In 2023, China continued its inward turn as optimism for a post-Covid recovery, both economic and spiritual, ceded to malaise. The Communist Party no longer espoused prosperity, or even its own competence, but instead trafficked in insecurity. Xi Jinping warned of the need to prepare for “worst case scenarios” and the Ministry of State Security called for the “mobilization of all members of society” against espionage.
The apparent triumph of the national security state gives license for the subordination of rational policy to its dark imperatives. China’s own modern history demonstrates how systemic insecurity feeds upon itself; how overwatch devolves into misgovernment; distrust into disorder; and economic frictions into decay.
In the year ahead, the peat fire pervading China’s financial system will especially challenge the country’s shadow banks, which combined with multiple de facto local government bankruptcies, may cause widespread unrest. Diplomatically, China may benefit from countries, including close American allies, seeking to recalibrate their ties after a period of distancing. America’s election will be a contest between keepers of a global order towards which China is ever more hostile and agitators of chaos in which China has no greater certainty of success.
The abrupt end of the country’s Covid-zero policy in December of last year was accompanied by the deaths of an estimated 1.4 million people. The pandemic joined previous generational traumas lost to official forgetting and collective amnesia.
Senior leaders in China’s military were purged; their removals were a signal of Xi’s weakness against the endemic corruption of the Communist Party which he vowed to eradicate upon taking power more than a decade ago. The foreign minister, Qin Gang, was also removed due to a potentially compromising relationship.
Taiwan’s vice president, Lai Ching-te, was likely to succeed Tsai Ing-Wen in January’s elections. Beijing continued to harass the island with military drills; Honduras broke diplomatic relations with Taipei in favor of Beijing. Mainland tax and land use investigations against Foxconn, a manufacturer, were understood to be a signal to Terry Gou, its founder, to drop out of the presidential contest.
In Hong Kong, trials began for 47 pro-democracy figures under the territory’s national security law; the city’s courts, for now, rebuffed the government’s request to wipe a protest anthem from the internet, which would have set up a collision course with global technology companies. Macau resumed its position as the world’s gambling capital as Covid travel restrictions were lifted.
The forced assimilation of China’s minority communities continued. One million Tibetan children have been separated from their families through compulsory boarding school attendance, according to UN human rights experts. Rahile Dawut, a Uyghur scholar who went missing in 2017, was sentenced to life in prison.
Washington and Beijing largely avoided a further deterioration in ties. Joe Biden and Xi Jinping met during the November APEC summit in San Francisco, where they agreed to resume military-to-military communication and step up efforts against the flow of fentanyl into the United States. The path to their meeting was by no means guaranteed at the year’s beginning: a February visit to Beijing by Secretary of State Antony Blinken was postponed when a Chinese spy balloon was discovered over North America and eventually shot down. His eventual June visit would be followed by visits from the secretaries of the Treasury, Janet Yellen, and Commerce, Gina Raimondo.
Despite a renewed emphasis on dialogue, Washington nonetheless continued its efforts to restrict China’s access to advanced technology, securing agreements with Japan and the Netherlands on semiconductor export controls. An executive order also banned outbound investment by US corporations in advanced semiconductors, artificial intelligence, and quantum computing.
The United States secured a number of defense-related agreements throughout Asia. Japan and South Korea vowed to deepen their partnership with the United States and each other. India and the United States announced plans for defense industry cooperation. The Philippines agreed to expand American access to its military bases.
China continued to advance its vision of global security and development intended to undercut American-led global governance. Beijing marked the tenth anniversary of the Belt and Road Initiative, whose flood of loans and investment has diminished in recent years.
Beijing largely aligned itself smpathetically with the Palestinian cause amid the Israel-Hamas war and reaffirmed its call for a two-state solution between Israel and Palestine. Earlier in the year, Beijing brokered a surprise agreement to restore diplomatic relations between Iran and Saudi Arabia, underscoring its growing ambitions and influence in the region.
Xi made a state visit to Russia in March, underlying China’s continued political support for Moscow amid its war against Ukraine; Putin would in turn visit Beijing in October, where he hailed China’s contribution to a “fairer, multi-polar world.”
The BRICS grouping announced its expansion, while Xi’s absence from the G20 and UN General Assembly cast doubt on the relevance of the latter fora. Continued developments with respect to China’s alleged election interference in Canada and espionage against the United Kingdom’s parliament further challenged relations with those two countries. Australia’s prime minister, Anthony Albanese, became the country’s first to visit China since 2016 after years of fraught relations.
Economy and business
Economic growth slowed to an estimated 5% for the year, led by weakness in the property sector, declines in exports, and anemic consumer spending. As Country Garden, a property developer, defaulted, and the restructuring of property developer Evergrande, which defaulted in 2021, stalled, the broader financial system showed signs of stress. Zhongzhi, a financial company, failed to make payments to investors in its trust business. The finances of many local governments, and their financing vehicles, were also seriously impaired. Beijing resisted significant stimulus, signaling its determination to shift its growth model.
