The facts: On a visit to Anhui Province, Chinese President Xi Jinping stressed his support of state-owned enterprises as the core of the economy. Xi has been touring the regions this year and his stop at steelmaker Magang on August 19 was his fifth at a large state-owned enterprise (SOE). Xi’s visits are strong signals of how much support SOEs enjoy in Beijing and underscore policy declarations issued over the last months. They have stressed the need to maintain the “public economy as the mainstay of the economy” and Xi’s belief in the importance of SOEs as drivers of innovation.

What to watch: Xi is marking out his priorities in the run-up to the Chinese Communist Party’s Central Committee plenum in October that will discuss the People’s Republic’s 14th Five Year Plan (2021-25), and “future targets for 2035”. These will reflect a strong state-led development model and the desire to become a nation of “wealth and power” by 2035. After officially dropping the Made in China 2025 Strategy due to global pushback, Xi’s visits and the statements about the role of the state in the economy prove that industrial upgrading, indigenous innovation, and achieving industry leadership in strategic industries will loom large. The US-China trade war, technological dependence and increasing tensions with the European Union over Hong Kong, human rights and trade are stark reminders to policymakers in Beijing of the need for national self-reliance and technological build-up. The next months will see more signals of state support for domestic technology and industrial modernization.

MERICS analysis: “Xi’s tours give carefully curated political signals about Beijing’s priorities. Private companies are still welcome, in fact China needs their innovation and growth potential more than ever. But a foundation of politically controlled, strategic industries will remain at the core of the economic system,” says MERICS analyst Nis Grünberg. “The desire for strong SOEs and their international expansion is driven by a growing discourse about self-reliance and independence from imports of critical technology. The Trump administration’s moves to ban Chinese companies and products are making Beijing’s desire to boost domestic capabilities and independence more urgent. The signals are clear: China’s state-led capitalism will stay, especially now that kick-starting the economy is urgent.”

Media coverage and sources:

Chinese government: Policy declarations
News US: Xi’s 2035 manifesto sends shockwaves
SCMP: China’s economic plans demand structural reforms
The Economist: CCP and markets ever closer intertwined

Tech companies profit from new stock-exchange rules and continued technology push

The facts: As its technology companies encounter ever more mistrust and restrictions abroad, China has taken another step in easing the sector’s access to capital while continuing to champion initiatives to produce homegrown alternatives to foreign technologies. On August 24, the tech-focused board of Shenzhen’s stock exchange, ChiNext, launched a streamlined system for initial public offerings (IPOs) of tech start-ups. The first 18 companies to list under the revised rules saw their shares skyrocket amid enthusiasm from investors. The week before, state media lauded a new Chinese-developed software operating system, Kylin V10, as an alternative to the dominant US operating systems. There were also reports of the Ministry of Industry and Information Technology supporting a consortium developing an alternative to GitHub, a leading US software-development platform.

What to watch: As the US-China tech conflict continues, the Chinese government will probably introduce more measures to encourage Chinese tech companies to list on domestic stock exchanges. At the same time, given the expanding scope of US trade restrictions, Beijing’s efforts to support domestic tech development will likely increasingly focus on software in addition to hardware.

MERICS analysis: “These developments are part of ongoing efforts to strengthen China’s domestic tech ecosystem at a time when Chinese tech companies face scrutiny abroad,” says MERICS analyst Caroline Meinhardt. “With more Chinese companies facing the risk of being delisted from US stock exchanges, the Chinese government is ensuring that its growing number of domestic tech boards – like ChiNext or Shanghai’s STAR – provide an attractive safe haven for Chinese companies. Yet even as tech IPOs flourish in China, warnings about the risks of a tech bubble are getting louder.”

Media coverage and sources:

Reuters: ChiNext’s latest tech IPOS
Reuters: Chinese companies face US delistings
Bloomberg: Tech IPOs flourish in China
China Daily: A Chinese operating system called Kylin V10
TechCrunch: China’s GitHub alternative is called Gitee

New US export controls could threaten Huawei’s survival

The facts: New export controls imposed by the US government specifically targeting Huawei and its affiliates have put the Chinese company under intense pressure. Rules announced last week prohibit manufacturers that use US technology to make computer chips from selling to Huawei without US permission. As chipmakers around the world rely on US technology, the move could sever the Chinese telecoms equipment maker’s supply of essential components for a range of products.

What to watch: The key short-term question is whether the US government will stick to its new measures. US industry groups have already warned the new rules could encourage foreign firms to ditch US technology to avoid the risk of Washington imposing export restrictions on their products. The Trump administration previously dropped some other measures targeting Huawei after they hampered US companies that were taking part in talks to set global industry standards.

MERICS analysis: “The new controls coincide with the expansion of the US Clean Network program that aims to decouple the US from China in telecoms networks and some information technology sectors, and seeks cooperation from other states towards these goals,” says MERICS senior analyst John Lee. “Estimates of Huawei’s stockpiles raise doubts over whether it can now service 5G infrastructure rollouts beyond China. It will probably take Chinese firms years to develop semiconductor-manufacturing capabilities without US-origin technology.”

