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【歐盟內部矛盾和衝突】《經濟學人》The covid-19 pandemic puts pressure on the EU

【歐盟普遍對華反感】《南華早報專欄》Beijing faces a perfect storm as the world turns against its narrative amid rising nationalism, leaving it no room for compromise【中國的過激的輿論宣傳在歐洲被普遍認為製造假信息，企業信心也逐漸下降，不再是支持中國的聲音】

【中國的極端行為把歐洲推向美國】The meaning of systemic rivalry: Europe and China beyond the pandemic

• Beijing’s handling of the pandemic has changed long-standing European assumptions about its reliability as a crisis actor and its approach to the European project.
• Europe’s immediate medical-supply needs and dire economic situation will limit the scope of shifts in its China policy – for now.
• But, on issues ranging from supply chains to ideological competition, European governments have rebalanced their view of what dynamics with China should look like in the aftermath.
• The crisis is also intensifying demands from European parliaments, media outlets, and citizens for Europe to puts its China policy on a more open, accountable, and values-based footing.
• Governments’ pursuit of a “business as usual” approach to Beijing is growing harder to sustain.  

連時殷弘也沒有個正確的判斷，對外“促進傳播由迄今戰勝國內新冠肺炎流疫弘揚的、中國體製的某種優越性”盡管“推進得未免太急、太快和聲調太高”，也隻是“從而效果與期望之間的差距頗大”而已。他所留意的，隻是中美間的敵對。

《德國之聲》德國人對中國好感度上升 對美國看法變差
德國科爾伯基金會新近做出的一項調查研究顯示，新冠疫情之下，73%的德國人對美國的印象不佳。相比之下，隻有36%的德國人對中國的印象變得更差【此民意與德國精英界的看法相左】

 

The EU and China: Addressing the systemic challenge

The European business community wants a stronger and fairer economic relationship between the European Union (EU) and China that would make it possible to preserve and increase the current level of partnership between our two economies. We believe that reciprocal trade, investment and competition will unleash substantial economic potential. This potential remains untapped due to the systemic challenges that China’s state capitalism poses to the level playing field between the EU and China, and between European and Chinese firms. Recent profound changes in China generate a new sense of urgency amongst the European business community to redress this issue.

Signs emerging from China about its economic trajectory point towards a further consolidation of its state-led economy over market-oriented reform. This means that the European business community is increasingly concerned that the question is not when China will converge with the global market economy, but if it will converge. A lack of convergence raises serious questions about whether the current multilateral rulebook can secure a global level playing field.

A lack of World Trade Organisation (WTO) reform over many years has exacerbated this problem. The WTO was created as an institution that would create a global level playing field and evolve in parallel to changing economies. But while national economies and business environments have seen radical change over the past 25 years, the rulebook governing them has remained largely the same.

These simmering issues have reached a boiling point with the eruption of a trade dispute between two of the world’s largest economies: the United States (USA) and China. The degree of integration of the world economy means that the trade dispute could have far-reaching consequences for other trading partners, including the EU.

It is against this background that the European business community supports the European Commission’s Strategic Outlook on China that the balance of opportunities and challenges presented by China has shifted in recent years. Although the European business community has championed closer economic engagement on the basis of reciprocity for years, this shift leads us now to call on the EU to pursue a strategic reorientation in its relationship with China in order to defend our values, principles and interests.

The purpose of this strategy paper is to raise awareness and explain how and where the level playing field between the EU and China is distorted due to China’s state-led economy; and to outline concrete recommendations and demands that would lead to a more level playing field in our economic relationship.

From a European business perspective, the best way to address the issues outlined in this paper is for the Chinese government to adopt a more hands-off approach and place clear limits to market-distortive interventions that undermine the level playing field. China ought to return to market-oriented reforms and re-embark on the path of convergence with the global market economy in order to preserve and enlarge the benefits of globalisation. The EU and China should work together constructively and with other countries to establish new rules for global market-based governance at multilateral level.

Since progress on these issues is currently stagnating, we advance four key objectives that the EU should pursue in order to seize the opportunities within the bilateral relationship while addressing the systemic challenges posed by China’s state-led economic system. Each key objective is elaborated in a dedicated chapter. The EU should:
1 Secure a level playing field between China and the EU
2 Mitigate the impact of China’s government-induced market distortions
3 Reinforce the EU’s own competitiveness
4 Ensure fair competition and cooperation on third markets

The EU should pursue these objectives simultaneously across the following three levels, which will lead to a situation of policy complementarity and enhance the EU’s leverage at home and abroad:
1. The multilateral and plurilateral level: Reforming the WTO would be the best way to achieve these objectives. The EU should also cooperate closely with likeminded partners in plurilateral initiatives to strengthen and reform multilateral economic governance and to restore a global level playing field.
2. The bilateral level: Engaging China bilaterally is an essential cornerstone in building a stronger and fairer economic relationship between the EU and China.
3. The unilateral level: The EU should simultaneously strengthen its own capabilities to seize opportunities and mitigate the challenges.

Since the challenge presented by China’s state-led economy is a systemic one, there is often no single ‘smoking gun’ or policy to which distortions to the level playing field can be attributed. Rather, China’s state-coordinated and controlled economic governance structure of top-down economic planning has a cumulative impact. As such, there are few ‘silver bullet’ solutions that could singlehandedly achieve these four objectives.

This executive summary captures the main messages and recommendations of the paper. The paper’s chapters and subchapters include a detailed analysis of the opportunities and challenges and include 130 detailed recommendations which, when pursued simultaneously, would contribute to achieving these key objectives. While comprehensive, these recommendations are by no means exhaustive, and are the result of a scoping process that took place across the European business community. This paper and its recommendations are addressed to policy-makers across the European Union and its Member States, though several of them are directly relevant to China.

The paper is structured along six different chapters. The first chapter defines the shift in the balance of opportunities and challenges in the relationship with China. The second chapter advances a comprehensive approach through which the EU should engage China. The third, fourth, fifth and sixth chapters are each dedicated to one of our four key objectives, each with several subchapters that analyse the problems and recommendations that affect these goals.

01 CHINA: A SHIFT IN THE BALANCE OF OPPORTUNITIES AND CHALLENGES

EUROPEAN BUSINESS WANTS A STRONGER AND FAIRER ECONOMIC PARTNERSHIP WITH CHINA. A stronger relationship with China offers enormous opportunities to European and Chinese businesses. China is already the EU’s second biggest trading partner and the EU is China’s biggest trading partner. Fair competition between European and Chinese firms would furthermore lead to greater innovation and new opportunities.

NEVERTHELESS, THERE EXIST SEVERE CHALLENGES THAT OBSTRUCT A STRONGER ECONOMIC RELATIONSHIP. These challenges harm the economic prospects of European businesses and employment in the EU. This is due to the systemic challenges posed by China’s state capitalism.

WHAT ARE THEY? China’s state-led system includes direct government control over major parts of its economy including key industries, financing institutions, state-owned enterprises, and softer influence through party cells and the corporate social credit system (CSCS) that will apply to all enterprises. This unique and extensive system of state control and coordination through top-down economic planning increasingly blurs the boundaries between the public and private sector and has given rise to “China Inc.”– a structure in which the state dominates all aspects of the economy.

WHY IS THIS A PROBLEM? This state-led system produces a number of discriminatory outcomes and market distortions, including amongst others a disparity in market access between Chinese and foreign firms, financing advantages for Chinese firms in strategic sectors, cheap land and energy and state guidance and preferential support for selected Chinese industries. The Chinese government often uses measures that promote ‘indigenous innovation’ to achieve the declared goal of global industrial and technological leadership in key sectors by 2049.

WHY IS IT IMPORTANT NOW? Profound recent developments have led to a growing awareness among the European business community that these systemic problems are worsening, that we are moving away from their resolution, and that their impact on European business is increasing. This has led to a renewed sense of urgency that these problems need to be addressed as a matter of the highest priority.
1. First, instead of reforming its state-led economy into a market economy, signs emerging about China’s economic trajectory point to a further consolidation of its state-led economy. The European business community is increasingly concerned that the question is not when China will converge with the global market economy, but if it will converge. A lack of convergence raises serious questions about whether the current rules-based multilateral system can secure a level playing field.
2. Second, China is re-introducing political ideology into its economy instead of sustaining economic reform and liberalisation. The expansion of (the role of) party cells undermines the independence of private companies. The introduction of the corporate social credit system (CSCS) could also in the future undermine the independence of private companies and their commercial decisions..
3. Third, China is for the first time exporting its domestic policy mix because it has the capital and companies to do so, and both are motivated to go overseas. Besides affecting European businesses in China, these distortions increasingly spill over into the European market and third markets and affect fair trade, investment, procurement, competition, and thereby undermine the global liberal economic system.
4. Fourth, China’s immense economic growth in recent years means that the impact of these distortions on European businesses is far larger today than when it joined the WTO in 2001. China’s share of global GDP grew rapidly from 4% in 2001 to 15.2% in 2017. Similarly, its share of global merchandise trade grew from 4.2% in 2001 to 12.7% in 2018.
5. Fifth, the United States are attempting to force through a resolution of the systemic problems posed by China’s state-led economy through a trade conflict with China that is both economic and geopolitical in nature. This also has an impact on the European business community.

WHY IS IT DIFFICULT TO ADDRESS? Alongside European political stakeholders, the EU business community has for years encouraged China’s market-based reform path and championed closer economic engagement with China on this basis. The EU has for the same reasons been supportive of China’s integration into the global economy. China’s transformation into a market economy would by and large address the systemic drivers of its market distortions and result in a greater level playing field. Conversely, China’s current consolidation of its state-led economy will likely worsen the systemic problems and their impact on European business.

OUR BILATERAL PROSPECTS DEPEND LARGELY ON CHINA. While our bilateral relationship depends on the engagement of both the EU and China, the prospects for a stronger and fairer relationship which the European business community sees as an ultimate end goal depend largely on whether China can successfully address the growing challenges that European companies face when doing business on the Chinese market or when competing with Chinese companies on the European market and on third markets.

 

 

一

Coronavirus: China faces historic test as pandemic stokes fears of looming unemployment crisis

    For the first time in decades, China’s labour market is under pressure on multiple fronts as the economy struggles to recover from the coronavirus
    Communist Party leaders fret that swelling unemployment could develop into social unrest, threatening its grip on power

Years of social progress in China are at risk of being undone as the country grapples with the economic fallout of the coronavirus pandemic, a black swan event that has lashed the world’s second biggest economy and driven unemployment to historic highs.

Over the past few years, China’s labour market stability has been underpinned by the rise in service sector jobs, allowing newly laid-off factory workers to take up employment as delivery drivers or store clerks.

But the coronavirus pandemic has broken this virtuous cycle, fanning the government’s worst fears about massive unemployment and the potential for ensuing social unrest that could undermine its iron-grip on power.【就業是個控製不住的現實，沒有工作機會，就沒有飯吃，冠疫打擊最大的，是服務業，服務業大多是低層次的崗位，這是中國經濟轉型的去處，

中國的失業率指數明顯不全麵，民工雖然在2018年以後也算上，但很多不合格，不算失業，而且很多城市職工是停職、降薪，也不算失業

失業救濟福利中國屬於落後國家，很不健全，也不夠力，尤其是民工。一億兩千三百萬回城了，五千萬還被困在家鄉，連機會都沒有。一億四千九百萬小業主收入也是受打擊（但隻降了7%？）

恢複七成左右？ China had 442 million urban jobs as of the end of 2019 and has to add 8 million new jobs this year to keep the unemployment rate roughly unchanged。 In other words, the total amount of urban jobs this year will be 20 million lower than the normal trend.”8.7 million students who will graduate this year from universities and colleges】

Across the country, it is not uncommon to see stores closing or popular restaurants near universities struggling because students are not yet back at schools.

In some manufacturing hubs, migrant workers are still waiting for factories to reopen, as deadlines for resuming production are pushed out due to declining global demand. While China began to restart its economic engines in mid-March after months of crippling nationwide lockdowns, a number of sectors are still struggling to recover.

For the first time in decades, China’s labour market is under pressure on multiple fronts, a challenge that was underlined after the country posted its first economic contraction in more than 40 years in the first quarter.

And as China’s job market softens, Beijing’s social development goals, including doubling per capita gross domestic product in the decade to 2020 and eradicating poverty, are looking increasingly shaky.

“Because of the US-China trade war, the downward pressure on China's economy has increased significantly, and the employment situation has continued to deteriorate,” wrote Ouyang Jun and Qin Fang, two economists from Southwestern University of Finance and Economics in Chengdu, in an article late last month.

“After the outbreak of coronavirus, the already difficult task of stabilising employment has become more complicated and hard to manage.”

While anecdotes of business closures and lay-offs are not hard to find on the ground, the true state of unemployment in China is still a matter of debate.

No government data set offers a clear picture of the job market and most economists believe official figures underestimate joblessness.

Among the groups not adequately counted are China’s 149 million self-employed business owners and 174 million migrant workers, who regularly travel from their rural hometowns to find employment in cities.

Unlike developed economies, which typically offer a broad range of employment indicators, China has historically relied on only two figures for unemployment data – both of which have flaws.

Before 2018, Beijing published data on how many urban workers registered with the government when they lost their jobs. Data from local authorities excluded migrant workers who were not born in the city and were therefore not eligible for social benefits there. To be counted as unemployed, people also had to be between the ages of 16 to 59.

The data was detached from the reality of the overall labour market, particularly during the global financial crisis of 2008-2009, when more than 20 million migrant workers became unemployed but the headline jobless rate barely moved.

Since 2018, China has used the monthly survey-based unemployment rate as its main indicator. The data captures all regular urban residents and does not include an upper age limit.

But to be considered unemployed a worker needs to have been actively looking for a job in the past three months and be able to start work within two weeks, conditions that do not cover most migrant workers.

The survey-based jobless rate rose from 5.2 per cent last December to a record high of 6.2 per cent in February, when the pandemic in China was at its worst, before falling back to 5.9 per cent in March, according to the National Bureau of Statistics (NBS).

At the same time, total urban employment plunged 6 per cent in March from January 1, translating into about 26 million job losses.

“This stands in contrast to the 8.3 million net increase of urban employment in 2019, and would be the first contraction in reported urban employment in more than four decades,” Qu Hongbin, chief China economist from HSBC, wrote in a recent note.

About 18.3 per cent of the workforce had been furloughed, taken a pay cut or unpaid leave in the first quarter, according to the NBS.

Many of these jobs will remain under pressure if economic conditions remain weak.

China has announced a modest package of welfare support to help some of its most vulnerable citizens, including migrant workers, but it is limited in scope and will not cover the vast number of workers affected by the virus.

“Unlike in other economies, mainland China has not implemented a broad-based wage protection scheme … like those in the UK, Singapore, or Hong Kong, which require employers to maintain headcount and pay workers. This means that most of the furloughed workers in mainland China have no source of income,” Qu said.

