Supply chain law: German companies in China are preparing
End for VW’s Santana
Sporting goods companies suffer under boycott calls
Profile: Minxin Pei – harsh critic of the CP
Dear reader,
Today is 11/11. And since the date only consists of the number 1, it is also known as “Singles’ Day” in China. Alibaba had once introduced it and at the same time declared it a shopping day. In the meantime, German stores like Lidl and Saturn also invite customers to Singles’ Day and celebrate it with a discount battle. Frank Sieren has analyzed the fact that consumer spending is Beijing’s strongest tool for driving domestic growth to catch up with the developed economies of the West.
Does China still need us? Fabian Peltsch took on this question. He spoke with sinologists and economic experts about whether the People’s Republic is increasingly barricading itself with its current economic strategies, and if these barricades are leading to an even quicker and extensive decoupling from the West.
Minxin Pei is notorious for not holding back on criticism when it comes to the Communist Party of his home country. For Pei, the cult of personality around State and Party leader Xi Jinping is the biggest obstacle to China’s growth. In today’s profile, the 63-year-old sums up the current state: “The reign of fear has returned to policy, and not just for ordinary citizens, but also the CCP elite,” he explains from his chosen home of California.
Floods, power shortages, and occasional COVID-19 outbreaks have put the Chinese economy to test several times in recent months. However, even this hardly dampened consumer sentiment.
Despite weaker-than-expected figures, total retail sales of consumer goods rose by 16 percent year-on-year to ¥31.8 trillion ($4.9 trillion) in the first three quarters of the year, according to the National Bureau of Statistics. Chinese retail sales, a benchmark of consumption, rebounded more than expected, growing 4.4 percent year-on-year in September.
This means that consumer spending continues to be the biggest growth driver of the Chinese economy. In the first three quarters of this year, it contributed 64.8 percent to China’s GDP. As a result, the People’s Republic is slowly but surely catching up with the developed economies of the West in terms of domestic consumption. Compared to the USA, for example, there is still some room for improvement. There, a share of 69 percent was measured in the 2nd quarter, the highest since the Second World War. In the third quarter, however, the figure dropped again slightly to 68.8, a value that China has never reached. In the export nation of Germany, on the other hand, the figure is normally just over 50 percent but has slipped below the 50 percent mark due to the lasting effects of the Covid pandemic.
Beijing strives for more independence
In its latest Five-Year Plan, China is focusing more than before on making itself less dependent on foreigncountries. This has to do with the fluctuating exports in times of the Covid pandemic, but also with the tough China policy of the US since Trump. Beijing now considers it vital to make itself economically, technologically, and financially more independent. That means a stronger focus on own technological innovations, own energy resources, and, above all, more domestic consumption. Under the concept of “dual circulation”, China plans to increase exports and to decrease imports, and to further diversify the former. China also wants to export more to Southeast Asia. But, domestic consumption remains paramount (China.Table reported).
But even in China, consumers won’t allow themselves to be forced, especially since the Chinese traditionally have a high savings rate. While it is usually below ten percent in the US, it is more than three times as high in China. Consumption is therefore an important measure of people’s trust in politics. Beijing, therefore, urges provincial governments to regularly adjust minimum wages in line with inflation and the rising cost of living. This year alone, 12 provinces and two cities, including Hubei, Xinjiang, and Beijing, have raised their minimum wage. Most recently, the Chinese were rattled by the bankruptcy of real estate company Evergrande. Many Chinese middle-class citizens had invested 70 percent of their wealth in residential property. To avoid disrupting consumption, the government has mandated cities and municipalities to finish building Evergrande apartments paid by investors.
Purchasing power is growing
The average gross income of Chinese citizens, measured in terms of gross national income per capita, has increased more than tenfold since 2000. In 2002, less than one percent of the Chinese population belonged to the global middle class. In 2018, it is already a quarter, according to calculations by the IZA Institute for Labor Economics. However, the ratio in the US is still around 50 percent and 70 percent in Germany.