Derisking replaced decoupling as the frame for commercial relations, even as many Western CEOs raced back to China for the first time since the pandemic. More than one-third of US businesses reported they had paused or reduced investment in China over the past year, according to a survey by the US-China Business Council.
TikTok continued to evade a federal ban in the United States, although several states and universities have done so in some capacity. Venture capital firms Sequoia and GGV announced they would each split into separate US and China funds due to the increasingly intractable geopolitical divide.
The regulatory storm that upended China’s technology sector in recent years appeared to have receded. Didi, the ride-hailing firm, was again permitted to sign up new users after an eighteen month ban in retaliation for its decision to proceed with a foreign IPO. Jack Ma ceded control of Ant Financial as part of a “corporate governance optimization” plan; a share buyback valued the firm at a quarter of its valuation prior to its aborted 2020 initial public offering. Baidu and Tencent began to roll out their large language models following government approval. Eddie Wu replaced Daniel Zhang as Alibaba’s CEO.
Information on China’s economy became harder to come by. Raids on consulting and expert network firms specializing in due diligence sent a chill throughout the professional services and financial sectors; Wind, a financial data provider, began restricting offshore access; and certain data series, such as that for youth unemployment, were suspended, after a last report of 21%. Bao Fan, founder of the China Renaissance investment bank, was detained in an unspecified investigation.
China was set to become the world’s largest automobile exporter. China’s domestic manufacturers, excelling in the transition to electric vehicles, threatened European automakers in that country and at home. The European Union announced an anti-subsidy probe.
Society and culture
Beijing experienced record rainfall in late July; the decision to divert floodwaters away from Xiong’an, which was chosen by Xi Jinping to become the country’s satellite administrative capital, caused anger in the communities sacrificed.
Zibo, a city in Shandong province, became the site of an unlikely tourist boom and symbol of the country’s ‘consumption downgrade’ as visitors flocked to its cheap barbecue. A rural basketball league captivated fans around the country. A comedian who invoked the military slogan ‘Fight to win, forge exemplary conduct,’ in a joke about his dogs’ squirrel chase prompted a $2 million fine.
China’s summer box office reached record levels, powered by local films including Lost in the Stars, a mystery drama, and No More Bets, a crime film. Notable books included an account of China’s “underground” historians; a survey of Chinese cuisine; an oral history of American journalists in China; and a look into Beijing’s economic coercion.
Mei Xiang and Tian Tian, the Smithsonian National Zoo’s beloved pandas, along with Xiao Qi Ji, their three-year-old cub, returned to China in accordance with the lease that first brought them to America more than two decades ago.
Henry Kissinger, architect of America’s Cold War rapprochement with China, died at 100; Li Keqiang, who was sidelined by Xi Jinping during his decade as premier, died at 68. Isabel Crook, an anthropologist who devoted her life to China, died at 107; Yang Bing-Yi, Taiwan-based founder of global restaurant chain Din Tai Fung, died at 96; Eileen Yin-Fei Lo, who taught Americans to cook traditional Chinese food, died at 85; David Dollar, a scholar of China’s economy, died at 68.
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There is an unmistakable air of schadenfreude, if not outright self-congratulation, in parts of official Washington as China’s economy stumbles into what may be a permanently impaired trajectory. No less than President Biden himself has referred to China as a “ticking time bomb.” American tariffs on Chinese imports; investment and export restrictions; and extraordinary industrial subsidies constitute a significant declaration of intent, as do its efforts to strengthen alliances across the Pacific.
Amid the coincidence of American activity and Chinese comeuppance, American policymakers ought not confuse China’s self-destructive behavior as evidence of their own policy success. China’s challenges are chiefly its own. Some, like its demographic decline, are largely beyond the government’s control to reverse. Others, like its local fiscal imbalances, are inherent to its political system. And then, of course, are the choices being made by its leader, Xi Jinping.
Indeed, the effect of much of Washington’s activity has been ambiguous or inconsequential. Sweeping tariffs have not prevented bilateral trade from reaching new highs. Restrictions on the export and investment in semiconductors is unlikely to handicap China for long, as Huawei’s brash announcement of its 5G-capable phone attests. And if the rash of subsidies do succeed in diversifying production of the most advanced semiconductors from Taiwan, on which the leading edge of the global economy depends, it is unclear if the urgency to preserve the status quo in the Taiwan Strait will dissipate.
At this stage of their contest, America is far from triumphant, but lucky. It lacks anything to offer that might induce China to change its behavior and the power of its deterrents are being eroded or proven, as with financial sanctions on Russia, to be less formidable than once believed. It too must confront its own political and economic time bombs. And the divides between it and much of the developing world grow greater. The more aggressively each country competes with one another, it is not the forced, but the unforced errors that have become more glaring. Both countries are on a trajectory to defeat themselves well before they defeat the other.