Chapter 6: 2023 will be a challenging year for China

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China enters in 2023 with a series of trade-off decisions ahead:

• Needs to resume economic growth from COVID-19 restrictions;
• Maintain a form of Covid-Zero policy to avoid overwhelming spikes;
• Consolidate the pro-Beijing government in Hong Kong;
• Continue to challenge the US over Taiwan;
• Maintain domestic stability;
• Decoupling from the West and become more self-sufficient;

Emperor Xi

President Xi Jiping emerged from CCP 20th Congress in October 2022 with powers unrivaled since Mao Zedong. He has almost unlimited autonomy to carry out his authoritarian and nationalist policy agenda. However, with few checks and balances to restrain him and no alternative voices to contest his ideas, Xi’s capacity to make major blunders is astounding. Arbitrary judgments and increased ambiguity will be commonplace in Xi’s China.

Detaching from the West

US-EU-China relations have moved from a system of overlapping collaboration and cooperation in a unipolar system towards a more bipolar arrangement in which the economies of the United States and the European Union are detaching from China and vice versa. Washington and Brussels, it will most probably continue to apply additional punitive measures, either openly or indirectly aimed at China. President Xi needs to continue reorienting China’s internal and international policies away from Western cultural influence. As a consequence, it is expected that China and the West will create a more polarized geopolitical environment in which medium-sized powers should pick sides.

A subtle offense against private tech businesses weakened global investor confidence, froze some of the country’s most promising companies, and wiped off an estimated $1 trillion in market value. Investments in the tech sector will likely become a strategic priority. The US and China see the tech sector critical in the long-term. We can expect a tech race to take place between China and the US in a similar fashion to the space race in the 1960s and 1970s.

Also, Xi’s statement on February 4, 2022, about a “no limits friendship” with Russia gave Putin’s war in Ukraine more support and made people think less of China’s power in the world system. Xi’s personal devotion to Putin will restrict China’s capacity to align with the developed world as an influential player, and may even limit China’s ability to collaborate with many developing nations.

Hong Kong and Taiwan

China will use military force along its borders, but the likelihood of an invasion of Taiwan will remain low. Meanwhile, the business climate in Hong Kong will deteriorate as the National Security Law is expanded. The new government in Hong Kong will be “helped” to consolidate its power and pursue a pro-Beijing course negatively impacting the democracy of the city-state. Among the new laws on the table we mention insurrection, treason, crowdfunding, and coordination with foreign forces and political actors are all prohibited, while cybersecurity and fake news offenses are supposed to be highly regulated.

However, if Beijing does not invade Taiwan in the following 10 years, they will lose the ability to do it. China’s fragile economy and incomplete military modernisation will demotivate Beijing from launching an invasion of Taiwan in the following 5 years. The West will continue to develop diplomatic and defense ties with Taiwan, prompting Beijing to respond with military steps such as further overflights and perhaps larger military drills near the island.

Covid-N+1 Policy

The economy is still vulnerable to the West and Covid policies. Internally president Xi Jinping must continue his grip on power by resuming economic growth and balancing between Covid-Zero and domestic consumption. I expect CCP to slowly soften its Covid policies in order to resume the economic growth and avoid another wave of protests. However, a surge in Covid deaths might resume the total lockdowns and trigger turmoils.

Furthermore, if a severe new strain of Covid emerges, Xi’s government increases the likelihood that it will spread widely in China and throughout the globe. Due to its limited testing and processing capabilities to detect more severe sickness, China is unlikely to discover novel variations. Even more dangerous, given Xi’s track record of transparency in an already overcrowded health system, the globe would have little or no time to prepare for a more devastating epidemic.