The bulk of those falling through the cracks are migrant workers who have been unable to return to work in cities due to transport restrictions, or self-employed business owners who account for nearly 30 per cent of the workforce in the industrial and service sectors.

Only 123 million rural migrant workers were able to return to jobs in urban areas in the first quarter due to lockdowns and business closures, a fall of 30 per cent from a year earlier.

That has left more than 50 million migrant workers stranded after they returned to their villages for Lunar New Year holiday in January.

Some have picked up low-paying agriculture work at home, but more than half of migrant workers are employed in manufacturing, construction, retail and wholesale – sectors concentrated in urban areas.

Meanwhile, China’s 149 million self-employed workers – ranging from owners of family-run fruit and vegetable shops to neighbourhood hardware stores – have watched their income tumble on average 7.3 per cent in the first quarter, and a steeper 12.6 per cent in urban areas, the statistics agency said.

Due to the wide-ranging impacts of the virus on China’s economy, the ability of workers to transition from manufacturing jobs to new positions in the service sector is becoming increasingly difficult.

Service sector mainstays like tourism and hospitality are under major pressure.

Domestic tourism revenues dropped 60 per cent during the Labour Day holiday in early May from a year earlier, while restaurants have seen revenues cut in half, according to a survey by the China Hospitality Association.

Many food businesses have begun offering delivery services to make up for losses from a lack of dine-in customers, but more than 45 per cent said orders were lower in April than in February, implying a slow recovery in consumer spending. Overall, revenues at restaurants have only recovered to around 60 per cent of the pre-coronavirus levels, according to data from Hualala, an ordering system used by many Chinese restaurants.

More than a third of restaurant owners have closed some, if not all, of their stores and 40 per cent have been forced to lay off workers, according to the hospitality association survey.

A separate April survey of 300 hotels by the China Hospitality Association found that a quarter had cut at least 20 per cent of their employees, leading to an overall headcount reduction of 18 per cent from a year earlier.

“It remains to be seen how Chinese consumers will adapt to the ‘new normal’ and how quickly there is a recovery from the export shock ,” said Yao Wei, chief China economist at French bank Societe Generale.

“If exports fail to recover in the second half of the year and consumers remain highly cautious about visiting restaurants, retail stores and tourist sites, the total number of unemployed could remain much higher at around 30 million at the end of this year.”

Nearly 112 million people were employed directly or indirectly in supply chains that supported exports, according to a study published by the Ministry of Commerce last year.

Larry Hu, chief China economist for Macquarie Group, estimated the unemployment rate could surge to 9.4 per cent by the end of the year.

“As a starting point, one could think about the labour market in terms of new and the existing jobs. China had 442 million urban jobs as of the end of 2019 and has to add 8 million new jobs this year to keep the unemployment rate roughly unchanged,” Hu said.

“In our baseline scenario, new job creation will be 6 million lower than last year and loss of existing jobs will be 14 million. In other words, the total amount of urban jobs this year will be 20 million lower than the normal trend.”

Compounding China’s dreary employment outlook are the 8.7 million students who will graduate this year from universities and colleges.

On the popular social media platform Douban, a topic called “graduates in the epidemic” has garnered more than 700 posts and generated 1.5 million views.

One finance graduate, who secured a job last fall before the virus outbreak started, sent an encouraging note.

“Compared with those who are looking for jobs this spring, I am relatively lucky. I hope that you don’t underestimate yourself or regret your mistakes. The opportunity is there for those who are prepared.”

二

Coronavirus: is China prepared to handle an unemployment crisis?

    Changes that helped during previous waves of unemployed in the late 1990s and during the global financial crisis are viewed as not present amid the current crisis
    China’s state-run benefit system covers only a small portion of the country’s unemployed, while the fund is also now paying out more than it receives

The coronavirus pandemic has thrown tens of millions out of work in China, piling pressure on the country’s patchy social welfare network and creating a major policy challenge for Beijing.

It remains unclear whether the Chinese government has the means at its disposal to handle the sharp rise in unemployment that has resulted from the outbreak, with some economists warning that the positive structural changes in the economy that helped absorb waves of unemployed in the past are no longer present to help in the current situation.

However, the Chinese Communist Party’s ability to help China's most vulnerable groups weather the economic downturn – particularly the 300 million migrant workers – will largely determine whether it can recover quickly and rally support for its governance model, as the rivalry with United States heats up.！！！

A failure to revive the services sector and private businesses, which account for the vast majority of jobs, could darken China’s economic future and undermine the party’s narrative that its model of governance will lead China to a great cultural and economic rejuvenation.

Even though China has largely brought the coronavirus outbreak under control, the nation’s economic pain remains acute. Diminished job prospects, reduced incomes and the threat of increased poverty have led to a rise in anger and pessimism among the public, though it is hard to quantify the extent of the dissatisfaction.

On Douyin, China’s version of short video-sharing platform Tiktok, displeasure about lay-offs and social injustice are increasingly visible, with The Internationale, the left-wing anthem associated with the workers’ movement, becoming popular background music.

The size of the unemployment challenge Beijing faces is also difficult to quantify. China’s official jobless rate – which crucially excludes most migrant workers – paints a relatively positive picture, having fallen back to 5.9 per cent in March from a record high of 6.2 per cent in February. While the March rate remains above January’s reading of 5.3 per cent, which came before the bulk of the economic damage from the pandemic, independent studies indicate the real picture is much worse within the world’s second largest economy.

A research report by brokerage firm Zhongtai Securities in late April put the real jobless rate at 20.5 per cent with 70 million unemployed, while Liu Chenjie, chief economist at fund manager Upright Asset, estimated at the end of March that the pandemic may have pushed 205 million Chinese workers into “frictional unemployment”.

Zhang Lin, a Beijing-based political economy observer, said the wave of unemployment stemming from coronavirus is far greater than the previous two – in the late 1990s when 25 million workers at state-owned enterprises lost their jobs and in 2008-09 when the global financial crisis put 20 million migrant workers out of work.

To make matters worse, China’s ability to create new jobs to absorb the newly unemployed has greatly diminished, Zhang added.

During the wave of state sector lay-offs in the late 1990s, China’s booming private-sector economy quickly absorbed the workers. And when migrant workers lost their jobs in export-oriented manufacturing in 2008-09, China’s domestic urbanisation push helped absorb the unemployed into city-based service jobs.

“But look at it now – growth is slowing down, urbanisation is peaking, and the private economy is struggling,” Zhang warned.

The timing of the new unemployment wave is bad for China as 2020 was expected to be a key milestone, with the target for the nation to become a “comprehensively well-off society” by the end of the year, as measured partly by a doubling of the size of the economy compared to 2010 and the complete eradication of poverty.

It would be written down that in the China’s long history, the party, under the leadership of President Xi Jinping, had succeeded in taking a large step towards creating an idealised Confucian society where “there’s caring for the old, jobs for the adults, and education for the children, along with support for widowed, childless seniors, and the disabled” – a goal pursued by Chinese rulers for over two thousand years.

A well-off society, in turn, would become a stepping stone for China to achieve its national rejuvenation by 2050, when it will become “a powerful socialist country”, according to Xi’s “Chinese dream” road map.

The first quarter economic contraction of 6.8 per cent and the massive loss of jobs, however, has exposed deep problems in China’s development and wealth distribution. After four decades of rapid economic growth, many labourers now find themselves totally on their own or supported by family savings, with the good days of constant employment and rising incomes over.

The situation at Majuqiao temporary job market on the outskirts of Beijing underscores the helplessness of China’s migrant jobseekers, who increasingly have to face the reality of “no income and no welfare if no job”.

One migrant worker in his 20s said last week that he had been looking for a job since April 11, but was still unable to find an employer who was willing to pay the mandatory social security fees on top of his wages.

“Nobody will pay the four insurances and the housing fund for a short-term worker these days,” he said, referring to China’s mandatory social welfare system that is seen as a growing burden by employers.

Under China’s social security regulations, an employer is required to make contributions to the five types of government-provided insurance schemes – pension, health care, unemployment, work injury, and maternity leave – as well as a housing fund for every employee. The combined levy, which adds up to over 30 per cent of an employee’s pay on top of the firm’s income tax requirements, is an especially heavy burden for smaller manufacturing and service firms.

The burden is so heavy that many Chinese employers, especially in the private sector, try to avoid paying the contributions by either under reporting salaries or by hiring workers on a temporary basis.

In the Pearl River Delta, southern China’s manufacturing hub, there has been a surge in “daily clearing” jobs, where a worker is hired and paid on a daily basis.

But while it provides such a heavy burden for employers, China’s state-run safety net still remains beyond the reach for those most in need of help.

According to China’s Ministry of Human Resources and Social Security, China’s state-run unemployment benefit system gave financial support to only 2.3 million people in the first quarter of 2020, with each applicant eligible for a payment of around 1,350 yuan (US$190) per month on average. The government also only provided help to 67,000 of China’s millions of laid-off migrant workers.

The State Council, China's cabinet, was aware of the problem and asked local governments in late April to broaden the coverage of unemployment benefits, in particular to migrant workers who had only paid into the system for less than a year.

Yao Wei, chief China economist at French bank Societe Generale, said China’s unemployment insurance scheme is “ill-equipped to deal with the massive surge in unemployment” and requires fast-tracked improvement.

The coverage of unemployment insurance is notoriously low in China, partly because of strict eligibility requirements. Before the change in April, a person could only claim benefits after paying into the insurance scheme for at least a year, a rule which would exclude many migrant workers, who remain in the same job for only 10 months on average.

And since employers usually have to contribute around 2 per cent of their payroll to the unemployment scheme, the many small businesses that provide most of the jobs into the market, try avoid making such contributions whenever they can to save costs.

Once eligible, applicants still need to go through a tedious process to register as being unemployed before being able to claim the benefit. The difficulty in registering is reflected in the relatively flat registration-based unemployment rate calculated by the government, underscoring the scheme’s inefficiency. In the first quarter, the rate rose only slightly to 3.66 per cent from 3.62 per cent at the end of last year.

In 2019, only a quarter of the total workforce totalling around 205 million and less than half of urban workers were covered by unemployment insurance. For migrant workers, the coverage ratio was 17 per cent as of 2017, when the central government stopped publishing the ratio.

Last year was also the first year since 1990 that China’s payouts of unemployment benefits surpassed the contributions taken in, suggesting that the overall employment situation had reached a critical point even before the impact of the pandemic.

At the core of the issue is a social welfare system that puts too great of a burden on businesses and individuals, while the government’s tax revenues are spent excessively on government and party bureaucracy as well as on infrastructure.

China’s current social welfare system was introduced in the 1990s when the old Soviet-style cradle to grave welfare system was smashed for state sector workers.

Former premier Zhu Rongji’s reform of state firms at the end of 1990s resulted in millions of workers losing their jobs – a Chinese government white paper said China cut 25.5 million state jobs between 1998 and 2001 – and massive social unrest in the Northeast where state-led economic model was most entrenched.

As many state employers were shut down, the Chinese government began to develop a social pension system in 1997, which has gradually expanded to cover all urban employees.

That system was further expanded under former president Hu Jintao and former premier Wen Jiabao, who headed the Chinese government from 2002 to 2012, to provide rural residents with minimum living allowances and pensions even though the benefits in the countryside were often much lower than in the urban areas.

A key policy goal of current President Xi has been the complete eradication of poverty by the end of 2020, and even after the coronavirus outbreak, he has repeatedly urged local officials to remain committed to the goal.

In particular, Xi warned at a meeting at the start of March that at least 2 million migrant workers who managed to get income levels above the poverty line by taking temporary jobs could be pushed back into poverty again when the jobs no longer exist.

The challenge on the ground, however, could be much complicated.

On May 1, known as Labour Day or International Workers' Day, China introduced the Regulation on Ensuring Wage Payments to Migrant Workers, which has the sole purpose of ensuring salary payments to migrant workers. This showed delays in or even evasion of wage payments to still be a major problem for the country’s disadvantaged labour force.

At the temporary job market in Majuqiao on the outskirts of Beijing, a local resident in his 60s said he was sad to see so many young people chasing so few jobs.

“Looking at them is like watching Les Miserables,” he said, referring to the 19th century French novel, which was later adapted into a hit musical and film.

“The young people may find a better life tilting land at their rural homes than suffering such misfortunes in cities.”

三

China’s local officials under pressure amid coronavirus pandemic to address rise in unemployment

    Chinese leadership prioritises keeping unemployment numbers down as soaring jobless rate threatens social stability
    Policies include incentives aimed at those most at risk – graduates, migrant workers and the small business sector

The coronavirus pandemic has forced a dramatic change in priorities for Beijing’s leaders, as they grapple with falling economic growth and a rising unemployment rate that threatens social stability – the foundation of the ruling Communist Party’s legitimacy.

University graduates, migrant workers and the country’s small business sector are the most at risk and China’s leadership has responded by making controlling unemployment a higher priority for the year ahead than getting the growth rate back on track.

At the same time, local officials have been told multiple times that they must also fulfil the country’s anti-poverty targets by the end of this year, putting further pressure on local cadres to deliver results. That message was reinforced by President Xi Jinpingon Monday when he visited the homes of relocated farmers in Datong in the northern province of Shanxi.

“As members of the Chinese Communist Party, we must seek happiness for the people wholeheartedly … and do everything we can to help poverty-stricken families to move into new homes and provide training for them so they can find jobs and live a happy life,” Xi told a family, in the company of local cadres.

But the challenges outlined by Xi were easier said than done, according to experts. They pointed out that surplus farmhands in China’s vast countryside would have to compete with millions of urban labourers for the limited jobs available.

The slowing economy is putting businesses under pressure to make redundancies while, at the same time, a looming global recession caused by the pandemic has dimmed prospects of a quick recovery as investors and foreign buyers tighten their belts.

In February, China’s urban unemployment rate jumped to 6.2 per cent, the highest on record. In March it dipped slightly to 5.9 per cent as more businesses reopened. But the numbers are highly contested.

An April analysis by UBS estimated that 50 million to 60 million people in the hard-hit services sector may have lost their jobs or are otherwise not working, and a further 20 million people in the industrial and construction sectors may be in the same position.

China’s unemployment rate could reach 10 per cent this year, resulting in at least an additional 22 million urban workers losing their jobs, according to a report by The Economist Intelligence Unit on April 22.

Hu Xingdou, a Beijing-based independent economist, said China’s official unemployment rate did not reflect the real picture.

“It is not possible for an individual to find out the real unemployment rate. But by observing what’s happening around us, with restaurants closing and enterprises laying off staff, we can tell the real figure must be higher,” he said, adding “this is why [this year] the central government has given employment top priority”.

Finding jobs for this year’s fresh crop of graduates has been flagged as a critical task for local officials this year. Six central government departments and Communist Party bodies launched a special campaign last week to push for more jobs for graduates – estimated to number a record 8.47 million this year.

Chen Peipei, a 22-year-old student at Shantou University in the southern province of Guangdong, is one of the graduates worried about finding work. She has submitted dozens of applications in the past three months, without success. “I’m still trying my best to look for jobs but there’s a vague sense of failure in my heart,” she said.

