Balancing Nationalism and Globalization in an Everlastingly Rapidly Changing Modern China

In 2012, when Xi took over power, China’s economy had become relatively vibrant and modern society. A country that opened up to the world with a growing well-educated urban middle class. China’s development from 1978-2012 centred on opening up, privatisation, and decentralisation of power, leading to massive economic and social results. It also had some drawbacks. China made a U-turn under Xi Jinping. Power got more centralised again to the Party. The Party started to regulate the private sector more and public spending expanded. Xi Jinping is currently the leader of the Communist Party of China. In this article, I discuss several recent policies and developments in China. I also discuss my experiences of how I have seen China changing over the last eight years and its effect on:

• Corruption
• Environment
• Poverty
• Demographics and the one child policy
• Nationalism
• Recent developments in 2023

 

A robust anti-corruption campaign:

The corruption issue was already on the radar, but it became a priority when Xi Jinping came to power1. Corruption was a problem that grew together with the growing wealth inequality in the country. China has solid social connections between families and companies, and relationships between companies and local government officials are highly influential. Gift-giving to keep relations strong, hosting banquets at expensive restaurants to secure deals, exchanging favours and giving red packages with money (hong bao/ 红包) to get things done are all part of Chinese culture.

In the 2000s, the economy grew rapidly and inequality increased as well. The company bosses got richer, and gifts, banquets, and money packages expected to be received gained value. Many government officials took advantage of their positions of power and enriched themselves.

Xi started a far-reaching anti-corruption campaign in 2012 to stop excessive self-enrichment by (local) government officials. More than 100.000 people have been punished for bribery and abuse of power. These government officials were fired, imprisoned, and some even executed. Critics claim the primary objective of the anti-corruption campaign was to eliminate political rivals within the Party and instil fear among Party members to speak out against the official line.

But corruption in China did drop significantly in the 2010s. The culture of extravagant gifts, banquets and money-giving got reversed. One of the signs of this drop is the sudden drop in worldwide sales for luxury brands like Hermes, Rolex and Martell cognac. Luxury brands were often exchanged for favours in China. The decline in corruption may be caused by a combination of Xi’s anti-corruption campaign and by the development and maturing of the economy as a whole. The relatively low corruption rate gives China an advantage over other industrial and developing countries. Based on the 2021 corruption perception index of Transparency International, China’s ranking of 66 is better than countries like India (85) and Vietnam (87) and much better than low-income industrial countries like Myanmar (140) and Bangladesh (147).

I experience that gift-giving practices in exchange for favours are still common in China, but less so than in the past. When working with factories, for example, they still give many gifts to strengthen the relationship, which is culturally accepted. In return, they expect me to speak positively about their factory to clients or others, for example. They sometimes try to give bribes as well, and they try to convince you to overlook minor quality problems. Ipersonally never accept gifts that require a return, but many parties in China do.

Be careful of these practices when working with an inspection or sourcing agent. Bribes, commissions, and gifts are part of Chinese culture. Inspection parties and sourcing agents may charge low amounts from their customers, instead relying on gifts, bribes and commissions from Chinese suppliers. These suppliers will always expect a favour in return! It is a risk when working in China. Be aware that you know who you work with and that you find reliable partners that work in your interest in China.

When I was a newcomer in China, over 8 years ago, enormous banquets for weddings, company openings or even birthdays were still commonplace, especially in the small industrial city where I lived then. Sometimes I got invited to these events, mainly because asking a foreigner to these events would give the organiser more “face”. I noticed that some people were giving costly gifts, and I understood people could give hundreds, sometimes thousands of dollars worth of cash in red envelopes. This was often more of an under-the-table payment/bribe for a particular favour. Exorbitant gift-giving is less prevalent these days, especially in big cities. 

Fortunately, investing in these bribes is less necessary while doing business in modern China now. However, when travelling to China, giving local gifts from your home country and understanding the cultural aspect of gift-giving will still be highly valued. 

