China on the Defensive to Safeguard the Economy and Xi Jinping

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(Bloomberg) -- President Xi Jinping has re-engineered China’s foreign policy since taking power, imploring diplomats to expand the nation’s global reach with new international organizations and a worldwide infrastructure program involving hundreds of billions of dollars.

But since the new coronavirus has ravaged China, prompting nations to shun Chinese visitors and reassess supply chains, diplomats have played defense to protect the home front. That has mostly meant two things: Restoring China’s reputation among foreign companies that manufacture and source goods in the country, and ensuring Xi’s Communist Party maintains its grip on power.

For Xi, the stakes are high. The virus has infected more than 80,000 people and killed more than 3,000, disrupting business and daily life for large swathes of the world’s most-populous country. Economists have downgraded growth forecasts this quarter to a median of 4% -- the lowest in three decades -- even before oil plunged Monday.

On Tuesday, Xi visited the virus epicenter of Wuhan for the first time since the disease emerged, a trip intended to project confidence that his government has managed to get it under control. Now, he needs to convince the world that China is still a safe place to do business.

“Given how rapidly the disease spread within China, the world has ample reason to doubt the competence of Chinese authorities,” said Timothy Heath, a senior international defense researcher at the RAND Corp. “The very idea of a ‘China model’ may suffer lasting damage.”

Confidence Vote

Xi faces what amounts to a confidence vote in 2022, when the Communist Party holds a once-every-five-years meeting to promote new leaders. Mass unemployment could raise questions about his chances to extend his time in power, which has been seen as likely since he scrapped term limits for president just two years ago.

U.S. President Donald Trump’s trade war had already prompted some companies to shift production from China and reconsider using 5G equipment from Huawei Technologies Co. Peter Navarro, a member of Trump’s economic team, has said that the coronavirus shows the U.S. needs to bring more of the supply chain back home.

Worryingly for China, it’s not just the Trump administration. Last month at a Group of 20 meeting, French Finance Minister Bruno Le Maire questioned if “we want to still depend at the level of 90% or 95% on the supply chain of China” for everything from automobiles to pharmaceuticals to aeronautics.

Ma Hui, a minister in the Chinese embassy in London, said diplomats were working overtime to field questions about the virus and rebut what they believe to be misleading reports. China has offered support to airlines willing to resume flights, while British pharmaceutical companies have expressed interest in working with Beijing to fight the outbreak, including by developing a vaccine, he said.

“Any impact on the international supply chain and the economy should be short-lived, if we work together in fighting the virus,” Ma said by phone Thursday. He added that China had received support from the U.K. government, including a phone call from Prime Minister Boris Johnson to Xi.

Ma also acknowledged concern that, if mishandled, the international response to the epidemic could contribute to a “misunderstanding” of China and of its role in the global economy.

Chinese officials have sought to win over foreign companies, with its ambassador to Europe hosting a webinar with the European Chamber of Commerce in Beijing. Back in Beijing, Vice Commerce Minister Wang Shouwen held a rare conference call with the European Chamber, and plans to do the same with the American Chamber of Commerce.

The moves have even prompted hopes among some members that the fallout from the virus might jump-start economic reforms.

“China now stands on the cusp of a new and different type of economic crisis,” said Joerg Wuttke, president of the European Chamber of Commerce in China. “China’s leaders are adept at handling moments of economic crisis and uncertainty and using them to quickly advance economic liberalization.”

But in other ways, China has gone in the opposite direction and become less accommodating. Amid growing nationalist rancor over a Wall Street Journal opinion piece that called China “the real sick man of Asia,” the foreign ministry last month expelled three of the newspaper’s reporters.

Other senior diplomats have taken to Twitter to lash out at critics. “You speak in such a way that you look like part of the virus and you will be eradicated just like virus,” Zha Liyou, China’s consul-general in Kolkata tweeted at one detractor.

‘High Price’

The virus has seen China’s relations deteriorate with some countries where they had improved. Italy pleased China when it became the first Group of Seven country to sign up for Xi’s Belt and Road Initiative last year. Then, it drew an angry response from Beijing when it became the first European destination to bar flights to and from the country.

In Veneto, which has Venice as its capital, the regional governor apologized after saying the rapid spread of the virus in China was partly due to a lack of personal hygiene. “China paid a high price for the outbreak because we have all seen them eat live rats or other stuff like this,” Luca Zaia, who is a member of the anti-immigrant League party, said in an interview with a local television channel.

The crisis has also damaged the Belt and Road trade-and-infrastructure plan. Flagship projects have been delayed, ranging from a $5.5 billion high-speed rail line in Indonesia to construction projects in Pakistan and Sri Lanka.

China has rebutted that by highlighting countries that have praised its approach. The foreign ministry held a special briefing last week to showcase how other countries have assisted its fight against the virus and -- more importantly -- how they have lauded Xi’s efforts.

“Party leaders in many countries say Xi Jinping’s brilliant leadership is the key to fight against the virus,” said Guo Yezhou, vice minister of the Communist Party’s International Department. It even provided a lengthy list of political parties that have praised Xi, ranging from Nepal’s Communist Party to Palestine’s Fatah movement.

30,000 Sheep

No gesture is too small: Cambodian Prime Minister Hun Sen, the first leader to visit China during the outbreak in early February, received praise from Xi. State media hailed Mongolian President Battulga Khaltmaa’s gift of 30,000 sheep to China during his visit last week.

Xi has personally helped with the effort to restore China’s reputation, speaking with leaders from French President Emmanuel Macron to Chile’s Sebastian Pinera.

Following a call with UAE Crown Prince Mohammed bin Zayed Al Nahyan last week, state media printed Xi’s assurances about China’s virus-fighting efforts while also playing back foreign praise of Xi. “I believe that under the firm leadership of President Xi Jinping, the Chinese people will overcome the epidemic,” the Crown Prince was quoted as saying.

“Xi is using diplomacy to feed messages to the domestic audience and to bolster his legitimacy,” said Evan Medeiros, former senior director for Asia on the National Security Council.

Video Conference

Recent days have also revealed another element of the strategy: seeding doubt about China’s role in the initial spread of the virus. Last week, Ministry of Foreign Affairs ministry spokesman Zhao Lijian effectively gave the government’s public blessing to online rumors suggesting that the virus may have originated elsewhere: “Its origin is not necessarily in China,” he said.

The foreign ministry resumed its regular in-person daily news conference last week after running the briefing on the WeChat messaging platform for three weeks after the Lunar New Year. Still, foreign diplomats say their Chinese counterparts are exercising great caution off the stage, urging them to conduct business through WeChat wherever possible and avoiding shaking hands when meetings do take place.

Xi himself expressed caution on his visit to Wuhan on Tuesday. While visiting one of the two dedicated hospitals built especially to treat virus patient, photos published by state media showed Xi wearing a mask while speaking to patients via video conference.

--With assistance from Marc Champion and Alessandro Speciale.

To contact Bloomberg News staff for this story: Peter Martin in Beijing at pmartin138@bloomberg.net

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net, Brendan Scott

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