The unemployment issue has dominated multiple government meetings over the past two months and was named as the country’s priority at the April 17 meeting of the Politburo Standing Committee, Beijing’s highest decision-making body, headed by Xi. At the State Council meeting the next day, Premier Li Keqiang underscored that employment was the first-order priority in maintaining stability. “No job means no income and no wealth creation,” he said. “[We need to] make every effort to prevent massive lay-offs.”

A notice from the Shanghai government on April 29 directed its state-owned businesses to ensure that at least half their new recruits were recent graduates.

Wuhan – the provincial capital of Hubei in central China where the coronavirus first emerged – has announced a target of 250,000 jobs for graduates and is offering companies a 1,000 yuan (US$140) incentive for every graduate they hire.

But some experts have questioned the effectiveness and sustainability of measures introduced by local governments. Subsidies and exemptions for SMEs depend on local government revenues, which will also be under strain, while recruitment levels in state-owned enterprises are determined by their own, independent, accounting practices.

“Start-up companies need financial support, but big banks are reluctant to give them support,” Hu, the economist, said. “There’s little the local government can do.”

To make matters worse, the ongoing economic conflict between China and the US, along with calls in the West for an economic decoupling from China, is likely to lead to further deterioration in China’s import and export industries and the country’s ability to attract foreign investment.

“The future international market, as well as China’s relations with other countries, will have a huge impact on China’s economy,” Hu said.

“Employment is a pressing priority in China. To keep employment stable is to protect people’s livelihoods and to defend the regime,” said Chen Daoyin, an independent political analyst and a former Shanghai-based professor.

Rising unemployment and job losses would also undermine the Communist Party’s commitment – declared by Xi himself – to satisfy the Chinese people’s pursuit of happiness, according to Chen.

But he added that, if the government’s measures were implemented smoothly, they could be effective in preventing the convergence of new graduates and migrant unemployment that would threaten stability.

“If there were a wave of unemployment, the middle class would slip to the bottom of society while the bottom would collapse, making it impossible to fulfil people’s pursuit of happiness and the party would lose its legitimacy,” he said. “The bottom line is to ensure employment and meet people’s basic needs.”

For more than a decade, China has tried to deal with the influx of university graduates into the job market by resorting to a Mao-era campaign to encourage them to go to the countryside.

Faced with the current grim employment situation, experts predict there will be more incentives this year aimed at transforming rural areas and expanding the government’s anti-poverty programme while keeping unemployment in check.

On April 10, the government of China’s southeastern Fujian province published a plan to guide 600 graduates towards working in rural areas. Successful applicants will receive a living allowance and have their student loans covered by the local government, at up to 2,000 yuan a year.

About a month later, Guangdong province in southern China announced a similar plan, recruiting 2,000 graduates to spend two years in rural areas. It was an extension of a campaign which, by 2019, had attracted about 27,000 graduates.

“I think there will be more incentives to encourage graduates to go to the countryside, work as village party officials, or support them to do online businesses or launch start-up companies after the‘two sessions’in late May,” said Wei Jianguo, former commerce vice-minister, referring to the upcoming parliamentary meetings to be held in Beijing.

Another problem for the Chinese government is that its antidote to the 2008 global financial crisis may not work this time. China escaped the great recession with a 4 trillion yuan (US$564 billion) stimulus package which left a heavy debt burden on local governments and state firms, while postponing the country’s economic transition.

Wei said that in hindsight the response to the 2008 trauma had led to chronic problems such as excessive capacity for the economy.

“This time we must focus on economic structural reform and quality of development,” he said, adding that the key point was to boost domestic consumption and improve consumption quality. Although China was facing an economic downturn, he predicted the country’s consumption growth in 2020 could still reach last year’s level of 8 per cent.

Not all economists are as optimistic. Liang Qidong, deputy director of the Liaoning Academy of Social Sciences, said investment was needed in areas like the construction of 5G networks, data centres, and high-speed railway lines.

“The most effective way to offset the economic downturn is investment, but the old ones won’t work, so we have [to concentrate on] so-called ‘new infrastructure’,” he said.

Liang pointed out the country’s biggest headache would be young migrant workers from the countryside, who would not be able to return to farming if they failed to find jobs in the cities. “If they can’t find a job in the city but also can’t go back [to farm] in their villages … It may lead to social unrest,” he said.

China’s small businesses are already feeling the effects of the downturn. Wu Yadi, a 28-year-old jewellery shop owner on Taobao, China’s largest e-commerce platform, said he had cut his staff from more than 40 in previous years down to a dozen, but the downsizing had not spared his business from operating at a loss this year.

There is still optimism, however, that the situation can be turned around. “Many of my friends feel gloomy about the future, but I’m confident with my ability and my team,” he said.

四

After coronavirus pandemic, Chinese students grapple with first economic downturn of their lives

    Some 8.7 million Chinese university students are set to graduate this summer, but they will enter the worst job market in recent memory
    The coronavirus pushed China into its first economic contraction since 1976 in the first quarter, tightening competition for a dwindling number of graduate jobs

Su Yuxin has always looked forward to graduation. The 21-year-old dreams of making it as a hip-hop music producer. When she landed an internship at a famed music label in Beijing, she was excited to move on from her life in a lesser-known university in southern China.

Now, with a pandemic weighing on the global economy, millions of students like Su have bigger things to fret about than being unable to land a dream job out of the gate. Her internship at the music label ended abruptly in February when her employer laid off all interns in response to a new coronavirus that was spreading across the country.

“The uncertainty makes me scared,” said Su, who is now interning at an e-commerce company. “I am working as hard as I can to turn this internship into a job offer. If that fails, I might apply for graduate school overseas.”

Su is one of 8.7 million Chinese college students on track to graduate this summer, which is shaping up to be the worst possible time to enter the job market in recent memory. For the first time since 1976, China’s economy shrank at the start of the year, ending four decades of uninterrupted growth that fuelled the country’s economic rise to be second only to the United States.

Furthermore, the pandemic has crippled the global economy, creating external pressure on China despite the country having brought the coronavirus under control.

It has raised the spectre of a looming unemployment crisis in China that is being exacerbated by what analysts said is a skills mismatch in the job market that has developed over more than a decade.

While China has pinned its hope on young, educated people like Su to expand the country’s middle class and support the country’s growth, a potential surge in youth unemployment has now put Beijing on the defensive.

Born in the late 1990s, China’s class of 2020 has never experienced an economic downturn, and their parents’ generation emerged from the 2008 financial crisis largely unscathed.

But the economic shock caused by the pandemic has threatened the prosperity of both generations, and is likely to become a scar that will follow young jobseekers through their careers.

“The year of 2020 is looking to be the most difficult year for fresh graduates, because China’s private sectors, a big part of the hiring source, are struggling, closing, and unable to hire,” said Hu Xingdou, a Beijing-based economist.

China’s economy contracted 6.8 per cent in the first quarter. The International Monetary Fund forecast in April that the global economy would fall by 3 per cent this year, which would mark the worst economic downturn since the Great Depression.

The contraction has been directly reflected in China’s job market. A recent study by Peking University showed that the number of jobs on offer shrank by 27 per cent in the first quarter. The fall was led by the entertainment and services sector, followed by education, sports, information technology and finance.

According to Zhaopin, a popular Chinese recruitment site, the first three months of this year saw the number of positions open to fresh graduates decline 17 per cent from last year. The number of people vying for the same positions increased by 70 per cent.

Seeking to stem a surge in youth unemployment, China’s Ministry of Education launched in May a 100-day campaign to help graduates find a job.

The campaign includes expanding graduate programmes, increasing hiring by state-owned enterprises and drafting more students into the military.

Analysts said the impending jobs crisis for college graduates was made worse by the fact there were too many of them.

The surge in college enrolments has outpaced the growth in white collar jobs, a decade-old phenomenon that complicates China’s efforts to mitigate the economic fallout of the coronavirus pandemic.

The number of college graduates has been growing every year since about two decades ago, when attending university was considered a privilege.

In 1998, only about one in 10 people aged between the ages of 18 and 22 attended university. In 2016, more than four in 10 were college students.

“College graduates are looking for decent jobs,” said Xu Hongcai, deputy director of the Economic Policy Commission at the China Association Of Policy Science.

“Most will need to go into the modern service sector and hi-tech sector, but the demand in these sectors in China can’t catch up with the growth in the number of college students.”

China’s higher education explosion began in 1999, when the government started to drastically expand college enrolment to boost the education level of the workforce.

The effort meant more people in China could earn a college degree, but it also made the labour market more competitive.

In 2003, four years after the expansion started, the State Council, China’s cabinet, held its first-ever meeting to discuss employment for college graduates. At the meeting, Chinese officials vowed to create more jobs for them to prevent social instability that could arise from youth unemployment.

One long-standing policy that came out of the meeting was to attract graduates to sign up for two-year civil servant programmes in poor rural regions, in exchange for better job prospects after it ended.

The lack of jobs for college graduates has been reflected in the salaries they earn.

Among the university graduates who found jobs, 60 per cent earned the same or less than a migrant worker or a delivery worker, according to data in a 2019 report from Zhaopin.

Li Qiang, executive vice-president of Zhaopin, said the jobs that were most available to college graduates were as real estate brokers, salespeople and technicians, but young jobseekers did not want those positions.

According to a 2020 survey of nearly 7,600 graduates by Zhaopin, more than a quarter of respondents wanted a job in the tech sector, while another 10 per cent wanted to work in the media and entertainment industry.

Hu, the Beijing-based economist, estimates that one-fourth – or about 2.2 million – of college graduates this year may be jobless.

“Many of them might end up applying for graduate school next year,” he said.

The Covid-19 pandemic has made it harder for young people to find their ideal jobs – or any jobs. Candidates desperate for work have cut their expected salaries and benefits.

Having forced many among China’s 400-million-strong middle class to tighten their belts, the pandemic is also threatening to prevent educated youths from joining its ranks.

It could potentially slow a decades-long expansion in the middle class that is central to China’s plan to create sustained economic growth by boosting consumption.

Zhao Xingxing, a 24-year-old who studies food safety in the central province of Henan, said she had applied for more than a dozen jobs since April. Five companies granted her an interview, but none offered a position.

Zhao said an annual job fair at her school was cancelled because of the virus outbreak. Most employers have conducted online interviews during the pandemic and Zhao thinks she could have performed better in person.

“I realised I was too optimistic. I thought I was really good,” she said. “I realise I’m just an average college student.”

Zhao believes she will eventually get a job, especially now that she has cut her expected monthly salary from 4,000 yuan (US$565) to 3,000.

The median salary for college graduates in 2019 was 5,600 yuan, according to Boss Zhipin, a Chinese recruitment app.

Most students of China’s class of 2020 have no siblings due to China’s decades-long one-child policy, which ended in 2015.

They also grew up in a prosperous period that saw China’s share of global economic output increase from 7 per cent in 1999 to 19 per cent in 2019.

This upbringing left them more interest-driven and ready to take risks than the previous generation, experts said, but it also means they are ill-prepared for a downturn, not to mention a recession on the scale triggered by the pandemic.

“The pandemic is a test for this generation,” said Jolene Zhao, associate director at the Beijing office of Michael Page, a British-based recruitment consultancy. “Some will use this period to think through how they could shine, others will focus on complaining that no one gets back to them.”

Zhao said that even before the pandemic, her clients had hired fewer fresh graduates in recent years.

“These days many fresh graduates quit their first job in six months, often over trivial setbacks,” she said.

“It’s not that the employers don’t want to hire fresh graduates, they are skilful, smart and cheap. But the companies found many of them lack the will power to push through difficult situations. Would they keep their calm when clients are having a tantrum? I have no confidence that they will,” said Zhao.

Su Yuxin, the intern, said she wanted to find a company that has a culture that is more “open and free” and allows her to learn new things.

While she is considering going to graduate school to wait out the pandemic, she is not going to aim lower. She can afford to do that because her parents will support her financially if push comes to shove.

“My mum told me to prioritise learning and gaining experience above earning an income,” Su said.

五

Class and the coronavirus: as China’s wealthy cut back on life’s luxuries, the nation’s poorest are in a fight for survival

    Migrant workers and the residents of rural areas are bearing the brunt of the employment crisis in China caused by Covid-19
    And while many factories in the nation’s industrial heartland have reopened, a slump in global demand for Chinese goods has dimmed hopes of a swift end to their problems

Li Ming, a 36-year-old marketing manager for a car company in Beijing, is feeling the pinch for the first time in her life. When the coronavirus outbreak started, car sales slumped and she was furloughed from her job in February. To make matters worse, her husband, who works for an airline, has also had to take a 40 per cent pay cut.

“Suddenly half of our household income evaporated,” Li said. “I haven’t had a decent sleep for months. We have a mortgage to pay and two children. They are a heavy burden now.”

Li was able to save 12,000 yuan (US$1,700) a month by sacking the family’s domestic helper. “I explained and told her not to come back after the Lunar New Year holiday, which she was spending with her family in her hometown in Gansu,” she said.

“After a long pause, she agreed. She didn’t say anything else but sent her love to my kids whom she has been with for three years.”

Besides the human cost of the Covid-19 pandemic, economies have stalled and few people are likely to come out of it unscathed. But while middle class families face the prospect of giving up their luxuries, those already at the bottom of the income pile are facing potential disaster.

China’s urban unemployment rate rose to 6.2 per cent in February , its highest on record, though even that is widely believed to be understated. The number improved to 5.9 per cent in March as more businesses reopened as the coronavirus outbreak was mostly brought under control.

But economists say the worst has yet to come for China’s massive labour force.

According to a report by The Economist Intelligence Unit on April 22, China’s unemployment rate could reach 10 per cent this year, with the loss of a further 22 million jobs in urban areas.

UBS estimated in a report published last month that 50 million to 60 million jobs had been lost in the services sector, and a further 20 million in the industrial and construction sectors.

While China’s official unemployment rate is based on data collected from 31 major cities, the situation in smaller inland cities and rural areas is believed to be worse, where social distancing measures could be the last straw for ailing businesses in vulnerable industries and the service sector.

“China’s regional disparity is huge,” Hu Xingdou, an independent political economist in Beijing said. “While people in big cities and coastal regions are struggling to maintain their normal life, those in inland provinces and poverty-stricken areas risk losing their lifelines or already lost them.”

Peng Lixiang, a 38-year-old from the village of Dayi in Shandong province, used to work at a hotpot restaurant in Heze, one of the poorest cities in the east China province, earning about 1,000 yuan a month.

But the business took such a blow from the health crisis that the owner decided to shut up shop in February, and Peng found herself out of a job.

As the family’s main breadwinner – her husband is an odd-job man who works only occasionally – Peng said she was struggling to find the money she needed to raise her eight-year-old daughter and repay the loans they took out to build their home.

She said she had applied for jobs at factories and restaurants in the city but faced nothing but rejection.

