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Special Report on China
April 15, 2019 To some extent, the advances in China’s display industry parallel the consummate expansion of the Chinese economy and the revamped autocracy created by President Xi Jinping. In his first five years in office, Xi pioneered his own style of Chinese politics, upending the model Deng Xiaoping established 30 years ago. He moved away from Deng’s consensus-based decision-making and consolidated institutional power in his own hands. He drove the Chinese Communist Party (CCP) more deeply into Chinese political, social, and economic life, while constraining the influence of foreign ideas and economic competition. And he has abandoned Deng’s low-profile foreign policy in favor of one that is ambitious and expansive. As Xi begins his second five-year term as CCP general secretary and (soon) president, there are signs that the new model’s successes may become liabilities. Too much party control is contributing to a stagnant economy and societal discontent, while too much ambition has cooled the initial ardor with which many in the international community greeted Xi’s vision of a new global order “with Chinese characteristics.” |
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The CCP has established party committees within nearly 70 percent of all private enterprises and joint ventures, in order to ensure that the businesses advance the interests of the state. Beijing has also succeeded in constraining outside influences: the number of foreign nongovernmental organizations operating in China has fallen from more than 7,000 to just over 400due to a new law. And “Made in China 2025”—China’s plan to protect its domestic firms from foreign competition in ten areas of critical cutting-edge technology—is well under way. Xi’s efforts to establish greater control at home have been matched by equally dramatic moves to assert control over areas China considers its sovereign territory. Xi has militarized seven artificial features in the South China Sea, and in January 2019, a Chinese naval official suggested that China might “further fortify” the islets if it feels threatened. As Beijing negotiates a South China Sea code of conduct with the Association of Southeast Asian Nations, it seeks to exclude non-ASEAN or Chinese multinationals from oil exploration and to bar foreign powers from conducting military drills, unless agreed to by all signatories. Xi has also adopted a range of coercive economic and political policies toward Taiwan, including reducing the number of mainland tourists to the island, successfully persuading multinationals not to recognize Taiwan as a separate entity, and convincing five countries to switch their diplomatic recognition from Taiwan to the mainland, to try to advance his sovereignty claims. The Belt and Road Initiative—Xi’s grand-scale connectivity plan—now extends beyond Asia, Europe, and Africa to include Latin America. Brands such as Alibaba, Lenovo, and Huawei have gone global, and more are on the horizon. A book by the Chinese tech guru Kai-Fu Lee proclaims that China will inevitably dominate in artificial intelligence and the book has become an international bestseller.Two-thirds of the world’s investment in AI is in China, and China already boasts a commanding presence in areas such as drone and facial recognition technologies. All these successes have made China attractive to smaller countries not only as an economic partner but as an ideological standard-bearer.
For all its successes, the constant stream of often competing directives from Beijing has produced paralysis at the local level. In August 2018, China’s Finance Ministry reinforced an earlier directive calling on local governments to issue more bonds to support infrastructure projects to help boost the slowing economy; many local governments had been resisting the government’s call because the projects have low returns. That same month, however, Beijing announced that officials who failed to implement Beijing’s policies could lose their jobs or be expelled from the party. Xi’s predilection for state control in the economy has also starved the more efficient private sector of capital. The government (similar to Apple’s recent move) is deleting statistics from the public record, a sure sign that things are not moving in the right direction. One economist suggested that growth in 2018 fell to 1.67 percent, and the Shanghai stock market turned in the worst performance of any stock market in the world. Birthrates, fell to their lowest rate since 1961. Beijing has pulled backon its air pollution reduction targets—after some noteworthy initial success—out of concern that pollution control measures might further slow the economy. The economic downturn has also stoked social discontent. Multiprovince strikes have galvanized crane operators as well as workers in food delivery and van delivery. A nationwide trucker strike erupted in the summer of 2018, as the online platform Manbang established a competitive bidding system that exerted downward pressure on haulage fees, highlighting the potentially effect of the gig economy on the Chinese work force. Most troubling to Xi, however, was likely the news that university Marxist groups were converging on Shenzhen’s Jasic Technology plant to stand beside workers and retired party cadres in support of efforts to organize independent labor unions. The protest was quickly shut down, but the moral legitimacy of its demands remains to be addressed.
