Wrap-up from the National People’s Congress

This year’s National People’s Congress is over and the government work report has been widely discussed and dissected in various formats. As part of the wrap-up, I want to draw attention to two topics that will likely remain at the frontlines of concerns for business and politics in the months to come.

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New productive forces

The report of the Chinese government to the National People’s Congress contained a new buzzword that we will probably hear a lot over the coming months: new productive forces. The government indicated that the development of these “new productive forces” is something they want to foster as part of their agenda for 2024. Only, what exactly does “new productive forces” mean?

In the report, there is no clear definition of what the new productive forces are going to look like and what the government wants to do to develop them. Even explanatory pieces issued by the Chinese media remain vague and non-descript.

The only thing we do now is that they are somehow supposed to be innovation-driven. The Chinese word for “innovation” is indeed a frequent appearance in the government report: it is mentioned 39 times. In addition to that, the report contains slogans referring to a “high-end, knowledge-based and greener” industry. It speaks of the goal of strengthening the “made in China” brand and fostering the digital economy. Therefore, we can reasonably assume that the Chinese government is aiming to develop and foster advanced automatised and digitalised industries and services, or what is otherwise known as industry 4.0, as well as AI-based applications and renewable energies.

These efforts are part of a longer-term Chinese undertaking of redeveloping the Chinese growth model and pushing the Chinese economy up the value chain. This is not new, but it seems like the Chinese government is determined to give it another push. It certainly is part of the effort to turn China into an advanced economy that is less dependent on high-tech imports and rather strives for global leadership in the industries of the future.

Does that mean that we now know what “new productive forces” are and how they will be fostered? Not really.  However, at this stage, this should not be too much of a concern because it reflects a common Chinese policy approach. The Chinese government frequently announced big policy initiatives without detailing what exactly they mean and how they are supposed to be implemented.

For Western observers, this is an unusual approach. We are used to governments coming forward with more or less thought-out policy initiatives. They might still be tweaked in the legislative process before being implemented. However, they are usually not flowery and vague once the reach the implementation stage.

This works differently in China. The concrete conceptualisation of policies will quite often be left to local governments and companies, who will shape what the policy means in practice. The central government issues a slogan with some vague directions around it and the content of the policy will only successively become apparent as it is shaped and developed through implementation. This experimental-style policy-making is very typical for how the Chinese government works and it is very probably also the case with the “new productive forces”.

For businesses and politics alike, this means that we have to watch closely over the coming year what local governments and Chinese companies choose to do in order to fill this new slogan framework.

 

Taiwan

In the wake of the release of the government working report, the Chinese government’s attitude towards Taiwan was again a prominent topic in the media. In this year’s report, the phrase “peaceful unification” describing the PRC’s policy towards Taiwan was dropped, triggering much speculation about whether this was another indication of a more hawkish policy of the PRC towards Taiwan.

However, the phrase reappeared in foreign minister Wang Yi’s press conference during the congress. In the official English-language summary of the press conference, Wang is quoted as saying that all Chinese people should “jointly oppose ‘Taiwan independence,’ and support peaceful reunification”. At the same time, the transcript refers to him saying that whoever supports Taiwanese independence “will get burned for playing with fire and taste the bitter fruit of their own doing”. Both the official English and also the official Chinese-language version use the same wording here. This indicates that a consistent message is supposed to be sent to both a domestic and an international audience.

Independent of this consistency of messaging towards the different audiences, the Chinese government’s language with regard to Taiwan has been contradictory lately. The disappearance and reappearance of the phrase “peaceful unification” in official communication has troubled and puzzled international audiences.

Yet, the wording of Chinese government publications is almost never coincidental (certainly not in important documents like the ones around the National People’s Congress). Therefore, the inconsistent formulations might indicate a Chinese version of strategic ambiguity with regard to the Taiwan question. It might be a sign of the Chinese government exploring different options and leaving wriggle room for how to act in case of a crisis.

This possible ambiguity might also be reflected in recent actions. The Chinese military has for some time regularly and repeatedly infringed upon Taiwanese airspace and waters. At the same time, we saw a joint rescue mission of mainland Chinese and Taiwanese rescue vessels yesterday. Both sides’ rescue teams came to the aid of a fishing vessel that capsized in the Taiwan Strait and are jointly searching for two missing sailors. These actions indicate that there is still room for cooperation and not everything on the Taiwan question is as clear-cut as it might appear.

No matter the level of threat or cooperation, all concerned parties should be very aware that a conflict over Taiwan would have massive ramifications for regional security and the world economy. It would cause huge disruptions of global supply chains, severely damage the tech industry and any company relying on a computer (that is, everyone) and very probably cause a recession for the Australian economy. From an economic perspective, this conflict is in nobody’s interest.