“I didn’t expect it would be so difficult,” she said. “I’d take a low salary, hard work or anything else, as long as I don’t have to work at night because I have to take care of my daughter. I just need a job.”

Peng is not alone in finding work hard to come by in China’s less affluent inland towns and cities. That is why millions of migrant people, like 39-year-old Cao Jin, are heading back to the coast after months of living in lockdown.

On April 1, Cao set out from Suizhou, a city in northern Hubei province on a high-speed train to Guangdong, the country’s manufacturing hub, where he hoped to resume his work as a production line supervisor for a company in Foshan that makes heating plates for electrical appliances.

But after spending 12 days in precautionary isolation in the factory dormitory, Cao was told the only job available to him was on the night shift – working from 6pm to 4am, five days a week for the government-stipulated minimum salary of 2,000 yuan a month – or about a quarter of what he used to earn.

“It’s far from enough to cover my living costs in Foshan, let alone support my family in Hubei,” he said.

Cao said he tried to reason with his boss but was told that because of a 50 per cent slump in orders the factory owners had decided to cut its production lines from 10 to five. The size of the workforce had also been halved, to about 300.

“I was left with no choice but to resign,” he said.

Cao said he spent the next few days looking for work in Foshan but without success. Friends and former workmates told him the dip in foreign demand for Chinese goods had affected the entire supply chain.

Foshan is home to scores of household appliance manufacturers that rely on foreign markets for much of their sales. One of them, Midea Group, reported a 23 per cent drop in revenue in the first quarter of the year, while Gree Electric Appliances, based in Zhuhai – a city about 120km to the south – saw its revenue fall by almost 50 per cent in the same period, mostly due to weak exports.

China’s exports in March fell by 6.6 per cent in US dollar terms from the same period of 2019, after sliding 17.2 per cent for January and February combined.

April saw a 3.5 per cent year-on-year gain in exports, as some of the country’s trading partners emerged from lockdown, but much of that was attributed to a low base from last year.

Rosealea Yao, an analyst with Gavekal Dragonomics, said the trajectory of China’s recovery would remain “fairly shallow” due to knock-on effect of weaker global demand.

“Exports were better than expected in April, but new orders are plunging and the full hit from the collapse in growth in the US and Europe has yet to materialise,” she said.

“Job losses in export manufacturing are likely to worsen rather than improve.”

A report by Fitch Ratings this week said that the impact on the global economy of the health crisis was adding to the pressure on China’s labour market.

Even though Beijing has tried to shift the domestic economy more towards consumer spending and the service sector, a large proportion of Chinese jobs are still linked directly to foreign demand. Based on figures from the Organisation for Economic Co-operation and Development, the company put the absolute figure at 87 million in 2019, of which 61 million were in manufacturing or services.

“The authorities’ policy steps to accelerate infrastructure projects may provide some domestic employment offset for the potential job losses associated with the sharp decline in external demand in 2020, but this is unlikely to neutralise these losses entirely,” the report said.

The impact on the labour market was likely to be worse than suggested by the official unemployment figures, and the situation was unlikely to improve for some time, it said.

“China’s various household income aggregates (household disposable income, migrant worker incomes, personal business income), many of which turned negative during the first quarter of this year, could remain so for yet another quarter.”

Migrant worker Cao, who has spent more than a decade in manufacturing, said he had never before encountered such a difficult jobs market.

“I don’t know if the economy will get better next year, but I definitely won’t be working in manufacturing again this year after seeing so many jobs and production lines cut at factories.

“I’ll probably go to some northern city and get a job as a decorator,” he said.

That might be a wise choice, as the property sector has shown signs of an upturn, thanks to cheaper and more readily available loans, coupled with government policy changes.

“The recent hukou [household registration system] and land reforms may bring additional property demand and construction, along with the government’s plan to double old town renovation,” Wang Tao, an economist at UBS, said. The latest changes to the hukou system were likely to make it easier for migrant workers to secure permanent residency – and so be entitled to access social and education services – in cities with a population of between 1 million to 5 million, which in turn would boost consumer spending and demand for property, she said.

However, the outlook was clouded by the impact of Covid-19 on household income, Wang said.

According to the figures from the National Bureau of Statistics, urban residents’ disposable income in the first quarter fell 3.9 per cent year on year to 11,691 yuan, while the figure for rural residents dropped by 4.7 per cent to 4,641 yuan.

六

China’s once-resilient tech economy starting to crack under pressure from coronavirus economic carnage

    In the first quarter of 2020, the number of Chinese recruitment postings across all industries fell 22.6 per cent compared with the same period last year
    A survey found that 5.4 per cent of tech firms experienced job cuts while 12.9 per cent have reduced contractors, interns and part-time employees

While the coronavirus pandemic has boosted certain sectors of China’s digital economy, many internet-related businesses that intersect with the offline world have been hit hard and are cutting costs through lay-offs, salary reductions and hiring freezes.

China’s version of Airbnb, online lodging sharing and booking site Tujia, was optimistic about its prospects for 2020 before the outbreak of the coronavirus, according to a former employee who spoke to the Post on the condition of anonymity.

Instead, Tujia has had to lay off 800 employees, representing some 40 per cent of its total staff, local media The Beijing News reported, citing information circulated on career community platform Maimai.

The company faced a cash crunch that meant it would be unable to pay all compensation until June, the employee, who lost her job in March and is still waiting to be paid back wages, told the South China Morning Post. “If not for the Covid-19 pandemic, the company may have turned profitable this year,” she said. A Tujia representative declined to comment on the lay-offs.

Chinese companies like Tujia are among the many tech-related businesses hard hit by the economic crash caused by the coronavirus pandemic. The downturn in their fortunes contrasts with the surge in users seen by such sectors of the digital economy as gaming, online education and food deliveries during shutdowns tied to the outbreak.

China’s economy shrank 6.8 per cent in the first quarter of the year, the first contraction since quarterly records began in 1992.

The tech industry workers interviewed for this story all asked for anonymity out of fear that speaking publicly about losing their jobs would affect their careers.

Trip.com Group, formerly known as Ctrip.com International, implemented lay-offs within certain departments at its online platform during the pandemic, according to some affected employees who spoke with the Post; others were asked to take unpaid leave, according to local media YiMagazine. The company’s top management also announced they would not take salaries until the travel industry recovers.

One of the affected Trip.com workers, a customer service officer in her 20s, said her department was overwhelmed with cancellation and refund orders after the coronavirus lockdowns hit the travel industry in China.

“Some customers were swearing and saying terrible things. Then after the peak period, the company laid us off. It’s very depressing,” she said. “I felt like crying … it’s really hard to find a new job during the pandemic. I’m still jobless now.”

A Trip.com representative said the pandemic’s impact varied from department to department. “The [rumours] on company policy circulated online do not represent the human resources policy for the entire staff,” the representative said.

Even before Covid-19 struck, it had been a challenging year for the Chinese tech industry. After national telecoms champion Huawei Technologies was put on a US trade blacklist in May 2019, banning it from doing business with US companies without a special licence, some of China’s largest artificial intelligence firms including HikVision, Megvii and iFlyTek were added to the same blacklist, which had a knock-on effect on their sales and profits.

The global health crisis has now delivered hardship to the doorsteps of smaller Chinese tech companies that were able to record rapid growth in recent years on the back of a spectacular rise in the number of Chinese internet users, which now number more than 900 million.

MOGU, an e-commerce platform specialising in selling clothing via live-streaming, confirmed that the company laid off around 140 people, or 14 per cent of its workforce. Online classified advertising platform 58.com is asking some employees to take unpaid leave as well as salary cuts, according to a report by Chinese media Jiemian. A 58.com spokesman declined to comment on the cost cuts.

Li Qiang, executive vice-president of online recruitment site Zhaopin, said venture capital investors are no longer keen to target Chinese internet companies and the growth rate of the industry has slowed – a trend evident even before the pandemic. “Some internet enterprises are facing great challenges,” he said.

Judy Zhang, head of performance and rewards services at Aon Human Capital Solutions in China, said the internet industry is expanding from customer-oriented, focusing on daily active users and page views, to corporate-oriented.

“Venture capitalists are now more interested in [corporate] types of projects. Businesses that take the [consumer] approach have been facing difficulties in financing,” she said.

A recent Aon survey of 339 companies across all industries found that 5.4 per cent of those in the tech sector experienced job cuts while 12.9 per cent have reduced their number of contractors, interns, part-time employees, and outside experts. More than half of the survey respondents said they will be more cautious in hiring new people in the future.

In the first quarter of 2020, the number of Chinese recruitment postings across all industries fell 22.6 per cent and the number of job applicants was down 9.4 per cent compared with the same period last year, according to a report by Zhaopin.

Still, tech has not been hurt as badly as other industries like manufacturing, real estate and autos, according to Aon.

“Most industries have been hit hard by the pandemic but some started to decline even before it, such as automobiles,” said Zhang.

New car sales plummeted 42 per cent year on year in the first quarter, according to the China Association of Automobile Manufacturers, as market demand slowed amid the phasing out of policies that subsidised sales of new energy vehicles.

Online car dealers such as Uxin and Chehaoduo have implemented pay cuts, according to local media reports, while auto retail platform Souche fired 13 per cent of its employees, according to local media The Economic Observer, quoting company founder Yao Junhong.

Uxin did not reply to a request for comment while a Chehaoduo spokesperson said that salaries were reinstated starting April, just before it received additional funding of US$200 million in May.

The funding, from Softbank Vision Fund and Sequoia Capital China, is a sign that deal making might be coming back after a tough first quarter. Asian venture capital deal activity slumped 20 per cent year on year in the first three months of the year, while the corresponding declines in North America and Europe were 17 per cent and 10 per cent respectively, according to CB Insights.

The cuts are not only hitting internet-related businesses. A Shenzhen-based artificial intelligence (AI) start-up laid off 10 per cent of its staff in the marketing and administrative departments and a second round of lay-offs could come soon, according to a senior sales manager who did not want the company named.

The firm was able to secure funding on the back of China’s national AI push but sales have since slumped by 60 or 70 per cent in the first two quarters compared to the same time last year as domestic and overseas customers pull back, the manager said.

“It will be extremely difficult for Chinese tech start-ups to find financing this year. Although we had three rounds of financing, the funds were usually for one or two years of operation and expansion,” she said.

For certain segments of China’s tech economy, the lockdowns and quarantines during the pandemic have boosted business. Job postings in the live-streaming industry increased 84 per cent year on year in the first month after the Lunar New Year in January, with significant growth in second and third-tier cities, according to a report by Zhaopin.

Some tech giants are also still hiring. Beijing-based ByteDance has set a goal of nearly doubling its global headcount to 100,000 by the end of the year, partly thanks to the huge international popularity of its TikTok short video platform.

libaba Group Holding, which owns the Post, has launched a jobs fair in conjunction with the Ministry of Education, which involves more than 160,000 companies seeking 400,000 new graduates for jobs related to the digital economy.

Tech jobs have always paid more than other industries in China. Most of the 15 highest-paid jobs, with titles such as search algorithm developers and game producers, are in the tech industry, according to online recruitment platform Boss Zhipin. Ironically, the economic pain caused by the pandemic is now making high-level research and development talent within reach of smaller tech firms in China.

“I regard the pandemic as an opportunity to expand the R&D team,” said Eason Cui, founder of Shenzhen-based educational start-up Syscloud Tech, which has grown from 1.8 million yuan (US$253,446) in revenue in 2017 to more than 50 million yuan (US$7 million) last year.

“This year I successfully headhunted two veteran engineers [who were laid off] from a Chinese intelligent speech and AI giant. The budget is only 60 per cent of what I planned last year,” Cui said. “I think we might fail to meet the business plan goals for this year but I will keep recruiting talent, especially in the R&D team.”

Across the Pacific, Chinese programmers and engineers who landed jobs with US tech firms are facing their own dilemma from the impact of Covid-19.

To help limit the spread of the virus and protect American jobs, the Trump administration suspended entry for new immigrants for 60 days starting on April 23 and temporarily suspended routine visa services at all US embassies and consulates in late March.

“The tighter immigration policy will make job-hopping very hard. If you can’t change your job, it may affect your choice to stay in the country in the long term,” said a US-based Chinese programmer who works for Microsoft.

“Many US companies are undergoing a hiring freeze, which will make job hunting very difficult. So more people might choose to return to China,” he said.

However, US-based Chinese programmers who return to China could add to unemployment pressure at home.

A Chinese programmer fired from Amazon interviewed with two US tech companies at the start of March but both companies suspended the recruitment process as the pandemic worsened in the country. He has since accepted an offer from a New York-based company.

“If there was no pandemic, I might have found a job two months ago. I was lucky but it’s very difficult [to find a new job] during this period. The opportunities and choices have become very limited,” he said.

For some laid-off tech workers, job hunting has been a lonely journey as they have been reluctant to tell friends and family. “It’s a small world. If others know that you were laid off, they may become sceptical about your work ability,” said a programmer who was laid off by Trip.com.

The programmer told his parents he changed jobs for a higher salary – not because he was fired. “I don’t want them to worry … but I’m also worried. What if my new company lays off people because of the economic recession?”

 

China’s five-year plan to focus on independence as US decoupling threat grows

    Top officials in Beijing are drafting the 14th five-year plan, which will set out key economic and political goals for 2021 to 2025
    China is expected to rely more on its domestic economy to ease its reliance on the US in the post-coronavirus world

This is the last in a series of stories examining the issues that Chinese leaders face as they gather for their annual “two sessions” of the National People’s Congress and Chinese People’s Political Consultative Conference this week. This instalment looks at how China’s 14th five-year plan will shape its economic and political direction between 2021 and 2025.

How can China survive and thrive in the face of US hostility? What does it need to take development to the next stage? And where should Beijing focus its resources to turn the Chinese dream into a reality?

These are the big questions Chinese officials and researchers are deliberating as the nation begins drafting its new five-year plan, which will set out key economic and political goals for the period 2021 to 2025.

With China and the United States increasingly at odds, the new policy blueprint is likely to reflect a shift in the way Beijing conducts itself in what is perceived to be an increasingly adversarial international system, according to Chinese researchers who are involved in preparations for the new plan.

While the final version of the 14th five-year plan will not be made public until March 2021, preliminary research and discussions show that China will seek more autonomous development by cutting reliance on the US for technology supply and exports.

At the same time, China will keep its “opening up and reform” policy framework to maintain its central place in global supply chains, particularly among Asian and European countries, and offset rising “decoupling” risks with the US.

The coronavirus pandemic has had a “profound impact on the international economy, politics and security”, according to Xie Fuzhan, the head of the Chinese Academy of Social Sciences (CASS), a government think-tank in Beijing that is involved in devising the new plan.

While not naming the US directly, Xie said “a few rich countries” have tried to avoid responsibility and blame others for their own problems, with “their unilateralist and protectionist policies putting the global economy at growing risk of disintegration.”

CASS said in a preliminary study this month that the global economy’s growth dynamics “released by neo-liberal economic policies” were running dry, and economic problems – from inequality in rich countries to imbalances in the flows of capital – was creating international friction.

