Grand Sinolytics.Outlook on the Year of the Tiger: 20th Party Congress + Supply Chains + Common Prosperity + Market Environment + Cybersecurity.
Journalists’ association complains about interference and assaults
Covid keeps spreading
Record for offshore wind power
Profile: Xue Yinxian fights against state-mandated doping
CCTV New Year’s gala: tacky, flashy and beautiful
Dear reader,
You will certainly hear and read the New Year greeting 新年快乐 (xīnnián kuàilè) on all street corners in China these days. But there are other ways to wish others a Happy New Year:
恭贺新禧 gōnghè xīnxǐ = Happy New Year
or also
恭喜发财 gōng xǐ fā cái = Congratulations And Prosperity
Whichever greeting you choose: China.Table wishes you a wonderful New Year of the Tiger! After all, today on February 1st, China is celebrating the Spring Festival, the most important holiday in Chinese culture.
The best way to celebrate the New Year is traditionally: by eating chicken, jiaozi or fish with your family. Although you probably shouldn’t eat all the fish, because 鱼 yú (fish) sounds like 余 yú (abundance) – and you don’t want to use it up on the first day of the new year.
Then, after dinner, you should join about 700 million other Chinese in front of their TVs to watch the CCTV New Year’s Gala. And those who still manage to keep their eyes open afterwards, probably laid out the Mahjong pieces on the living room table.
However, we at China.Table offer neither chicken nor shows, but information. That’s why we came up with something special for the holiday: In cooperation with Sinolytics, a consultancy entirely focused on China, we’re presenting you five predictions for the Year of the Tiger. They will help you make the right decisions in various areas in 2022:
Domestic policy
Supply chains
Society under the banner of “Common Prosperity”
Business environment
Cyber and data security
And last but not least, today our logo is also dedicated to the beginning of the Year of the Tiger.
As usual, you can catch up on the most important developments in our News section.
On that note: 岁岁平安 suì suì píng’ān = May you always have peace year after year!
Your Michael Radunski
Sinolytics.Outlook
20th Party Congress: changes in Xi Jinping’s wake
Dieser Inhalt ist Lizenznehmern unserer Vollversion vorbehalten.
Xi will (likely) stay for a third term
The Chinese Communist Party (CCP) will meet for its 20th party congress in October or November 2022. The 2,300-member party congress convenes every five years and features major personnel turnover in the Central Committee, among which the country’s top and future leaders will be selected.
Xi will almost certainly receive a third term. After the removal of the presidential term limit in 2018, the recent adoption of the third historical resolution of the CCP in November 2021 elevated Xi’s status to a new height. The first and second such resolutions were adopted during the Mao and Deng eras, respectively.
Substantial reshuffling and generational change underway
The nomination age ceiling for the Central Committee means about half of the full Committee members are to be replaced. For the first time, officials born in the 1960s or later will be in the majority.
The same age dynamics apply to the top leaders. While the 1950s generation still dominates the 25-seat Politburo, the age norms (retirement by age 68) means upcoming personnel change. This will affect prominent politicians including Liu He (69), who orchestrated the US-China trade negotiations, Yang Jiechi (71), foreign minister and current premier Li Keqiang (67).
Many China observers see this major demographic shift as a rare moment in the political system. But the impact on actual policymaking should not be overestimated. The new generation will still be highly aligned with Xi’s vision: Even though the generations born after 1965 generally show more pro-market attitudes, factional ties and personal networks weigh heavy in party advancement, ensuring alignment.
Major policies to be expected in post-congress 2023
Before the political transition is done, don’t expect any major policy surprises. Local governments and officials will also avoid big moves in the pre-congress period. A party congress is a place to review, evaluate and confirm existing policies, not to launch new ones.
But companies should watch very closely which themes get the most attention in the post-congress presidential speech. They will be enforced with the highest political priority and commitment in 2023 and beyond. Common prosperity will likely be one of them.
Companies should assess their strategic positioning in China in light of these policies priorities to make well-informed choices on compliance, brand visibility, business development and beyond.
Securing supply chains remains challenging in 2022
Dieser Inhalt ist Lizenznehmern unserer Vollversion vorbehalten.
The Chinese government will not back down from its zero-covid strategy
China’s strict Zero-Covid strategy has led to the shutdown of several ports and factories. For example, BYD, VW and Toyota factories in Xi’an, Tianjin, and Ningbo were closed. Due to the emergence of Omicron and the lack of mRNA vaccination in China, regional lockdowns and factory closures are likely to increase in 2022 (the potential rollout of Walvax, a Chinese mRNA vaccination, will likely not affect China’s Covid-strategy in 2022).
Given the Winter Olympics and the Party Congress, an easing of China’s Covid restrictions is not to be expected this year. Companies need to factor increased shipping costs and times into their supply chain planning caused by port congestion or closure, as well as disruptions to manufacturing of intermediate products in China.
Geopolitical tensions will become increasingly important in supply chain management
Technological competition as a dominant structural driver of US-EU-China relations will not disappear anytime soon. The Biden administration continues restricting outflow of US tech to China. Already, 40% of German companies in China are reporting to feel damage from US-China decoupling (AHK survey).
