The Chinese government has deployed its 14e Five-year plan in early March, which will focus on growth based on domestic demand and technological self-sufficiency. The strategy presents a long-term economic vision for China to prosper, despite the country’s geopolitical rivalry with the United States.
But before the ink on the new plan dried, China had already started to sabotage the plan’s chances of success.
China has been preparing the groundwork for this strategy for some time. At the end of last year, President Xi Jinping concluded the Comprehensive Investment Agreement with the European Union. He had to make some concessions to get there, but it was worth it: the deal had the potential not only to deepen EU-China relations, but also to drive a wedge between Europe and the US.
But Xi is now undermining his own good work, poisoning relationships with critical business partners. In the past two weeks, China has blacklisted several Members of the European Parliament, UK and Canadian lawmakers, as well as academics and research institutes in Europe and the UK.
The sanctions are retaliation against sanctions imposed by the EU, Britain and Canada on a small number of Chinese officials implicated in human rights violations against Uyghurs in Xinjiang province. Recent reports of the use of forced Uyghur labor in cotton production have heightened concern.
China wants to show its anger at these accusations. But the message sent by its sanctions is unlikely to be worth it.
Canada, Europe and Britain have so far remained relatively neutral in the US-China rivalry – and it is in China’s interest that they remain so. China can afford economic decoupling from the United States (although it will be costly). It cannot afford simultaneous decoupling from the rest of the major Western economies.
Already, the agreement with the EU, which has yet to be approved by the European Parliament, is under threat. Parliament canceled a recent meeting to discuss the pact.
Further undermining its economic outlook, China is attacking private companies for expressing concerns over allegations of forced labor. Last year, Swedish clothing retailer H&M announced it would no longer use cotton from Xinjiang because it was too difficult to conduct “credible due diligence” there.
In response, major Chinese e-commerce companies have pulled H&M products from their platforms, and Chinese celebrities have rescinded deals with the brand. And, encouraged by state media, a movement to boycott H&M – as well as other Western brands that reject Xinjiang cotton, including Nike., New Balance and Burberry – is gaining momentum.
China appears confident in the success of its bullying tactics. After all, Western multinationals don’t want to be kicked out of China, a major growth market. And, indeed, H&M has already issued a new statement stressing its “long-term commitment” to China and expressing its commitment to “regaining the trust” of its “customers, colleagues and business partners” there.
But since Western multinationals want to sell their products to Chinese consumers, Chinese companies need these companies to continue sourcing materials from them. They are interdependent relationships.
Moreover, while the size of the Chinese market may be attractive enough to draw concessions from multinationals, it is not worth jeopardizing their reputation in the West, which still accounts for the majority of their income. For example, H & M’s two main markets are the United States and Germany. China only accounted for about 5% of its total revenue in 2020. Getting kicked out of China may not be pleasant for H&M and other Western multinationals, but these deep-pocketed companies can absorb the pressure. loss.
In other words, H&M can afford to lose access to the Chinese market. But its hundreds of suppliers might not be able to afford to lose H&M as a buyer.
An exodus of Western multinationals from China would inevitably force the supply chains that serve them to shift as well, leading to the closure of Chinese factories and the loss of millions of jobs.
There is still time for the Chinese government to back down. This means, for a start, allowing independent experts to investigate the cotton farms in Xinjiang. If China is really not using forced labor, it is the best way to prove it and improve relations with Western companies and governments.
But such a sensible answer seems unlikely. Chinese leaders remain convinced that its market is simply too big to be abandoned. Of course, not so long ago they were absolutely certain that the United States could not afford economic decoupling from China. They were wrong then, and maybe they are wrong now. The difference is that this time China also cannot afford decoupling.
Minxin Pei is Professor of Government at Claremont McKenna College and Non-Resident Senior Fellow at the German Marshall Fund in the United States.