With the world set to witness changes unlike anything in “the last 100 years”, China’s centralised governance system, led by the Communist Party, was advantageous, and so was its complete manufacturing system and a vast domestic market, according to a CASS research team led by Huang Qunhui.

“China now has a middle income group of between 500 and 700 million people, and that alone can be a source to power Chinese economic growth for the next five years,” the state researchers wrote.

The idea that China could rely more on itself for development was endorsed in the most recent 25-member Politburo meeting by President Xi Jinping, who could lead China well beyond 2025.

Xi said China would use a “new development pattern” consisting of “both the great domestic economic circle and the international economic circle”, instead of relying solely foreign markets.

While China will not give up on the international market, it will increasingly tilt its manufacturing might to meet the demands of its huge domestic market. This inward-looking tendency was reinforced by the recently published “Go West” blueprint, which promised new investment in industrial projects in central and western regions to offset the damage done to eastern provinces by a drop in international demand caused by the pandemic.

Another key area where China will seeka “breakthrough” in the next five-year plan is technology.

Washington’s targeting of Huawei Technologies, the Chinese telecommunications giant, and restrictions on hi-tech exports to China, have stirred soul-searching in Beijing on how it can reduce dependence on imported technologies.

Xi compared the restriction on hi-tech exports to China to putting a hand around the country’s throat.

China would leverage its “whole-country system” to strengthen technological innovation and solve bottlenecks, indicating greater investment for cutting-edge sectors of the economy.

China’s state-led plans to lift manufacturing up the value chain, particularly its “Made in China 2025” industrial strategy, have long been subject to complaints from Washington and Brussels. But the country’s overall research and development (R&D) spending is actually falling.

China’s R&D expenditure, which measures innovation input intensity, was only 2.19 per cent of national gross domestic product last year, compared to a 2020 target of 2.5 per cent, official data showed.

It is one of the few areas in which China has failed to reach its targets.

Five-year plans were first used by the Soviet Union, laying down fairly blunt guidelines for industrial and agricultural development. But China’s versions have evolved into a sophisticated policy blueprint, including dozens of quantified social and economic indicators.

China’s planning system has prioritised economic growth since 1981, though it has expanded to include things like environmental targets, efficiency and social welfare goals.

The national plan forms the basis for hundreds of mini five-year plans used by provinces, cities and industries, keeping the whole country’s development priorities on the same page.

After the Soviet Union collapsed in 1991, China is the only major economy still using five-year planning to guide its socialist-market economy.

In China’s 13th five-year plan, for 2016-20, the National Development and Reform Commission set 25 key targets for growth, innovation, welfare and the environment, 13 of which must be achieved, including poverty alleviation and minimum arable land acreage.

A “midterm” review in 2018 found that four targets were late, including R&D expenditures and water quality.

The coronavirus outbreak, however, has put the most important targets, namely doubling in the size of the economy from 2010 to 2020, at risk.

The country suffered a 6.8 per cent economic contraction in the first quarter, all but scuttling any hope of meeting the minimum 6.5 per cent annual growth target for per capita income.

Ding Shuang, an economist at Standard Chartered Bank, said the target of doubling the size of the economy has significant political implications, as it is a yardstick for measuring whether Beijing has delivered on promises to the people.

The likely postponement in realising the goal, due to the black swan event of the coronavirus, would push Beijing to set less rigid targets in future plans.

Michael Pettis, a professor of finance at Peking University’s Guanghua school of management, said centralised planning “won’t work well as the Chinese economy has already reached a certain level of maturity”.

“What you need are institutional reforms that allow the Chinese people to become more productive … You need every business-person to make his own plans.”

 

 The question mark hanging over China’s 400 million-strong middle class

Burdened by rising costs, debt and worries about the future, will they vanish or thrive?

China’s middle class is something of a mythical entity, with wide-ranging estimates of its size and economic power. Optimists believe a large and growing middle class has the ability to lift China – and even the world – to a more prosperous level, while pessimists foresee an increasingly burdened group that could cause the economy to stagnate and even lead to political chaos. In the first of a four-part series, The South China Morning Post examines the myths and reality of the middle class to reveal the economic and political implications of its evolution.

Conventional wisdom assumes that a large and prosperous middle class is emerging in China – hundreds of millions of urban white-collar professionals and private business owners deeply integrated into the Chinese economy, whose spending will drive the country’s development in the years ahead.

But that view is looking increasingly suspect, as the middle class comes under pressure from high costs, rising debt and weak income growth. Heavy air pollution, food safety and vaccine scandals, a rigid education system and an increasingly authoritarian political environment are also big factors prompting those who can afford it to look abroad. And the trade war with the United States threatens to make these problems worse.

China’s economic boom over the last 40 years helped create today’s Chinese middle class. Whether the government can address their concerns could well determine the country’s future economic trajectory, and possibly have an impact on its political landscape, too.

How big is China’s middle class?

Estimates of the size of China’s middle class vary, depending on the definition. China’s statistics agency puts the figure at nearly 400 million, less than a third of the population, by defining a middle-class household as one making 25,000 yuan (US$3,640) to 250,000 (US$36,400) yuan a year – a fairly low threshold. But in a 2015 report, investment banking company UBS and PricewaterhouseCoopers narrowed it to 109 million Chinese with wealth of between US$50,000 and US$500,000 – a relatively high standard.

Whatever the measure, it is clear that China’s middle class is large in absolute terms but still relatively small as a share of China’s 1.4 billion people. In comparison, more than half the US population is considered middle class, while in South Korea it is two-thirds.

China has created a large, relatively affluent group of citizens – its top leaders proudly declared late last year that the country now had the world’s largest “middle income group”, bigger than the entire population of United States. Per capita wealth has risen from US$156 in 1978 to nearly US$10,000 today, and the government now expects consumer spending to lead economic growth in the future.

The rising wealth of Chinese has already created the biggest market in the world for many multinational companies, from Apple to Volkswagen.

Li Shi, an economics professor at Beijing Normal University, examined Chinese income and spending data over the last two decades and found there were two issues behind weaker consumer spending. Household income fell back to 50 per cent of the nation’s overall income from a level of about two-thirds of the total in 2000, as more taxes and fees were collected and household earnings increased at a slower pace than government revenue.

Li also found that the marginal propensity to consume among China’s urban residents – that is, their willingness to spend on discretionary items – has remained low in recent years due to rising household debt, much of it for housing, and an underdeveloped social welfare system that prompts consumers to save more for medical and old age expenses.

The problem, Li said, was the slow progress on necessary economic reforms so that the government can lower middle-class taxes.

“If China wants to boost consumer power, the government has to take less,” Li said. “But it’s very difficult for the government to take less if there are none of the needed political reforms.”

In addition to a tax regime that includes a standard 17 per cent value-added tax and a maximum 45 per cent personal income tax, China has other institutional arrangements – including a state monopoly on land – that drive wealth distribution in favour of the state rather than the middle class.

Private property protections are often secondary to the wishes of the state. For example, the Beijing municipal government’s determination to gentrify the city last winter led to a massive relocation of migrant workers and a sweeping closure of small shops and restaurants in the Chinese capital.

An economic slowdown, along with headwinds from a trade war with the US, has further dampened consumer confidence, prompting the middle class to become even more cautious in its spending.

Growth in retail sales, a quasi barometer of consumer spending, has slowed to the lowest level in 15 years, while car sales declined in August for the second month in a row.

Sightseeing at famous scenic spots, a signature of the middle-class lifestyle, is also losing steam. The number of visitors to the popular Yellow Mountain, or Huangshan, dropped 10 per cent in the first half of this year from 2017, while Zhangjiajie, known for the mountains that inspired the scenery in James Cameron’s Avatar, and Guilin, famous for its soaring karst scenery, also saw fewer visitors in that period, with numbers down 8.5 per cent and 4.5 per cent respectively, according to the financial reports of the listed companies operating the sites.

‘Consumption downgrade’

There is now a heated debate about whether Chinese consumers – burdened by high costs, high debt levels and worried about their future income – are in the midst of a “consumption downgrade”. This question is of particular importance given that the government wants and expects stronger consumer spending to take up much of the economic slack produced by the trade war.

State media has gone out of its way to portray a rosy picture, with the government ordering some financial firms to avoid negative comments about the outlook. In response, critical online commentators have filled social media with headlines such as “China’s vanishing middle class”.

The Chinese government has stepped in to offer cosmetic help to the beleaguered middle class. After urban wage-earners complained loudly about the country’s excessive personal income taxes, Beijing cut personal taxes marginally – the first cut in seven years – by raising the monthly minimum taxable income threshold to 5,000 yuan from the previous 3,500 yuan, but stopped well short of calls for a higher threshold.

Beijing also partly stepped back from its plan to sharply increase collection of social tax payments by small and medium-sized businesses, an initiative that many owners of Chinese factories and workshops fear would have put them out of business. The government told local authorities not to collect unpaid taxes from previous years, but did not specifically scale back its intention to collect more social taxes.

Political dimensions

Alan Wheatley, an associate fellow of international economics at British think tank Chatham House, said that the rapid improvement of middle-class living standards and households’ significant accumulation of wealth was partly attributable to the Communist Party’s successful economic policies. Many in China’s middle-income group are actually members of the government apparatus, creating an institutional conflict between their desires as middle-class citizens and their duties to the authoritarian state – which could become a threat to social stability if it is not addressed.

“Look at Singapore, which has become fabulously rich but remains in effect a single-party state,” Wheatley said. “The Communist Party would be sorely tempted by the Singapore model if – and it’s a big if – it chooses or is obliged one day to move towards a more liberalised political system.”

His view was echoed by David Goodman, a professor of China studies at Xian Jiaotong-Liverpool University. Goodman wrote in a paper in 2015 that the middle class is a “state-sponsored discourse” that serves partly “as a tool to legitimise the state”. He sees the middle class in China as being very close to the party-state, and so unlikely to lead to regime change.

In fact, while the phrase “middle class” has been used frequently in research notes and marketing materials, it remains taboo in official Chinese documents. Beijing instead uses “middle-income group” to avoid any political implications.

Due to an extremely unequal distribution of wealth in China – with the top 10 per cent holding about 75 per cent of the assets, according to one academic study – there is constant concern that Chinese economic development is creating an “M-shaped” society. That term, coined by the Japanese economist Kenichi Ohmae, refers to a polarised society with many extremely rich and many extremely poor people, and relatively few in between.

The official estimate of China’s Gini coefficient – a measure of the gap between rich and poor in a population – rose for the second year in a row to 0.4670 in 2017, a level that some believe could trigger social unrest. The United Nations considers a Gini coefficient higher than 0.4 a sign of severe income inequality.

Hugh Peyman, founder of Research-Works, a China-focused investment strategy firm based in Shanghai, said that income inequality, as measured by the Gini coefficient, had risen sharply since reform and opening up began 40 years ago.

But that was a result partly expected by Beijing, he said, because “China had tried egalitarianism, it didn’t work” before late paramount leader Deng Xiaoping began to allow some people and regions to get rich first.

He added that China could see more inclusive growth and less income inequality as more people get a better education, and with more investment in research and development and a rising service industry.

Wheatley said that China could learn from the West’s current experience.

“Growing inequalities of wealth and income have led to political polarisation in many Western countries. Centre-left and centre-right parties are losing ground to nationalists and populists,” he said. “China’s circumstances are different but the lesson is still relevant: a broad, thriving middle class is needed for political and economic stability.”

 

 

 

Inside Trump’s coronavirus meltdown

When the history is written of how America handled the global era’s first real pandemic, March 6 will leap out of the timeline. That was the day Donald Trump visited the US Centers for Disease Control and Prevention in Atlanta. His foray to the world’s best disease research body was meant to showcase that America had everything under control. It came midway between the time he was still denying the coronavirus posed a threat and the moment he said he had always known it could ravage America.

Shortly before the CDC visit, Trump said “within a couple of days, [infections are] going to be down to close to zero”. The US then had 15 cases. “One day, it’s like a miracle, it will disappear.” A few days afterwards, he claimed: “I’ve felt it was a pandemic long before it was called a pandemic.” That afternoon at the CDC provides an X-ray into Trump’s mind at the halfway point between denial and acceptance.

We now know that Covid-19 had already passed the breakout point in the US. The contagion had been spreading for weeks in New York, Washington state and other clusters. The curve was pointing sharply upwards. Trump’s goal in Atlanta was to assert the opposite.

Wearing his “Keep America Great” baseball cap, the US president was flanked by Robert Redfield, head of the CDC, Alex Azar, the US secretary of health and human services, and Brian Kemp, governor of Georgia. In his 47-minute interaction with the press, Trump rattled through his greatest hits.

He dismissed CNN as fake news, boasted about his high Fox News viewership, cited the US stock market’s recent highs, called Washington state’s Democratic governor a “snake” and admitted he hadn’t known that large numbers of people could die from ordinary flu. He also misunderstood a question on whether he should cancel campaign rallies for public health reasons. “I haven’t had any problems filling [the stadiums],” Trump said.

What caught the media’s attention were two comments he made about the disease. There would be four million testing kits available within a week. “The tests are beautiful,” he said. “Anybody that needs a test gets a test.”

Ten weeks later, that is still not close to being true. Fewer than 3 per cent of Americans had been tested by mid-May. Trump also boasted about his grasp of science. He cited a “super genius” uncle, John Trump, who taught at the Massachusetts Institute of Technology and implied he inherited his intellect. “I really get it,” he said. “Every one of these doctors said, ‘How do you know so much about this?’ Maybe I have a natural ability.” Historians might linger on that observation too.

What the headlines missed was a boast that posterity will take more seriously than Trump’s self-estimated IQ, or the exaggerated test numbers (the true number of CDC kits by March was 75,000). Trump proclaimed that America was leading the world. South Korea had its first infection on January 20, the same day as America’s first case, and was, he said, calling America for help. “They have a lot of people that are infected; we don’t.” “All I say is, ‘Be calm,’” said the president. “Everyone is relying on us. The world is relying on us.”

He could just as well have said baseball is popular or foreigners love New York. American leadership in any disaster, whether a tsunami or an Ebola outbreak, has been a truism for decades. The US is renowned for helping others in an emergency.

In hindsight, Trump’s claim to global leadership leaps out. History will mark Covid-19 as the first time that ceased to be true. US airlifts have been missing in action. America cannot even supply itself.

South Korea, which has a population density nearly 15 times greater and is next door to China, has lost a total of 259 lives to the disease. There have been days when America has lost 10 times that number. The US death toll is now approaching 90,000.

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What has gone wrong? I interviewed dozens of people, including outsiders who Trump consults regularly, former senior advisers, World Health Organization officials, leading scientists and diplomats, and figures inside the White House. Some spoke off the record.

Again and again, the story that emerged is of a president who ignored increasingly urgent intelligence warnings from January, dismisses anyone who claims to know more than him and trusts no one outside a tiny coterie, led by his daughter Ivanka and her husband, Jared Kushner – the property developer who Trump has empowered to sideline the best-funded disaster response bureaucracy in the world.