All this is also important data for the German economy. It means that the Chinese growth market is still far from its zenith, and for four distinct reasons. The middle class is comparatively small. The average per capita income is below that of Romania. So there is still room to grow for the consumption ratio of the GDP. And since China has a population of 1.41 billion people, the importance of its consumption on a global scale is also increasing significantly. This trend is already apparent in the automotive sector: In 2020, more than a third of the cars sold worldwide were bought by Chinese customers, even though the Chinese only account for 18 percent of the world’s population.
US investment bank Morgan Stanley predicts that Chinese consumer spending will more than double over the next ten years. According to the McKinsey Global Institute, the number of Chinese households with middle to high incomes will increase by over 68 percent by 2030. This will dramatically raise the importance of the Chinese market for Western companies.
Beijing is aware that China’s future growth needs to be shaped more by innovation and digital productivity growth. Within the domestic market, the e-commerce sector, in particular, is being further expanded, which already has received a boost from the Covid epidemic. One-fifth to one-quarter of Chinese consumption now takes place online.
The so-called “Singles’ Day” will therefore show the current state of Chinese consumption. At the world’s largest online shopping event, Chinese shoppers spent the equivalent of $78 billion in the crisis year 2020, while it was only $38 billion in 2019. For Beijing, this is an unmistakable sign that the Covid crisis has been well managed in the opinion of its people.
Chinese Communist Party
Dual Circulation
Growth
Singles Day
Society
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.”
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 isa 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’sexpenditure 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
Chinese Communist Party
Coronavirus
Dual Circulation
Geopolitics
News
High increase in producer prices
Due to expensive raw materials, power shortages, and persistent supply bottlenecks, the Chinese economy raised its prices in October by the most in 26 years. Producer prices rose by 13.5 percent compared to October 2020, the statistics office announced in Beijing on Wednesday. Economists had expected an inflation rate of only 12.4 percent, down from 10.7 percent in September (China.Table reported). Producer prices are considered a leading indicator of inflation trends. Consumer prices have not yet been affected by the price increases. They rose by 1.5 percent in October compared to the same month last year.
The price increase in China will also be felt by German consumers. China is now Germany’s largest importer, especially of pre-industrial products. In 2020, total imports from the People’s Republic amounted to €116.3 billion. flee
Coal
Energy
Power
Raw materials
Trade
Supply chain law keeps German companies busy
More than a year before the planned supply chain law comes into force, German companies in China are already concerned. About a third (31 percent) of companies surveyed in the People’s Republic are already preparing for the implementation of the Supply Chain Due Diligence Act, according to a survey by the Chamber of Foreign Trade (AHK). 35 percent of the companies surveyed stated they have not yet taken steps to implement the law, the AHK told China.Table. An additional 34 percent did not provide any information.
Companies began to review risks concerning their supply chains, products, services, and all areas that could be affected by these laws, according to AHK Beijing. “This includes, for example, supplier management and risk assessments,” the AHK said. While larger companies have had corresponding systems in place for quite some time, smaller companies first need to identify internal responsibilities and capacities to meet added requirements.
According to the AHK figures, companies operating in China are already more concerned with the planned law than other companies around the world. In the global survey, only a quarter of companies responded that they were preparing for the implementation. A third are not taking measures yet, and 42 percent did not respond to the question. The German supply chain law will come into force in January 2023.
