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China’s fragility fuels Davos pessimists

China’s fragility fuels Davos pessimists

 


This time around, Xi, who hasn’t left China since the coronavirus pandemic broke out two and a half years ago, didn’t even call for a Zoom call.

For the cohorts of corporate titans and decision-makers who flocked to Davos to read the runes indicating whether the next recession was about to hit, his absence was a bad omen. The conversation shifted dramatically from wary assessments of China’s strength to panic at the edge of its fragility.

Xi’s Zero COVID authoritarian strategy has sparked serious unease among Western businesses. the Economists Intelligence Unit estimates that the foreclosure is expected to eat away at an annualized total of 6% of Shanghai’s economic output, plunging China’s main port city into recession and forcing Beijing to underestimate its overall gross domestic product target.

These types of numbers are triggering tremors around the world.

It fell to philanthropist George Soros, the ultimate pillar of Davos, to sum up the scale of what he called Xi’s worst mistake.

The closures had dire consequences, he said. They pushed the Chinese economy into a tailspin. It started in March and will continue to grow until Xi backtracks, which he never will because he cannot admit a mistake. In addition to the real estate crisis, the damage will be so great that it will affect the global economy. With the disruption of supply chains, global inflation is likely to turn into a global depression.

In another sign of bitterness, David Rubenstein, co-founder of private equity group Carlyle, told POLITICO in Davos that India was more attractive [to buy assets] lately than China.

China certainly has reasons other than the coronavirus to keep its head down this year. Beijing knows very well that it is no longer the flavor of the month because of Russia’s invasion of Ukraine. Indeed, Davos took on an unusual war-and-peace vibe this year, with a keynote address from Ukrainian President Volodymyr Zelenskyy. Thanks to China’s logically tortured stance of pro-Russian neutrality, which has garnered little support in the crowd, Xi is hardly the most welcome guest anymore.

Perhaps playing on his own strength given the current mood, Beijing’s official delegation was led by the most apolitical figure imaginable: veteran climate envoy Xie Zhenhua. The message is clear: let’s set aside disputes over coronavirus and security for now, and focus on the one issue the West is still genuinely interested in engaging with China on.

For Soros, however, Russian President Vladimir Putin and Xi Jinping were now united in stubbornly clinging to their mistakes. They rule by intimidation and as a result they make mind-boggling mistakes. Putin expected to be welcomed in Ukraine as a liberator; Xi Jinping sticks to a Zero Covid policy which cannot be sustained.

Emergency posts in China

From China, the economic signals are disastrous. As CEOs and ministers clinked glasses by the Alps, Chinese Premier Li Keqiang was in emergency mode. Fears in the West shift from annoyance over the overproduction of everything from plastic toys to steel, to a more fundamental concern that supply chains are broken and the global factory is off the grid.

On Wednesday, China’s State Council, headed by Li, held an unprecedented conference call with 100,000 participants from across the country, at all levels of the bureaucracy.

Theres a single focus: To stabilize the economy. During the meeting, Li stressed the need to ensure the stability of market entities, employment and people’s livelihoods and keep the economy afloat as much as possible, state media reported.

Since March, and especially April. certain economic indices are particularly deteriorating. In a way, and to a certain extent, the difficulty [we are facing] is bigger than that during the severe blow of the 2020 pandemic, Li said, a day after the State Council rolled out a 33-point plan to get the economy back on track.

Stephen A. Orlins, chairman of the National Committee on US-China Relations, based in New York, noted: China’s economy is in considerable trouble. No one has a crystal ball, but if the zero-tolerance COVID policy remains in effect and COVID continues to emerge, China’s economy could contract in 2022. For a country that has seen more than 40 years of growth is a shock.

Read to say about the economy is unusual. For much of his presidency, Xi assumed most of the economic powers traditionally granted to the prime minister, rolling out nationalist policies focused on cracking down on Big Tech and other innovative sectors. When the crisis hit, however, he stepped back and put Li in the lead as a fixer, as the Communist Party prepares for the congress every five years that will likely see Xi take the helm for the third time.

The greatest pessimists

Foreign companies do not know how to manage without a market which was once their irreplaceable engine of profit.

While our surveys reveal that there is widespread pessimism among CEOs in the US, China and European regions, CEOs of Western multinationals in China are recorded as being the most pessimistic about current business conditions. , said David Hoffman, senior vice president of The Conference. Board, an international economic research organization funded by corporate donations.

The unexpected, sporadic and widespread COVID-19 lockdowns in many Chinese cities, most prolifically Shanghai, and the havoc on logistics, people and production that these so-called zero COVID policies have caused in the commercial sphere have clearly weighed on the business climate in the region,” Hoffmann said.

Whether the future is rosier or darker depends on who you ask. For Hoffman, the CEO survey shows there is a general sense of long-term optimism, with only 17% of the Chinese group saying they are diversifying away from Chinese suppliers, suggesting that there is has more coupling than decoupling.

Siva Yam, president of the Chicago-based US-China Chamber of Commerce, also noted a divergence in sentiment between different sectors.

You see negative sentiment due to supply chain disruptions. For big companies, you’re not going to see a lot of new investment because China isn’t as competitive and regulation is getting more and more important. For small and medium enterprises that have a niche product they can sell in China, they continue to be optimistic [because] they are not so affected by [new] settlement, he said.

But Jeremy Farrar, director of the Wellcome Trust, a foundation, was more broadly skeptical of China’s prospects due to the handling of the pandemic.

Calling China a great unknown, Farrar told POLITICO: I don’t believe a Zero COVID policy is sustainable, and at some point China will go through a great epidemic. And the population in China has a very different immunity than the rest of the world.

So it’s a big concern.

Speaking at a panel co-sponsored by POLITICO, Stéphane Bancel, chief executive of vaccine maker Moderna, added: Like Jeremy, I’m very worried about China. Because I think as the virus gets more and more infectious, it’s less and less controllable with techniques that were wonderful in 2020 to prevent a lot of deaths.

Xi’s absence and his Zero COVID strategy are all the more infuriating given his unwavering commitment to globalization in his 2017 Davos scenario.

Whether you like it or not, the Chinese leader said at the time, the global economy is the great ocean you cannot escape. Any attempt to cut off the flow of capital, technology, products, industries and people between economies and redirect ocean waters to isolated lakes and streams is simply impossible.

Noble sentiments, perhaps, but China itself is now the one that seeks to be the island, that juts out from this great ocean.

Sarah Wheaton, Matt Kaminski and Jamil Anderlini contributed reporting.

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