Further, the EU and US look to tighten the screws around Chinese core interest issues in 2022, such as Xinjiang, Hong Kong and Taiwan. The EU will deliberate on a planned supply chain due diligence law in 2022 and Germany has passed a Supply Chain Act that will enter into force in 2023.
In response, China has used retaliatory trade tools and consumer boycotts to put pressure on European / US companies. As Xi seeks a third term, a more assertive foreign policy to project strength for the domestic audience can be expected. Cases such as H&M or Intel, who faced Chinese media backlash over Xinjiang, are likely to be seen more often.
Firms thus walk a tight rope between complying with EU / US laws, while avoiding the ire of Chinese regulators, making it imperative to systematically include geopolitical developments into supply chain management.
Especially companies reliant on critical raw materials or electronic products facing tough decisions
China represents around 52% of the total value of EU imports of foreign dependent products. Meaning, China is currently indispensable for the supply chains of most MNCs. Especially critical raw materials, such as ferro-alloys, silicon and rare earths, but also electronics products are heavily dependent on China.
Considering the added complexity from increasingly ubiquitous trade restrictions, companies need to assess whether a strong dependency on China still suits their risk calculus and whether building up redundancies in the supply chain to increase resilience might be worth considering.
Business environment: easier market entry, but ‘buy local’ and stricter monitoring
Dieser Inhalt ist Lizenznehmern unserer Vollversion vorbehalten.
Into the market: Easier market entry for some
With “stability” as a central focus, and an economy still dependent on foreign investment and trade, 2022 will be an important year for improving China’s business environment, as stated in the 14th Five-Year-Plan (FYP).
Following the reduction of the foreign investment negative lists, a catalog of industries closed to foreign investment, Chinese leaders also launched a campaign to prevent local governments from creating market barriers and curbing competition. Sectors that have been liberalized at the national level will likely see improved administrative procedures and business environment in 2022.
In sectors which China deems strategic, incl. semiconductors, NEVs, etc., a different logic will prevail: the strengthened focus on self-reliance and indigenous innovation will likely shield these sectors from most liberalization efforts and even intensify “buy local” policies and preferential treatments for local companies.
In the market: Further tightened market supervision with new ‘risk score’
In parallel to relaxing market entry, China has implemented a series of regulatory enforcement tools to improve compliance of those already in the market. The Corporate Social Credit System (CSCS) is one of these tools.
Regulators are now adding a new function to the CSCS – a “risk score” – and plan to roll it out nationwide in 2022. The risk score will determine the frequency of government inspections at a company. The lower the score, the more inspections companies have to expect.
While credit scores are mostly public and intended as a reputational check on companies, the risk score will not be public. It will be an internal tool for regulators to focus their supervision efforts on bad-behaving companies.
Comparative advantage for those companies most aligned with Chinese innovation agenda
The “buy local” trend in public procurement and among Chinese consumers will continue to squeeze the market shares of foreign businesses in China. But those that contribute to China’s strategic innovation goals and/or succeed in credibly branding themselves as a “Chinese firm” can more effectively defend their space.
Companies should explore and use preferential policies in China’s market reform pilots. Pilot areas will most likely be developed in megacities or city clusters, such as the Greater Bay Area. Some of the most relaxed measures on land, labor, capital and data markets will first be implemented in these cities/regions.
Tighter supervision might wipe out some dirty players in the market. But make sure your company’s compliance system is aware of and adapted to China’s new market governance tools.
‘Common Prosperity’: Focus on improved worker benefits and social welfare
Dieser Inhalt ist Lizenznehmern unserer Vollversion vorbehalten.
Common prosperity: the Chinese government is determined to create a more equal society
Xi Jinping regards “common prosperity” as a path to achieve the Communists Party’s second centennial goal of “building a modern socialist economy” by 2049.
The purpose of “common prosperity” is to reduce social inequality and income gap, to grow the middle-class population and to increase domestic consumption as a future growth driver for China’s economy, thereby stabilizing the Party’s long-term governance.
It is not a campaign designated to crack down on private capital, but to achieve a better balance between growth and social equity. However, the government’s interventionist approach affects private businesses in multiple ways, e.g., with anti-monopoly efforts or hurting education business by trying to reduce educational inequalities.
Immediate policy priorities are to increase workers’ benefits and improve social welfare
Among the dimensions of “common prosperity”, the government will focus on achieving “fairer” market distribution (1st distribution) and improving redistribution through taxes and public service (2nd distribution). Philanthropy (3rd distribution) will be encouraged in the form of voluntary donations but with lesser priority. Strict regulations are expected to improve employee benefits in 2022, especially in the informal economy, for example, car-sharing or delivery services. In addition, the year will likely bring a boost to the scope and level of social services across the country: public education, child care, affordable public housing, and more.
In 2022, strong regulations are expected to improve workers’ benefits, especially in the informal economy such as ride hailing or food delivery. In addition, 2022 is likely to bring a push in the scope and level of social welfare across the country: public education, baby care, affordable public housing and more.
Property tax pilots will likely be conducted in several cities, such as Shenzhen and Hangzhou, where real estate prices grew fast and local governments do not rely heavily on land sale revenues. However, due to the policy priority of economic stability in 2022, the pilots will proceed gradually and cautiously.
Recent huge penalties against famous influencer for tax evasion illustrates the government’s plan to tackle all sources of “illegal” incomes by the wealthy population.