The changes in supply chains were not yet addressed in the “AHK World Business Outlook” published last week, nor was the topic of sustainability (China.Table reported). The Association of German Chambers of Industry and Commerce (DIHK) in China announced to provide further details in the coming months. In June, the DIHK had published a model code of conduct on sustainability in supply chains. ari
DIHK
Human Rights
Supply chains
Trade
VW stops production of Santana
What was once known as the Beetle in the old Federal Republic, was the Santana in China. For many years, the mid-size sedan dominated Chinese streets and was the epitome of the country’s aspiring middle class. After more than three decades, Volkswagen is now terminating the production of the Santana in China. “Customer preferences are gradually shifting away from ICE (internal combustion engine) models with notchbacks towards BEV (Battery Electric Vehicle) models and SUVs,” VW announced, according to Reuters. As a result, the joint venture company between Volkswagen AG and SAIC will also end production of the Škoda Rapid and Tharu Sport at its plant in Yizheng. The T-Roc and a revised off-road version of the Tharu are then expected to roll off the production line at the site from 2023. flee
Autoindustrie
Adidas suffers under boycott
Supply chain problems, lockdowns, and a boycott call in China have caused Adidas’ third-quarter profit to slump. Chief Executive Kasper Rorsted reiterated to Reuters that the company’s projection, which had only been raised at the halfway point but expected profit and sales growth to be at the lower end of the target range. Profit from continuing operations and operating margin are expected to be in the lower range of the targeted corridor of €1.4 to 1.5 billion and 9.5 to 10 percent, respectively. Sales are expected to increase by 17 to 18 percent. Previously, Adidas had anticipated an increase of up to 20 percent.
China remains to be a cause for concern for the second-largest sporting goods manufacturer after Nike. The People’s Republic, a reliable growth market for years, saw revenues plummet by 15 percent. Chinese social media had called for a boycott on Western Brands (China.Table reported) after the US and the European Union (EU) had decided on sanctions against China for its treatment of the Uyghur minority. Adidas chief financial officer Harm Ohlmeyer, however, expressed confidence that business in China would soon pick up again. “The region remains a growth market for us in the long term.” flee
Adidas
Boycott
Human Rights
Sports
Trade
USA
Profile
Minxin Pei – a harsh critic of the CP
Professor of Political Science at Claremont McKenna College in California
Minxin Pei is one of the most renowned Chinese intellectuals in the world. However, he is anything but a mouthpiece for the People’s Republic. Quite the opposite, in fact: From his study in Claremont in the suburbs of Los Angeles, Pei has been commenting on events in his home country for more than two decades, sometimes voicing harsh criticism of the powers that be. “The reign of fear has returned to policy, and not just for ordinary citizens, but also the CCP elite,” Pei says.
The now 63-year-old came to the USA in the 1980s – after completing his bachelor’s degree in Shanghai – where he continued his academic education first in Pittsburgh and later at Harvard University. After earning his Ph.D. in political science, Pei has been active as an author and lecturer – since 2009 he has served as the “Tom and Margot Pritzker Professor of Government” at Claremont McKenna College. He pays special attention to the topic of “leadership in the People’s Republic.”
In short, he sees Xi Jinping’s leadership as a major burden on China’s progress. “Ironically, the ruling CP is China’s biggest obstacle in the race with America. The party’s existential fear of losing its power will cause it to keep a tight grip on the economy, making it less efficient,” Pei says. The arbitrary exercise of power, once again apparent in the recent crackdown on tech companies Didi and Alibaba, will stifle innovation and growth in the tech sector far more than any US sanctions, he adds. “The leadership is unlikely to make corrections to questionable decisions in light of China’s move toward an even more personalized form of rule,” the political scientist says.
The party always wins
Xi constantly promotes the cult around himself. The front pages of the party organ Renmin Ribao, for example, are filled with reports on the president’s activities. Pei recalls that before Xi came to power, many officials in Beijing took a closer look at the “Singapore model”. The city-state has, after all, been ruled by the national conservative People’s Action Party (PAP) since 1959. But when officials visited Singapore and investigated the exact reasons for the PAP’s hold on power, they said it became clear to them that such reforms would weaken the CCP’s political monopoly. “This is perhaps why the Singapore model has lost its appeal in the era under Xi, while the North Korean model – totalitarian political repression, the cult of personality around the supreme leader and economic self-reliance – has gained attractiveness,” Pei said.
