Notes
We expect US-China relations to improve now that China has completely moved on from zero COVID. I don’t fully understand what made zero-COVID such an impediment to improving US-China relations, but it was.
Zero-COVID was a crisis management policy. Although the United States informally lifted its pandemic policy much earlier than China, both sides needed to move into their respective post-pandemic phases to resume normal relations.
Chinese authorities will focus on economic policy over the next year. It’s still unclear how China’s economy will evolve over the coming decade, as reducing dependence on investment-led infrastructure and real estate growth remains a key challenge.
Post-pandemic economic stimulus will likely continue to revolve around the standard fiscal and macroprudential toolkits that defined China’s growth story in the wake of the 2009 global financial crisis.
For China, the difference between the 2009-2020 period and 2023 is that China has expanded its macroprudential and fiscal policy toolkit to include measures to deleverage credit and asset bubbles in municipal and semi-state-run lending vehicles such as Local Government Financing Vehicles (commonly known as LGFVs).
In other words, China’s long overdue deleveraging of its property sector beginning in 2020 market a new phase in China’s regulatory regime. Asset bubbles are now way less scary than they’ve been in the past because authorities have the experience and coordination to deflate them before they present a structural threat to the overall system.
2023 will mark the beginning of a new geopolitically and socioeconomically era for the People’s Republic of China. We anticipate US-China relations will improve and China will successfully navigate its post-pandemic policy economic recovery.
Technology
Can democracies cooperate with China on AI research? (Brookings)
Over more than two decades, China has become deeply enmeshed in the international network of AI research and development (R&D): co-authoring papers with peers abroad, hosting American corporate AI labs, and helping expand the frontiers of global AI research. During most of that period, these links and their implications went largely unexamined in the policy world. Instead, the nature of these connections was dictated by the researchers, universities, and corporations who were forging them.
America’s Aggressive Chip Strategy Forces China Into a Corner (Bloomberg)
China’s government is protecting some of its chipmakers by spending lavishly to shore them up, just as weak demand is making it hard for chip manufacturers across the globe. But China’s semiconductor industry also faces a problem that its counterparts elsewhere don’t have to worry about: unremitting hostility from the US government. Beijing could try to spend its way out of that problem, too, but there may be things about cutting-edge semiconductor production that money can’t buy.
Pandemic Policy
China reopens borders in final farewell to zero-COVID (Reuters)
Travellers streamed into China by air, land and sea on Sunday, many eager for long-awaited reunions, as Beijing opened borders that have been all but shut since the start of the COVID-19 pandemic.
After three years, mainland China opened sea and land crossings with Hong Kong and ended a requirement for incoming travellers to quarantine, dismantling a final pillar of a zero-COVID policy that had shielded China's 1.4 billion people from the virus but also cut them off from the rest of the world.
COVID in Europe: China’s surge not a cause for concern ‘at this time’ says WHO, as XBB.1.5 virus spreads (United Nations)
Dr. Hans Kluge, head of the World Health Organization for Europe, explained that this is because the two variants circulating in China are already present in European countries, according to data provided by the Chinese authorities.
“We share the current view of the European Centre for Disease Prevention and Control (ECDC) that the ongoing surge in China is not anticipated to significantly impact the COVID-19 epidemiological situation in the WHO European Region at this time.”
Europe faces no immediate COVID-19 threat from China, WHO says (Los Angeles Times)
The director of the World Health Organization’s Europe office said Tuesday that the agency sees “no immediate threat” for the European region from a COVID-19 outbreak in China, but more information is needed.
China is battling a nationwide outbreak of the coronavirus after abruptly easing restrictions.
Hans Kluge said that, based on the information WHO had received from China, there was no threat, but more detailed and regular information was required from China to monitor the evolving situation.