China Won’t Change Tack on Economic Policy

Welcome to Foreign Policy’s China Brief.

The highlights this week: Visits to China from foreign investors and officials alike reflect Beijing’s hardened approach to economic policy, Beijing’s military-industrial purge claims a defense business executive, and a Chinese Google engineer faces U.S. charges for theft of trade secrets.

Why China Won’t Shift Its Economic Approach

The recent China Development Forum, where Chinese President Xi Jinping greeted foreign CEOs and influential academics, was supposed to be a chance for Beijing to show it was open for global business again, following the COVID-19 pandemic and years of increasing hostility toward the West.

However, at least one participant, Stephen Roach, a former head of Morgan Stanley Asia, found it to be anything but. Roach, who has participated in the forum since 2001, the year after it was founded, described the event as hollow, hostile, and censorious. He wrote that it “effectively been neutered as an open and honest platform of engagement. … Anyone who raises questions about problems, or even challenges, faces exclusion from the public sessions.”

In China’s current atmosphere, there appears to be no room for such advice—even from someone such as Roach, who has described himself as a “congenital China optimist” and could be willing to act as an interlocuter between Beijing and Washington. His recent book focused on avoiding accidental superpower conflict. He has recently been critical of China’s turn under Xi but would be receptive to signs of a change of approach in economic and governance policy.

But that change of approach isn’t coming. As an article on economic policy in the Study Times, the newspaper of the Central Party School of the Chinese Communist Party (CCP), put it last week: “The most essential feature … is the leadership of the party.” Even as the party tries to throw crumbs to private business, its rhetoric continues to support years of crackdowns, hostility to foreign investment, and the major financial impacts of its ideological decisions.

In a reverse of China’s reform era, the state has advanced, the private sector is retreating, and the market capitalization of the country’s big private firms has fallen by some 60 percent since 2021.

Another recent visitor with tough words for Beijing was U.S. Treasury Secretary Janet Yellen, who wrapped up a four-day trip to China on Monday with a rhetorical broadside against “artificially cheap Chinese products.” Yellen was echoing broad concerns, shared by economies as far apart as France, Brazil, and Indonesia, that China is flooding global markets with low-priced goods as it shifts back to manufacturing.

However, it’s not clear how China will change its mind on manufacturing policy for three primary reasons. The first is that manufacturing fits in neatly with Xi’s ideology: an old-fashioned Marxist vision of production, combined with a suspicion of global finance. In China, financial regulators’ salaries have been slashed to bring them closer to those of other officials, resulting in a talent drain.

The second is that the new emphasis on manufacturing offers the prospect of jobs for young people in an economy that badly needs them, even if they’re not jobs that college graduates necessarily want to do. China began releasing youth unemployment figures again in January, after the state “optimized” its methods, resulting in a nominal drop from 21.3 percent last June to 14.9 percent in December.

Finally, China has no appetite for foreign criticism on any issue, and the United States—busy with its own industrial policy—doesn’t have much of a rhetorical leg to stand on, as FP’s Keith Johnson reported this week. There is certainly a lot of state money floating around in China, but one of the key areas for investment is in clean energy and electric vehicles, which has seen considerable innovation and private successes that give China an edge over global competitors.

While U.S. officials get the cold shoulder, one visitor seems more welcome in China: Russian Foreign Minister Sergey Lavrov, who is in Beijing now to lay the groundwork for Russian President Vladimir Putin’s visit in May. As in the past, Putin will likely get a fulsome reception from Xi. As the Biden administration has recently warned, China seems increasingly more willing to walk up to the line on Russian military aid, including providing geospatial intelligence.

With the United States grappling with political deadlock over additional aid to Ukraine, China likely sees greater prospects for a Russian victory, and it is rebalancing accordingly.

What We’re Following

Military-industrial purge. The tumult within China’s defense sector that began with the purging of Defense Minister Li Shangfu last year rumbles on. The latest target is He Wenzhong, a deputy general manager at the China Electronics Technology Group Corp., a major equipment supplier to the People’s Liberation Army (PLA). The likely root is widespread corruption in the military supply chain, which has long functioned like every other business in China.

Analysts have pointed to Russia’s war in Ukraine and Moscow’s subsequent military failures as causes for China’s investigations into its own armed forces. But Myanmar’s ongoing civil war may have also exposed some PLA corruption, since many participants—including the country’s military—use Chinese weapons, whether acquired through official means or through PLA officers’ profitable cross-border ties to ethnic militias and criminal groups.

“Political verdicts” shift. The University of Oxford lecturer Jean Christopher Mittelstaedt has compiled a database of more than 10,000 “political verdicts,” or denunciations of fallen officials, in China during the last decade or more, posting some early analysis of the language on X. CCP language is rigid, and thus changes to it tend to indicate a political shift as officials imitate rhetoric that comes from the top leadership.