Pei has been the editor-in-chief of the “China Leadership Monitor” since 2018 and in this capacity will continue to deal with Xi Jinping and other decision-makers in Beijing. Even though he considers this very leadership to impair China’s growth, he doesn’t believe in its demise. “Even if China does not become the most powerful country in the world, the Communist Party will still be a winner. Unlike its late Soviet cousin, the CCP retains firm control over a superpower that the Americans will not defeat,” he concludes. Constantin Eckner
Chinese Communist Party
Domestic policy of the CP China
Minxin Pei
Xi Jinping
Executive Moves
Alexander Garbar is to become the new Head of Corporate Development at the Port of Duisburg. On January 1st, 2022, Garbar will succeed Sascha Treppte, who is leaving the company at his own request. Garbar has been working in corporate development for five years, most recently as Treppte’s deputy. As a European logistics hub, the Port of Duisburg is an important part of the Chinese Belt and Road Initiative.
Clarks‘ current chairman Johnny Chen has temporarily taken the position as CEO of the shoe retailer. Previous CEO Victor Herrero will move on to broader responsibilities within LionRock and Viva China groups, which hold majority stakes in Clarks. Chen has been a member of Clarks’ Board of Directors since February this year. He also holds a position on the board of Alibaba Pictures Group and the state tourism and travel authority China Travel Service.
Dessert
Like in the picture taken in Shenzhen, tens of thousands of video game fans gathered in central squares across the country over the weekend. They wanted to celebrate the victory of the Chinese team in the world championship of the online multiplayer game “League of Legends”. In Wuhan, however, security forces did not feel like celebrating. They arrested three of the organizers.
Some “crazy” video game fans had “gone a bit too far” at the night’s party, Global Times complains. In another article, the state newspaper had celebrated the victory itself. The three fans now face up to ten days in prison and a fine of at least ¥500 (about €67).
Supply chain law: German companies in China are preparing
End for VW’s Santana
Sporting goods companies suffer under boycott calls
Profile: Minxin Pei – harsh critic of the CP
Dear reader,
Today is 11/11. And since the date only consists of the number 1, it is also known as “Singles’ Day” in China. Alibaba had once introduced it and at the same time declared it a shopping day. In the meantime, German stores like Lidl and Saturn also invite customers to Singles’ Day and celebrate it with a discount battle. Frank Sieren has analyzed the fact that consumer spending is Beijing’s strongest tool for driving domestic growth to catch up with the developed economies of the West.
Does China still need us? Fabian Peltsch took on this question. He spoke with sinologists and economic experts about whether the People’s Republic is increasingly barricading itself with its current economic strategies, and if these barricades are leading to an even quicker and extensive decoupling from the West.
Minxin Pei is notorious for not holding back on criticism when it comes to the Communist Party of his home country. For Pei, the cult of personality around State and Party leader Xi Jinping is the biggest obstacle to China’s growth. In today’s profile, the 63-year-old sums up the current state: “The reign of fear has returned to policy, and not just for ordinary citizens, but also the CCP elite,” he explains from his chosen home of California.
Floods, power shortages, and occasional COVID-19 outbreaks have put the Chinese economy to test several times in recent months. However, even this hardly dampened consumer sentiment.
Despite weaker-than-expected figures, total retail sales of consumer goods rose by 16 percent year-on-year to ¥31.8 trillion ($4.9 trillion) in the first three quarters of the year, according to the National Bureau of Statistics. Chinese retail sales, a benchmark of consumption, rebounded more than expected, growing 4.4 percent year-on-year in September.