The deepening penetration of the party into Chinese business recently caused the U.S. and other western countries to view Huawei as extended arms of the CCP. Some countries, including Bangladesh, Malaysia, Myanmar, Pakistan, and Sierra Leone, among others, have reconsidered the deals they’ve made with China as their debts have mounted and/or environmental, labor, and governance concerns go unaddressed, questioning the wisdom of the China’s foreign investments as many of the large state-owned enterprises driving the Belt and Road project increase their debt-to-asset ratios—well beyond those incurred by other countries’ firms. Xi’s efforts to project Chinese soft power have fallen flat. Beijing’s draconian treatment of its Uighur Muslim population in Xinjiang and its abduction of foreign citizens in China, such as the Swedish citizen Gui Minhai or the Canadians Michael Kovrig and Michael Spavor, undermine its efforts to shape a positive narrative of international engagement and leadership. Moreover, Xi’s regulations have created a difficult operating environment for foreign nongovernmental organizations and businesses, the two constituencies most supportive of deeper engagement with China. The Trump administration’s reaction to Xi has only made things worse for Beijing. Most obviously, the U.S. government’s enforcement of tariffs on $250 billion in Chinese exports to the United States has weakened Chinese consumer confidence and caused some multinational corporations to shift or consider shifting manufacturing out of China to other countries. The administration and Congress have adopted a more bare-knuckled approach to Chinese global assertiveness. The White House has enhanced relations with Taiwan, increased the number of freedom of navigation operations in the South China Sea, constrained Chinese investment in areas of core U.S. technology, elevated international attention to Chinese human rights practices, and begun to compete directly with the Belt and Road Initiative through infrastructure investments in partnership with other countries, such as Australia, Japan, and New Zealand, as well as through the establishment of a new development finance institution, the U.S. International Development Finance Corporation.
The United States is not alone in resisting Xi’s charms. In the spring 2018 Pew Research Center polls, a 25-country median of 63 percent said they preferred a world in which the United States was the leading power, while 19 percent favored China (although Donald Trump himself fared poorly in the polls in comparison with Xi Jinping). Market democracies collectively have adopted a number of measures similar to those of the United States, and despite Trump’s questioning of the importance of partners and allies, his team has proved remarkably adept at coordinating approaches to many of these countries.
On the economic front, Xi’s priorities should include structural economic reform that gives preference to the private sector over state-owned enterprises and provide a level playing field for multinationals that want to do business with China. He should also take a revised approach to the Belt and Road Initiative that adopts international standards around governance—including transparency, risk management, and environmental and labor practices. Politically, China’s image and soft power would be greatly enhanced by a reduction in the government’s use of Chinese citizens abroad as tools of its political and economic objectives, a step back from its coercive policies toward Hong Kong and Taiwan, and a sharp reduction in its repressive policies toward its own citizens in Xinjiang and Tibet. In his description of leadership, Xi is fond of using the analogy of a relay race: a baton is passed from one runner to the next, and each runner builds upon what has come before while delivering his own contribution. With the baton in Xi’s hand, the Chinese government has expanded its reach and influence at home and abroad. Yet the negative consequences of Xi’s approach—local government paralysis, a declining birthrate, and international opposition, among others—have begun to hold China back from the finish line. Xi needs to course correct—or perhaps pass the baton to the next runner. From: Foreign Affairs
Over the same five years, China’s display industry has grown from being a minor player to the leading supplier in the global industry which will have 55% of all TFT capacity and 38% of OLED capacity by 2023 as forecast by IHS. China will have only a 16% share of OLED capacity in 2019.
For all its successes, the constant stream of often competing directives from Beijing has produced paralysis at the local level. In August 2018, China’s Finance Ministry reinforced an earlier directive calling on local governments to issue more bonds to support infrastructure projects to help boost the slowing economy; many local governments had been resisting the government’s call because the projects have low returns. That same month, however, Beijing announced that officials who failed to implement Beijing’s policies could lose their jobs or be expelled from the party. Xi’s predilection for state control in the economy has also starved the more efficient private sector of capital. The government (similar to Apple’s recent move) is deleting statistics from the public record, a sure sign that things are not moving in the right direction. One economist suggested that growth in 2018 fell to 1.67 percent, and the Shanghai stock market turned in the worst performance of any stock market in the world. Birthrates, fell to their lowest rate since 1961. Beijing has pulled backon its air pollution reduction targets—after some noteworthy initial success—out of concern that pollution control measures might further slow the economy. The economic downturn has also stoked social discontent. Multiprovince strikes have galvanized crane operators as well as workers in food delivery and van delivery. A nationwide trucker strike erupted in the summer of 2018, as the online platform Manbang established a competitive bidding system that exerted downward pressure on haulage fees, highlighting the potentially effect of the gig economy on the Chinese work force. Most troubling to Xi, however, was likely the news that university Marxist groups were converging on Shenzhen’s Jasic Technology plant to stand beside workers and retired party cadres in support of efforts to organize independent labor unions. The protest was quickly shut down, but the moral legitimacy of its demands remains to be addressed.
