OPINION
The next China is ... China.
That’s the line from management consultants McKinsey (in case it wasn’t obvious). China’s middle class is big, it’s growing, and there’s nowhere else that can even compare.
New Zealand has done good business out of China. In 1990, New Zealand’s total exports to the country were worth $190 million, rising to $2 billion at the turn of the millennium.
This shot up to $6b when the free trade agreement (FTA) with China took effect in 2008. In 2022, as New Zealand’s FTA upgrade was triggered, exports had risen to more than $20b. Ahead of his visit to China this week, Prime Minister Chris Hipkins said he wants to grow this further.
Some credit trade with China for blunting the impact of the global financial crisis on New Zealand more than a decade ago.
Exporters reckon there’s room to grow even further. With China’s middle class numbering more than 700 million by one metric, China’s domestic market has plenty of room to grow - and that is good news for us.
But this story is not an unambiguously positive one. This isn’t the China of even a decade ago. Even some of the country’s biggest boosters in New Zealand acknowledge there are challenges as the country begins to prioritise security over growth.
The economic and political bargain struck between the population and its rulers, which trades civil liberties and freedoms off against economic stability, is breaking down.
Unemployment among urban youth is at a record high of 20.8 per cent as of May. This will get even worse when Chinese students graduate in the next few months, which will dump more than 100 million onto the job market in the space of a few weeks. Some Chinese parents see their children - in most cases their only child - inheriting a society with fewer opportunities than they themselves may have had.
Even former Prime Minister Sir John Key, one of China’s biggest believers, believes the country’s urban youth unemployment rate is a concern.
“It is fair to say that while the last 20 years have been pretty much back-to-back incredible economic growth year after year, things are proving to be a little tougher at the moment in China and they’re driven off lots of well-documented reasons, including the weakness of the property market and reducing consumer confidence,” Key said.
“Having said that, even on a bad day, they are a huge market,” he said.
Rodney Jones of Wigram Capital, familiar to New Zealanders for his work on Covid modelling, said the risk for New Zealand is that China resembles the Japan of the late 20th century - a structurally-critical and growing trade partner that simply ran out of puff.
“The risk for New Zealand is that China is the Japan of 1990 - where the policies that Xi Jinping has pursued translates into a much lower growth rate and that security comes before economic growth and that we can’t really expect our exports to grow from here,” Jones said.
“Now China is a big economy, it’s not going to go away, but the dynamism has gone on and they’re putting more emphasis on the security aspects than the economy.”
That change in speed and the change in emphasis to security is plain in all aspects of the system.
This isn’t just a function of China’s Leninist society, in which a single party holds a monopoly on political and economic power, it is also a function of the consolidation of that power in the hands of the current president and general secretary of the Chinese Communist Party - Xi Jinping.
Jason Young, director of Victoria University’s Contemporary China Research Centre, looks at Xi as the synthesis of the two first eras of China’s post-revolutionary history: the first, revolutionary period, and the second, more liberal and opening up.
“China has always been a People’s Republic,” Young said.
“And within a People’s Republic, you have one political party that dominates. Under the first 30 years, particularly under Mao, it was a revolutionary form of socialism. It was a planned economy or a command economy.
“The Chinese Communist Party is [a] very hierarchical organisation and they dominated the economy, society - everything.”
This changed under Deng Xiaoping, when China introduced market reforms and introduced a stronger legal system.
“There were rights lawyers, there was some loosening up of the media, there was more political discourse, there was sort of a a nascent private sector for not just economically but also... more in terms of sort of social spaces where people lived their life, did their thing as long as they didn’t question the overarching political system,” Young said.
Xi brought these two periods together.
“After Hu Jintao, when Xi Jinping came into power, his sort of motto was to take the first 30 years of China and the second 30 years and sort of combine them,” Young said.
“He’s sort of kept elements of the private sector but increasingly focused on state steerage or guidance.”
On the economic side of things, this means a more formal industrial policy, in which the state tries to shape certain development objectives: it puts the economy to the service of security and politics.
“The big focus at the moment is on tech and on decoupling and becoming more self-reliant as a way of dealing with the increasingly intense geopolitical troubles that China has, particularly with the United States,” Young said.
New Zealand is caught in the middle of this, deeply invested in a strong economic relationship with China, in which growth is slowing - in part because of a growing geopolitical fracture with the United States. While New Zealand has a strong enough security relationship with the United States (history aside), this has never, and likely will not in the near future, turn into a particularly strong economic relationship.
