Foreign businesses demand China’s 'zero-Covid' retreat

What's next in U.S.-China relations.

Apr 14, 2022 View in browser   By Phelim Kine In this photo released by Xinhua News Agency, a patient who has recovered from Covid-19 is disinfected as he leaves a makeshift hospital in Shanghai. | Jin Liwang/Xinhua via AP Hi, China Watchers. Today we examine how China's "zero-Covid" strategy has provoked a rare eruption of foreign corporate criticism of a Chinese government policy and parse Beijing's sharpening rhetorical attacks on U.S. sanctions against Russia. We'll also run an autopsy on China's disregard for the "dead donor rule" for organ transplants and probe China's senior female leader deficit. And we learn that we can blame the U.S. dollar's dominance as the international trading system's primary currency for the root cause of worsening U.S.-China relations in our "One Book, Three Questions" section. Got a book to recommend? Tell me about it at pkine@politico.com. Let's get to it. — Phelim Shanghai's lockdown as part of the government's "zero-Covid strategy" has evoked a sharp expression of public dismay from China's usually compliant foreign business community. U.S. and European business groups are signaling that the costs of the policy, which hinges on a rigorous system of quarantine, testing and isolation as well as community lockdowns and travel restrictions, are outweighing any gains in public health. The Chinese government must now weigh the benefits of responding to increasingly vocal foreign business dissatisfaction and expressions of public anger against the political damage that a policy reversal would inflict on Chinese President XI JINPING. "China is going to be left behind," said SIVA YAM , president of the Chicago-based U.S.-China Chamber of Commerce. "When you look at the United States and Europe, they are opening up, they have accepted the fact that the only way you can control [Covid] is to accept that it will [circulate] in the community." Yam's comments reflect a growing, if uneven acceptance outside China that the increasing availability of effective vaccines and treatments to prevent serious illness or death from Covid is transitioning the virus from the status of mortal threat to manageable public health challenge. China's strategy has been wildly successful from a public health perspective. Johns Hopkins University data show that China has recorded 13,524 deaths from Covid-19, compared to 986,387 in the United States. Governments from Europe to Singapore have shifted their approach to Covid from an epidemiological war to cautious accommodation. That view is anathema to the Chinese government, which has doubled down on its messaging throughout the Shanghai lockdown, which began last week, despite the Omicron variant's seemingly unstoppable nationwide spread. The English-language state newspaper, China Daily, assured readers Friday that "Omicron is not 'unstoppable.'" On Saturday, it had a headline that boasted: "China to defeat Omicron again with dynamic zero-COVID policy." China's state news agency Xinhua hammered the message home Sunday withan article titled "Why China's dynamic zero-COVID approach must be sustained." Those assertions are the propaganda equivalent of whistling in the graveyard given the disturbing scenes and stories emerging from Shanghai since authorities extended the city's lockdown last week to all of its 26 million residents. That prompted the U.S. Consulate in Shanghai on Friday to announce an authorized "voluntary departure " of nonessential personnel as well as the family members of essential and nonessential staff. Chinese Foreign Ministry spokesperson ZHAO LIJIAN on Tuesday called that move "political manipulation under the pretext of the epidemic." Shanghai began easing restrictions Monday, but they're still intensifying in Guangdong province. The U.S. State Department issued a travel advisory on Monday warning U.S. citizens to avoid China "due to COVID-19-related restrictions, including the risk of parents and children being separated." The economic impact of the curtailment of most commercial and industrial activity compounded by official bungling of the lockdown — including interruptions to public access to essential services and food supplies — has curdled foreign business confidence in the policy. On Friday, the European Union Chamber of Commerce in China wrote to Chinese Vice Premier HU CHUNHUA complaining of "significant disruptions, extending from logistics and production all the way along the entire supply chain within China." The letter from chamber President JORG WUTTKE warned that the zero-Covid policy had "an unfortunate impact on China's image to the rest of the world while eroding foreign investors' confidence in the Chinese market." Wuttke expressed skepticism that the Chinese government's "old toolbox of mass testing and isolation" could overcome spread of the Omicron variant and urged the government to adopt infection mitigation strategies modeled on Singapore's approach. That prompted pushback Tuesday from Zhao at the Chinese Foreign Ministry, who insisted that "dynamic zero-COVID is proper as it fits China's realities and has delivered desirable results." Wuttke and the Europeans received cover from Washington, D.C.