In 2022, businesses will feel the burden from higher labor costs, but positive long-term effects lie ahead
In the short term, foreign companies in China will face the burden of growing labor costs due to “common prosperity” policies. Also, companies who rely on wealthy Chinese customers may be indirectly affected by increased scrutiny on the rich, e.g. targeted tax inspection campaigns and property tax pilots.
However, in the long term and if China’s “common prosperity” policies prove successful, a growing middle-class with purchasing power and financial security will provide a new customer base for premium products
Cybersecurity: Focus on a more digital economy
Dieser Inhalt ist Lizenznehmern unserer Vollversion vorbehalten.
China has high ambitions for the development of the country’s digital economy
China’s State Council published the 14th Five-Year Plan for the Digital Economy in December 2021, expressing high expectations for a thriving digital economy to help boost the real economy.
Economic policy advisor Liu Shijin highlights the importance of digitization of production in a recent essay. He argues that the future of the digital economy lies heavily in AI, which is only possible through the efficient use of data.
Cyber and data security is required to allow China’s digital economy to grow
Utilizing data as vital assets will be necessary for China’s digital economy to thrive and mature. This requires a robust data security and management framework, which China has been developing since 2017 with the Cybersecurity Law and which has seen rapid development in the last two years.
Policymakers have argued that the point of important data and data categorization is to “protect the data that should be protected, and let other data circulate and trade fully”. Securitization and management of data is likely to see increased enforcement at the local level.
In 2022, international businesses may increasingly move into the limelight of cybersecurity enforcement. In a recent high-profile case, Walmart China received a warning from the Futian Public Security Bureau for 19 violations in their online network portal, and their failure to respond to the violations in reasonable time.
As data is the foundational “factor of production” for the digital economy, policies in 2022 and beyond are likely to focus on exploring how the state can marketize data, including pilots on data ownership, data rights, and data valuation.
Focus for companies in 2022 will be to reassess IT and data strategies
In the short term, the Chinese government will continue to launch tough regulatory moves on data and cybersecurity. Foreign companies in China should reassess their IT and data strategies as well as compliance mechanisms, especially those processing more than 1mn personal information threads or so-called “important data”.
However, in the long term, a growing digital economy may bring benefits for foreign businesses, especially in key technology areas. Companies should consider strategies to contribute to development targets, as well as begin to set up structures for strategic use of data, such as trading and monetization.
News
Escape plans for critical reporters
The Chinese government continues to aggressively intervene in the reporting of foreign media. To prevent critical reports, international newspapers or local television stations are more and more threatened with legal action. In its 2021 annual report, the Foreign Correspondents’ Club in China, FCCC, expresses concern about “the breakneck speed by which media freedom is declining in China.”
In the latest FCCC report, correspondents from the French news agency AFP, the American newspaper L.A. Times and an anonymous European TV station reported that they were threatened with lawsuits. They claim that protagonists or state bodies wanted to prevent the use of information or images. Foreigners face the risk of not being allowed to leave the People’s Republic of China if a lawsuit is filed against them.
Verbal threats and physical intimidation have also continued to increase. Female journalists of Asian descent were particularly affected last year, the FCCC writes. The correspondent for U.S. radio station NPR reported that there have been calls to “beat her to death.” A Deutsche Welle correspondent was approached in the summer in the city of Zhengzhou by a group of men who also tried to knock his cell phone out of his hand. Overall, the working conditions of foreign journalists in China are worse than they have been in decades. Even Covid is used as an excuse for surveillance (China.Table reported).
Foreign journalists in constant state of uncertainty
“Heightened dangers have prompted foreign journalists and their organizations to develop emergency exit plans,” the report says. Threatened employees should be able to leave the country as quickly as possible, if necessary. Some have not been able to do so. Australian journalist Cheng Lei, who worked for Chinese foreign broadcaster CGTN, has been detained for more than a year, as has Chinese journalist Haze Fan of Bloomberg. The charges against the duo remain very vague.
To contain foreign reporters, authorities are also frequently using their visas as leverage. At least 22 journalists from the US, the UK, Canada, Italy, Japan and New Zealand have been granted only “provisional reporting rights.” This entails a shortened residence permit of two or three months instead of the usual one year. Those affected are thus in a state of constant uncertainty. In 2020, more than a dozen, mostly US correspondents of the New York Times or the Wall Street Journal, had already been forced to leave the country.
The situation is further complicated by China’s strict Covid regulations, which massively limit the possibilities for investigations. Covid is also cited as a reason for refusing interviews or filming permits. Almost all 127 respondents (99 percent) consider the working conditions for foreign journalists in China to be far below international standards. In rankings of countries based on freedom of the press, China ranks 177th out of 180 countries. grz
Civil Society
Freedom of the press
Covid alert for more and more Beijing citizens
Shortly before the start of the Winter Olympics in Beijing, the city government tightened the criteria for the health status of its Covid app. As a result, the warning level for many people jumped to red at the beginning of the week. Shopping, taking the bus, going to a restaurant, or even working – all this was suddenly no longer possible for these people. According to reports, thousands of Beijing residents are affected.
One reason: Overnight, the city had introduced a new regulation without prior announcement, under which anyone who buys medication to treat a possible covid symptom, such as a fever or cough, is considered potentially infected. Only a negative Covid test puts the app back on green.
