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Does China still need us?

Matthias Mersch has not seen his wife for one year, eight months, and nine days. In March 2020, he was surprised by the Covid pandemic while on a vacation back home. “I thought the whole thing would be over in a few weeks,” the 60-year-old recounts from his Covid exile in Bavaria. Like many people whose lives are closely tied to China, Mersch has only fallen on deaf ears over the past months. His wife works in China while he is stuck in Germany.

Only North Korea and Turkmenistan have similarly hermetically sealed themselves off from the outside world. With the winter flight schedule published last week (China.Table reported), Beijing has once again cut the number of international passenger flights from 644 to 408 per week. In its usual straightforwardness, the government declares these measures to be “in line with the requirements of pandemic control.” Outside China’s borders, however, voices are growing louder that its “zero covid” strategy is about more than just virus containment.

Back in September, Joerg Wuttke, President of the European Union Chamber of Commerce in China, had pointed to “worrying signs” suggesting that Beijing was using the Covid measures to “exclude foreign companies from its market and, in particular, from strategic sectors”. Patricia Schetelig, Deputy Head of the Department for International Markets at the Federation of German Industries (BDI) agrees with Wuttke: “Covid offers China a good opportunity to isolate itself more, for example through far-reaching travel and quarantine restrictions. This poses major hurdles for the economic activities of local German companies.”

Striving for independence instead of opening up

Domestic-focused economic strategies such as “Made in China 2025” or even the last Five-Year Plan have shown where the path is headed, says Schetelig, who does not expect a reopening of borders before the end of 2022. “With concern and regret, we see that China is showing a tendency to rely more on itself, and succeeding to a large extent.”

Under the motto of “dual circulation”, Beijing wants to reduce dependence on foreign countries, boost domestic demand, increase exports and decrease imports. (China.Table reported). Consumer spending is already the biggest driver of growth in the Chinese economy. In the first three quarters of this year, it contributed 64.8 percent of GDP.

Scientists see this strive for independence with a critical eye. “The focus on the domestic market is at odds with China’s initial reform and plans for opening-up, as well as with the large-scale Silk Road initiative, which is actually designed to seek more interconnections with foreign countries,” says Angela Stanzel of the Asia Research Group of the German Institute for International and Security Affairs (SWP). “I think Chinese economists are also very skeptical about this development to a certain extent,” the sinologist said. The question now is whether the Chinese economy, with all its players, will follow suit. “A stronger opposition” could also form against this approach.

‘China has put itself in a dangerous position’

Sinologist Klaus Muehlhahn also believes that the covid pandemic provokes opposing forces within the party apparatus. “At the beginning, the Corona outbreak was a shock for the government,” explains the professor of Chinese history and culture, who has been President of Zeppelin University (ZU) in Friedrichshafen since June 2020. “It wasn’t until the late 2020s that people in certain circles began to see benefits of compartmentalization, from reducing global dependence to expelling foreign journalists.”

The historian, who also deals extensively with the rise of the People’s Republic in his new book “History of Modern China: From the Qing Dynasty to the Present Day” (Geschichte des modernen China: Von der Qing-Dynastie bis zur Gegenwart), draws parallels to China’s recent past. Back then, periods of isolation often occurred in response to intense external pressure, but they were also opportunities to consolidate power at home. “In the past three decades of opening up, many ideas have invaded the country. China is now an extremely diverse society. So isolation is a good way to restore homogeneity and unity.”

An important part of the narrative is that COVID-19 is a threat introduced from outside, for example by business travelers. Even imported frozen food has already been identified as a potential source of the virus in China’s propaganda offensive; there is hardly any scientific ground for this. “China has again put itself in a dangerous position regarding domestic discourse toward foreign countries,” Muehlhan said. “The attitude is: The world doesn’t understand us.”

Muehlhan sees a stubborn fundamental stance at play. “We are being criticized, so we have to rely on ourselves. That’s disastrous because it fuels the illusion: We don’t really need the outside world.” Yet China has always lost momentum in isolation. But the China of 2021 is no longer be an isolated dynasty or a revolutionary island of chaos, but a dynamic world power with a 30 percent share of global economic growth.

‘National tide’ against foreign influences

What conclusion can Western corporations and institutions draw from this? The Chinese economic strategies show: Those who still want to participate in the Chinese market after the pandemic must begin to produce more locally. At the same time, the quality and popularity of domestic products, from cars to smartphones to movies, is rising. A survey of Chinese aged 18 and older published in September by consulting firm PwC showed a clear change in preferences, away from formally highly popular international brands to domestic brands.

In China, the turn to domestic products is called guochao 国潮 – “national tide”. The patriotically coined trend is particularly prevalent among the “Generation Z” between 16 and 25. McKinsey predicts that digital natives under 35 already account for 60 percent of China’s expenditure growth, even though they make up only 25 percent of the population.

While national pride expressed in consumption is not new, it has been fueled by the pandemic, which is handled differently around the world, explains Prof. Dr. Wolfgang Arlt, Director of COTRI, the market leader for studies on the Chinese tourism industry. “Before the pandemic, domestic travel, for example, did not carry much prestige. That has changed.” Inner-Chinese destinations such as the duty-free paradise of Hainan have become serious contenders to Paris and Co.

Tourists will return, but networking is dwindling

In the year before the pandemic, the Chinese had spent around $255 billion on travels abroad – about a fifth of total tourist spending worldwide. This is now missing all around the world, from Phuket to Garmisch-Partenkirchen. However, the tourism expert does not believe that the Chinese will hardly leave home in the future. “There have always been phases in which the government has suggested its citizens to distance themselves from foreign countries, for example when Paris made the Dalai Lama an honorary citizen a few years ago. After three months, that was forgotten again.”

Klaus Muehlhahn also doubts that China will be able to maintain its isolation for long. “There will continue to be a strong desire among Chinese to travel abroad and buy foreign products,” says the China expert. “China’s opening-up will gradually continue after the pandemic, but the networking and favorable business conditions we had before the crisis will no longer exist. The German economy must prepare for this.”

Meanwhile, Mersch hopes to return to Qingdao at the end of November on one of the rare charter flights offered by the German Chamber of Foreign Trade, where his wife, a Chinese chemical engineer, will be waiting for him. Three weeks of quarantine and economy ticket prices of €3,200 now only seem like a small price to pay. Fabian Peltsch

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