Environmental regulations:

China has sustained rapid economic development since the reforms and the opening up. One side-effect of growing productivity and prosperity was the increasing prominence of environmental problems. To realise the sustainable development of the economy as well as environmental and ecological protection, China created and enforced more environmental protection policies in the 2010s2.

In the early 2010s, many factories were still located near the centres of big cities and due to rapid urbanisation and the increased possession of cars and other motorised vehicles in the cities, environmental problems like air- and water pollution were very prominent in many cities. Air quality in many regions regularly reached extremely unhealthy conditions.

Since the 2010s, regulations for environmental protection have become stricter and better enforced. Factories now need to follow much more stringent rules, for example, about the chemicals they use and the wastewater they emit. Factories near city centres often have to close or move to designated industrial areas outside the city. Some heavy industry is being completely eradicated in the country or moved to provinces with low population density. 

Local governments were also taking action to reduce air pollution in the cities. For example, all motorbikes, outside barbecues and fireworks are forbidden in Guangzhou, and non-electric vehicles are heavily taxed. These measures have significantly reduced pollution levels in China.

Environmental improvement and a reduction in CO2 emissions play a significant role in public investment plans. Public investments in green energy are substantial and private investments are incentivised. Considerable investments are made in producing solar, wind, and hydropower. Another sector that is growing is the production and use of electric vehicles and batteries, in which China is the market leader in the world today.

Due to regulations and enforcement, factories have higher costs to meet environmental standards, making them less competitive against factories in places and countries without these requirements. Factories can suddenly get in trouble if regulations change or local governments decide to enforce specific regulations overnight. This makes it difficult for factories to invest when assets become instantly worthless. The unpredictability and randomness in enforcing regulations are a problem because of corruption and social connections that are still very present today.

During the last eight years, I’ve seen a lot of progress in China’s environmental quality. In 2015 or 2016, there was very often some grey layer over Guangzhou. The vision was limited, and a burnt-like smell was undeniable. These days in Guangzhou, these kinds of days hardly exist anymore, and blue skies have returned to the city. The same is true for rivers and lakes. They are clear and not visibly polluted any more. The days when rivers suddenly turned pink or green have gone. Even the Pearl River and the Yangtze River, flowing through exceptionally densely populated areas, are not overly polluted any more.

Outside the major cities, problems still exist and are sometimes severe. One problem is that the government imposes almost all environmental improvements top-down. Public awareness about the issues and the willingness to voluntarily contribute are limited. Many factory owners I met are concerned that the costs to implement measures to comply with government regulations are getting out of control. Some even need to close or move their factories. Environmental regulations are usually only followed when enforced. In my opinion, public awareness of public spaces, which used to be very limited, is now growing along with the attention to the environment. You can see that small things, like spitting and smoking everywhere, are no longer seen as normal behaviour.

In industrial zones, the air is often grayish, and a particular chemical smell can usually be noticed. Things like fibreglass spraying or plastic heating in factories without decent ventilation or worker protection are widespread practices. The air quality inside factories is often awful. The conditions in lots of factories would be unthinkable in any Western country. 

Also, in rural areas, environmental protection is still something new. Issues like the overuse of pesticides and trash burning are still prevalent there. So, even though China has developed in these areas, it is still difficult to compare the practices in the country with Western standards.

China has a strong top-down approach to environmental protection. If (local) governments decide to enforce specific regulations or inspections, it can mean that production in a factory suddenly needs to be (temporarily) halted. For the importer, this can lead to frustrating situations. The argument that the production gets delayed because of local government regulations and enforcement also gets used as an excuse by Chinese suppliers because it is difficult to check and out of the factory’s control.

Poverty eradication, increased public spending and crackdowns in the private sector:

China has had decades of economic growth since the opening reforms in 1978. It has changed China from an impoverished but egalitarian society under Mao to a much more affluent and developed but unequal society today. The growth in wealth wasn’t shared equally between regions and families/individuals. While some families could gather high amounts of wealth (often by misusing power and corruption), most of society is still relatively poor and 48% of the population still has less than $10 per day to spend.