This means that consumer spending continues to be the biggest growth driver of the Chinese economy. In the first three quarters of this year, it contributed 64.8 percent to China’s GDP. As a result, the People’s Republic is slowly but surely catching up with the developed economies of the West in terms of domestic consumption. Compared to the USA, for example, there is still some room for improvement. There, a share of 69 percent was measured in the 2nd quarter, the highest since the Second World War. In the third quarter, however, the figure dropped again slightly to 68.8, a value that China has never reached. In the export nation of Germany, on the other hand, the figure is normally just over 50 percent but has slipped below the 50 percent mark due to the lasting effects of the Covid pandemic.
Beijing strives for more independence
In its latest Five-Year Plan, China is focusing more than before on making itself less dependent on foreigncountries. This has to do with the fluctuating exports in times of the Covid pandemic, but also with the tough China policy of the US since Trump. Beijing now considers it vital to make itself economically, technologically, and financially more independent. That means a stronger focus on own technological innovations, own energy resources, and, above all, more domestic consumption. Under the concept of “dual circulation”, China plans to increase exports and to decrease imports, and to further diversify the former. China also wants to export more to Southeast Asia. But, domestic consumption remains paramount (China.Table reported).
But even in China, consumers won’t allow themselves to be forced, especially since the Chinese traditionally have a high savings rate. While it is usually below ten percent in the US, it is more than three times as high in China. Consumption is therefore an important measure of people’s trust in politics. Beijing, therefore, urges provincial governments to regularly adjust minimum wages in line with inflation and the rising cost of living. This year alone, 12 provinces and two cities, including Hubei, Xinjiang, and Beijing, have raised their minimum wage. Most recently, the Chinese were rattled by the bankruptcy of real estate company Evergrande. Many Chinese middle-class citizens had invested 70 percent of their wealth in residential property. To avoid disrupting consumption, the government has mandated cities and municipalities to finish building Evergrande apartments paid by investors.
Purchasing power is growing
The average gross income of Chinese citizens, measured in terms of gross national income per capita, has increased more than tenfold since 2000. In 2002, less than one percent of the Chinese population belonged to the global middle class. In 2018, it is already a quarter, according to calculations by the IZA Institute for Labor Economics. However, the ratio in the US is still around 50 percent and 70 percent in Germany.
All this is also important data for the German economy. It means that the Chinese growth market is still far from its zenith, and for four distinct reasons. The middle class is comparatively small. The average per capita income is below that of Romania. So there is still room to grow for the consumption ratio of the GDP. And since China has a population of 1.41 billion people, the importance of its consumption on a global scale is also increasing significantly. This trend is already apparent in the automotive sector: In 2020, more than a third of the cars sold worldwide were bought by Chinese customers, even though the Chinese only account for 18 percent of the world’s population.
US investment bank Morgan Stanley predicts that Chinese consumer spending will more than double over the next ten years. According to the McKinsey Global Institute, the number of Chinese households with middle to high incomes will increase by over 68 percent by 2030. This will dramatically raise the importance of the Chinese market for Western companies.
Beijing is aware that China’s future growth needs to be shaped more by innovation and digital productivity growth. Within the domestic market, the e-commerce sector, in particular, is being further expanded, which already has received a boost from the Covid epidemic. One-fifth to one-quarter of Chinese consumption now takes place online.
The so-called “Singles’ Day” will therefore show the current state of Chinese consumption. At the world’s largest online shopping event, Chinese shoppers spent the equivalent of $78 billion in the crisis year 2020, while it was only $38 billion in 2019. For Beijing, this is an unmistakable sign that the Covid crisis has been well managed in the opinion of its people.
Chinese Communist Party
Dual Circulation
Growth
Singles Day
Society
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.”
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 isa 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’sexpenditure 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
Chinese Communist Party
Coronavirus
Dual Circulation
Geopolitics
News
High increase in producer prices
Due to expensive raw materials, power shortages, and persistent supply bottlenecks, the Chinese economy raised its prices in October by the most in 26 years. Producer prices rose by 13.5 percent compared to October 2020, the statistics office announced in Beijing on Wednesday. Economists had expected an inflation rate of only 12.4 percent, down from 10.7 percent in September (China.Table reported). Producer prices are considered a leading indicator of inflation trends. Consumer prices have not yet been affected by the price increases. They rose by 1.5 percent in October compared to the same month last year.
