Column by the President of Hitachi Research Institute, Mizoguchi
At the end of July, I visited China for the first time in seven years. The new Beijing Airport was huge and immaculately clean, and immigration processing was extremely smooth. After holding up the QR-code for my pre-registered China Customs Health Declaration information and having my fingerprints scanned and my picture taken, I arrived at the exit gate in no time. The preparations I had to go through to get to that point, however, had not been very smooth. Japanese citizens now need a visa to travel to China. For this, I needed to request for a letter of invitation from the company I was going to visit and submit a photocopy of my passport along with a digital photo. I also needed to fill out a questionnaire, which included details about the destination and the purpose of the visit, as well as questions about annual income, educational background since high school, all the countries visited in the last three years, and the names and addresses of all family members. I then had to make an appointment at the Chinese Visa Application Service Center in Ariake, where I registered my fingerprints and had my photo taken. In my case, getting through the queue and completing the procedure took about 3 hours total. I got my passport back with the visa attached in about three days. A COVID-19 antigen test was also required within 48 hours before departure.
The Chinese economy has been slow to recover from the pandemic. It was hopeful that the shift from the “zero-COVID” to the “living-with-COVID” policy would bring about a rebound in consumption mainly for services and bring the economy back on track to growth from exports to emerging countries. The government, however, needs to reevaluate the scenario for economic recovery. The real GDP growth rate for the April-June quarter was +3.2 percent on an annualized quarter-on-quarter basis, a significant slowdown from the +9.1 percent for the January-March quarter. The country’s manufacturing industry PMI is below 50 for the fourth consecutive month, and the unemployment rate among young people in urban areas is over 20 percent, making it unlikely that business confidence will improve soon. Since the government introduced regulations to curb the real estate bubble in 2021, the real estate market has been sluggish, leading to concerns about the ensuing expansion of local debts. The real estate industry, including other related industries, is a driving force that accounts for 20 to 30 percent of the Chinese economy. Thus, this slump is expected to affect the economy as a whole.
The central government is taking measures to stimulate the economy. After the meeting of the Central Political Bureau of the Communist Party of China at the end of July, it was announced that the real estate policy would be adjusted and rationalized in a timely manner. The announcement did not particularly allude to the party’s policy that “housing is for living, not for investment,” resulting in a sharp rise in the stock prices of real estate-related companies. However, it is unlikely that the central government will embark on large-scale fiscal spending and a comprehensive bailout for local debt and real estate-related companies. It was said that China had saved the world with its economic stimulus measures worth 4 trillion yuan (about 586 billion dollars) during the global financial crisis in 2008. This, however, resulted in excessive production capacity and huge debts. Ultimately, it also hampered the transition to a domestic consumption-driven economy. The Chinese government is fully aware of this history and is determined not to repeat the same mistake. Presently, the top priority for the Xi Jinping administration, now in its third term, is national security. This means there is no guarantee that economic growth will always take precedence. Structural reform of the economy is, in fact, necessary to achieve the goal of becoming a “modern socialist state” by 2049, the 100th anniversary of the founding of the People’s Republic of China.
There was no hint of geopolitical tension in Beijing's airports, offices, or restaurants. Transportation was efficient, and many cleaning robots made their rounds in office buildings. I also had the chance to enjoy Chinese food and Baijiu. I knew it as knowledge, but it was in the cyber world that I could feel the fragmentation of society. I couldn’t access Google to get the information I needed; I couldn’t connect with people I had met there on LinkedIn; and I couldn’t even contact my family using LINE. ChatGPT is also banned. Part of my morning routine is doing radio calisthenics while watching videos on YouTube. Without access to the platform, however, I had to exercise by playing the music in my head. I was reminded of how I have taken for granted the luxury of Internet freedom in Japan and realized the great impact of being isolated in the digital world. People living in China probably have a way of accessing similar services, but this is not so for visitors. Indeed, the cyber world is no longer the one and only; whether for proposing new businesses, contacting acquaintances, or talking to family members.
To avoid risks in the supply chain, companies are resorting to friendshoring, with India attracting attention as an upcoming growth market. However, the global economy cannot grow without the huge Chinese market, which is expected to increase by around 5% despite having declined. Although India's growth is remarkable, its economy is still one-sixth that of China. For the time being, success in China is imperative for the survival of global companies. Thus, many CEOs of leading European and American companies have recently been flocking to Beijing. As Confucious once said, “Virtue is not solitary; it is bound to have neighbors.” The isolation of China must be avoided at all costs.
*Google and YouTube are trademarks or registered trademarks of Google LLC.
*LinkedIn is a trademark or registered trademark of LinkedIn Corporation.
*LINE is a trademark or registered trademark of LINE Corporation.
*Company names and product names mentioned in this article are trademarks or registered trademarks of their respective companies.
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