China is pursuing a strict zero-covid strategy in the fight against the Corona pandemic. Even after isolated cases, local authorities impose mass testing and strict quarantine. Covid apps are an important part of this system: Depending on the user’s health status and location, a colored health code is displayed on their smartphone:
Green means all is well;
Yellow means quarantine at home;
Red means quarantine under official control.
These apps not only record the user’s location but also all vaccinations and tests. While these apps are not mandatory, it is virtually impossible to move around or enter a public space without them.
Meanwhile, organizers of the Winter Olympics have registered 37 more Covid cases. The organizing committee announced on Monday that 28 entrants tested positive for the coronavirus on Sunday – including eight athletes or team members. In addition, infections were registered in nine people already inside the sealed-off Olympic system. There had been a total of 34 positive tests the day before, and the total number of Covid cases has risen to a total of 176 since January 23.
During the Beijing Winter Olympics, everyone involved – from athletes to journalists – will remain isolated from the rest of the Chinese population. To detect infections as quickly as possible, every participant inside the Olympic bubble must undergo a daily PCR test. rad
Health
Sports
China leads in offshore wind power
According to its own figures, China has become the world’s largest producer of offshore wind power. State television CCTV reported that the People’s Republic built 16.9 gigawatts of new wind farms last year. Data from the National Energy Administration (NEA) showed that this brought the total installed offshore wind powerto 26.4 gigawatts – more than any other country in the world. The previous leader was the United Kingdom. The UK’s capacity was around 11 gigawatts in the third quarter of 2021. This makes China’s current capacity 2.5 times larger. rad
Climate
Energy
Environment
Renewable energies
Wind power
Profile
Xue Yinxian – exiled doping whistleblower
Xue Yinxian, ex-sports doctor
The beginning of her career sounds like something out of a storybook: As a young woman, Xue Yinxian starts working at China’s national sports authority. She comes from a family of revolutionaries from the early days, is highly qualified, and has excellent prospects. She looks after the country’s top athletes and became the team doctor for the national gymnastics team. At the 1988 Olympic Games in Seoul, she was the chief physician of the Chinese team. Xue is now 84 years old – and is considered an enemy of the state. The reason: She publicly revealed an extensive state doping program.
During her time as a physician in professional sports, more than 10,000 athletes had been doped, she revealed to journalists from the Australian newspaper “Sydney Morning Herald” in 2012. The following day, the words “China” and “doping in sport,” as well as some of the names she mentioned, were blocked on search engines in Beijing. Xue’s accusations go a long way. Performance-enhancing drugs, she says, were first embraced as a welcome innovation in the late 1970s. A short time later, all athletes were forced to take them, including young athletes as young as eleven.
Athletes had no choice
“In the 1980s and 90s, Chinese athletes on the national teams made extensive use of doping substances,” Xue explained in an interview with German broadcaster ARD. She had not administered such drugs herself, due to medical concerns. But the athletes had hardly any other choice. Many of them did not even know which substances had been administered to them. Xue explains that she experienced the consequences firsthand: She kept a journal about the athletes, the drugs they took, and the effects. “The athletes came to me when they developed health problems because of doping,” Xue recalled in an interview with Deutsche Welle in 2018.
Even coaches had contacted her and pointed out that young male athletes were growing breasts. “They came to me to express their concerns.” The doctor objected strongly to the practices, arguing that sports are supposed to make people healthier, not sick. For refusing to play along, she had been targeted by the state. Whenever China applied for new major sporting events, she said, officials tried to intimidate her. After she spoke out publicly about doping, the government’s repression grew worse.
Eventually, she no longer felt safe in Beijing. In 2017, Xue fled to Germany with her son and his wife. She has since been granted political asylum. Her revelations are still explosive. First, because she is calling for the revocation of all of China’s international medals from the 1980s and 1990s. Second, some athletes Xue mentioned in connection with doping are now influential officials and businessmen in China. Xue is currently working on a book, her memoirs. The title: Chinese Drugs. However, she and her family are still looking for a publisher. Paul Meerkamp
Sports
Dessert
It is extremely tacky, but somehow also gorgeous and certainly a stunning display of show television. This year’s big gala for the Spring Festivalby state broadcaster CCTV’s once again had it all: snappy pop songs, strapping soldiers, stern socialists, corny voices, and many, many wacky sketches. As always, ethnic minorities in traditional costumes, daredevil martial arts performances, elements of traditional theater, brightly colored stage sets, and performances with many children were part of the program. The taikonauts sent their greetings to earth live from the Chinese space station. A special feature this year was a song dedicated to the Olympic spirit.
Some songs of tragic love moved half the audience to tears. These were difficult to show in close-up this time, however, because the audience all wore face masks. At least they were masks in shades of red that matched the setting. The gala touched on the main theme of the past two years with a lengthy hospital sketch.
The TV show, which had the highest ratings in the world, culminated in a nation’s loudly proclaimed desire and resolution to create an “even more beautiful, even better China.” China was embarking on a new era, in which the realization of the Chinese dream would once again move a little closer.
We can’t wait to see what CCTV comes up with next year. That’s when the format will celebrate its 40th anniversary. It’s hard to believe that it began in 1983 with the simplest of means on a tiny stage, a half-banned song and a lot of improvisation.
