China’s uncertain politics will force foreign firms to seek alternate production hubs
Eye On ChinaOpinion

China’s uncertain politics will force foreign firms to seek alternate production hubs

Xi Jinping is most likely to juggle complex issues like delivering relative economic growth without compromising on ‘core interests’ throughout 2023.

File photo of Chinese President Xi Jinping | Reuters

File photo of Chinese President Xi Jinping | Reuters

The year 2023 will test President Xi Jinping’s quest to seek stability for the Chinese Communist Party through a national security contract. The Chinese economy’s health after the end of  zero-Covid policy, presidential election in Taiwan, relations with the US, and the push to conduct head-of-state diplomacy in favourable regions will likely keep Beijing preoccupied in 2023. 

The crucial test will be the transition to the next cycle of the National People’s Congress in March. The NPC meeting will officially announce the major political roles, including the next premier, who is likely to be Li Qiang – Xi’s number two.

Next year, we will also learn the names of the next foreign minister and the director of the Central Foreign Affairs Commission. The latter has a deep impact on Chinese foreign policy direction, including focus areas and personnel selection. 

The individuals who will assume new roles will be hand-picked by Xi and will need to firmly hold the reins of bureaucracy as China goes through a difficult patch at home and abroad.

Also read: Tales of Covid deaths out on Weibo but China playing censor-in-chief

Dwindling economy

Beijing effectively ended the zero-Covid policy on 11 December following the almost nationwide anti-lockdown protests. This gave Xi an off-ramp from a stringent policy that held back the Chinese economy. 

On 26 December, Beijing announced the scrapping of the quarantine requirement for foreign travellers from 8 January. The decision comes when Covid cases are rising across the mainland and reports of deaths are emerging

Beijing was expected to step back from the stringent zero-Covid policy in March 2023. But the swift withdrawal, which opens the mainland for travel and puts pressure on the CCP’s image, shows Xi is more concerned about slowing economic activity. The government wants to create the conditions for reinvigorating the growth of the Chinese economy before the Chinese New Year.

On Monday, Xi sought to address the underlying concerns about what appears to be a sudden U-turn on zero-Covid policy.

“Governments at all levels should further intensify their efforts to effectively guarantee the needs of the masses for medical treatment and anti-epidemic supplies, and protect people’s lives and health,” Xi was quoted by Xinhua News Agency.

The supply-side shock because of China’s zero-Covid policy will continue to hold back the Chinese economy in 2023 as companies such as Apple, Volvo, and Ford look to reduce their dependence on Chinese production lines. 

The size of the Chinese economy will keep attracting foreign companies to maintain their supply chains on the mainland, but the uncertainty of China’s political direction will force them to seek alternate production hubs. Beijing is likely to make them stay, but many have already left or are planning to leave

Also read: US gets tougher on Beijing. Defense bill for Taiwan, blacklists 36 Chinese companies

Taiwan presidential election

Over the past year, Taiwan’s prominence in the US-China competition has kept Beijing on edge – which will likely continue. Taiwan will remain one of the top priorities for Beijing in 2023 as Taipei gears up for the presidential election. 

The ruling Democratic Progressive Party (DPP) suffered a setback in recent local elections, which has added an element of uncertainty to the national election in 2024. Though the presidential election in Taiwan are driven by national issues, including relations with Beijing, the result of the local elections will provide China an opportunity to interfere in the presidential election. 

On Monday, there were signs of heightened military tensions in the Taiwan Strait as Beijing sent 71 military aircraft towards Taipei, 47 of which crossed the median line. The likely cause of the massive airspace violations has been linked to the US National Defence Authorisation Act of 2023, which provides Taiwan with military aid and assistance.

The tensions between the mainland and Taipei are likely to remain in a state of flux throughout 2023. Other factors will complicate the peace in Taiwan Strait. The new US House Speaker, Kevin McCarthy, is expected to visit Taipei next year, adding more pressure to US-China relations, as we saw during the Nancy Pelosi visit

Adding to the existing tensions will be the Taiwan Policy Act of 2022, which is unlikely to pass both chambers of the US Congress in the current session. But the bipartisan support for the Act will intensify Beijing’s rhetoric about the US meddling in its relations with Taiwan.

The Taiwan Policy Act is not a minor piece of legislation. “The biggest adjustment in the US policy toward Taiwan in the past forty years,” Taiwanese officials have said while describing the Act. 

Chinese foreign minister and state councillor Wang Yi has given some hints about the direction of the US-China relations. “What has happened proves time and again that China and the United States cannot decouple or sever supply chains. Under new circumstances, the common interests between China and the United States have increased, not decreased,” said Wang Yi in his annual foreign policy address.

Beijing will seek some stability and predictability in its relations with the US during 2023, following the one-on-one meeting between US President Joe Biden and Xi in Bali. But that doesn’t mean the US will abandon its recently stated national security strategy, which wants to maintain Washington’s strategic advantage at all costs. 

We are likely to witness major visits by Xi to favourable regions such as ASEAN, the Middle East, Central Asia, Latin America, and other parts of the Global South as Beijing seeks to maintain its area of influence. 

“Next year, head-of-state diplomacy will reach a new climax, and many highlights are expected in home-ground diplomacy. We will seize the momentum following the 20th CPC National Congress, spare no effort in strengthening overall planning and providing good services, and create new prospects for the cause of the Party and the country on the new journey in the new era,” Wang added

Also read: After PLA, it’s the Chinese nationalists training guns on India over Tawang

China and Beijing

Xi’s recent visits to Central Asia and the Middle East suggest Beijing wants to influence countries that aren’t squarely under the US security and economic umbrella. Despite growing interest in conducting high-level diplomacy, Beijing’s rhetoric on safeguarding national sovereignty is unlikely to take a step back. 

“We will unequivocally oppose all acts of hegemony, bullying and highhandedness, reject all unilateral protectionist moves, firmly safeguard national sovereignty, security and development interests, resolutely fight all forces that attempt to hold back and even halt the rejuvenation of the Chinese nation, and hold the strategic initiative of national development and security firmly in our own hands,” said Wang in his address.

The other country that will keep Beijing preoccupied is Japan.

Japan’s New Defence Strategy will keep China engaged as Tokyo’s active defence policy doesn’t bode well for the Senkaku Islands dispute. On 22 December, the Chinese Coast Guard vessels stayed in Japanese territorial waters for 72 hours, marking the longest continuous intrusion since 2012. 

The intrusion occurred in an area China describes as Diaoyu Island and contests Tokyo’s claim to the oceanic features. By doubling the defence budget, Tokyo is looking to counter Beijing’s militarism in the region with a $51.4 billion budget. 

Beijing is unlikely to break the ice on relations with India as border tensions will remain high and the People’s Liberation Army’s territorial ingress into the Ladakh region unresolved. 

At a recent rural work conference, Xi emphasised the need to “work on rural revitalisation”, encouraging people to settle along the border areas with India. These so-called poverty alleviation projects will likely include new villages on disputed territory along the Line of Actual Control, which will keep the border dispute alive.

Lastly, Beijing won’t play any active role in negotiating a peace in the Russia-Ukraine war and will continue to maintain “pro-Russia neutrality.” Beijing is unlikely to close itself off to the world or take a step back from its aggressive foreign policy approach. Xi will juggle complex issues like delivering relative economic growth without compromising on ‘core interests’ throughout 2023.

The author is a columnist and a freelance journalist. He was previously a China media journalist at the BBC World Service. He tweets @aadilbrar. Views are personal.

(Edited by Tarannum)