People often observed during Trump’s first three years that he had yet to be tested in a true crisis. Covid-19 is way bigger than that. “Trump’s handling of the pandemic at home and abroad has exposed more painfully than anything since he took office the meaning of America First,” says William Burns, who was the most senior US diplomat, and is now head of the Carnegie Endowment.

“America is first in the world in deaths, first in the world in infections and we stand out as an emblem of global incompetence. The damage to America’s influence and reputation will be very hard to undo.”

The psychology behind Trump’s inaction on Covid-19 was on display that afternoon at the CDC. The unemployment number had come out that morning. The US had added 273,000 jobs in February, bringing the jobless rate down to a near record low of 3.5 per cent. Trump’s re-election chances were looking 50:50 or better. The previous Saturday, Joe Biden had won the South Carolina primary. But the Democratic contest still seemed to have miles to go. Nothing could be allowed to frighten the Dow Jones.

Any signal that the US was bracing for a pandemic – including taking actual steps to prepare for it – was discouraged.

“Jared [Kushner] had been arguing that testing too many people, or ordering too many ventilators, would spook the markets and so we just shouldn’t do it,” says a Trump confidant who speaks to the president frequently. “That advice worked far more powerfully on him than what the scientists were saying. He thinks they always exaggerate.”

'This is a great success story,’ said Jared Kushner, Trump's son-in-law and adviser, of the US coronavirus response in late April. Kushner’s advice to avoid alarming the markets is said to have had more influence on the president than the warnings from scientists © Jabin Botsford/The Washington Post/Getty Images

Stephen Moore of the Heritage Foundation, a conservative think-tank, who talks regularly to Trump and is a campaign adviser, says the mood was borderline ecstatic in early March. “The economy was just steaming along, the stock market was firing on all cylinders and that jobs report was fantastic,” says Moore. “It was almost too perfect. Nobody expected this virus. It hit us like a meteor or a terrorist attack.”

People in Trump’s orbit are fond of comparing coronavirus to the 9/11 attacks. George W Bush missed red flags in the build-up to al-Qaeda’s Twin Towers attacks. But he was only once explicitly warned of a possible plot a few weeks before it happened. “All right, you’ve covered your ass,” Bush reportedly told the briefer.

At some point, Congress is likely to establish a body like the 9/11 Commission to investigate Trump’s handling of the Covid-19 pandemic. The inquiry would find that Trump was warned countless times of the epidemic threat in his presidential daily briefings, by federal scientists, the health secretary Alex Azar, Peter Navarro, his trade adviser, Matt Pottinger, his Asia adviser, by business friends and the world at large. Any report would probably conclude that tens of thousands of deaths could have been prevented – even now as Trump pushes to “liberate” states from lockdown.

“It is as though we knew for a fact that 9/11 was going to happen for months, did nothing to prepare for it and then shrugged a few days later and said, ‘Oh well, there’s not much we can do about it,’” says Gregg Gonsalves, a public health scholar at Yale University. “Trump could have prevented mass deaths and he didn’t.”

In fairness, other democracies, notably the UK, Italy and Spain, also wasted time failing to prepare for the approaching onslaught. Whoever was America’s president might have been equally ill-served by Washington infighting.

The CDC has been plagued by mishap and error throughout the crisis. The agency spent weeks trying to develop a jinxed test when it could simply have imported WHO-approved kits from Germany, which has been making them since late January. “The CDC has been missing in action,” says a former senior adviser in the Trump White House. “Because of the CDC’s errors, we did not have a true picture of the spread of the disease.”

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Here again, though, Trump’s stamp is clear. It was Trump who chose Robert Redfield to head the CDC in spite of widespread warnings about the former military officer’s controversial record. Redfield led the Pentagon’s response to HIV-Aids in the 1980s. It involved isolating suspected soldiers in so-called HIV Hotels. Many who tested positive were dishonourably discharged. Some committed suicide.

A devout catholic, Redfield saw Aids as the product of an immoral society. For many years, he championed a much-hyped remedy that was discredited in tests. That debacle led to his removal from the job in 1994.

“Redfield is about the worst person you could think of to be heading the CDC at this time,” says Laurie Garrett, a Pulitzer Prize-winning science journalist who has reported on epidemics. “He lets his prejudices interfere with the science, which you cannot afford during a pandemic.”

One of the CDC’s constraints was to insist on developing its own test rather than import a foreign one. Dr Anthony Fauci – the infectious disease expert and now household name – is widely known to loathe Redfield, and vice versa. That meant the CDC and Fauci’s National Institutes of Health were not on the same page. “The last thing you need is scientists fighting with each other in the middle of an epidemic,” says Dr Kenneth Bernard, who set up a previous White House pandemic unit in 2004, which was scrapped under Barack Obama and later revived after Ebola struck in 2014.

The scarcity of kits meant that the scientists lacked a picture of America’s rapidly spreading infections. The CDC was forced to ration tests to “persons under investigation” – people who had come within 6ft of someone who had either visited China or been infected with Covid-19 in the previous 14 days. Most were denied. Few could prove that they had met either criterion. This was at a time when several countries, notably Germany, Taiwan and South Korea, gave access to on-the-spot tests, including at drive-through centres – an option most Americans still lack.

“You’ve been commuting by train or subway into New York every day, you show up sick in the clinic and they refuse to test you because you can’t prove you’ve been within 6ft of someone with Covid-19,” says the former adviser. “You’ve probably been close to half a million people in the previous two weeks.”

Restrictions on testing narrow the options. “Once you get to one per cent prevalence in any community, it is too late for non-pharmaceutical interventions to work,” says Tom Bossert, who led the since-disbanded White House pandemic office before he was ejected in 2018 by John Bolton, Trump’s then national security adviser.**

By March 11, just five days after Trump’s CDC visit, the reality was beginning to seep through. In an Oval Office broadcast, Trump banned travel from most of Europe, which expanded the partial ban he put on China in February. Two days later, he declared a national emergency. Even then, however, he insisted America was leading the world. “We’ve done a great job because we acted quickly,” he said. “We acted early.

Over the next 48 hours, however, something snapped in Trump’s mind. Citing a call with one of his sons, Trump said on March 16: “It’s bad. It’s bad… They think August [before the disease peaks]. Could be July. Could be longer than that.”

Eleven days later, Boris Johnson, Britain’s prime minister contracted Covid-19. The disease nearly killed him. That was Johnson’s road-to-Damascus. Many hoped Trump had had a similar conversion. If so, it did not last long. The next week, he was saying that America should reopen by Easter on April 12. “I was one of the ones advising him to make it ‘Resurrection Sunday,’” says Moore. “I told him then what I think now, that this lockdown is causing more deaths and misery than the disease itself.”

Trump’s mindset became increasingly surreal. He began to tout hydroxychloroquine as a cure for Covid-19. On March 19, at a regular televised briefing, which he conducted daily for five weeks, often rambling for more than two hours, he depicted the antimalarial drug as a potential magic bullet. It could be “one of the biggest game-changers in the history of medicine”, he later tweeted.

The president’s leap of faith, which was inspired by Fox News anchors, notably Laura Ingraham, and his lawyer Rudy Giuliani, none of whom have a medical background, turned Washington’s bureaucracy upside down. Scientists who demurred were punished. In April, Rick Bright, the federal scientist in charge of developing a vaccine – arguably the most urgent role in government – was removed after blocking efforts to promote hydroxychloroquine.

Most clinical trials have shown the drug has no positive impact on Covid-19 patients and can harm people with heart problems. “I was pressured to let politics and cronyism drive decisions over the opinions of the best scientists we have in government,” Bright said in a statement.

In a whistleblower complaint, he said he was pressured to send millions of dollars worth of contracts to a company controlled by a friend of Jared Kushner. When he refused, he was fired. The US Department of Health and Human Services denied Bright’s allegations.

Other scientists have taken note of Bright’s fate. During the Ebola outbreak in 2014, when Obama’s administration sent 3,000 US military personnel to Africa to fight the epidemic, the CDC held a daily briefing about the state of progress. It has not held one since early March. Scientists across Washington are terrified of saying anything that contradicts Trump.

“The way to keep your job is to out-loyal everyone else, which means you have to tolerate quackery,” says Anthony Scaramucci, an estranged former Trump adviser, who was briefly his White House head of communications. “You have to flatter him in public and flatter him in private. Above all, you must never make him feel ignorant.”

An administration official says advising Trump is like “bringing fruits to the volcano” – Trump being the lava source. “You’re trying to appease a great force that’s impervious to reason,” says the official.

When Trump suggested in late April that people could stop Covid-19, or even cure themselves, by injecting disinfectant, such as Lysol or Dettol, his chief scientist, Deborah Birx, did not dare contradict him. The leading bleach companies issued statements urging customers not to inject or ingest disinfectant because it could be fatal. The CDC only

“I can’t even get my calls returned,” says Garrett. “The CDC has led the response to every disease for decades. Now it has vanished from view.” A former senior Trump official says: “People turn into wusses around Trump. If you stand up to him, you’ll never get back in. What you see in public is what you get in private. He is exactly the same.”

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America’s foreign partners have had an equally sharp reminder of Trump’s way of doing business. Few western leaders are as ideologically aligned with Trump as Scott Morrison, Australia’s prime minister. Early into the epidemic, Morrison created a national cabinet that meets at least once a week. It includes every state premier of the two main parties. Morrison’s unity cabinet projects an air of bipartisan resolve in a country that has lost just under 100 people to coronavirus in three months. Some days, America has lost more people to it every hour.

Trump, by contrast, plays US state governors against each other, much as he does with his staff. Republican states have received considerably more ventilators and personal protective equipment per capita than Democratic states, in spite of having far lower rates of hospitalisation. Trump says America is fighting a war against Covid-19. In practice, he is stoking national disunity. “It’s like saying to the governors that each state has to produce its own tanks and bullets,” says Bernard. “You’re on your own. It’s not my responsibility.”

Trump’s dog-eat-dog instinct has been just as strong abroad as at home. A meeting of G7 foreign ministers in March failed to agree on a statement after Mike Pompeo, the US secretary of state, insisted they brand it the “Wuhan virus”. America declined to participate in a recent summit hosted by Emmanuel Macron, France’s president, to collaborate on a vaccine.

Most dramatically, Trump has suspended US funding of the WHO, which he says covered up for China’s lying. The WHO confirms that Trump met the then director-general designate, Tedros Adhanom Ghebreyesus, in the Oval Office in June 2017, shortly before he took up the role. Trump supported his candidacy.

Other critics say the Geneva-based body was too ready to take Beijing’s word at face value. There is some truth to that claim. “They were too scared of offending China,” says Bernard, who was America’s WHO director for two years. But its bureaucratic timidity did not stop other countries from taking early precautions.

Trump alleged the WHO’s negligence had increased the world’s death rate “twenty-fold”. In practice, the body must always abide by member state limits, especially the big ones, notably the US and China. That is the reality for all multilateral bodies. The WHO nevertheless declared an international emergency six weeks before Trump’s US announcement. WHO officials say Trump’s move has badly hindered its operations.

“You don’t turn off the hose in the middle of the fire, even if you dislike the fireman,” says Bernhard Schwartländer, chief of staff at the WHO. “This virus threatens every country in the world and will exploit any crack in our resolve.” The body, in other words, has fallen victim to US-China hostility.

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Blaming America’s death rate on China and the WHO could well help Trump’s re-election campaign. Many voters are all too ready to believe the US is a victim of nefarious global forces. Garrett, who is a former senior fellow for global health at the Council on Foreign Relations, cites Inferno, a lesser-known novel by Dan Brown, author of the best-selling Da Vinci Code, in which the WHO plays a dastardly role.

One of its leading characters is a biologist at the CFR. During a pandemic, she kidnaps the head of the WHO and puts him in the think-tank’s basement. He is rescued by a WHO military team that swoops in on the body’s C-130 jet. In reality, the agency has no police powers at all. “We are not like Interpol,” says Schwartländer. The WHO can no more insist on going into Wuhan to investigate the origins of Covid-19 than it can barge into Atlanta to investigate the CDC’s delay in producing a test.

Both the US and China have spread outlandish rumours about the other. Some Chinese officials have circulated the groundless conspiracy theory that the US army planted the virus in Wuhan at an athletics event last year. Trump administration officials, including Pompeo, have repeatedly suggested Covid-19 originated from a bat-to-human transmission in Wuhan’s virology lab.

Last month, Australia called for an international inquiry into the disease’s origins. “Australia’s goal was to defuse conspiracy theories in both China and America,” says Michael Fullilove, head of the Lowy Institute, Australia’s largest think-tank.

Days later, Australia’s Daily Telegraph, a tabloid owned by Rupert Murdoch, ran an apparent scoop that the “five eyes” – the intelligence agencies of the US, the UK, Australia, Canada and New Zealand – had concluded the disease came from the Wuhan lab, whether by accident or design. It appears the story had no substance. Fauci and other scientists say the pathogen almost certainly came from a wet market in Wuhan. No “five eyes” dossier existed.

According to a five eye senior intelligence officer and a figure close to Australia’s government, the Daily Telegraph story probably came from the US embassy in Canberra. There was no chance after its publication that Beijing would agree to an international probe. The report damaged Australia’s hopes of defusing US-China tensions. “We used to think of America as the world’s leading power, not as the epicentre of disease,” says Fullilove, who is an ardent pro-American. “We increasingly feel caught between a reckless China and a feckless America that no longer seems to care about its allies.”*

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So where does the American chapter of the plague go from here? Early into his partial about-turn, Trump said scientists told him that up to 2.5 million Americans could die of the disease. The most recent estimates suggest 135,000 Americans will die by late July. That means two things.

First, Trump will tell voters that he has saved millions of lives. Second, he will continue to push aggressively for US states to lift their lockdowns. His overriding goal is to revive the economy before the general election. Both Trump and Kushner have all but declared mission accomplished on the pandemic. “This is a great success story,” said Kushner in late April. “We have prevailed,” said Trump on Monday.

Economists say a V-shaped recovery is unlikely. Even then it could be two Vs stuck together – a W, in other words. The social mingling resulting from any short-term economic reopening would probably come at the price of a second contagious outburst. As long as the second V began only after November, Trump might just be re-elected.

“From Trump’s point of view, there is no choice,” says Charlie Black, a senior Republican consultant and lobbyist. “It is the economy or nothing. He can’t exactly run on his personality.” Steve Bannon, Trump’s former chief strategist, had a slightly different emphasis: “Trump’s campaign will be about China, China, China,” he says. “And hopefully the fact that he rebooted the economy.”

In the meantime, Trump will probably continue to dangle the prospect of miracle cures. Every week since the start of the outbreak, he has said a vaccine is just around the corner. His latest estimate is that it will be ready by July. Scientists say it will take a year at best to produce an inoculation. Most say 18 months would be lucky. Even that would break all records. The previous fastest development was four years for mumps in the 1960s.