The deepening penetration of the party into Chinese business recently caused the U.S. and other western countries to view Huawei as extended arms of the CCP. Some countries, including Bangladesh, Malaysia, Myanmar, Pakistan, and Sierra Leone, among others, have reconsidered the deals they’ve made with China as their debts have mounted and/or environmental, labor, and governance concerns go unaddressed, questioning the wisdom of the China’s foreign investments as many of the large state-owned enterprises driving the Belt and Road project increase their debt-to-asset ratios—well beyond those incurred by other countries’ firms. Xi’s efforts to project Chinese soft power have fallen flat. Beijing’s draconian treatment of its Uighur Muslim population in Xinjiang and its abduction of foreign citizens in China, such as the Swedish citizen Gui Minhai or the Canadians Michael Kovrig and Michael Spavor, undermine its efforts to shape a positive narrative of international engagement and leadership. Moreover, Xi’s regulations have created a difficult operating environment for foreign nongovernmental organizations and businesses, the two constituencies most supportive of deeper engagement with China. The Trump administration’s reaction to Xi has only made things worse for Beijing. Most obviously, the U.S. government’s enforcement of tariffs on $250 billion in Chinese exports to the United States has weakened Chinese consumer confidence and caused some multinational corporations to shift or consider shifting manufacturing out of China to other countries. The administration and Congress have adopted a more bare-knuckled approach to Chinese global assertiveness. The White House has enhanced relations with Taiwan, increased the number of freedom of navigation operations in the South China Sea, constrained Chinese investment in areas of core U.S. technology, elevated international attention to Chinese human rights practices, and begun to compete directly with the Belt and Road Initiative through infrastructure investments in partnership with other countries, such as Australia, Japan, and New Zealand, as well as through the establishment of a new development finance institution, the U.S. International Development Finance Corporation.
The United States is not alone in resisting Xi’s charms. In the spring 2018 Pew Research Center polls, a 25-country median of 63 percent said they preferred a world in which the United States was the leading power, while 19 percent favored China (although Donald Trump himself fared poorly in the polls in comparison with Xi Jinping). Market democracies collectively have adopted a number of measures similar to those of the United States, and despite Trump’s questioning of the importance of partners and allies, his team has proved remarkably adept at coordinating approaches to many of these countries.
On the economic front, Xi’s priorities should include structural economic reform that gives preference to the private sector over state-owned enterprises and provide a level playing field for multinationals that want to do business with China. He should also take a revised approach to the Belt and Road Initiative that adopts international standards around governance—including transparency, risk management, and environmental and labor practices. Politically, China’s image and soft power would be greatly enhanced by a reduction in the government’s use of Chinese citizens abroad as tools of its political and economic objectives, a step back from its coercive policies toward Hong Kong and Taiwan, and a sharp reduction in its repressive policies toward its own citizens in Xinjiang and Tibet. In his description of leadership, Xi is fond of using the analogy of a relay race: a baton is passed from one runner to the next, and each runner builds upon what has come before while delivering his own contribution. With the baton in Xi’s hand, the Chinese government has expanded its reach and influence at home and abroad. Yet the negative consequences of Xi’s approach—local government paralysis, a declining birthrate, and international opposition, among others—have begun to hold China back from the finish line. Xi needs to course correct—or perhaps pass the baton to the next runner. From: Foreign Affairs
Over the same five years, China’s display industry has grown from being a minor player to the leading supplier in the global industry which will have 55% of all TFT capacity and 38% of OLED capacity by 2023 as forecast by IHS. China will have only a 16% share of OLED capacity in 2019.
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Barry Young
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