Media coverage and sources:

Nikkei Asian Review: Huawei in 'survival mode' as suppliers race to beat US deadline
Fierce Electronics: Major semi trade groups blast Trump crackdown on Huawei
Financial Times: Is Huawei ‘too big to fail?

Chinese Foreign Minister in Europe to prevent transatlantic front against Beijing

The facts: China’s diplomacy is getting into gear again after a months-long, coronavirus-induced break. In his first trip abroad since the beginning of the pandemic, Foreign Minister Wang Yi is touring Europe this week to bolster relations. Wang visited Italy and the Netherlands on Tuesday and Wednesday. He will also travel to Norway, France and Germany to discuss collaboration during and after the pandemic – including vaccine development and economic cooperation – and the role of multilateralism in a changing global order.

What to watch: Huawei and Hong Kong will be particularly hot topics. Beijing hopes to persuade countries not to ban the use of the telecom equipment maker’s 5G technology or overtly tighten regulations that might lead to de fact bans. Berlin has been one of the European governments most reluctant to consider Huawei’s exclusion from 5G networks. After EU member states last month initiated measures to counter China’s actions in Hong Kong, Wang will reassert Beijing’s line that foreign governments should not interfere in China’s internal affairs. The standoff led to tensions on Wang’s tour: Hong Kong activist Nathan Law was invited to Rome by Italian MPs and gave a press conference in front of the foreign ministry as Foreign Minister Luigi Di Maio and Wang met inside. In the Netherlands, foreign minister Stef Blok raised concerns about Hong Kong and human rights and a Member of Parliament gave a press conference on human rights violations in Xinjiang on the sidelines of Wang’s visit.

MERICS analysis: “The main goal of Wang’s visit is to stop the formation of a strong transatlantic front against China. The explicit focus on multilateralism is an implicit criticism of the US – and a call for Europeans to maintain independence from the US in their decision-making. It is also an attempt by Beijing to frame Europe’s toughening stance on China as a response to US pressure. But European sentiment towards China has changed mostly as a result of Beijing’s opaque initial handling of the Covid-19 pandemic, its over-the-top ‘mask diplomacy’, and its policy towards Hong Kong,” says MERICS analyst Lucrezia Poggetti.

Media coverage and sources:

Chinese Foreign Ministry: Details about the trip from the regular MFA press conference
Global Times: Wang Yi's Europe visit to call for multilateralism, strengthen cooperation amid US' unilateralism
South China Morning Post: „Damage control“ at heart of Chinese Foreign Minister Wang Yi’s mission to Europe
La Repubblica: Details about Wang Yi’s trip to Europe (in Italian)
South China Morning Post: Dutch Foreign Minister Stef Blok raises Hong Kong and human rights concerns with Chinese counterpart Wang Yi

METRIX

Experts reckon China wastes 16 to 18 million tons of food a year, enough to feed 30 to 50 million people. After a telling off from Xi Jinping, the People's Republic recently launched the campaign N-1, under which, say, ten people should only order food for nine in a restaurant. But the new custom could be a hard sell: It is considered polite in China to never let plates empty completely. (Source: nytimes.com)

VIS-À-VIS

“It’s a pity such a lively exchange has stopped” – Dagmar Schmidt on dialogue with China

German parliamentarian Dagmar Schmidt has been a member of the Bundestag since 2013 and holds the chair of the German-Chinese parliamentary group. The Social Democrat from the central German state of Hessen tells MERICS China Briefing that the body’s work has become a lot harder since the Covid-19 pandemic began in China – and since Beijing’s political stance began to harden.

The Covid-19 pandemic has hit industrial supply chains – but also cross-border dialogue. How has the work of the German-Chinese parliamentary group changed recently?

Each half of this group of friends usually visits the other half at least once in the course of a legislative period, but we haven’t been able to make that happen yet. Travel generally has come to a standstill with the pandemic. But even before that our conversations were already less frequent and not seldom more difficult. More and more often, our visitors from China only repeated official positions. We used to host Chinese delegations from a wide variety of backgrounds here in the Bundestag – bloggers, business journalists, scientists, local politicians and business people. It’s a pity such a lively exchange has stopped, especially in difficult times. It would be good to keep these channels open.

How are you dealing with this new situation and what China-related issues are of interest?

We are looking into how we can stay in touch in spite of everything. The group remains very interested in exchanging views, despite all the difficulties. And there is much to discuss: the coronavirus and the joint fight against the pandemic, the economic consequences for both countries, deeper economic cooperation, and of course human rights. We are worried about developments in China, the situation in Hong Kong and the position of the Muslim minority in Xinjiang. It is important to keep mentioning this.

Chinese President Xi Jinping says he is committed to multilateralism. But Beijing’s approach in Hong Kong and gestures like congratulating Belarusian dictator Alexander Lukashenko on his controversial election victory have cause irritation in recent months. What do democratic states like Germany and its like-minded European Union partners have to change in order to deal with China?

