New Zealand sent goods worth $21.45 billion to China last year and the PRC easily tops the list for each of the three big exports: dairy, meat and logs.
What happens in China clearly matters, so what’s changed since Premier Xi Jinping was controversially voted in for a third termat last month’s 20th Party Congress?
Not much, Beijing-based Kiwi businessman David Mahon says.
Xi was confirmed as leader after a week-long political meeting eliminated key rivals and strengthened his political power.
At the congress, Xi loyalists were revealed as members of China’s most powerful political body, the politburo standing committee.
The Chinese Communist Party’s confirmation of Xi’s third presidential term was a foregone conclusion, yet the Western media viewed it as an indication the country was on a road towards a more authoritarian, ideological Marxist state.
Former Australian prime minister and long-time Sinophile Kevin Rudd wrote in The Economist: “Under Mr Xi, politics continues to move to the Leninist left; the economy to the Marxist left; and Chinese foreign and security policy to a much more assertive nationalist right. These are profound changes from the relatively recent past,” Rudd wrote.
Mahon, an investment manager with decades of experience advising New Zealand corporations seeking to do business with China, said few should have been surprised about what transpired at the congress.
He said Western commentary after the event was wide of the mark.
“There is no change here,” Mahon said in an interview with the Herald.
“I mean, Xi has been in charge for 10 years.
“What took place had been pre-negotiated, really, over the last two years, maybe three.
“So in fundamental terms, for the direction of the country, there has been no change and yet a lot of foreign companies are looking upon this as a big change in terms of the openness of the market and the environment for foreign investors,” Mahon says.
Much was made of Xi surrounding himself with loyalists, but Mahon says most of those appointed to key positions in the politburo and the ministries were even more market-forces orientated than their predecessors.
Even so, surrounding himself with loyalists meant there was less chance of Xi being challenged.
“The range of opinion that he would have benefited from is less now.”
On Rudd’s Marxist-Leninist comment, Mahon says the party works on Marxist and to a lesser degree Leninist principles.
“That’s very much to do with its own internal management, governance and structure.
He said the political culture prioritised a healthy and free market, and engaging in globalisation to the greatest degree possible.
“The party depends on delivering economic growth and confidence, and that depends on China’s borders being open to take in all the resources that it lacks itself.
“This is a dynastic phenomenon going on, not just in the person of Xi Jinping, but also in the way that a small number of people make most of the decisions ... and that goes back centuries. It’s always down to a small number of people.
“Sometimes the larger the country in terms of population, the smaller the cohort of people there is making the decisions.
“That’s even true in the US, if you really look at the major decisions which are made in a very opaque, rather black-box way in spite of its transparency and free media,” Mahon says.
“There is not a lot there that is radically different.”
Mahon says the Marxist-Leninist tag is “not inaccurate” but it is inadequate to actually define the true nature of this Chinese political structure.
Economy
The IMF has marked down China’s growth forecast for 2022 to 3.2 per cent, its second-lowest level since 1977, reflecting the impact of the zero-Covid lockdowns on mobility, and the crisis in the real estate sector.
“This slowdown is estimated to have important spillovers to the rest of Asia through trade and financial links,” the IMF said in a recent report.
Mahon expects the economy to rebound next year, a better outlook than forecasts for many of the West’s major economies.
“By the end of next year, growth will be up again, somewhere between 4 and 5 per cent.”
Mahon says the economy is on track - the same track it has been on now for the past 30 years.
“That’s not changing, so there are opportunities for New Zealand companies to come and invest and to come and sell their products in one of the only really solid growing economies in the world.”
On Taiwan
On sabre-rattling and brinkmanship between China and the US over Taiwan, again, Mahon says nothing has changed.
“China’s policy towards Taiwan has not changed in any way. “There is no intention of changing the status quo. There is no desire to invade or aim to invade.
“China considers Taiwan to be part of itself.
“It will come to an arrangement - a settlement to allow both countries to work within a context that is ultimately defined as a single sovereignty.
“Many people in Taiwan understand that that is the ultimate destination.”
Mahon says hawks are dominant in Washington - whether they be Democrat or Republican.
“Washington is conscious of its own loss of international influence and leverage globally, so it is struggling to try and prevent that loss from continuing. It is pushing China hard as it can on all quarters.
“I don’t believe for one moment that China wants any conflict with the US, but there is a lot of pressure, debate and analysis around the situation.
“Nonetheless, it does not reflect the business that has been done with China globally.”
On Scholz
German Chancellor Olaf Scholz held a meeting with Xi last week and is the first G7 leader to visit Beijing since the Covid pandemic.
Mahon says it was “highly significant” Xi’s first meeting with a foreign leader after the Communist Party national congress was with Scholz, which he said was a major statement from one of the world’s robust economies.
“So the world will trade with China,” he says.
“Europe will trade with China. Most of Asia will trade with China - whether it’s Japan or Vietnam - countries that it has had serious conflicts with in the past - so New Zealand can look at that in the context of‘well, America has got its political agenda”
He adds: “American companies are trading with China without any bias or coercion. American businesses are given continued support here because China knows that commerce matters.”
Mahon says although China’s relations with the West seem to have deteriorated, it was “not a Cold War situation”.
“And whether or not Xi is there, there is still going to be this political culture.”
On Covid
In a newsletter, Mahon said for the first time in decades, he sensed widespread public exasperation because of the “often mindless and insensitive application” of Covid policies.
“Daily, there are stories of people dying due to being denied access to hospitals for manageable ailments, schools closing repeatedly and unexpectedly, placing huge pressure on working parents, businesses failing, and a growing urban understanding that the dangers of death or serious illness from Omicron are nevertheless low.”
In the past week, 31,000 people were moved out of Guangzhou City to quarantine facilities in surrounding counties.
Much will depend on how China’s zero Covid policy, which continues to mean whole cities are locked down, pans out.
Mahon says he has no problem with the principle of saving lives but the policy’s application was creating distortions.
Shanghai - China’s biggest city - went into a marathon Covid lockdown from February through to August, leading to widespread disruption and discontent among its 26.3 million residents.
“No politician, no matter how powerful, can ever drop the legacy of the Shanghai lockdown, and the extreme applications of the zero Covid measures that have been applied in various Chinese cities.”
Mahon says it seems inexplicable the cities still have tight Covid lockdowns.
Most Chinese people expected Covid policies to relax after the congress – when, on the contrary, they have been tightened.
As a result, while Xi and his new cabinet will fare well in the medium term, they may face social unrest in the short term.
“For the first time in decades, I sense widespread public exasperation due to the often mindless and insensitive application of Covid policies.
“The long-term stability of the Chinese Government and wider society are not at risk, but if Beijing does not change its policy direction, it will face a patchwork of defiance, social disobedience and possibly violent protests, with potential to be catalysts to wider grievances,” Mahon said.
“This could delay China’s post-Covid economic recovery, further damage its already questionable international image and deter, or at least delay, many foreign investments.”
The road ahead
Still, he expects restrictions to ease by early next year.
“It will still be a Covid-sensitive and perhaps over-governed society but I think that by the spring things should have improved.”
One of the main drivers of the economy - consumption - has been restrained and suppressed because of Covid.
“Once that changes, consumption will come back very firmly and it looks like the second quarter of next year at the latest.
“Next year should be pretty good and New Zealand companies should be preparing themselves for that recovery,” Mahon says.