The price increase in China will also be felt by German consumers. China is now Germany’s largest importer, especially of pre-industrial products. In 2020, total imports from the People’s Republic amounted to €116.3 billion. flee
Coal
Energy
Power
Raw materials
Trade
Supply chain law keeps German companies busy
More than a year before the planned supply chain law comes into force, German companies in China are already concerned. About a third (31 percent) of companies surveyed in the People’s Republic are already preparing for the implementation of the Supply Chain Due Diligence Act, according to a survey by the Chamber of Foreign Trade (AHK). 35 percent of the companies surveyed stated they have not yet taken steps to implement the law, the AHK told China.Table. An additional 34 percent did not provide any information.
Companies began to review risks concerning their supply chains, products, services, and all areas that could be affected by these laws, according to AHK Beijing. “This includes, for example, supplier management and risk assessments,” the AHK said. While larger companies have had corresponding systems in place for quite some time, smaller companies first need to identify internal responsibilities and capacities to meet added requirements.
According to the AHK figures, companies operating in China are already more concerned with the planned law than other companies around the world. In the global survey, only a quarter of companies responded that they were preparing for the implementation. A third are not taking measures yet, and 42 percent did not respond to the question. The German supply chain law will come into force in January 2023.
The changes in supply chains were not yet addressed in the “AHK World Business Outlook” published last week, nor was the topic of sustainability (China.Table reported). The Association of German Chambers of Industry and Commerce (DIHK) in China announced to provide further details in the coming months. In June, the DIHK had published a model code of conduct on sustainability in supply chains. ari
DIHK
Human Rights
Supply chains
Trade
VW stops production of Santana
What was once known as the Beetle in the old Federal Republic, was the Santana in China. For many years, the mid-size sedan dominated Chinese streets and was the epitome of the country’s aspiring middle class. After more than three decades, Volkswagen is now terminating the production of the Santana in China. “Customer preferences are gradually shifting away from ICE (internal combustion engine) models with notchbacks towards BEV (Battery Electric Vehicle) models and SUVs,” VW announced, according to Reuters. As a result, the joint venture company between Volkswagen AG and SAIC will also end production of the Škoda Rapid and Tharu Sport at its plant in Yizheng. The T-Roc and a revised off-road version of the Tharu are then expected to roll off the production line at the site from 2023. flee
Autoindustrie
Adidas suffers under boycott
Supply chain problems, lockdowns, and a boycott call in China have caused Adidas’ third-quarter profit to slump. Chief Executive Kasper Rorsted reiterated to Reuters that the company’s projection, which had only been raised at the halfway point but expected profit and sales growth to be at the lower end of the target range. Profit from continuing operations and operating margin are expected to be in the lower range of the targeted corridor of €1.4 to 1.5 billion and 9.5 to 10 percent, respectively. Sales are expected to increase by 17 to 18 percent. Previously, Adidas had anticipated an increase of up to 20 percent.
China remains to be a cause for concern for the second-largest sporting goods manufacturer after Nike. The People’s Republic, a reliable growth market for years, saw revenues plummet by 15 percent. Chinese social media had called for a boycott on Western Brands (China.Table reported) after the US and the European Union (EU) had decided on sanctions against China for its treatment of the Uyghur minority. Adidas chief financial officer Harm Ohlmeyer, however, expressed confidence that business in China would soon pick up again. “The region remains a growth market for us in the long term.” flee
Adidas
Boycott
Human Rights
Sports
Trade
USA
Profile
Minxin Pei – a harsh critic of the CP
Professor of Political Science at Claremont McKenna College in California
Minxin Pei is one of the most renowned Chinese intellectuals in the world. However, he is anything but a mouthpiece for the People’s Republic. Quite the opposite, in fact: From his study in Claremont in the suburbs of Los Angeles, Pei has been commenting on events in his home country for more than two decades, sometimes voicing harsh criticism of the powers that be. “The reign of fear has returned to policy, and not just for ordinary citizens, but also the CCP elite,” Pei says.