Grand Sinolytics.Outlook on the Year of the Tiger: 20th Party Congress + Supply Chains + Common Prosperity + Market Environment + Cybersecurity.
Journalists’ association complains about interference and assaults
Covid keeps spreading
Record for offshore wind power
Profile: Xue Yinxian fights against state-mandated doping
CCTV New Year’s gala: tacky, flashy and beautiful
Dear reader,
You will certainly hear and read the New Year greeting 新年快乐 (xīnnián kuàilè) on all street corners in China these days. But there are other ways to wish others a Happy New Year:
恭贺新禧 gōnghè xīnxǐ = Happy New Year
or also
恭喜发财 gōng xǐ fā cái = Congratulations And Prosperity
Whichever greeting you choose: China.Table wishes you a wonderful New Year of the Tiger! After all, today on February 1st, China is celebrating the Spring Festival, the most important holiday in Chinese culture.
The best way to celebrate the New Year is traditionally: by eating chicken, jiaozi or fish with your family. Although you probably shouldn’t eat all the fish, because 鱼 yú (fish) sounds like 余 yú (abundance) – and you don’t want to use it up on the first day of the new year.
Then, after dinner, you should join about 700 million other Chinese in front of their TVs to watch the CCTV New Year’s Gala. And those who still manage to keep their eyes open afterwards, probably laid out the Mahjong pieces on the living room table.
However, we at China.Table offer neither chicken nor shows, but information. That’s why we came up with something special for the holiday: In cooperation with Sinolytics, a consultancy entirely focused on China, we’re presenting you five predictions for the Year of the Tiger. They will help you make the right decisions in various areas in 2022:
Domestic policy
Supply chains
Society under the banner of “Common Prosperity”
Business environment
Cyber and data security
And last but not least, today our logo is also dedicated to the beginning of the Year of the Tiger.
As usual, you can catch up on the most important developments in our News section.
On that note: 岁岁平安 suì suì píng’ān = May you always have peace year after year!
Your Michael Radunski
Sinolytics.Outlook
20th Party Congress: changes in Xi Jinping’s wake
Dieser Inhalt ist Lizenznehmern unserer Vollversion vorbehalten.
Xi will (likely) stay for a third term
The Chinese Communist Party (CCP) will meet for its 20th party congress in October or November 2022. The 2,300-member party congress convenes every five years and features major personnel turnover in the Central Committee, among which the country’s top and future leaders will be selected.
Xi will almost certainly receive a third term. After the removal of the presidential term limit in 2018, the recent adoption of the third historical resolution of the CCP in November 2021 elevated Xi’s status to a new height. The first and second such resolutions were adopted during the Mao and Deng eras, respectively.
Substantial reshuffling and generational change underway
The nomination age ceiling for the Central Committee means about half of the full Committee members are to be replaced. For the first time, officials born in the 1960s or later will be in the majority.
The same age dynamics apply to the top leaders. While the 1950s generation still dominates the 25-seat Politburo, the age norms (retirement by age 68) means upcoming personnel change. This will affect prominent politicians including Liu He (69), who orchestrated the US-China trade negotiations, Yang Jiechi (71), foreign minister and current premier Li Keqiang (67).
Many China observers see this major demographic shift as a rare moment in the political system. But the impact on actual policymaking should not be overestimated. The new generation will still be highly aligned with Xi’s vision: Even though the generations born after 1965 generally show more pro-market attitudes, factional ties and personal networks weigh heavy in party advancement, ensuring alignment.
Major policies to be expected in post-congress 2023
Before the political transition is done, don’t expect any major policy surprises. Local governments and officials will also avoid big moves in the pre-congress period. A party congress is a place to review, evaluate and confirm existing policies, not to launch new ones.
But companies should watch very closely which themes get the most attention in the post-congress presidential speech. They will be enforced with the highest political priority and commitment in 2023 and beyond. Common prosperity will likely be one of them.
Companies should assess their strategic positioning in China in light of these policies priorities to make well-informed choices on compliance, brand visibility, business development and beyond.
Securing supply chains remains challenging in 2022
Dieser Inhalt ist Lizenznehmern unserer Vollversion vorbehalten.
The Chinese government will not back down from its zero-covid strategy
China’s strict Zero-Covid strategy has led to the shutdown of several ports and factories. For example, BYD, VW and Toyota factories in Xi’an, Tianjin, and Ningbo were closed. Due to the emergence of Omicron and the lack of mRNA vaccination in China, regional lockdowns and factory closures are likely to increase in 2022 (the potential rollout of Walvax, a Chinese mRNA vaccination, will likely not affect China’s Covid-strategy in 2022).
Given the Winter Olympics and the Party Congress, an easing of China’s Covid restrictions is not to be expected this year. Companies need to factor increased shipping costs and times into their supply chain planning caused by port congestion or closure, as well as disruptions to manufacturing of intermediate products in China.
Geopolitical tensions will become increasingly important in supply chain management
Technological competition as a dominant structural driver of US-EU-China relations will not disappear anytime soon. The Biden administration continues restricting outflow of US tech to China. Already, 40% of German companies in China are reporting to feel damage from US-China decoupling (AHK survey).