-based US-China Business Council on Tuesday when it expressed concerns about China's Covid strategy. "The stresses created by the shutdowns in Shanghai and adjoining regions are significant. Company operations, supply chains, and staffing capabilities are significantly impaired, which is compounded by coordination challenges with local governments," DOUGLAS BARRY, USCBC vice president of communications, said in a statement. "There are also concerns about worker safety if they do test positive for COVID and are sent to an undisclosed quarantine facility without clear guidance on when or how they can leave." Chinese officials are hearing complaints from foreign businesses in China and are indicating that possible tweaks to the "zero-Covid" strategy may be on the horizon, said BEN ZHANG, CEO of Greater Pacific Industries , which has relied on Chinese suppliers for more than 25 years. A senior Chinese trade official recently told Zhang that the government "will probably be adapting soon" its Covid mitigation practices in line with World Health Organization guidelines. Zhang predicts any meaningful changes will only occur "months from now." He has more immediate problems — a cargo container of 2,000 bottles of Washington state wine that he can't get through Shanghai customs because the lockdown has shuttered the port. China might not be able to ease its zero-Covid policy before the Chinese Communist Party's 20th Party Congress in the fall. Most observers expect the event will climax with Xi gliding to an indefinite extension of his role as China's paramount leader. Xi has tied his credibility to a Covid mitigation strategy that so far has spared China the death and suffering that the pandemic has inflicted on much of the rest of the world. State media has personally credited Xi with the genesis of the policy, which Xi praised Friday for "contributing useful experience for the world to fight the virus." That will make it optically fraught for Xi to backpedal from a policy in which he has invested considerable political capital and which has saved lives. "The Chinese government has championed their success of zero [Covid], so if you reverse [the policy] and you suddenly see 100,000 people die, that will be a big problem for Xi Jinping," Yam said. TRANSLATING WASHINGTON — YELLEN: CHINA'S RUSSIA ALIGNMENT 'SHORT-SIGHTED': Treasury Secretary JANET YELLEN warned China on Wednesday that aligning with Russia on its Ukraine invasion is "short-sighted" because it risks isolation from the international economic system. "The world's attitude towards China and its willingness to embrace further economic integration may well be affected by China's reaction to our call for resolute action on Russia," Yellen said at an Atlantic Council briefing. — STATE SCORCHES CHINA'S HUMAN RIGHTS RECORD: The State Department issued a searing indictment of the Chinese government's human rights record Tuesday in its 2021 Country Reports on Human Rights Practices. "The Chinese Government continues to commit genocide and crimes against humanity in Xinjiang against predominantly Muslim Uyghurs, among other minority groups, to erode fundamental freedoms and autonomy in Hong Kong, and to carry out systematic repression in Tibet," Secretary of State ANTONY BLINKEN said of the report's key takeaways. The Chinese government pushed back hard. "With a deplorable human rights record, the US is calling itself a 'human rights defender', acting as a 'human rights judge' and practicing 'human rights diplomacy,'" LIU PENGYU, spokesperson for the Chinese Embassy in Washington, D.C., said in a statement. — COMMISSION PROTESTS WORLD BANK'S XINJIANG LENDING: The bipartisan Congressional-Executive Commission on China on Friday demanded that the World Bank's private sector lending arm, the International Finance Corp., stop funding four Chinese firms implicated in forced labor and other rights abuses in Xinjiang. Failure to do so would prompt the CECC "to ask the U.S. Secretary of the Treasury to instruct the U.S. Executive Directors at the World Bank Group to use the voice and vote of the United States to vote against any relevant loan or financial assistance," Sen. JEFF MERKLEY (D-Ore.) and Reps. JIM MCGOVERN (D-Mass.) and TOM MALINOWSKI (D-N.J.) warned in a letter to World Bank Group President DAVID MALPASS. "Whenever such serious allegations are brought to our attention, we work to verify and address them with our clients with urgency," an IFC spokesperson said in a statement. — YOON EYES MILITARY 'STRATEGIC ASSETS': A visiting delegation representing South Korea's President-elect, YOON SUK-YEOL, told national security adviser JAKE SULLIVAN last week that Yoon's government wants unspecified U.S. military "strategic assets" to help deter possible North Korean aggression. "We shared the perception that North Korea's nuclear and missile development poses a threat to security not only on the Korean Peninsula but the entire region," delegation head PARK JIN told reporters. "[Strategic assets] can be considered as an important factor in strengthening extended deterrence." Yoon won last month's presidential election with atough-on-China, closer-to-the-U.S. message. The National Security Council didn't respond to a China Watcher request for comment. Hot from the China Watchersphere — CZECH REPUBLIC SEEKS CLOSER TAIWAN TIES: Czech Republic's Foreign Minister JAN LIPAVSKY wants the European Union to help "bullied" democracies, such as Taiwan, "as much as possible," POLITICO's STUART LAU reported Tuesday. That sets the stage for more tension in an already strained relationship between Europe and Beijing. — AUSTRALIA TARGETS CHINA-SOLOMON ISLANDS PACT: Australia is pulling out the stops to derail China's efforts to seal a security deal with the Solomon Islands. "We have asked Solomon Islands respectfully to consider not signing the agreement and to consult the Pacific family in the spirit of regional openness and transparency, consistent with our region's security frameworks," ZED SESELJA, Australia's minister for international development and the Pacific, said in a statement Wednesday. Seselja flew to Solomon Islands that same day to underscore Australia's concerns about China's draft security pact and the possibility of a Chinese military base in the country. Australia should "respect the sovereignty and independent choice of China and Solomon Islands," China's Zhao said Wednesday. — BEIJING SLAMS 'SELF-SERVING' U.S. SANCTIONS: The Chinese Foreign Ministry on Monday slammed U.S. sanctions against Russia as "self-serving" in an intensification of Beijing's criticism of U.S. reprisals for Russian President VLADIMIR PUTIN's Ukraine invasion. "While claiming to uphold justice with sanctions, the US is actually exploiting sanctions for ill-gotten gains … by asking EU nations to cut off trade with Russia while strengthening US-Europe ties in such sectors as energy and security," said Zhao. Beijing is taking the risk of secondary sanctions on Chinese firms that do business with Russia seriously. State-owned petroleum firm CNOOC is planning to withdraw from operating in the U.S., Canada and the U.K. to avoid potential Western sanctions, Reuters reported Wednesday. Jimmy Lai pauses next to a copy of Apple Daily's July 1, 2020, edition during an interview in Hong Kong Wednesday, July 1, 2020. | Vincent Yu, File/AP Photo — JIMMY LAI'S LAWYERS SEEK U.N. ASSIST: The international legal team representing Hong Kong's imprisoned pro-democracy media tycoon, JIMMY LAI, on Friday appealed to United Nations' human rights experts for support against what his lawyers call "prosecutorial, judicial and legal harassment." Lai is currently serving a 20-month prison term for his alleged role in organizing what the Hong Kong government calls illegal protests. Lai also faces prosecution for allegedly masterminding an "international propaganda campaign" aimed to reap foreign sanctions against China. The Hong Kong authorities have already frozen Lai's assets and arrested top editorial staff at his flagship newspaper Apple Daily before forcing it to close in June. Translating China — PROBING CHINA'S ORGAN TRANSPLANTATION COMPLEX: Chinese doctors are violating the international "dead donor rule" that requires doctors to only source organs for transplantation from people who have died. That's the conclusion of an analysis of publicly available transplant operation documents published last week in the American Journal of Transplantation that revealed 71 cases in which organs were removed from living donors. "In these cases, the removal of the heart during organ procurement must have been the proximate cause of the donor's death," the report states. "Our findings strongly suggest that physicians in the People's Republic of China have participated in executions by organ removal." The report updates a 1994 Human Rights Watch exposé of the Chinese organ transplant system and its "unacceptable human rights and medical ethics violations" by sourcing organs from executed prisoners. HRW warned of "the obvious linkage between China's extensive use of the death penalty and the country's burgeoning organ trade and transplant program." The Chinese government responded to international pressure over its organ transplant system by creating a national voluntary organ donation program in 2009. And it committed to end sourcing organs from executed prisoners by Jan. 1, 2015. "The new part here is that we have evidence from so many hospitals and medical workers across the country over a long period of time, and very specific details about how 'death by doctor' is effected with heart procurement surgeries in particular," MATTHEW ROBERTSON , one of the journal article's