Significant differences exist between the higher social class owning high-value property in developed cities, which is ever increasing in value, versus the majority of the population who don’t own this property. Significant differences exist between the developed cities in East China versus the rural areas and the western provinces in the country.

Developing the west of China

To let the western provinces profit more from the economic prosperity, to make better use of their resources and potential and to create a more egalitarian society, China launched its “Go West” campaign in 2014. It consists of massive infrastructure projects in the West of China and strong tax incentives for private companies to invest in western provinces. These projects have stimulated economic development in those regions.

The development in the western provinces of China is quite fascinating when travelling there. Cities like Chongqing, Xi’an and Chengdu have been transformed into modern cities comparable to the big cities in East China. Cities located even further southwest, like Guiyang or Kunming, are developing their economic sectors at a rapid speed. The infrastructure in these provinces has developed fast, even though these regions are predominantly mountainous, making the development of railways, roads and airports very costly. 

A possible downside is that the demand for this infrastructure in these areas is significantly lower than in the eastern provinces. This is due to lower population density, less economic activity and harsher landscapes in these regions. It may raise the question of whether all these projects are worth the massive investment.

The common prosperity plan and crackdowns in the private sector

Xi’s “Common prosperity plan” is a more recent policy launched in 2021. The common prosperity goals entail equal economic and social opportunities for all classes of society. It involves creating a more balanced and fairer economic system considering all citizens’ needs. This includes equal access to education, healthcare, and other essential public services while ensuring that all groups share economic growth.

It still needs to be determined what will happen with the common prosperity plan in the future and how it will be implemented further. One development closely related to the common prosperity plan is recent crackdowns and increased regulations in several private sectors. These include the private education, tech, and property sectors.

There are several reasons for these crackdowns. In the education sector, wealthy parents who could afford private after-school education for their children use many of the best educational resources. Many parents are forced to spend excessive money to allow their children to participate in fierce competition. It often makes parents more reluctant to have more children, preferring to invest the family’s limited resources in one child. This is against the current policy of encouraging families to have more children.

Some reasons for crackdowns in the tech sector are increased competition between platforms and government control over the industry. The property sector also suffers from many problems, such as tremendous debts and unaffordable housing for many of the population. Strict government regulations were imposed on property developers to try to tackle these problems.

Many adverse effects of the crackdown have already become visible. The crackdowns in the private sector have led to more caution by investors to invest in private companies, as they are afraid that crackdowns could affect any private sector at any time. Crackdown policies are unpredictable and enforcement can be arbitrary. 

Education and technology are also sectors that should be the basis for future innovation. If investments in these sectors are reduced, this may slow down the country’s innovativeness. As a result of lower investments and crackdowns in sectors like private education and technology, fewer (new) jobs are created. China is experiencing a sharp rise in unemployment, particularly among recent graduates, and the crackdowns are one of its causes.

According to some indicators, some of these crackdowns will be reversed or relaxed to boost the country’s economy, but it is still unclear how this will happen.

End of the one-child policy:

Between 1979-2015, China had a strict one-child policy for 36 years. For most of its population (there were exceptions for rural areas and cultural minorities), having more than one child per family was not allowed. The reason for implementing the one-child policy was that the population was increasing too rapidly, reducing the country’s ability to achieve economic development.

A problem with the one-child policy is that it ultimately leads to a shift in the demographics and ageing of the population. China is a country where older generations often haven’t been able to save for pensions (most of them have grown up in poverty) and where children are supposed to support senior family members. It lays a heavy burden on the current working class. Working people from the one-child generation has two parents and possibly four grandparents to provide for. In addition, they are supposed to save money for marriage, buy a house and invest in the upbringing and education of their children. It puts lots of pressure on the current working generation.