For the time being, Trump has been persuaded to cease his daily briefings. The White House internal polling shows that his once double-digit lead over Biden among Americans over 65 has been wiped out. It turns out retirees are no fans of herd immunity.

Friends of the president are trying to figure out how to return life to normal without provoking a new death toll. After an initial rally in March, Trump’s poll numbers have been steadily dropping over the last month. For the next six months, America’s microbial fate will be in the hands of its president’s erratic re-election strategy. There is more than a whiff of rising desperation.

“Trump is caught in a box which keeps getting smaller,” says George Conway, a Republican lawyer who is married to Kellyanne Conway, Trump’s senior counsellor. “In my view he is a sociopath and a malignant narcissist. When a person suffering from these disorders feels the world closing in on them, their tendencies get worse. They lash out and fantasise and lose any ability to think rationally.” Conway is known for taunting Trump on Twitter (to great effect, it should be added: Trump often retaliates).

Yet without exception, everyone I interviewed, including the most ardent Trump loyalists, made a similar point to Conway. Trump is deaf to advice, said one. He is his own worst enemy, said another. He only listens to family, said a third. He is mentally imbalanced, said a fourth. America, in other words, should brace itself for a turbulent six months ahead – with no assurance of a safe landing.

Edward Luce is the FT’s US national editor

 

News just broke that the Taiwan government has decided not to ask the 73rd World Health Assembly (WHA) to vote on Taiwan’s bid for observer status in the WHA’s May 18-19 meeting. According to Taiwan’s foreign minister, this decision was based on the suggestion of its allies and other like-minded countries that, since this year’s shortened meeting will focus on measures to suppress COVID-19, Taiwan’s bid should wait until normal meetings resume and allow time for its full and open discussion.

Of course, there must have been much frenzied contact between officials in Taiwan and the United States before this last-minute decision. It is generally a good call from the perspectives of both Taipei and Washington. Despite the backing of Taiwan’s formal diplomatic allies, as well as the United States, Japan, Canada, the United Kingdom, France, Germany, Australia, and New Zealand for Taiwan’s limited participation in the WHO, it was almost certain that the People’s Republic of China (PRC) and its supporters would have defeated the proposal to invite Taiwan back to the WHA as a non-voting observer. Taipei’s withdrawal of the bid avoids an unfavorable outcome that would have embarrassed Washington, which has tried to rally greater support for Taiwan’s participation. It also deescalates a looming confrontation between Washington and Beijing in the WHA.

This is, however, one of the many warning signs of the United States’ declining influence in international organizations, especially given the Trump Administration’s disengagement from the world stage. An important part of the U.S. policy towards Taiwan is to advocate Taiwan’s international participation. Without greater support from other states, Washington will find it difficult to carry this out. By comparison, the PRC’s international influence has been on the rise due to its ability to mobilize a voting bloc that consists of many authoritarian governments and developing countries that rely on economic ties with Beijing. When it comes to counting votes, Beijing now has the upper hand.

The United States’ Taiwan policy therefore cannot be a stand-alone design. It not only involves Washington’s relationship with Beijing but also depends on Washington’s own role in the international system. The United States, for its policies towards Taiwan and China as well as for its own interests, should reverse the direction that alienates itself from global affairs. It must re-engage in international institutions and seek to develop broad-based, cross-regional alliances and support that goes beyond its usual in-group to promote better global governance. Otherwise, it will continue to find itself in the minority position that frustrates many of its policies, including those towards Taiwan.

James B. Steinberg

For nearly half a century, careful management of U.S.-Taiwan relations has been the lynchpin of stable Sino-U.S. relations. Successive U.S. administrations have understood the need to balance two imperatives: strong U.S. support for democracy and self-determination with the need to develop constructive relations with the world’s most populous nation. Although American presidents faced a number of crises over these decades, they all understood the challenge of respecting Taiwanese people’s right to shape their own destiny without triggering a military conflict that could impose enormous costs on all three parties in interest. The key to this balancing act involves two pillars: 1) a clear warning to the People’s Republic of China (PRC) that it would risk damaging costs and uncertain prospects of success (even in the absence of a formal U.S. security guarantee to Taiwan) if it tried to use force to achieve unification, while 2) making clear to Taiwan’s leaders that Taiwan’s self-determination does not require the pursuit of formal “independence.” The first pillar has been buttressed through both military and economic ties between the U.S. and Taiwan. These include defensive arms sales and military-to-military ties complemented by robust economic engagement and support for Taiwan’s involvement in key economic institutions such as the WTO and APEC. The second pillar was underscored by clear U.S. policy that the U.S. would not promote Taiwan’s independence or pursue a “two-China” policy.

At a time when China is increasingly assertive in East Asia and beyond, and refusing to engage with Taiwan’s democratically elected leaders, there are powerful reasons for the U.S. to reiterate, both in word and deed, our opposition to any effort by the PRC to coerce Taiwan. We can accomplish this by continuing to honor our arms sales commitments under the Taiwan Relations Act, deepening U.S. economic ties to Taiwan, and promoting Taiwan’s inclusion in evolving trade arrangements including the CPTPP. The experience of COVID-19 demonstrates why it is more important than ever that Taiwan take its rightful place in the WHO and associated health and safety institutions like the International Civil Aviation Organization (ICAO), a position the U.S. should forcefully advocate.

As Sino-U.S. tensions deepen as a result of frictions over trade, intellectual property theft, technology, China’s military modernization, and even COVID-19 response, there is a temptation to frame Taiwan policy in the context of a broader pushback against China, and to throw overboard the carefully constructed framework of the past by taking actions such as establishing official U.S.-Taiwan diplomatic ties, promoting Taiwan’s membership in the U.N., and selling offensive military arms. But these policies risk the worst of all worlds for the people of Taiwan: a dramatic provocation of the PRC that would increase nationalist pressure on China’s leaders to make good on their promise of unification through force if “necessary,” at enormous cost to Taiwan even if the U.S. were to come to its rescue. Although there is considerable merit to a stronger U.S. reaction to China’s growing assertiveness, we should not allow Taiwan to become a sacrificed pawn in the broader chess game.

Daniel R. Russel

How do we want to complete the phrase “America Can Help”? Help preserve Taiwan’s freedom? Or help to bash China by using Taiwan as a blunt instrument?

Enabling Taiwan to maintain a sufficient self-defense capability is a core mandate of the Taiwan Relations Act. But showy, big ticket items like F-16V fighter jets eat up Taiwan’s limited defense budget, won’t be operational for years, and will be vastly outnumbered by China’s huge fleet of capable fighters. The U.S. should instead provide the munitions and weapons that support an effective asymmetric defense strategy.

One key to deterrence is demonstrating American resolve and refusal to be barred from sensitive international waters, such as the Taiwan Strait. But at what point does a judicious signal of resolve become a belligerent dare that invites escalation? The U.S. can best help Taiwan by maintaining a steady operational tempo in the region and restoring needed funding to the U.S. Indo-Pacific Command, whose commander pleaded for an additional $20 billion above the Pentagon’s recent budget request, submitting a report to Congress titled “Regain the Advantage.”

Recent high-profile pieces of legislation may comfort friends in Taiwan. But they do little or nothing to achieve their stated objectives of gaining admission for Taiwan in the WHO or preventing its few remaining diplomatic partners from defecting. Instead, they harden Beijing’s resolve to deny Taiwan access to international space and recognition. Direct U.S. engagement with Taiwan officials, as legislation calls for, can make sense. It can be virtual, as was done recently between health ministers on COVID-19, or in person, as by then-Environmental Protection Agency Administrator Gina McCarthy’s visit to Taiwan in 2014 as part of a longstanding environmental program.

But whereas substantive high-level engagement plays a role in sustaining Taiwan’s international standing and can be both constructive and defensible, theatrical gestures seemingly designed to bait China do not. This is evident in this week’s annual World Health Assembly. Clearly a significant level of international pressure on Beijing would have been needed for it to accord Taiwan a role in an international forum, as it did in the Ma Ying-jeou era. But there is an art to persuasion, particularly with a rigid and ideological government like China’s, and misapplied pressure produces obstinance instead of compromise. For the U.S. to be able to reduce Chinese resistance to even observer status for Taiwan, Washington will need better statecraft.

We will soon learn if Secretary of State Mike Pompeo will represent the U.S. virtually at Tsai’s inauguration, which in an unhappy coincidence immediately precedes the rescheduled opening of the People’s Republic of China’s National Peoples’ Congress. What would be the effect of skating so close to the edge of the One China Policy, other than to infuriate Chinese officials as they gather and to put Xi Jinping on the spot? And the Commerce Department just announced a new rule aimed at denying Huawei access to advanced semiconductor equipment, on the same day that Taiwan’s world-class chip maker, TSMC, agreed to build an advanced semiconductor plant in the U.S. What plan does the U.S. have to protect Taiwan from retaliation by Beijing?

Even in the best of times, there is no substitute for being smart—and these are far from the best of times. We are afflicted by a global pandemic, facing an economic crisis, and in the midst of an escalating dynamic of U.S.-China strategic rivalry. Now more than ever, the U.S. must use skill, care, and strategy to ensure that our actions are helping, not harming, Taiwan’s democracy, security, and prosperity—as well as our own interest in peace across the Taiwan Strait.

Bonnie S. Glaser

The United States should emphatically support Taiwan. Taiwan is a full-fledged democracy with which the U.S. shares common values such as freedom, democracy, rule of law, a market-based economy, and respect for human rights. Several principles should be applied in making decisions about when and how to support Taiwan. First, the U.S. should follow the international relations equivalent of the Hippocratic Oath: do no harm. An action taken by the U.S. on Taiwan’s behalf is likely to provoke a strong response from Beijing, aimed at punishing Taiwan. Therefore, the U.S. should consider, in consultation with Taiwan’s government, whether such action is desirable. Second, the U.S. should carefully evaluate the potential risks and benefits of every policy under consideration. In most instances, policies should be implemented only when the benefits outweigh the risks. Third, symbolic moves are sometimes necessary to provide reassurance to the government and people of Taiwan, but these should be carefully selected, and the emphasis of U.S. policy should be on substantial and impactful actions. In addition, the U.S. must abide by its commitments under the 1979 Taiwan Relations Act. These commitments include “[providing] Taiwan with arms of a defensive character” and “[maintaining] the capacity of the United States to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people of Taiwan.”

An “America Can Help” campaign for Taiwan should also include a strong economic component. The U.S. should launch negotiations aimed at concluding a free trade agreement (FTA) with Taiwan. A U.S.-Taiwan FTA would help Taiwan reduce its economic reliance on China. It might also encourage other countries to sign FTAs with Taiwan. Even if not, the benefits of a bilateral FTA would prevent Taipei from falling further behind as its neighbors reach trade agreements among themselves.

U.S. policy regarding Taiwan’s international space is a bit clunky, but it is exactly right: America “supports Taiwan’s membership in international organizations that do not require statehood as a condition of membership and encourages Taiwan’s meaningful participation in international organizations where its membership is not possible.” The U.S. should bolster its efforts to create a coalition of countries that will jointly push for the reinstatement of Taiwan’s observer status in the World Health Assembly, as well as appropriate status in the International Civil Aviation Organization, Interpol, and other international and regional organizations where Taiwan’s inclusion is necessary to ensure the wellbeing of the people of Taiwan and where Taiwan’s expertise would benefit the rest of the world.

China’s recent campaign of increased military, diplomatic, and economic pressure on Taiwan is worrying and deserves a series of strong U.S. responses. China’s air and naval activity this year alone includes at least 10 transits and military exercises near Taiwan, with multiple deliberate incursions across the centerline by dozens of aircraft. Regular U.S. Navy transits through the Taiwan Strait and occasional flights by U.S. B-52 bombers near Taiwan such as took place in February to signal U.S. concern and resolve are appropriate. It is debatable whether all such U.S. military activities should be made public, which is a new pattern under the Trump administration. In some cases, the U.S. should warn the People’s Republic of China that it will incur a cost if it exerts more pressure on Taiwan. For example, Washington should make clear that if Beijing poaches more of Taiwan’s diplomatic allies, it will permit Taiwan’s president to visit, not just transit, the United States.

Karl Eikenberry

The COVID-19 pandemic has intensified competition between the U.S. and the People’s Republic of China (PRC) across a wide range of economic and security issues. Sino-American relations are at their lowest ebb since the establishment of diplomatic ties in 1979. It is within this context that on May 20, Tsai Ing-wen will begin her second term as Taiwan’s president.

For Americans, the event should mark a time for both celebration and serious policy reflection.

Celebration, in part, because President Tsai’s inauguration is a validation of the “One China Policy” and Taiwan Relations Act observed on a bipartisan basis by all American administrations for over four decades. Taiwan’s achievements at home and abroad since the U.S. shifted diplomatic recognition from Taipei to Beijing have been extraordinary. Per capita GDP (measured in purchasing power parity) has risen from less than U.S.$3,500 to more than $55,000. Taiwan’s population of 23 million ranks 57th globally but its volume of international trade ranks 15th. And—in an era when democratic institutions find themselves under stress around the world—Taiwan’s democratic model of governance, while buffeted by fierce interparty competition and changing generational political preferences, is proving resilient and even inspirational.

While the people of Taiwan are the authors of their own success, the United States, through its implementation of the Taiwan Relations Act, has helped create the security environment in Asia that has made these accomplishments possible.

In light of sharply escalating U.S.-PRC tensions, however, we ought to consider the right and wrong ways for the U.S. to support Taiwan in the coming years. While bad outcomes in trade disputes can impact economic growth forecasts at the margins, a strategic miscalculation in the Beijing-Taipei-Washington triangle could pose existential threats to all three actors and to international stability.

Three suggestions to U.S. policymakers:

First, remember that Taiwan remains first and foremost a sovereignty issue not only for the leaders of China’s Communist Party, but for the 1.4 billion citizens it rules. The U.S. should refrain from policy measures that unnecessarily excite hypernationalism in the mainland. Continue supplying Taiwan necessary arms and quietly improve military interoperability, but eschew purely symbolic actions such as U.S. Navy ship visits to Kaohsiung.

Second, avoid moral hazard by asking Taipei to do its part. Taiwan’s defense spending has impressively increased during President Tsai’s first-term, but as a percentage of GDP is still far below that of, say, South Korea or Israel. Taiwan has abandoned a robust system of universal military service and has no viable reserve system. The U.S. should bolster the Island’s deterrence, not provide a substitute.

Third, expand Washington-Taipei exchanges in important and still emerging nontraditional security domains. For example, Taiwan is on the frontline of PRC cyberwarfare and influence operations. Extensive collaboration in such areas (including response to pandemic threats) offers hugely mutually beneficial opportunities.

Historically, America has understandably struggled to reconcile ever-changing geopolitical interests with enduring advocacy of universal democratic values. This struggle will become even more acute regarding its future Taiwan policy.

Ryan Hass

The more that Taiwan thrives as a vibrant, successful society with deeply rooted democratic governance, the better partner it will be of the United States. U.S. policy should be guided by efforts to support Taiwan’s journey down this path. American support for Taiwan should be oriented toward helping Taiwan feel confident in its security, treated with dignity and respect around the world, and in a strong position to increase the prosperity of its people.