Further, the EU and US look to tighten the screws around Chinese core interest issues in 2022, such as Xinjiang, Hong Kong and Taiwan. The EU will deliberate on a planned supply chain due diligence law in 2022 and Germany has passed a Supply Chain Act that will enter into force in 2023.
In response, China has used retaliatory trade tools and consumer boycotts to put pressure on European / US companies. As Xi seeks a third term, a more assertive foreign policy to project strength for the domestic audience can be expected. Cases such as H&M or Intel, who faced Chinese media backlash over Xinjiang, are likely to be seen more often.
Firms thus walk a tight rope between complying with EU / US laws, while avoiding the ire of Chinese regulators, making it imperative to systematically include geopolitical developments into supply chain management.
Especially companies reliant on critical raw materials or electronic products facing tough decisions
China represents around 52% of the total value of EU imports of foreign dependent products. Meaning, China is currently indispensable for the supply chains of most MNCs. Especially critical raw materials, such as ferro-alloys, silicon and rare earths, but also electronics products are heavily dependent on China.
Considering the added complexity from increasingly ubiquitous trade restrictions, companies need to assess whether a strong dependency on China still suits their risk calculus and whether building up redundancies in the supply chain to increase resilience might be worth considering.
Business environment: easier market entry, but ‘buy local’ and stricter monitoring
Dieser Inhalt ist Lizenznehmern unserer Vollversion vorbehalten.
Into the market: Easier market entry for some
With “stability” as a central focus, and an economy still dependent on foreign investment and trade, 2022 will be an important year for improving China’s business environment, as stated in the 14th Five-Year-Plan (FYP).
Following the reduction of the foreign investment negative lists, a catalog of industries closed to foreign investment, Chinese leaders also launched a campaign to prevent local governments from creating market barriers and curbing competition. Sectors that have been liberalized at the national level will likely see improved administrative procedures and business environment in 2022.
In sectors which China deems strategic, incl. semiconductors, NEVs, etc., a different logic will prevail: the strengthened focus on self-reliance and indigenous innovation will likely shield these sectors from most liberalization efforts and even intensify “buy local” policies and preferential treatments for local companies.
In the market: Further tightened market supervision with new ‘risk score’
In parallel to relaxing market entry, China has implemented a series of regulatory enforcement tools to improve compliance of those already in the market. The Corporate Social Credit System (CSCS) is one of these tools.
Regulators are now adding a new function to the CSCS – a “risk score” – and plan to roll it out nationwide in 2022. The risk score will determine the frequency of government inspections at a company. The lower the score, the more inspections companies have to expect.
While credit scores are mostly public and intended as a reputational check on companies, the risk score will not be public. It will be an internal tool for regulators to focus their supervision efforts on bad-behaving companies.
Comparative advantage for those companies most aligned with Chinese innovation agenda
The “buy local” trend in public procurement and among Chinese consumers will continue to squeeze the market shares of foreign businesses in China. But those that contribute to China’s strategic innovation goals and/or succeed in credibly branding themselves as a “Chinese firm” can more effectively defend their space.
Companies should explore and use preferential policies in China’s market reform pilots. Pilot areas will most likely be developed in megacities or city clusters, such as the Greater Bay Area. Some of the most relaxed measures on land, labor, capital and data markets will first be implemented in these cities/regions.
Tighter supervision might wipe out some dirty players in the market. But make sure your company’s compliance system is aware of and adapted to China’s new market governance tools.
‘Common Prosperity’: Focus on improved worker benefits and social welfare
Dieser Inhalt ist Lizenznehmern unserer Vollversion vorbehalten.
Common prosperity: the Chinese government is determined to create a more equal society
Xi Jinping regards “common prosperity” as a path to achieve the Communists Party’s second centennial goal of “building a modern socialist economy” by 2049.
The purpose of “common prosperity” is to reduce social inequality and income gap, to grow the middle-class population and to increase domestic consumption as a future growth driver for China’s economy, thereby stabilizing the Party’s long-term governance.
It is not a campaign designated to crack down on private capital, but to achieve a better balance between growth and social equity. However, the government’s interventionist approach affects private businesses in multiple ways, e.g., with anti-monopoly efforts or hurting education business by trying to reduce educational inequalities.
Immediate policy priorities are to increase workers’ benefits and improve social welfare
Among the dimensions of “common prosperity”, the government will focus on achieving “fairer” market distribution (1st distribution) and improving redistribution through taxes and public service (2nd distribution). Philanthropy (3rd distribution) will be encouraged in the form of voluntary donations but with lesser priority. Strict regulations are expected to improve employee benefits in 2022, especially in the informal economy, for example, car-sharing or delivery services. In addition, the year will likely bring a boost to the scope and level of social services across the country: public education, child care, affordable public housing, and more.
In 2022, strong regulations are expected to improve workers’ benefits, especially in the informal economy such as ride hailing or food delivery. In addition, 2022 is likely to bring a push in the scope and level of social welfare across the country: public education, baby care, affordable public housing and more.
Property tax pilots will likely be conducted in several cities, such as Shenzhen and Hangzhou, where real estate prices grew fast and local governments do not rely heavily on land sale revenues. However, due to the policy priority of economic stability in 2022, the pilots will proceed gradually and cautiously.
Recent huge penalties against famous influencer for tax evasion illustrates the government’s plan to tackle all sources of “illegal” incomes by the wealthy population.