Another problem the one-child policy brings is the unequal birth rates between males and females. Culturally there is a preference for baby boys over baby girls, especially in rural areas where men were supposed to take over ownership of the land. Despite being illegal, this phenomenon resulted in the sex-selective abortion of baby girls. There are now 20-30 million more men between the ages of 20 and 30 than women. For many of these men, especially the less educated men from rural backgrounds, finding a woman to start a family will likely never be possible.

Within several years, almost the entire working-age population will be people born under this one-child policy. This will bring a lot of financial pressure to the working class, for which solutions will need to be found.

The authorities encourage families to have more babies to avoid a shrinking population. China’s population most likely peaked in 2022 with a population of around 1,46 billion. In the same year, India overtook China as the most populous country on Earth. The country must adjust its economy to the ageing population and shrinking workforce in the coming years.

The shrinking workforce will likely have consequences for China’s production sector. China used to be a country where abundant labour was its only primary resource. The availability of labour will decrease, and the cost of labour will likely increase in the near future. It will be one of the incentives to improve productivity by implementing more advanced technologies and reducing the production of labour-intensive goods.

Pride and nationalism and international conflicts

The topic of growing tensions and conflicts regarding China is a very political one that people with different political ideologies may perceive differently. The subject must be addressed since it impacts trade. In this part, I’ll explain the issues based on my experience. I’ll also explain how several developments may affect trade and business in the present and near future.

• Nationalism: One of the developments visible in China today is the growing tendency towards national pride and nationalism. China has become a more relevant economic player and wants a stronger geopolitical position. China’s name for China is Zhong Guo (中国), meaning The Middle Kingdom. The Chinese know their history and that their country had always been a central economic player in the world, until their wars with Western and Japanese armies in the 19th century. They feel the West has suppressed them for too long and think it is time for China to regain their position.
• Increase in public spending on military and internal security: China’s spending on military and internal security is increasing. According to data from the Chinese Ministry of Defense in 2019, the country’s defence budget increased by 8.1 per cent year-on-year. Growth in the military budget coincides with the so-called “Chinese dream concept” coined by Xi Jinping. It refers to creating a prosperous and strong China to rejuvenate the Chinese nation. It also comes together with a growing sense of nationalism and pride.
• Growing international tensions: Since the war between Russia and Ukraine, more attention has been paid to the growing tensions worldwide. China’s more assertive approach to conflict situations with Taiwan and the South China Sea is also closely observed in the West. China’s close relations with Russia are frowned upon and espionage by the Chinese army is condemned. 

No major incidents have occurred apart from military exercises and threats. It is a growing concern for many Western importers whether buying from China is still morally legitimate. In addition, it is perceived as a risk that Chinese suppliers will not be able to deliver once conflicts escalate. The likelihood that this will happen is difficult to predict.

• Trade wars: Since 2018, a trade war between China and the US had erupted when US President Donald Trump imposed tariffs on over $260 billion worth of Chinese imports. China retaliated with several rounds of tariffs on US goods. Since then, the two sides have continued to increase tariffs on each other, leading to “tit-for-tat” retaliation. The trade war has caused economic problems for both countries, such as increased costs for consumers and businesses, disrupted supply chains, and reduced investment. In 2022, the Biden administration implemented another policy to tackle China’s development. The US banned the export of all advanced microchips to China, which China needs for their advanced technologies. It reduces the possibilities for Chinese suppliers to produce goods with the newest technology. It also incentivises China’s own technology sector to develop its own highly advanced microchips and become self-reliant on these.

