China is Scoring Another Own Goal

Xi Jinping’s own missteps are hurting the Chinese economy more than they are hurting the intended targets.

By Lee Kok Leong, Executive Editor, Maritime Fairtrade

General Secretary Xi Jinping is yet again using trade as a political tool to the detriment of Chinese interests. With the new Anti-Sanctions Law that is passed hastily on June 10 to punish the U.S. and EU for their sanctions over China’s human rights abuses in Hong Kong and Xinjiang, Xi is doing more harm than good by going down a path of hegemonism and power politics. This new law is not conducive to attracting foreign investment or reassuring multinational companies that are increasingly being used as political pawns.

Although the law on the surface is aim at U.S. and EU politicians, but because of its ambiguity and sweeping nature, even ordinary citizens, commentators, think tanks and scholars that support the sanctions are at risk. However, of more urgent concern is to the foreign business community which is legally required to comply with the U.S. sanctions. This new law can create serious compliance issues for them because to comply with U.S. sanctions means to defy the Anti-Sanctions Law and vice versa. Ultimately, this situation may result in expulsion by China or the companies may relocate preemptively to other countries.

For example, TSMC, the world’s largest semiconductor manufacturing company which has a presence in China, is banned from doing business with Huawei which is accused by the U.S. of building backdoors into its equipment that can be exploited by the Chinese Communist Party for espionage purposes. However, TSMC is still allowed to supply computer chips to other Chinese companies not sanctioned by the U.S. but the new Anti-Foreign Sanctions Law says that because TSMC is following the U.S. sanctions, they may be denied entry into China or be expelled from China, their assets within China may be seized or frozen, and they can be restricted from doing business with entities or people within China.

So, Xi is in fact cutting off supply from and threatening the expulsion of TSMC, by far the only company able to produce advanced chips which are required by Chinese companies producing cars, handphones and computers, among others, and thereby undermining the growth of the Chinese economy. A reason why Xi is so quick to enact this new law is that he feels the western nations will be cowed into not imposing anymore sanctions on China. For this calculus, it is speculated that either he has a sense of inflated superiority or that the Chinese economy is simply not doing as well as reported and is thus not able to withstand more sanctions.

This new Anti-Sanctions Law is the latest of a long list of Xi’s missteps including wolf warrior tactics, Hong Kong Security Law, land border disputes, maritime territorial disputes, and trade disputes with the U.S. and Australia, among others. What is striking about Xi’s actions is that they have produced a series of own goals, leading countries to adopt a China containment policy which Beijing has long tried to stop: coalitions and alliances such as G7, Quad and Five Eyes are now focus on countering China. Under his watch since 2012, Xi’s increasingly assertive foreign policy has already put the country at odds not just with other nations but is hurting its own interests as well.

Xi is decoupling China from the global economy

Xi may think that he has the upper hand in holding ransom the access to the Chinese market, the world’s second-largest economy. He may think that he now has the economic power and political consensus to use legal means to impose his will on the global business community. Of course, he has the prerogative to think so but to actually achieve the desired objective, China must satisfy one of the following two qualifications, i.e., must be the strongest country in the world so that no other country can afford to oppose it, or whatever it proposes is reasonable and falls within the rules of law. China satisfies neither.

And the reality is that with a tit-for-tat hardline and confrontational approach, Xi is effectively leading the country towards decoupling from the global economy, which is what some other countries are advocating for but is now being helped along inadvertently by Xi.

Since when the COVID-19 virus first emerged in Wuhan and China delayed in taking prompt action while on the other hand, stopped the export of and engaged in mass buying of strategic resources like face masks and other essential medical supplies, thus leaving other countries caught off-guard, the world has come to realize the danger of an overreliance on Chinese manufacturing and leaving critical supply chains within China. Therefore, some countries, including the U.S. and Japan, have started to move supply chains out of China. The Japanese government has given financial benefits to help 87 companies to break from China and shift production back home or into Southeast Asia.

U-turn back to the Mao era

The Anti-Sanctions bill underwent a secret first reading in April, and was passed on June 10, barely two days after China’s top legislature, the National People’s Congress, announced that it was doing a second reading of the bill. It skipped a third reading normally needed for other bills.

The new wide-ranging law bans multinational companies in China from going along with foreign sanctions and will penalize not only individuals and entities but family members as well. They may be denied entry into China or be expelled from China, their assets within China may be seized or frozen, and they can be restricted from doing business within China. This scenario places the foreign companies in a bind and will force them to choose sides, as there can be no sitting on the fence this time. The endgame is either the companies choose profit over moral or there will be an exodus out of China.

Xi has damaged China’s global image, diminished its soft power and hurt the Chinese economy. On May 20, the EU has put on hold a massive new investment deal with China, a majority of countries now view China negatively and there is rising public hostility towards China worldwide. These are just some of the backlashes against Xi’s foreign policy. Domestically, he has reasserted party control over the economy and instituted curbs on the technology sector, one of the most innovative.

Xi may have consolidated power for himself but by paving the way for a cult of personality, he is dismantling China’s hard-earned reputation as the world’s factory and this brings to mind another era of totalitarian control and aggressive foreign policy, the Mao era, and that did not end so well for China.