In 2022, businesses will feel the burden from higher labor costs, but positive long-term effects lie ahead
In the short term, foreign companies in China will face the burden of growing labor costs due to “common prosperity” policies. Also, companies who rely on wealthy Chinese customers may be indirectly affected by increased scrutiny on the rich, e.g. targeted tax inspection campaigns and property tax pilots.
However, in the long term and if China’s “common prosperity” policies prove successful, a growing middle-class with purchasing power and financial security will provide a new customer base for premium products
Cybersecurity: Focus on a more digital economy
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China has high ambitions for the development of the country’s digital economy
China’s State Council published the 14th Five-Year Plan for the Digital Economy in December 2021, expressing high expectations for a thriving digital economy to help boost the real economy.
Economic policy advisor Liu Shijin highlights the importance of digitization of production in a recent essay. He argues that the future of the digital economy lies heavily in AI, which is only possible through the efficient use of data.
Cyber and data security is required to allow China’s digital economy to grow
Utilizing data as vital assets will be necessary for China’s digital economy to thrive and mature. This requires a robust data security and management framework, which China has been developing since 2017 with the Cybersecurity Law and which has seen rapid development in the last two years.
Policymakers have argued that the point of important data and data categorization is to “protect the data that should be protected, and let other data circulate and trade fully”. Securitization and management of data is likely to see increased enforcement at the local level.
In 2022, international businesses may increasingly move into the limelight of cybersecurity enforcement. In a recent high-profile case, Walmart China received a warning from the Futian Public Security Bureau for 19 violations in their online network portal, and their failure to respond to the violations in reasonable time.
As data is the foundational “factor of production” for the digital economy, policies in 2022 and beyond are likely to focus on exploring how the state can marketize data, including pilots on data ownership, data rights, and data valuation.
Focus for companies in 2022 will be to reassess IT and data strategies
In the short term, the Chinese government will continue to launch tough regulatory moves on data and cybersecurity. Foreign companies in China should reassess their IT and data strategies as well as compliance mechanisms, especially those processing more than 1mn personal information threads or so-called “important data”.
However, in the long term, a growing digital economy may bring benefits for foreign businesses, especially in key technology areas. Companies should consider strategies to contribute to development targets, as well as begin to set up structures for strategic use of data, such as trading and monetization.
News
Escape plans for critical reporters
The Chinese government continues to aggressively intervene in the reporting of foreign media. To prevent critical reports, international newspapers or local television stations are more and more threatened with legal action. In its 2021 annual report, the Foreign Correspondents’ Club in China, FCCC, expresses concern about “the breakneck speed by which media freedom is declining in China.”
In the latest FCCC report, correspondents from the French news agency AFP, the American newspaper L.A. Times and an anonymous European TV station reported that they were threatened with lawsuits. They claim that protagonists or state bodies wanted to prevent the use of information or images. Foreigners face the risk of not being allowed to leave the People’s Republic of China if a lawsuit is filed against them.
Verbal threats and physical intimidation have also continued to increase. Female journalists of Asian descent were particularly affected last year, the FCCC writes. The correspondent for U.S. radio station NPR reported that there have been calls to “beat her to death.” A Deutsche Welle correspondent was approached in the summer in the city of Zhengzhou by a group of men who also tried to knock his cell phone out of his hand. Overall, the working conditions of foreign journalists in China are worse than they have been in decades. Even Covid is used as an excuse for surveillance (China.Table reported).
Foreign journalists in constant state of uncertainty
“Heightened dangers have prompted foreign journalists and their organizations to develop emergency exit plans,” the report says. Threatened employees should be able to leave the country as quickly as possible, if necessary. Some have not been able to do so. Australian journalist Cheng Lei, who worked for Chinese foreign broadcaster CGTN, has been detained for more than a year, as has Chinese journalist Haze Fan of Bloomberg. The charges against the duo remain very vague.
To contain foreign reporters, authorities are also frequently using their visas as leverage. At least 22 journalists from the US, the UK, Canada, Italy, Japan and New Zealand have been granted only “provisional reporting rights.” This entails a shortened residence permit of two or three months instead of the usual one year. Those affected are thus in a state of constant uncertainty. In 2020, more than a dozen, mostly US correspondents of the New York Times or the Wall Street Journal, had already been forced to leave the country.
The situation is further complicated by China’s strict Covid regulations, which massively limit the possibilities for investigations. Covid is also cited as a reason for refusing interviews or filming permits. Almost all 127 respondents (99 percent) consider the working conditions for foreign journalists in China to be far below international standards. In rankings of countries based on freedom of the press, China ranks 177th out of 180 countries. grz
Civil Society
Freedom of the press
Covid alert for more and more Beijing citizens
Shortly before the start of the Winter Olympics in Beijing, the city government tightened the criteria for the health status of its Covid app. As a result, the warning level for many people jumped to red at the beginning of the week. Shopping, taking the bus, going to a restaurant, or even working – all this was suddenly no longer possible for these people. According to reports, thousands of Beijing residents are affected.
One reason: Overnight, the city had introduced a new regulation without prior announcement, under which anyone who buys medication to treat a possible covid symptom, such as a fever or cough, is considered potentially infected. Only a negative Covid test puts the app back on green.
