Sebastian Matthes is Editor-in-Chief of the Handelsblatt.
Dusseldorf When it came to China, the story was told for a long time about a tightly organized country that planned its rise with military precision with great strategic foresight. The thing about the oppressed Uyghurs, of course, that’s terrible. And state surveillance, which now has Orwellian traits, is also not really our thing.
But all in all, enthusiasm for state capitalism with Chinese characteristics prevailed not only in politics, but above all in the top echelons of German business, which in retrospect seems rather uncritical.
For a long time, China’s economic and above all technological rise seemed to know no bounds. But if we look there today, we see a different country. One with cities of millions under lockdown, a collapsing real estate sector and an increasingly frustrated population.
China’s exports are collapsing, and the recently celebrated tech companies are laying off hundreds of thousands of employees. And while the freighters are backing up in front of the closed ports, the first Dax board members are concerned about their China investments, some are already relocating activities to other countries.
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One or the other is just beginning to realize that parts of China have been overestimated. The country is in the worst condition it has been in 30 years, says investor Shan Weijian of private equity firm PAG, who has defended the Chinese government for years.
China’s business model in crisis
China’s economic model, as the major report by our correspondents Sabine Gusbeth and Dana Heide shows, is in crisis, and it extends far beyond the consequences of the current lockdown mania. The Chinese model is still dependent on exports. But globalization is faltering.
US tech sanctions have hit the country, and at the same time, productivity growth in the Chinese economy is slowing. Even car sales, which is particularly important for German industry, are currently declining.
And the biggest problems are yet to come: at 8.5 births per 1,000 inhabitants, the birth rate in China is the lowest it has been in decades. This means that the labor force will shrink even faster than feared. This in turn not only creates a shortage of skilled workers, but also increases wages. Barbed wire and roadblocks in Shanghai and Beijing are the symbols of a new era in which surveillance of society is constantly taking on new dimensions.
The economy is feeling this – especially the once praised tech scene. Beijing’s erratic crackdown on tech companies has shocked investors around the world. Entrepreneurs no longer first ask themselves which new business ideas they can use to inspire their customers. They think more and more about which idea the party likes. Real innovations don’t come about in such a climate.
Beijing is sealing itself off
At the beginning of the Covid crisis, investors, entrepreneurs and politicians from the West still looked at China with admiration: how decisively and powerfully the authoritarian system was able to react to the pandemic – while in the West there were endless discussions. The quick response to the new challenge was the clear strength of the Chinese system.
Since then, the main weaknesses have become apparent: the regime in Beijing is acting in panic. Entrepreneurs can be framed with flimsy allegations overnight and disappear from the scene. Meanwhile, the country still lacks a strong vaccine, let alone a functioning vaccination campaign.
And the state leadership in Beijing is unable or unwilling to explain decisions, change course or even admit mistakes – instead, Beijing is increasingly isolating itself and reacting thin-skinned to criticism of the current zero-Covid policy.
Meanwhile, the West, which authoritarian rulers often see as weak, is returning to normal. The mask disappears from everyday life. And in the face of Russia’s war of aggression in Ukraine, Western countries are talking about new cooperation in energy, business and innovation.
Democracy and the market economy, that is the good news in all the chaos, are ultimately the superior systems when it comes to adapting to a rapidly changing world and reacting to major crises such as pandemics or climate change with innovations. The West must never forget this strength, despite everything that doesn’t work.
More: Upheavals of “epic proportions” – China’s corona policy is a burden on European companies