authors, told China Watcher. "There is no doubt that they are doing some voluntary donation procedures … [but] we don't know the true scale of the program due to the falsification of official data." Newly elected state councilors (L-R) Zhao Kezhi, Wang Yi, Wei Fenghe, Hu Chunhua, Sun Chunlan and Liu He, and state councilors Wang Yong, Xiao Jie, led by Vice Premier Han Zheng (front-C), swear an oath on March 19, 2018 in Beijing, China. | Etienne Oliveau/Getty Images — CHINA'S SENIOR WOMEN LEADER DEFICIT: Hong Kong Chief Executive CARRIE LAM'S decision to step down in June means more than the exit of a widely reviled leader saddled with U.S. sanctions. It will mark the departure of one of the few women to have reached a senior Chinese leadership position. Lam's likely successor is a man. "Although they represent roughly 48.7% of the [Chinese] population, women occupy less than 8% of senior leadership positions," a recent U.S.-China Economic and Security Review Commission report noted . "Of the 31 Chinese nationals serving in top leadership positions in key international organizations, only 4 are women." Vice PremierSUN CHUNLAN is the only woman in China's 25-member Politburo while the elite seven-member Politburo Standing Committee is entirely male. This is despite China's Law on the Protection of Rights and Interests of Women that is designed "to ensure that women can participate in decision making and management." "Such disparities are often a combination of a societal discomfort with women in power and structural issues within the pipeline towards leadership," said GINA TAM, assistant professor of East Asian history at Trinity University in San Antonio, Texas. "I think we are seeing a doubling down from the current government on reinforcing gender roles which do not involve equality in terms of public power." HEADLINES China Change: "LOCKDOWN Shanghai 2022"  Financial Times: "The Chinese companies trying to buy strategic islands" New York Times: " China's 'Zero Covid' Mess Proves Autocracy Hurts Everyone" HEADS UP — U.S.-ASEAN SUMMIT ROUND TWO: There's diplomatic chatter that the Biden administration will reschedule last month's aborted U.S.-ASEAN Summit to mid-May. Neither the National Security Council nor the White House responded to a request for comment, so we're on to something. Stay tuned. One Book, Three Questions The cover of the book "Financial Cold War" is pictured. | John Wiley & Sons Inc. The Book: "Financial Cold War: A View of Sino-US Relations from the Financial Markets" The Author: JAMES A. FOK, financial and strategic adviser to corporations and governments. He served as a senior executive at Hong Kong Exchanges and Clearing from 2012 to 2021. What is the most important takeaway from your book? Few key decision-makers truly grasp how financial markets work and, more importantly, the many intricate ways in which they affect society. Most people trace today's escalating conflict between China and the U.S. to strategic rivalry across military, trade and technological domains. However, many of the roots of Sino-U.S. tensions can be found in imbalances caused by the structure of the global financial system and national financial policies. My book focuses on how these imbalances came about and how they might be resolved. What was the most surprising thing you learned while researching and writing this book? Most Americans would now be better off if the U.S. dollar no longer served as primary currency of international trade and investment. Global demand for dollars has led to a structural overvaluation of the U.S. currency. This has been great for wealthy shareholders, who have benefited disproportionately from U.S. corporations outsourcing production to lower cost countries. For middle-class workers, though, it has exacerbated America's loss of competitiveness and contributed to job losses and wage stagnation. In turn, rising wealth and income inequality has been a major underlying driver of China-U.S. tensions. What does your book tell us about the trajectory and future of U.S.-China relations? Decoupling would only make both countries poorer and exacerbate the problems that they face. Characterizations of the present [U.S.-China] conflict as a "New Cold War'' are both misplaced and deeply irresponsible. Circumstances today differ significantly from the 20th century U.S.-Soviet conflict, and it would be dangerous to blindly follow the playbook of the past. Both countries' interests lie in each other's social and economic well-being. Ultimately, however, the trajectory of the relationship will hinge on many individual decisions taken by political leaders. Thanks to: Ben Pauker, Matt Kaminski, digital producer Setota Hailemariam, Stuart Lau and editor John Yearwood. Do you have tips? Chinese-language stories we might have missed? Would you like to contribute to China Watcher or comment on this week's items? Email us at chinawatcher@politico.com.   Follow us

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