The coronavirus and China’s increasing authoritarianism show we have to reduce interdependencies without immediately raising tensions and breaking off economic, political and civil-society ties. We have to broaden our viewpoint from one that was very focused on China. Many companies are already taking a more diverse approach to sales and supply chains by taking other Asian countries into view.

Our dialogue with China will not shy away from clearly identifying problems, and it can not limit itself to diplomatic phrases. China likes to state things clearly and we must respond in kind – and we must find allies that care about human rights and global rules. Europe can be the driving force in this area.

What can Europe learn from the crisis and should it be economically more self-sufficient?

New technologies, telecoms, artificial intelligence, robotics are crucial – Europe has potential in all these areas and the pandemic may have nudged it to invest more in them. We also have to change tack in healthcare – not only how we purchase masks, but also drugs and medical technology. Europe does not need to develop purely negative reactions to China, it should focus on the positive ones.

China is a partner, competitor and systemic rival. Not only EU diplomats have come to emphasize this three-way role – Germany’s Social Democrats, Angela Merkel’s junior partner in government, recently emphasized this in a position paper. But EU member states are not anywhere as close to being united on how to deal with China. How can Europe jointly rise to Beijing’s challenge?

I think the pandemic provided real impetus for more unity in Europe’s China policy. Countries that sympathize with China feel the EU does not support them enough. But the crisis has strengthened Europe’s awareness that it needs to invest in common infrastructure and cooperation. It is unacceptable that it takes forever to travel by train from Frankfurt to Sophia. We need rail, data and road networks to better connect Europe. And in parallel we need to send clear signals to EU members that disregard human and civil rights – we have make it clear we are serious about our values.

The interview was conducted by Claudia Wessling.

REVIEW

Making it Count. Statistics and Statecraft in the Early People’s Republic of China by Arunabh Ghosh (Princeton University Press, 2020)

Statistics is rightly receiving new attention in these times of Big Data and Covid-19. This book by Arunabh Ghosh, an associate professor of history at Harvard University, shows how collecting and analyzing data can influence the development of a country. Ghosh uses a striking array of details and a broad study of sources to lead us through the world of statistics and statisticians in 1950s China.

The historian kicks off his three sections (and nine chapters) by laying out the enthusiastic but often also faltering advent of modern China’s statisticians – people who wanted to put the new tools introduced by Soviet experts fully in the service of the newly founded People's Republic. But in Part 2, Ghosh impressively demonstrates how their lack of uniform data-collecting standards and an overabundant reporting system made statistics useless for the ruling classes – they became more and more removed from reality. In Part 3, he closely describes the attempts of Chinese statisticians to adopt new methods (especially random sampling) with the help of colleagues from India – and how Mao Zedong’s “Great Leap Forward” then put an abrupt end to this hitherto little-known initiative.

Ghosh provides numerous tables, a 32-page bibliography, a helpful glossary. But in addition to a love of detail, the author is keen to grapple with some big questions. He wants to sensitize readers to the fact that ideological premises influence the validity of statistics much more than the ability to manipulate the technology used to collect them. The historian is asking the reader to reflect on what and how people want to know. This ambition means the book at times lacks a clear-eyed political evaluation of key players and their decisions. Nevertheless, "Making it Count" is a remarkably well-researched and well-written book that can be recommended to anyone who has wondered how the history of the People's Republic has shaped the (state’s) handling of statistical data to this day.

Kristin Shi-Kupfer, Research Director Politics and Society

PROFILE: Xiao Yaqing – China’s new Minister of Industry and Information Technology

Xiao Yaqing – China’s new Minister of Industry and Information Technology

The 61-year-old Xiao Yaqing was recently named China’s new minister of the Ministry of Industry and Information Technology (MIIT), taking over from Miao Wei, who had reached retirement age.

The new post gives Xiao, a Beijing native, key responsibility for rolling out China’s ambitious plans for digitalization, ramping up domestic industrial innovation and modernization. China has announced huge investments in “new infrastructure” – including 5G, national data centers, AI – as part of its post-coronavirus recovery plan. As head of the MIIT, Xiao will oversee large parts of this, licensing new technologies or crafting strategic policy for China’s digital and industrial infrastructure of tomorrow.

Xiao has made a name for himself as a very capable administrator and manager. And he brings deep and diverse experience to the job: He served as head of the State Administration for Market Regulation (SAMR), China’s main market regulator; as director of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), central watchdog of state-owned enterprises; and as one of the top executives at Chinalco, China’s biggest aluminum producer.

Amidst the trade war with the US, Xiao will likely push an agenda infused with Beijing’s growing wish for independence from foreign tech. MIIT is a key actor for drafting China’s strategic technology development plans and it was in charge of drafting the Made in China 2025 initiative. Xiao’s grasp of both Chinese industry and the country’s regulatory regime, he should prove a good choice for the job.

Nis Grünberg, Analyst, MERICS