Neil O’Brien is MP for Harborough.
China’s secretive, authoritarian government has created huge problems for the rest of the world.
Start with the doctor in Wuhan who warned colleagues about the new disease, and was charged with “making false comments” that “disturbed the social order”. Or journalists who reported significant numbers dying in Wuhan who were arrested (two still missing).
The cover-up continues: more were arrested just last week. China is refusing repeated requests by the World Health Organisation to take part in investigations into the origins of COVID-19, and refuses to take part in any international inquiry.
People who watched Chernobyl on TV will see the parallels: a system focussed on supressing anything that might embarrass the Communist Party means problems are covered up until it’s much too late.
It’s a long term problem: Beijing clamped down on the wild animal trade after SARS in 2002 but, without transparency, it’s been allowed to come back.
Beijing bullies democratic governments for daring to ask reasonable questions. The Australian government (and opposition) called for an inquiry into the origins of the virus. The Chinese government ambassador threatened that China would no longer import goods from Oz. Chinese state media described Australia as “gum on China’s shoe” which needed “scraping off.”
Aussies aren’t alone. China’s ambassador to Sweden warned Swedes they were a lightweight facing a heavyweight, and that “for our enemies, we have a shotgun”. Hardly diplomatic.
The Coronavirus crisis has brought forward a debate we needed anyway.
That’s why I and other Conservative MPs have set up the China Research Group.
We urgently need fresh thinking about how to protect ourselves from the Chinese government’s aggressive economic policies. How to counter the Chinese Communist Party’s effort to reshape the world in a way that suits autocracy.
In this column, I’ll focus on the economy, and come back to the rest.
China’s either the biggest or second biggest economy in the world. The world’s biggest exporter for over a decade now. The biggest online marketplace, and emerging leader in most high-tech fields.
It’s economic blastoff leaves commentators constantly behind the curve. In 2004, the US accounted for 24 per cent of world manufacturing, the UK four per cent and China nine per cent. By 2018, the US had 18 per cent, the UK two per cent and China 28 per cent.
The problem isn’t that China is developing. It’s good China is no longer impoverished in the way it was after the Great Leap Forward and Cultural Revolution; great that Chinese people can make huge contributions to the world.
The problem is that the Chinese Communist Party doesn’t really believe in free or fair markets and has an economic strategy based on domination, not fair competition.
Here’s how Chinese President Xi Jinping sees things working out in the longer term:
“For a fairly long time yet, socialism in its primary stage will exist alongside a more productive and developed capitalist system. In this long period of cooperation and conflict, socialism must learn from the boons that capitalism has brought to civilization…. Here we must have a great strategic determination, resolutely rejecting all false arguments that we should abandon socialism… Most importantly, we must concentrate our efforts on bettering our own affairs, continually broadening our comprehensive national power, improving the lives of our people, building a socialism that is superior to capitalism, and laying the foundation for a future where we will win the initiative and have the dominant position.”
We’ve been warned: the Communist Party will use markets to develop, but the longer term goal remains to win a dominant position, not convert to our system.
That’s the Chinese government’s economic policy too: to destroy the competition and gain monopoly power. The EU, Japan and US have jointly listed concerns.
The EU notes that the “protectionist trend is rising” in China.
That trend includes vast industrial subsidies, soft loans from state banks, discriminatory standard setting and procurement to build up national champions, the promotion of huge state-owned enterprises, and industrial espionage in even the most sensitive fields.
China’s giant market allows it to lure firms into forced technology transfers – you can’t sell into China unless you agree to a joint venture: through which your technology is later extracted.
Some in business, like Jürgen Hambrecht, BASF’s Chairman, complain publicly about China’s “forced disclosure of know-how.” But more stay schtum, because they don’t want to be locked out of the world’s fastest-growing market, or are in too deep, or think the cheese on the mousetrap looks good.
Beijing buys up strategically useful tech firms across the west, but prohibits such investments at home. It is currently clamping down on foreign telecoms providers as part of a drive for cyber security.
“Industrial penetration has become a weapon,” says George Robertson, the former NATO Secretary-General. For that reason, it was great to see Oliver Dowden step in regarding changes at British chipmaker Imagination Technologies this month.
As Joe Kaeser, CEO of Siemens, put it: “The Chinese go into a company, give guarantees about employment and then everything is calm for a while… At some point, they set up a separate company that swallows the old one, and take away the research and development.”
Increasing trade between true market economies increases competition and specialisation. While there are winners and losers, the net effect is to spur growth.
In contrast, the Chinese government’s ruthless mercantilist policies slow growth for all western countries.
In lower tech fields, the Communist Party subsidises overcapacity, floods the market, and so pushes western rivals out of business to gain dominance.
Whether it’s steel or solar panels, the Chinese state can create a glut, crash prices, and then absorb losses for long enough to be the last player standing.
In higher tech fields, the Chinese government’s mercantilist policies create “innovation drag.”
There’s far less incentive for western firms to invest in risky R&D if state-run Chinese firms will just rip off and use anything they discover to compete against them. Even when they do invest and succeed, the profits are lower, leaving less to invest in the next round of competition.
One study of the US finds that “accelerating import competition from China during the 2000s can explain about 40% of the slowdown in patenting in 1999–2007 relative to 1991–1999.”
Belatedly, the west is waking up.
The US is moving to ban the export of more types of technology. In the EU there is a debate how to deter Chinese state stripping of technology. Japan has announced reshoring subsidies to bring production back from China. The UK is starting to defend against Chinese commercial espionage.
But a bigger shift is needed. China’s has a highly successful progamme to dominate all the industries of the future: “Made in China 2025”. China has something like 70% of the global drone market, dominates in 5G, is ploughing vast state resources into dominating AI and so on.
In contrast, for decades, Britain has taken too little concern over its industrial commons. We are finally trying to address our pitiful levels of investment in R&D, and the PM’s chief advisor has a welcome focus on research.
But there is much more to do.
The illusions of the 1990s have gone up in smoke: that China would inevitably democratise as it developed… on an inevitable path of opening up… that cheap goods from China would benefit the west, but we’d be able to hold on to higher tech jobs… Wrong, wrong, wrong.
We need a new plan, and fast.
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