In a column a few weeks ago, we asked ourselves whether China was ready to make a broader U-turn after the massive change of direction it had taken regarding its Zero-Covid policy. A symbol of that potential change was the arrival of Qin Gang, a former ambassador to Washington, as foreign minister, replacing Wang Yi. We also mentioned how Xi Jinping himself had started to make speeches in favour of private initiatives, after years of carrying out witch-hunts against the private sector, in particular the tech sector.
Now things seem to have moved further in that direction. Wang ascended to the Politburo after the October Congress of the CPP that confirmed Xi as party leader for the third time, and has replaced Yang Jiechi as the Director of Central Foreign Affairs Commission, the highest diplomatic position in China. Wang has recently started a “charm offensive” in Europe, beginning from Paris where he met French President Macron ahead of the Munich security conference. The messages that Wang is trying to pass to his European counterparts are twofold: 1) that China is open for business; and that 2) China is willing to find a diplomatic solution to the war in Ukraine.
Regarding the first point, this seems almost a foregone conclusion. China has observed an acceleration in the process of global polarisation and a separation from the US and, to a lesser extent, from European countries, a process which is clearly premature. China is rightly betting on the growth of South-East Asia and Africa in the next 20-30 years, and believes that the countries from these regions of the global economy will eventually replace the US and Europe as China’s largest “customers” (i.e. importers of its products). That is the reason why the vast majority of the signatories of the BRI are from these two regions of the global economy. But these countries are not large enough to replace Europe and the US just yet and – crucially – they do not possess the technology that the EU and US are able to provide to China, in terms of materials, semi-conductors, etc.
On the second point (namely, finding a diplomatic solution to the war in Ukraine), facts tell a different story than words or intentions. Recent press reports from the Wall Street Journal and other US newspapers show that trade between China and Russia has massively increased since the beginning of the war in Ukraine, both in terms of commodities and manufactured goods and in terms of technology that can be used for civilian and military purposes. Between March and September 2022, trade between the two countries has grown by USD 27bn, and touched USD 100bn. Russia has become even more dependent on Chinese imports, which now represent 36% of Russia’s total. More generally, Russian trade with China has allowed it to cicumvent the tech embargo imposed by the US, and its purchases of foreign-made semi-conductors has increased by 34% in 2022, with the lion’s share coming from China.
On the back of these considerations, the following preliminary conclusions may be drawn. First, it is extremely positive that China has realised how damaging for its own reputation and economic activity some of its policies have been, including the Zero-Covid policy and the support to Russia for the war in Ukraine. Secondly, building on this realisation, and considering its purported intention to change tack, China now needs to show actions that are consistent with its words. Thirdly, even in the most favourable scenario, in which China manages to at least marginally re-orient its policy choices, we remain convinced that a Cold War between the US and China is ongoing, and will develop further in coming decades. But its intensity and speed do matter a lot for the well-being of the global economy and the geopolitical environment. So, any softening on this front will always be welcome.