• Belt and Road Initiative: The Belt and Road Initiative (BRI) is a global development strategy adopted by the Chinese government in 2013 to invest in infrastructure, production capacity, and institutions in more than 150 countries and international organisations. It aims to enhance regional connectivity and embrace the opportunities of economic globalisation. The initiative comprises the Silk Road Economic Belt and the 21st Century Maritime Silk Road. Some of the goals of the Belt and Road initiative are to gain more control over international trade and therefore increase China’s position. In addition, it strengthens tides with upcoming economies and the trade between these countries. Finally, it is a way to invest the abundant foreign capital reserves of the country. Critics fear the consequences of the debts the initiative brings to many ill-managed developing countries and say that the Belt and Road initiative hardly offers opportunities to these cooperating countries.

China’s position in the world is changing along with how China and the West do business. China is trying to loosen its dependence on the Western world and the West is doing the same towards China. I think neither China nor the US is not interested in escalating a conflict much further due to their interdependence.

Near prospects for 2023:

This year, 2023, is an interesting year for China. Lockdowns and measures imposed by Covid have been eliminated, giving the markets new opportunities. The markets went through hard times in 2022. Lockdowns, Covid measures and a lack of consumer confidence have devastated the economy. In addition to growing international tensions, the risks associated with Covid policies and crackdowns in the private sector have prompted many foreign companies to move their companies or supply chains out of China. Some of these trends may be ongoing, while others may be reversed.

Export sector and trust from abroad

The export-related sector of the Chinese economy has been heavily affected recently. The first reason is the stagnating economy and high inflation rates worldwide, especially in Western Europe. The consumer’s purchasing power and willingness to spend money on consumer goods have decreased significantly. In 2020 and 2021, China still had an advantage in that consumers were willing to spend more money on consumer goods that could be used in and around the house. Covid policies prevented people from spending money on travel, food, drinks and entertainment outside the home. This advantage disappeared in 2022, showing a need for the Chinese manufacturing sector to adapt to the new reality of possibly lower demand for China-produced goods from Western countries. 

Another reason for decreased exports in 2022 is the disruptions to the supply chain due to covid policies in China. Lockdowns caused factories and ports to close, preventing them from being able to operate normally. It caused many disruptions in the delivery of goods to customers abroad. In addition, domestic transportation got disrupted and became more expensive. This led to decreased efficiency, punctuality and reliability, which are some main reasons why importers typically choose to work with Chinese suppliers.

Finally, there is also a trend of distrust among Western importing companies and consumers of China as a country. Many see its assertive internal and foreign policies as immoral. Some people are more reluctant to import or buy goods from China. They see it as unethical or risky to continue doing business in China. Or they feel there is a risk that China will end up in a war with Taiwan or another global conflict. This may cause disruptions in the supply chain directly or via possible sanctions comparable to those implied on Russia.

Some factors that triggered this feeling more in recent years are the war in Ukraine and China’s close relationship with Russia. This may be due to China’s growing showing off of its military power in the South China Sea and the Taiwan Strait, especially after Nancy Pelosi visits Taiwan. The travel restrictions into China for almost three years haven’t helped either. Getting reliable insights into China’s developments and news has become more complex. They have also made visiting cooperating factories and fairs in China impossible during those years. These have all increased the distance between China and the West.

This year we see adaptations of policies within companies. China’s manufacturing and trading sectors may transform substantially in the coming years to become more future-proof. There may be incentives for China to shift the focus of its production more towards quality output instead of quantity output.

It is not likely that consumer spending in Western countries on China-produced goods will rise. The economic situation in most Western countries, especially in Europe is not too positive. On the other hand, COVID restrictions will not impact the supply chain like in 2022. Reduced travel restrictions and more visitors to China may also boost trust in the country. How international tensions and militarisation will impact trade and the supply chain in 2023 remains a question.

Internally, China is implementing several measures to stimulate the economy again in 2023. Policies are made to regain trust and investments in the private sector and to boost consumer expenditure. Stimuli packages are announced for “innovative sectors” and some of the crackdowns imposed on the private sector in 2021 seem to be reversed. Also, the travel and tourist industries are recovering this year after the impact of COVID restrictions.

The coming time will be a time of transition and change, definitely bringing both opportunities and uncertainties.