Security. There is much the United States can do to signal its resolve to deter the threat or use of force for determining Taiwan’s future. The U.S. should continue to make arms sales available to Taiwan pursuant to the Taiwan Relations Act. It also must maintain a persistent U.S. military presence near Taiwan. At the same time, the U.S. also should sustain direct and authoritative channels of communication with Beijing to shrink space for miscalculation about the intended messages of each other’s actions in the crowded geography of the Taiwan Strait. Another subject that Washington should raise with Chinese counterparts in this channel is Beijing’s stubborn determination to view Tsai as a secessionist rather than as the steady and predictable leader she has been. Beijing’s blindered view of Tsai’s intentions is making a difficult situation worse.

International space. The United States and Taiwan have made important strides in recent years to strengthen Taiwan’s position in the international system, even amidst Beijing’s efforts to lure away diplomatic partners and stifle Taiwan’s participation in international organizations. This has proven that Taiwan’s dignity and respect on the world stage is not measured by numbers of diplomatic partners, but rather by the quality of its contributions to global challenges. Going forward, Washington and Taipei should pursue opportunities to showcase Taiwan as a cutting-edge leader with much to contribute on 21st-century challenges such as pandemic response, cancer research, green energy development and deployment, and regulatory decisions around uses of the Internet of things and artificial intelligence technologies.

Economics. Recent polling shows Taiwanese people strongly support deepening economic relations with the United States. The United States should act on this broad consensus within Taiwan to advance the economic relationship. Rather than trying to untie the Gordian knot to arrive at a U.S.-Taiwan free trade agreement (FTA), negotiators should take a step-by-step approach of negotiating chapters of an eventual FTA, steadily achieving progress toward greater market access, and eventually arriving at a trade agreement.

President Tsai has focused on strengthening Taiwan’s economic competitiveness and improving the quality of democratic governance. The United States should support and prioritize such goals. The more confident that leaders and people in Taiwan are in the strength and endurance of their partnership with the United States, the more likely they will support decisions that will advance the U.S.-Taiwan relationship.

Jerome A. Cohen

To be sure, the United States Government should try harder to obtain representation for Taiwan in all public international organizations for which statehood is required for membership. Taiwan meets all the requirements for recognition as a “state,” and no U.N. resolution or other international law stands in the way. At least the U.S. government should increase pressure for granting the island immediate observer status and other types of meaningful participation pending its full admission to these organizations. The struggle against Beijing’s persistent and thus far successful efforts to exclude Taiwan must intensify.

Yet American support for Taiwan’s formal participation in international organizations cannot achieve maximum effect unless the U.S. government abandons its various recent withdrawals from international institutions and arrangements, as well as its declining cooperation with allies and other countries that still might welcome American influence, including with respect to Taiwan. Moreover, the U.S. should continue to imaginatively but cautiously expand contacts not only between Taiwan’s government and our own but also between Taiwanese leaders and the American people. The State Department should, for example, cancel barriers preventing American audiences from exchanging ideas with Taiwan’s president, vice president, and other top officials who wish to visit our country.

The U.S. government should also encourage all countries to establish offices in Taiwan if they have not yet done so. And it should encourage countries to enhance their “unofficial” bilateral relations with Taiwan by expanding the political activities engaged in by existing trade, cultural, and other supposedly non-diplomatic offices on the island and by Taiwan’s reciprocal missions in their own capitals. If most of the world’s significant nations can be mobilized to follow suit together within a short time, this may have a strong impact and promote the current gradually emerging new form of international relations without risking the kinds of sanctions that Beijing imposes on countries that make such moves in isolation. This will in turn improve Taiwan’s prospects for eventual participation in multilateral organizations.

Larry Diamond

Taiwan has been admirably restrained in avoiding provocative actions that would assert symbols or implications of “Taiwan independence.” It has become one of the most liberal democracies not only in East Asia but also among the entire cohort of “third wave” democracies. And among advanced industrial democracies, its record of preserving liberty while containing the COVID-19 pandemic is unmatched.

Yet Taiwan faces a rising existential danger as a result of the box that Xi Jinping has placed himself in. Having spurned President Tsai Ing-wen’s pragmatism and restraint, and having failed in his effort, through intimidation and disinformation tactics, to pressure Taiwan to accept “one country, two systems,” Xi must now either embrace accommodation or further escalate the pressure, with no clear pathway to success. Moreover, by eliminating term limits, Xi has now inherited full responsibility to “resolve” the Taiwan question during his indefinite leadership of China, further raising the stakes.

To genuinely help Taiwan, the United States has to continue to walk a fine line between resolve and deepening partnership on the one hand, and avoiding needless provocation of the People’s Republic of China (PRC) on the other. Enhancing military assistance and cooperation has a role to play, but as much as possible this should be done in the spirit of Teddy Roosevelt’s maxim, “Walk softly and carry a big stick.” The bottom line is that Chinese Communist Party leaders—and the People’s Liberation Army—must have no doubt that if Taiwan is assaulted militarily without provocation, the United States will respond with military force. And that—along with the imperative of countering the PRC’s growing militarization of its illegal claims to sovereignty in the South China Sea—requires substantial and sustained enhancement of U.S. naval deployments in the Asia Pacific region. In this respect, and in an era of obvious limits to America’s global military engagements, the “pivot to Asia” must become a long-term fixture of our national strategy.

Beyond this, the U.S. should deepen economic and political cooperation with Taiwan, both as a symbol of our commitment to its security and freedom, and as an urgent practical imperative at a time when we must reduce our dependence on supply chains from the PRC. The recent announcement by Taiwan Semiconductor Manufacturing Corporation (TSMC) of its intent to build a $12 billion manufacturing plant in Arizona is a beautiful demonstration of the new symbiotic character of America’s economic partnership with Taiwan. Needed now is progress toward completing a bilateral trade agreement between Taiwan and the United States. Each of the two governments must now spend some political capital to resolve the remaining issues over agricultural trade. As a large, bipartisan congressional coalition noted in a December 19 letter to the U.S. Trade Representative, a comprehensive bilateral trade agreement would not only enhance Taiwan’s standing and security, it would spur American economic competitiveness and job creation—goals that have assumed greatly enhanced urgency as a result of the pandemic. Taiwan is a natural economic partner for America.

Orville Schell

What are the most constructive ways for the U.S. to support Taiwan without unnecessarily inflaming the delicate cross-Strait balance? Donald Trump’s Deputy National Security Advisor Matthew Pottinger, a mid-level political appointee, has come up with a clever new strategy: simple speeches he delivers in Chinese that are pithy, intelligent, explanatory, and symbolic.

Before joining the U.S. military and serving in both Iraq and Afghanistan, Pottinger reported from China for Reuters and The Wall Street Journal. He was working in the private sector advising businesses investing in China when Michael Flynn tapped him to advise the then president elect. Having kept his head down and survived for more than three years, Pottinger has now hit on a high-visibility, effective way to deliver diplomatic messages to China. In his second speech in Mandarin this month, delivered as a video for the virtual inauguration ceremony of Tsai Ing-wen—the first was given to mark the anniversary of the May 4th Movement—he expressed U.S. support for Taiwan’s democratic Chinese experiment in a form that is new, spellbinding, and informative. Standing in front of the White House, he quoted dissident astrophysicist Fang Lizhi, said the U.S. would “continue to press other countries and organizations, like the WHO, to put human lives above politics, and choose freedom over oppression,” praised Taiwan’s handling of the coronavirus pandemic, and wished President Tsai well in her second term.

In the great game of propaganda and “influence seeking” on which the People’s Republic of China spends billions of dollars around the world each year, Pottinger has hit on a low-cost, highly effective way of directly addressing Chinese people about issues that have undermined the foundations of “engagement” as a workable strategy and sent the U.S.-China relationship into a tailspin. Pottinger, who has no cabinet-level rank and is thus an ideal voice to express official U.S. support for Taiwan, said he hoped his speech in Mandarin at the beginning of the month would “open up a conversation with friends in China and around the world.” With this second speech, he has done just that, setting Chinese-speakers the world over achatter. In fact, now that Pottinger has shown the way, if some American institution—even the U.S. Department of State’s Office of Public Diplomacy and Public Affairs—really wanted to get the attention of Xi Jinping and the Chinese people, and penetrate the Great Fire Wall to explain the logic of present U.S. China policy, they might invite a broader group of American officials, scholars, journalists, and NGO staffers who speak good Chinese—many of whom have been expelled from China—to deliver a series of such short talks. For there is no more an intriguing spectacle to the Chinese “broad masses” (to put it in Party parlance) than foreigners speaking the mother tongue. But they must speak well. There is a saying: “We are afraid of neither heaven nor earth. Only of foreigners trying to speak Chinese.”

 

 

Universities at an international standard. Reforms to the banking system. Infrastructure improvements, including expanded and modernized railroads. Transformation of the system of government and style of leadership.

These aren’t planks in the 2020 platform of political parties in Europe or the United States, or demands of protesters in Hong Kong, or even a wish list of progressive pundits. These were initiatives decreed by Qing imperial edict in the summer of 1898.

 

Qing China had lurched from crisis to crisis for almost the entire 19th century. The economic slowdown that had begun even before the Opium War ushered in what Chinese leaders came to call a “century of humiliation,” during which China was bullied by imperialism. It is sometimes perceived that China buried its head in the sand, refusing to respond to Western challenges and inevitably collapsing, but this is at best an oversimplification. Debate over whether and how to modernize the Qing dynasty was intense. Embassies, missions, and students left China for abroad, seeking models for change. Nonetheless, the speed and priorities for reform were difficult to agree upon, as was coordination across the empire. Wars with France, Britain, and Japan, internal rebellions, and demographic change wracked the empire. Millions died in conflict; civil unrest was endemic.

The Sino-Japanese War of 1894–5 appeared to seal the Qing dynasty’s fate. Most outside observers had expected the Qing to easily defeat its much smaller neighbor in this conflict over domination of Korea. When the opposite occurred, reformers in China saw an opportunity. Perhaps things were desperate enough to accelerate and broaden change at the top. Many leading scholars, gathered in Beijing to take the highest level of the civil service exam, wrote an impassioned letter to the emperor, pleading for reform. At stake was China’s very survival.

The young Guāngxù 光緒 Emperor, just 24 years old in 1895, was struggling to establish himself as ruler against the influence of his aunt, the Empress Dowager Cíxī 慈禧太後. Guangxu had assumed the throne when he was three years old, but Cixi had ruled in his stead. Even after Guangxu reached his majority, many Qing officials continued to regard Cixi as the true ruler of the country, even during the war with Japan. Guangxu saw in the reformers of 1895 an opportunity to modernize China and to assert his own leadership. For more than two years, Guangxu worked closely with Liáng Qǐchāo 梁啓超 and Kāng Yǒuwéi 康有為, getting their advice on China’s future.

In the second week of June 1898, the new reforms became public in a spasm of imperial edicts that would last a total of 103 days, rounded down to give the era its familiar name, “The Hundred Days’ Reforms.” Beginning on June 11, Guangxu made clear the theme of his reforms: “Let us cast off from us the empty, unpractical, and deceiving things that obstruct our forward progress, and strive with one-heartedness and energy to improve upon all things that we have learned; let us eliminate the crust of neglect that has accumulated on our systems” (Guangxu Emperor Edict of June 11, 1898). In just that first day, setting the tone, Guangxu tackled the Qing diplomatic corps, the primary and secondary education system, and military technology and training.

Also in that first day, Guangxu called for the creation of “a great university” in Beijing, its doors open to all so that they might “take advantage of the modern education now opened to them, so that in time we may have many able and willing helpers in the great and arduous work before us of putting our country on a level with the best of the Western powers.” Peking University — formed by adding a medical school and other enhancements to the Imperial Academy, which had been in place since the early Ming dynasty — remains one of the world’s great universities.

The reform edicts continued throughout the summer. Guangxu ordered the format of the civil service exams changed to a less arcane style. He promised a prize — cash or possibly noble rank — to inventors and authors who could contribute to China’s development. Scientific agriculture was a common goal, but so were “schools, foundries, big guns, and arms factories, etc.” (Guangxu Emperor Edict of July 7, 1988). He called out, by name, “bigoted conservative” advisers and replaced them with progressive reformers. Railroads. Business associations. Banks. Magazines. School curriculums. Bureaucratic procedures. All of these and more were the focus of one or more of Guangxu’s dozens of edicts.

The pace of the 1898 reforms was dizzying, all the more so when we consider that these many changes were playing out in public. The edicts were printed in the Peking Gazette (Jīng Bào 京報), sometimes in other newspapers, and occasionally abroad. The circulation of the gazette was not large, but it was an explicitly public medium. As historian Emily Mokros, author of a forthcoming book on the Peking Gazette, has written, because they “were both distributed to imperial officials, and sold on the streets and by subscription, gazettes reveal what types of information the state made available to readers throughout the empire.”

To be clear, the reforms that Guangxu proposed were not new. Advisers like Kang Youwei and Liang Qichao had advanced or discussed these kinds of proposals throughout the late 19th century. What was new was that they had an imperial patron, and a public forum.

Guangxu’s reforms — and his reign — foundered as summer turned to fall. The sweeping nature, speed, and publicity of the Hundred Days were certain to upset a political establishment that was already destabilized. The Empress Dowager’s role in the reforms’ (and her nephew’s) end is controversial, but one thing is certain: In the fall of 1898, the edicts ended and Cixi resumed the power that she had only recently (and never fully) relinquished. The leaders of the reform movement who did not flee to exile were arrested and executed. Guangxu found himself under house arrest, where he remained until his death in 1908, performing only ceremonial roles (during which Cixi sat on the throne).

Many of the would-be revolutionaries took refuge in Japan. Rebecca Karl, in her recent book, on China’s revolutions, calls 1898 an “interlude,” but she hints at one legacy of 1898: “Episodically pursued by Qing state agents abetted by Japanese police, the movement to fundamentally reform or oust the Qing nevertheless found a home in Japan.” (More on that connection in coming weeks.)

It’s natural to compare the Hundred Days of 1898 to its anagram: 1989. Both were attempts at reform, both centered in Beijing. Both failed after hardliners in the government rejected them.

In important ways, 1898 seemed poised for success in ways that 1989 did not. The Guangxu Emperor gave the reform movement not only a leader, but also (it seemed) a politically powerful one. Unlike 1989, the reformers had clear goals, which had been in the works for years. Yet, ultimately, fear of change and political intrigue doomed both movements.

Or did they? Certain elements of the Hundred Days were taken up by Cixi herself in her New Policies of 1905, which reformed the army, abolished the civil service exams, and implemented democratic reforms in an attempt to save the dynasty. The dynasty fell just a few years later, and many of the goals of 1898 came to fruition. Meanwhile, it has already been 31 years since 1989, and that dynasty remains in place, the reformers’ ideals still unrealized.