The now 63-year-old came to the USA in the 1980s – after completing his bachelor’s degree in Shanghai – where he continued his academic education first in Pittsburgh and later at Harvard University. After earning his Ph.D. in political science, Pei has been active as an author and lecturer – since 2009 he has served as the “Tom and Margot Pritzker Professor of Government” at Claremont McKenna College. He pays special attention to the topic of “leadership in the People’s Republic.”
In short, he sees Xi Jinping’s leadership as a major burden on China’s progress. “Ironically, the ruling CP is China’s biggest obstacle in the race with America. The party’s existential fear of losing its power will cause it to keep a tight grip on the economy, making it less efficient,” Pei says. The arbitrary exercise of power, once again apparent in the recent crackdown on tech companies Didi and Alibaba, will stifle innovation and growth in the tech sector far more than any US sanctions, he adds. “The leadership is unlikely to make corrections to questionable decisions in light of China’s move toward an even more personalized form of rule,” the political scientist says.
The party always wins
Xi constantly promotes the cult around himself. The front pages of the party organ Renmin Ribao, for example, are filled with reports on the president’s activities. Pei recalls that before Xi came to power, many officials in Beijing took a closer look at the “Singapore model”. The city-state has, after all, been ruled by the national conservative People’s Action Party (PAP) since 1959. But when officials visited Singapore and investigated the exact reasons for the PAP’s hold on power, they said it became clear to them that such reforms would weaken the CCP’s political monopoly. “This is perhaps why the Singapore model has lost its appeal in the era under Xi, while the North Korean model – totalitarian political repression, the cult of personality around the supreme leader and economic self-reliance – has gained attractiveness,” Pei said.
Pei has been the editor-in-chief of the “China Leadership Monitor” since 2018 and in this capacity will continue to deal with Xi Jinping and other decision-makers in Beijing. Even though he considers this very leadership to impair China’s growth, he doesn’t believe in its demise. “Even if China does not become the most powerful country in the world, the Communist Party will still be a winner. Unlike its late Soviet cousin, the CCP retains firm control over a superpower that the Americans will not defeat,” he concludes. Constantin Eckner
Chinese Communist Party
Domestic policy of the CP China
Minxin Pei
Xi Jinping
Executive Moves
Alexander Garbar is to become the new Head of Corporate Development at the Port of Duisburg. On January 1st, 2022, Garbar will succeed Sascha Treppte, who is leaving the company at his own request. Garbar has been working in corporate development for five years, most recently as Treppte’s deputy. As a European logistics hub, the Port of Duisburg is an important part of the Chinese Belt and Road Initiative.
Clarks‘ current chairman Johnny Chen has temporarily taken the position as CEO of the shoe retailer. Previous CEO Victor Herrero will move on to broader responsibilities within LionRock and Viva China groups, which hold majority stakes in Clarks. Chen has been a member of Clarks’ Board of Directors since February this year. He also holds a position on the board of Alibaba Pictures Group and the state tourism and travel authority China Travel Service.
Dessert
Like in the picture taken in Shenzhen, tens of thousands of video game fans gathered in central squares across the country over the weekend. They wanted to celebrate the victory of the Chinese team in the world championship of the online multiplayer game “League of Legends”. In Wuhan, however, security forces did not feel like celebrating. They arrested three of the organizers.
Some “crazy” video game fans had “gone a bit too far” at the night’s party, Global Times complains. In another article, the state newspaper had celebrated the victory itself. The three fans now face up to ten days in prison and a fine of at least ¥500 (about €67).
