its initial indecision and aloofness into what it believes can be a long-term winning strategy for coming out ahead of the West when flames die out and the dust settles from the Ukraine conflagration. The Zhongnanhai thesis is that it is not worldwide supporters of post-WWII liberal democracy that are rallying to support Ukraine as much as it is a “civilizational” struggle between a Russian identity promulgated by Putin and a Western identity and set of values represented primarily by the U.S. and Europe. The thinking goes that, if China stands back from this clash, it can pick up the pieces and emerge stronger than either of the two depleted civilizational antagonists. This accords with Xi Jinping’s decade-long championing of the rejuvenation, and even superiority, of Han identity and the Chinese model. In Xi’s thinking, this policy of studious and disciplined aloofness — limited to cheering on Russia with “dog-whistle” encouragement and forms of back-channel support it can get away with while seizing opportunities to denigrate the West to his domestic audience and to countries in Central Asia, the Pacific, and Africa — has two clear advantages: (1) it avoids any risk for Xi in decisively backing ‘a loser’ in Putin, an outcome already sealed in his international pariah status and increasingly likely on the battlefield even if Kiev is taken and the war shifts to an insurgency; and (2) it gives Xi space to attend to the many immediate challenges facing him in the run-up to the critical Party Congress this fall where he is bidding for a third, controversial term as President. Those challenges include: a sharp fall-off in economic performance (brought on in part by excesses of his own Common Prosperity policy introduced over the past year; rapidly rising Covid case-counts and lock-downs in Shenzhen and Donguan in the south, in Shanghai and in Jilin to the northeast; and the recent hardening of attitudes toward China throughout much of the world as ably analyzed by Elizabeth Economy in The World According to China and in her Jan/Feb 2022 article in Foreign Affairs.
The jury is out but I submit that this policy of official aloofness may well prove to be Xi Jinping’s biggest and longest-lasting miscalculation with regard to Ukraine. Xi may think in ethno-nationalist terms, but much of the world’s response is underpinned by non-Western allies such as Japan, South Korea and Singapore who have benefitted from, and are committed to upholding, the post-WWII order based on national sovereignity and the rule of law. In fact, it is Taiwan which represents and symbolizes the fullest repudiation of Xi’s thesis. Absent some mis-adventure by North Korea (which is a disturbing possibility) or a premature move by Xi to extinguish the symbol Taiwan represents (which I consider very unlikely in the near-term), Xi’s official ‘aloofness’ and sub-rosa support for Putin will be remembered by the world in the wake of the Ukraine conflict. There are times when a person, or a nation, must choose sides. Not choosing sides in such situations is, in fact, a choice that is noticed and remembered. Pretending not to choose sides while actually backing the ‘wrong side’ is morally repugnant. There is not a middle way.
After a puzzling on-again, off-again trade action against China’s information and communications technology (ICT) giant ZTE in 2018, the Trump Administration began sanctioning China’s number #1 ICT player Huawei in May 2019. The sanctioning action involved putting Huawei on a Commerce Department “entity list” and thereby restricting U.S. suppliers from selling their goods and technology to Huawei.
As with all of Trump’s trade actions against China, impulse outweighed well thought-out execution in the Huawei crackdown. Initially, some sales were allowed and others denied without clear criteria being communicated to U.S. industry. Later, without preparatory signaling, the Huawei campaign was intensified by expanding U.S. government authority to require licenses for sales of semiconductors made abroad with American technology.
The fitfulness of this policy can be measured by (1) the number of licenses (and dollar value of affected goods and technology) pending but held up in the inter-agency process and (2) the number of licenses (and dollar value of affected goods and technology) which had been applied for by U.S. companies but not processed towards the end of the Trump Administration. (As things stood at the time of the November 3rd election, the expectation was that products in both categories which had clear 5G application would likely be rejected while non-5G products would likely be processed on case-by-case basis.)
Meanwhile, in the international sphere, the Trump Administration pursued a parallel campaign to try to persuade traditional allies to disallow Huawei technology from 5G infrastructural build-out in their respective markets on the grounds that – despite price and performance competitiveness — Huawei’s products represent a national security threat. The results of this international campaign were mixed at best, not least because many of these traditional allies had themselves been targets of different tariff sanctions under Trump’s America First trade policy. Without delving into the changing fortunes of this campaign at different times in different parts of the world, a summary headline on November 3rd might have read “Trump’s 5G Campaign Against Huawei: Embraced in India, Accommodated in the UK, Begrudged in Germany and Repudiated in Thailand and Elsewhere.”
The Biden Administration, while making a quick and clean break from Trump Administration trade policy in the area of climate change mitigation and clean energy technology, has largely kept the Trump Administration domestic policy of restrictive licensing for sales of advanced ICT goods in place. At least, it has made clear that no substantive change should be expected until after the completion of a whole-of-government review of China trade policy and a parallel review of strategic global supply chains which includes semiconductors. In the international arena, it has relaxed the narrowly-focused pressure campaign against Huawei adoption in favor of a more broadly-conceived alliance strategy to rally traditional allies and other democracies to rise to the 21st century challenge posed by China’s autocratic model.
So where do things stand today? The restriction of supplies of U.S. advanced semiconductors to Huawei under both the Trump and Biden Administrations has taken the biggest toll on Huawei. Less impactful but still a headwind for Huawei has been the doubt sown internationally as the U.S. and China edge closer towards global confrontation and supply chain de-coupling. The result? Huawei reported last Friday its third straight quarterly decline in revenues, falling a significant 38% against 2021Q1 results.
Huawei is likely to remain at the center of a highly-fraught tug-of-war between the U.S. and China over 5G. On one side, China has ability to leverage the world’s largest installed base of advanced mobile phone users in the world. On the other, the U.S. dominates the global market for the advanced microchip designs on which advanced telecom markets depend. And the U.S. maintains close partnerships with the world’s leading microchip fabricators in Taiwan and the makers of the world’s leading fabrication equipment in the Netherlands and elsewhere.
Expect more tremors and seismic activity on this fault-line for the foreseeable future. Just last week, the PRC government issued retaliatory actions against Huawei’s main Western rivals – Sweden’s Ericsson AB and Finland’s Nokia, among others. And, as fall-out from the recent spread of the SARS-COV-2 Delta-variant in China, it was announced over the weekend that the World 5G Conference – scheduled for August 6-8 in Beijing – would be postponed indefinitely. Pressure continues to mount while chances to release that pent-up pressure close off.
______Assessing China / The TEA Collaborative______ 