For years I’ve been saying that China was trending more towards North Korea than Germany or Japan. I would base this “prediction” on China’s increasing belligerence towards other countries, its increasing government control over its economy, its increasing control over its own citizens, and Xi Jinping’s increasing megalomania. China’s just completed Party Congress has borne all of these things out. For in-depth analysis of China’s party Congress I suggest you read the following:
- Xi Jinping Expands His Power, Elevating Loyalists, Forcing Out Moderates, The New York Times
- Reaction to China’s 20th Communist Party Congress, Reuters
- China’s Xi Expands Powers, Promotes Allies, The Diplomat
- What the Hell Just Happened to Hu Jintao? Foreign Policy
- Xi’s Total Control in China Injects More Risk Into Chaotic World, Bloomberg
What will all this mean for your business? Among other things, it means the following:
- Zero-COVID is here to stay. Li Qiang, who oversaw Shanghai’s two-month COVID-19 lockdown this year, has been “has been anointed as the second-ranking Politburo Standing Committee member thanks to his loyalty to Xi Jinping“. More importantly, China’s Zero-COVID policy was constantly extolled at the Congress, to a chorus of nodding heads. For what this will mean for supply chains, I urge you to read what I wrote back in December, as nothing much has changed: Omicron and Supply Chains: Buckle Up.
- Free enterprise and freedom in China will become increasingly constricted. If your business does not fit in with exactly how the CCP wants China’s future to look, you should expect problems.
- The Chinese government will be focusing more on increasing its control (and on “encouraging” the right sort of behavior from its citizens) than on the economy. This will mean things will get tougher for foreign companies that do business in or with China. In just the last few months I’ve seen how this can impact even things like how China’s export credit agency, Sinosure, treats American and European companies that have their products made in China and I will be writing about this specifically later this week.
- Companies and countries are going to be scrambling to reduce their dependence on China and China will, in turn, be scrambling to decouple further from the rest of the world. If you think Vietnam is “full” now, just you wait. India, Indonesia, the Philippines, and Mexico will become the places to go for manufacturing. Sadly, Taiwan has become riskier.
THE buzzword for the next 5-10 years will be “zero-China.” See Japanese companies explore how to go ‘zero-China’ amid tensions. “Zero-China” is mostly being used to describe companies seeking to re-jigger their supply chains to completely exclude China, but I think it will eventually come to mean any effort to be rid of China.
What are you seeing out there?