That is despite calls from some for New Zealand to try to plug itself into the growing tech-based economy of the West Coast of the United States as a hedge against China.
The United States - well, the US Democrats - is aware that strong economic integration with the Pacific could be a hedge of its own against China, but the post-Trump aversion to the principles of free trade makes anything approximating greater access for New Zealand’s key exports a tall order.
The best thing on the table at the moment is President Joe Biden’s Indo-Pacific Economic Framework for Prosperity, an agreement that isn’t a trade agreement and that delivers not a lot, apart from antagonising China. One thing it does promise is a strong line in the sand on economic coercion, the practice of using economic tools to have one’s way internationally. China is an economic coercer par excellence and New Zealand is keen on any agreement that states this is not on.
Quite how Biden’s deal would help, were New Zealand to be the victim of economic coercion, is unclear. If, for example, China was to decide our milk and wine should be blocked over jazzed-up health concerns, the United States would huff and puff, but it wouldn’t result in any more of our exports being let in.
The other key change in China is the consolidation of power in one man: Xi.
While the Chinese Communist Party has monopolised political power since the revolution, China’s sheer size has meant power was diffused throughout the party and country, particulary since the death of Mao.
“Xi Jinping has centralised his own power and authority within the Chinese Communist Party,” Young said.
“Previously it was that you have a Chinese Communist Party, but then there’s also government institutions, and different organs of government would have certain forms of power and authority,” he said.
“[Xi’s] increasingly put the emphasis back on power and authority being within the Chinese Communist Party and also, within that, centralised it through small leading groups at the top of the party,” he said.
Young said the upper echelons of the party are now stacked with loyalists.
There are no obvious successors. Senior politicians of different idealogical stripes, like the former vice president, a Western-inclined reformer, have been sidelined for fellow travellers.
“Some people have described it as sort of taking or going back to some of the more problematic elements of the Maoist years when there was a cult of personality and sort of ruled by man - as opposed to rule by law or rule by institutions,” Young said.
Xi leaned into this comparison, shattering the norm for leaders to enjoy two terms as president before exiting stage left, and snatching a third term.
He’s even inserted his own ideology into party doctrine, “Xi Jinping thought”, a complex, inconsistent wad of speeches and pronouncements no one seems to particularly understand but which is studied everywhere from Beijing to Moscow (Russia has opened a centre for studying it, presumably to say “thanks” for sitting on the fence during the war in Ukraine). Young said this opens up a key challenge.
“By taking a third term, [Xi] brings back that problem that China or that all authoritarian countries have, which is how do you transition away from a a powerful authoritarian leader?” he said.
The challenge for New Zealand is where to position itself.
Other countries of similar size, either in population or economy, are putting up barriers, or are simply disinterested in trade. The United States looks outward in order to look inward, India has no interest in tearing down trade barriers and the European Union isn’t a huge fan either (the EU-NZ FTA agreed last year is pretty protectionist as far as FTAs go).
But China is getting more difficult. It isn’t growing quickly, it is exerting its economic might for diplomatic ends, and its damning human rights record grows ever longer.
One of the challenges for the Chinese Communist Party this century is to avoid two obvious pitfalls. The first is that the party will do itself out of a job, as the country grows wealthier, or that economic stagnation will require the party to step back from the economy in the service of the rising living standards that are the bargain that keeps the peace.
The second challenge is to sustain a level of growth that will see China join the ranks of wealthy nations with wealthy middle classes.
In the case of the former, China argues externally that modern notions of human rights were established in the wake of World War II in line with Western norms and that instead of universal human rights, these should be regionally specific, taking into account that China has a Confucian culture that does not put as great an emphasis on things like freedom of speech.
Internally, the argument is more base: economic rights - rising living standards - come before social and political rights.
For the moment, living standards are rising quickly enough for that to be enough - although the current economic slowdown and catastrophic rising youth unemployment offer a glimpse into the future at what might happen when this bargain breaks down.
If and when it does, great change can come both suddenly and imperceptibly in China. It is not a democratic country, but it is governed with a certain amount of consent.
This time last year, a prime ministerial visit to Zero Covid China would be all but impossible. Millions were locked in their homes in conditions even the most hardened Kiwi elimniationist would find inhumane - MIQ on a city and countrywide scale.
Then, almost overnight, it was gone.
Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018. He is reporting from Prime Minister Chris Hipkins’ visit to China.
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