Mittelstaedt finds that some words have surged in the last few years, such as “loyalty”—barely mentioned before 2017 and now appearing in more than 40 percent of verdicts. “Ideas and beliefs” entered the lexicon in 2015 and now appears in most verdicts, as does “political discipline.” In contrast, “improper sexual relations” appeared in 16 percent of verdicts in 2016, the peak, and is now mentioned in only 0.7 percent of verdicts.

There is a pattern here. In Xi’s early years as leader, highlighting the decadence and corruption that came before he arrived was common. But officials now can’t be described as leading lives of extravagance because it would contradict the idea that Xi has cleaned up China. Instead, the verdicts emphasize failure to live up to ideological goals—and to the demands that Xi retain control of everything.

Tech and Business

Google spy? Chinese software engineer Linwei Ding, who worked for Google, is facing federal charges for theft of trade secrets in California after being arrested in March. The case reflects how the FBI has backed off its targeting of academics with ties to China under its controversial China Initiative and returned to emphasizing the theft of trade secrets in fields including self-driving cars, missile technology, and gas turbines.

U.S. intelligence analysts tend to paint such cases as part of China’s so-called whole-of-society targeting of the United States—and Beijing has certainly been very involved in IP theft. But in many cases, there is no direct evidence of ties to the Chinese state; sometimes it may be just regular industrial espionage, rather than espionage sponsored or aided by China’s Ministry of State Security or other bodies. Not every trade secret is a matter of national concern.

Luxury sector declines. There are few markets more global—and more dependent on the Chinese elite, at least in the last two decades—than the luxury market. The sector, which includes handbags, fancy mattresses, and much more, was badly affected by the anti-corruption purges back in 2013 and 2014, when ostentatious displays of wealth became a political risk.

The COVID-19 pandemic and subsequent lockdowns dealt the luxury market further blows, but there were hopes of a rebound at the beginning of 2024. However, Chinese consumers remain unwilling to open their pockets, and luxury firms are slumping as a result, with one analyst telling Reuters that “all growth engines have been turned off” thanks to China.

FP’s Most Read This Week

• The Problem Isn’t Just Netanyahu. It’s Israeli Society. by Mairav Zonszein
• Modi’s Messenger to the World by Rishi Iyengar
• Nobody Actually Knows What Russia Does Next by Stephen M. Walt

A Bit of Culture

Like many female poets in China, little is known about Cheng Changwen; even the century she lived in is unclear. Imprisoned after defending herself from an attack, she seems to have written the poem below to clear her name. It invokes standard allusions to loyalty: “World-renouncing hermit” (literally, “solitary bamboo”) refers to Bo Yi and Shu Qi, the heirs to a Shang dynasty vassal state who withdrew and ate ferns on a mountainside rather than eat the Zhou conquerors’ millet.

But the poem is more notable for Cheng’s use of standard images of womanhood—chastity, beauty, helplessness, and resolve—to plead her case. We have no idea if she succeeded. The poem, however, made it into Chinese anthologies.—Brendan O’Kane, translator

Written From Jail to the Regional Inspector
Cheng Changwen (circa Tang dynasty)

Raised from a girl
your humble servant
in a quiet place outside Boyang,

With a heart as chaste
as a world-renouncing hermit,
Twice eight years old,
in the full flower of my beauty.
Over red-ruled papers
calligraphy spilled joyfully out of me.
Days I idled by the window,
sitting at my embroidery,
Or ventured out sometimes
to pick lotuses—then straight home.

Living
if I’d only known
in my humble home in town,
Out of the way,
all alone,
where no one knew me.
Mornings sea swallows come home to roost;
blanket and pillow cool.
Mountain flowers fall by night;
grand staircases grow damp.

That brute of a man—
what could he have been after?
With a bare blade in his hand
he turned toward the curtain—
My one life I’d sooner
have given to the blade.
Not for a thousand gold pieces
would I be abused in secret.

My heart is not some unfeeling stone,
my affections cannot be turned to suit another.
My resolve was as keen as frost in autumn.
My spirit would not be broken.
Blood spattered over my silk gown
and I will never regret it.
The brocade sleeves could be all sticky scabs,
I wouldn’t speak a word of complaint.

The district official never even tried
to find out the facts of what had happened.
Straight away, he ordered his men
to lock me up in the prison I write you from.
My vermilion lips, tears streaming down them,
hold only bitterness.
Jade teardrops run everywhere
as I sob silently. This is no place for me.
The early winter chill
only makes my misery worse.

At each strike of the night watchman’s clappers
my heart breaks all over again.
My high coiffure uncombed,
my cloud-coiled tresses scattered,
My eyebrows, delicate as moths, unpainted,
though they keep their new-crescent shape.
But the law and its strict punishments
brook no escape,
And I am left with a lifetime of cares
and no one to turn to.

But let my name be cleared,
Let these prison gates swing open,
Let me prove I am pure as white jade
without a single flaw or stain.