China is pursuing a strict zero-covid strategy in the fight against the Corona pandemic. Even after isolated cases, local authorities impose mass testing and strict quarantine. Covid apps are an important part of this system: Depending on the user’s health status and location, a colored health code is displayed on their smartphone:
Green means all is well;
Yellow means quarantine at home;
Red means quarantine under official control.
These apps not only record the user’s location but also all vaccinations and tests. While these apps are not mandatory, it is virtually impossible to move around or enter a public space without them.
Meanwhile, organizers of the Winter Olympics have registered 37 more Covid cases. The organizing committee announced on Monday that 28 entrants tested positive for the coronavirus on Sunday – including eight athletes or team members. In addition, infections were registered in nine people already inside the sealed-off Olympic system. There had been a total of 34 positive tests the day before, and the total number of Covid cases has risen to a total of 176 since January 23.
During the Beijing Winter Olympics, everyone involved – from athletes to journalists – will remain isolated from the rest of the Chinese population. To detect infections as quickly as possible, every participant inside the Olympic bubble must undergo a daily PCR test. rad
Health
Sports
China leads in offshore wind power
According to its own figures, China has become the world’s largest producer of offshore wind power. State television CCTV reported that the People’s Republic built 16.9 gigawatts of new wind farms last year. Data from the National Energy Administration (NEA) showed that this brought the total installed offshore wind powerto 26.4 gigawatts – more than any other country in the world. The previous leader was the United Kingdom. The UK’s capacity was around 11 gigawatts in the third quarter of 2021. This makes China’s current capacity 2.5 times larger. rad
Climate
Energy
Environment
Renewable energies
Wind power
Profile
Xue Yinxian – exiled doping whistleblower
Xue Yinxian, ex-sports doctor
The beginning of her career sounds like something out of a storybook: As a young woman, Xue Yinxian starts working at China’s national sports authority. She comes from a family of revolutionaries from the early days, is highly qualified, and has excellent prospects. She looks after the country’s top athletes and became the team doctor for the national gymnastics team. At the 1988 Olympic Games in Seoul, she was the chief physician of the Chinese team. Xue is now 84 years old – and is considered an enemy of the state. The reason: She publicly revealed an extensive state doping program.
During her time as a physician in professional sports, more than 10,000 athletes had been doped, she revealed to journalists from the Australian newspaper “Sydney Morning Herald” in 2012. The following day, the words “China” and “doping in sport,” as well as some of the names she mentioned, were blocked on search engines in Beijing. Xue’s accusations go a long way. Performance-enhancing drugs, she says, were first embraced as a welcome innovation in the late 1970s. A short time later, all athletes were forced to take them, including young athletes as young as eleven.
Athletes had no choice
“In the 1980s and 90s, Chinese athletes on the national teams made extensive use of doping substances,” Xue explained in an interview with German broadcaster ARD. She had not administered such drugs herself, due to medical concerns. But the athletes had hardly any other choice. Many of them did not even know which substances had been administered to them. Xue explains that she experienced the consequences firsthand: She kept a journal about the athletes, the drugs they took, and the effects. “The athletes came to me when they developed health problems because of doping,” Xue recalled in an interview with Deutsche Welle in 2018.
Even coaches had contacted her and pointed out that young male athletes were growing breasts. “They came to me to express their concerns.” The doctor objected strongly to the practices, arguing that sports are supposed to make people healthier, not sick. For refusing to play along, she had been targeted by the state. Whenever China applied for new major sporting events, she said, officials tried to intimidate her. After she spoke out publicly about doping, the government’s repression grew worse.
Eventually, she no longer felt safe in Beijing. In 2017, Xue fled to Germany with her son and his wife. She has since been granted political asylum. Her revelations are still explosive. First, because she is calling for the revocation of all of China’s international medals from the 1980s and 1990s. Second, some athletes Xue mentioned in connection with doping are now influential officials and businessmen in China. Xue is currently working on a book, her memoirs. The title: Chinese Drugs. However, she and her family are still looking for a publisher. Paul Meerkamp
Sports
Dessert
It is extremely tacky, but somehow also gorgeous and certainly a stunning display of show television. This year’s big gala for the Spring Festivalby state broadcaster CCTV’s once again had it all: snappy pop songs, strapping soldiers, stern socialists, corny voices, and many, many wacky sketches. As always, ethnic minorities in traditional costumes, daredevil martial arts performances, elements of traditional theater, brightly colored stage sets, and performances with many children were part of the program. The taikonauts sent their greetings to earth live from the Chinese space station. A special feature this year was a song dedicated to the Olympic spirit.
Some songs of tragic love moved half the audience to tears. These were difficult to show in close-up this time, however, because the audience all wore face masks. At least they were masks in shades of red that matched the setting. The gala touched on the main theme of the past two years with a lengthy hospital sketch.
The TV show, which had the highest ratings in the world, culminated in a nation’s loudly proclaimed desire and resolution to create an “even more beautiful, even better China.” China was embarking on a new era, in which the realization of the Chinese dream would once again move a little closer.
We can’t wait to see what CCTV comes up with next year. That’s when the format will celebrate its 40th anniversary. It’s hard to believe that it began in 1983 with the simplest of means on a tiny stage, a half-banned song and a lot of improvisation.
