By Maya Kaneko,
With Chinese leader Xi Jinping increasingly advocating the country's unique state-led market economy as he cemented his power at the just-concluded key Communist Party congress, foreign businesses, including Japanese firms, may face further challenges in China, such as technology leakage fears.
Beijing's stringent "zero-COVID" policy, its pursuit of greater self-reliance in the manufacturing sector amid rivalry with the United States and the promotion of "common prosperity" that could lead to coercively narrowing the income gap, have all contributed to increasing uncertainty in doing business with China, critics say.
In a work report to the twice-a-decade congress, where Xi secured an unprecedented third five-year term as party general secretary, he repeatedly stressed the importance of seeking a "Chinese path to modernization" different from Western nations and touted past achievements, including the radical anti-virus measures.
During the weeklong congress, China abruptly postponed its July-September gross domestic product data release without indicating a new publication date, fueling speculation that the delay was out of political consideration as lackluster results could damage confidence in Xi's leadership.
"If the GDP release was put off due to bad figures, it is an outrageous act that completely ignores market mechanism," said Toru Nishihama, chief economist at the Dai-ichi Life Research Institute in Tokyo.
As Xi defended in his speech to the congress the strict measures to stem coronavirus infections that involve the imposition of lockdowns on cities where outbreaks occur, Nishihama said it became clear Beijing "will not prioritize the economy" and that the nation's adherence to the policy is "a risk factor to the global economy."
The economist pointed out that a two-month COVID lockdown in Shanghai, a commercial and financial hub of the world's second-largest economy, earlier this year has revealed the risk of disruption to the country's supply chain in any major virus outbreak.
China's economic growth has been slowing, with consumer spending and real estate investment hurt under the zero-COVID policy, making it difficult to achieve its target of around 5.5 percent expansion for 2022. The International Monetary Fund forecast earlier this month that China will post growth of 3.2 percent this year.
Concerns have also been growing among Japanese companies, as well as other businesses from overseas, that they could be compelled to transfer technology to China under its policy of promoting domestic output of high-tech products and barring imported items from government procurement.
The Japanese Chamber of Commerce and Industry in China has requested that the Chinese government not "discriminately treat foreign companies," warning against its bid to acquire advanced technologies through pressure on overseas businesses to shift production to China and headhunting talent.
The high-tech products include multifunction printers, of which Japanese makers have a major share in the global market, and medical devices.
Under the common prosperity slogan, which aims to rectify economic inequality in the world's most populous nation of 1.4 billion people, Beijing has bolstered restrictions on the country's lucrative sectors, such as the IT and financial industries.
The policy has sparked worries that innovation in the Chinese high-tech industry could be impeded.
"Although China was becoming a leading player in the IT and digital sectors with the rapid spread of mobile payment transactions, such an engine for growth lost momentum due to stronger regulations," a senior electronic maker official lamented.
Richard McGregor, senior fellow for East Asia at Australia's Lowy Institute, said in an online lecture that Xi has a "much better feel for politics than for economics" and "objective reasons" for attacking some sectors.
McGregor said the Chinese leader has "little sympathy for markets" but warned that "clumsy political intervention could come at a greater cost." Xi thinks "the economy is a servant of state power. As long as that's the case, you're going to have a lot of bumps along the road," he added.
At a Sunday press event to introduce his new leadership team, Xi said China "will be steadfast in deepening reform and opening-up across the board," adding Beijing will "open its door ever wider" as it "cannot develop in isolation from the world."
The remarks were made at a time when wariness has intensified over a "decoupling" in world markets amid U.S. attempts to protect industries deemed essential to national security, including semiconductors.
Nishihama said China will maintain its opening-up policy by strengthening cooperation with countries that support its stance and that further decoupling of the world economy will be "unavoidable."
China has deepened ties with many developing countries through its signature Belt and Road infrastructure initiative, which covers more than 140 countries. McGregor said Beijing might be "isolated in the Anglosphere" and other Western countries, but that is "not really the case" worldwide.
Mariko Togashi, a research fellow for Japanese security and defense policy at the International Institute for Strategic Studies, said at a recent press conference in Tokyo she believes complete decoupling is impossible.
The United States recently tightened export controls on high-end chips to China that could be used to produce advanced military systems, but it is "unlikely that Japan will follow the exact same level of this restriction given their different economic exposures," she said.
Nishihama echoed Togashi's view, saying Japan and China are "inseparable" economically as Japan, facing a population decline, needs to enter its neighbor's huge market and that Tokyo cannot impose measures as strong as Washington's for the sake of ensuring its economic security.
In the speech to the congress, Xi vowed to make China's supply chains more resilient and secure.
Yusaku Nishimura, a professor at the University of International Business and Economics in Beijing, said China's supply chains are integrated into global production systems, so it is impossible to establish such chains only between China and its allies.
"Globally speaking, building supply chains without China would lead to increased costs" for business activities, he said.
As for Japanese companies operating in China, Nishihama said they could face "high hurdles" with more state control under the continued leadership of Xi and U.S. decoupling attempts, but they should be prepared to weather the challenges if they cannot find alternative bases elsewhere.
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