 

Most recent online nationalist frenzies in China

These days, anyone with a smartphone and an internet connection can cause immense troubles for internationally engaged businesses. In other words, political risks for businesses do not only emerge from the actions of governments but also from individuals and certainly from very vocal online communities.

In China, a recent wave of nationalist frenzy has swept through social media and has targeted the nobel prize-winning Chinese author Mo Yan and also the head of one of China’s largest producers of bottled water, Nongfu Spring. Mo Yan was targeted for some of his writings and accused of being unpatriotic and insulting Chinese revolutionary heroes. The head of Nongfu Spring came into the limelight of social media after his reactions to the passing away of a competitor, who was widely remembered for his charitable behaviour, was considered inappropriate.

The only community then targeted Nongfu Spring for the design on the label of one of its drinks that they claimed looked Japanese rather than Chinese. Taken together, these allegations led to a significant nationalistic online backlash against Nongfu Spring on Chinese social media.

The Chinese government felt compelled to address the issue through its state-controlled newspaper Global Times. The article pointed out how the Chinese business environment is welcoming for private companies and international reports about nationalist backlashes against companies are exaggerated and incorrect.

For businesses, the case of these most recent incidents offers two lessons. Public opinions matter also, and increasingly so, in China. Businesses are well advised to pay attention to challenges in local branding and behaviour. They should not underestimate the level of nationalism that can be mobilised in Chinese social media and factor in public opinion also in their undertakings in China.

Additionally, the case also indicates that, despite all the talk of decoupling economies, the Chinese government is still concerned about the reputation of the Chinese market globally. They are not interested in sending a message of a nationalist close-in. Rather, they still want to portray the Chinese market as open and welcoming to international engagement and investment. That does not mean that the Chinese market is not challenging to invest in, but it is still good news for those who are investing in China.

 

The American move against Tik Tok

The House of Representatives of the US Congress voted on a bill that is supposed to forced Chinese company ByteDance to sell its popular social media app TikTok or face a ban in the US. It is yet unclear whether the bill will pass the Senate as well, but the potential ramifications for businesses engaging with China are significant.

Western governments have suspiciously eyed TikTok for a long time already. There are concerns that via TikTok, the ByteDance might get hold of large amounts of user data of users outside of the China. Multiple governments forbade their employees to use TikTok on their work phones and already the Trump administration made moves to ban TikTok in the US.

While the US Senate is still debating on whether to pass the bill, former US treasury secretary of the Trump administration, Steven Mnuchin, has confirmed that he is working on putting together an investor group to make a bid for TikTok should it be sold. Independent of whether one believes that TikTok is a security risk or not, this move is an invitation for the Chinese government to frame the law as an attempt to undermine China’s economic success.

Obviously, the US is a market economy and in such a system, Mr Mnuchin is free to engage in business undertakings of his choosing. However, through a foreign policy lens, these legislative and investment moves are likely to pour even more oil onto the fire of the US-China trade disputes and allow the Chinese government to play the nationalistic card at home.

Particularly in light of China’s renewed efforts to advance its economic growth model (see new productive forces), these actions are already inviting future heated trade disputes. The US has recently announced that it would investigate potential data and cybersecurity risks of Chinese electric vehicles and interconnected cars. It seems increasingly like the contours of a trade war in the tech sector are sharpening. Businesses will have to tread carefully because it appears like governments on all sides are increasing the stakes in this geoeconomics poker game.

 

Chinese foreign minister Wang Yi confirmed to visit Australia

Chinese foreign minister Wang Yi has just been confirmed to visit Australia. Wang will pay an official visit to Australia and New Zealand beginning on Sunday and finishing next week on Thursday. While in Australia, Wang will hold the seventh China-Australia Foreign and Strategic Dialogue.

The visit was confirmed in the wake of the Chinese government announcing a preliminary decision to reconsider Chinese tariffs on wine imports from Australia. While the final decision is still outstanding, the move offers some hope for the Australian wine industry to be able to re-enter the Chinese market.

Apart from wine, there are many other things that Australian foreign minister Penny Wong and Wang Yi will have to talk about. The large-scale cancellation of wheat purchases by Chinese buyers will presumably be another one. The cancellation comes after global grain prices have significantly fallen and the US reported a similar hit last week.

Consular affairs will very probably be another topic for Wong and Wang. The Australian foreign minister will likely raise the fate of Australian author Yang Hengjun, who was given a suspended death sentence earlier this year.

All these topics have the potential to be controversial during Wang’s visit to Australia. However, the fact that both governments are back to speaking with each other is a good sign. Many issues, particularly controversial ones, are best addressed in direct dialogue and behind closed doors. After China-Australia relations had been in rough waters for some time, re-engaging in communication and basic confidence-building activities is a promising sign for these important relations.

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