“It will soon be July 7, the first anniversary of the great War of Resistance against Japan. Marching together, persevering in endurance and in a united front, the forces of the entire nation have been fighting bravely against the enemy for almost a year ”. These were the words with which Mao Zedong began a series of speeches delivered in 1938, with the country broken into a civil war between communists and nationalists and invaded by the Japanese imperial forces. In these interventions he would develop one of the fundamental concepts in his creed: “C hijiuzhan”, The protracted people's war. The Great Helmsman argued that the only way to subdue the enemy was to avoid the battlefields and instead draw his troops into the interior, where they would be harassed by the guerrillas. With the Party settled in power for decades, its leadership has recently recovered this strategy to face a very different conflict.
Last Thursday, July 30, the members of the Politburo, a body that brings together the 25 men at the top of the apparatus, held a meeting in which they prepared the economic strategy for the second half of the year. But their sights reach much further. Although the recovery after the pandemic is progressing faster than expected and China is one of the countries with the best indicators, the leaders identified "medium and long-term problems" that make it necessary to "create a new development model," as reported a record of the meeting offered by the official Xinhua news agency. Addressing these threats requires "the mentality of fighting a protracted people's war."
"In recent months, management has reflected on the foundations of the Chinese economy for the next 10 to 20 years, and has concluded that the country will face internal and external challenges," says Xu Bin, associate dean of the CEIBS business school. . “Internally, China is moving from a middle-income to a high-income country, but the transition has not yet been completed and is largely dependent on the previous investment-based growth model. (...) Externally, the world has begun to react cautiously to its rise and the confrontation with the United States has reached maximum levels, which leads us to think that China will have to deal with an increasingly hostile international environment. "
The Party's response to this scenario is an economic version of the protracted people's war. An essay published this week in the Beijing Daily and in the organization's official publication, Qiushi –translated as “searching for the truth” - emphasized the importance of this concept, which has been gaining prominence in recent weeks. Its title: "Opening a new game in a time of change with the courage and tenacity of a prolonged war."
The pandemic has accelerated the deterioration in the relationship between the two powers and generated a profound global impact that anticipates a crisis unprecedented since the Great Depression of 1930. China is one of the countries whose economy has reacted the best and its evolution draws a line that closely resembles the desired recovery in V: a slump from which you immediately bounce back. In the first quarter of the year, GDP lost -6.8%, its first decline in almost half a century and the worst result since the end of the Cultural Revolution in 1976; but in the second it grew by 3.2%. And the positive data keep coming. The PMI prepared by Caixin - which measures the confidence of the managers with respect to the previous month - marked this Monday its best result in nine years and anticipates an acceleration in industrial production. In July, Chinese exports rebounded 7.2% according to official data published on Friday.
"China is weathering the crisis better because the degree of state intervention in its economy is much greater," says Alicia García-Herrero, chief economist for Asia at the Natixis investment bank. "In this context it is a more effective model in the short term, but in the long term the consequences will be negative." Its industry has relied on a stimulus program aimed at preventing an increase in unemployment, the great concern of the authorities this year. Even so, the effort has been moderate, "less than analysts expected, since the central bank is aware that the risks are enormous," adds García-Herrero. Now, with the pandemic under control thanks to a protocol based on massive tests, selective confinements and traces based on big data ; the Politburo pointed out that it is time to normalize economic policy and look forward.
If anything characterizes the Chinese administration, it is its ability to plan for the long term. The future has a first post in October this year, when the plenary session of the Central Committee is held. At this event, the 14th five-year plan will come to light, a document that is particularly important at a symbolic level, since it implies overcoming the 13 pyatiletka developed by the Soviet Union between 1922 and 1991. One of its keys will be the promotion of a new development model, known as "the internal circulation."
This model “consists of import substitution, on the one hand; and on the other, in strengthening domestic demand so that more Chinese product is consumed in the country ", explains García-Herrero," in short, economic protectionism. " In the decade after China's admission to the World Trade Organization, its share of global exports went from 4.3% in 2001 to 10.7% in 2011, according to data from the institution itself. Since then it has slowed down to 12.8% in 2018, indicating that it has reached its maximum quota. For this reason, China has been changing its economic model for several years to depend more on its domestic market and less on industrialization and exports. Xi Jinping, the most powerful leader since Mao, called last week to "accelerate its implementation." A new protracted people's war has just begun.
Chinese companies rediscovering the Chinese consumer
In Xu's opinion, “internal circulation implies putting the domestic economy first, something similar to what the US or India have done recently. For this, the engine is the consumption ”. The members of the Politburo stressed at their meeting the importance of “making the most of the advantages of the country's large-scale market” and called on national companies to look inward. But, contrary to what it might seem, for many the change is not easy. Chinese exporters have specialized in the manufacture of large volumes of products without the need to develop key areas for sales such as research, marketing or design. To facilitate this transition, the Council of State published a document last June offering companies instructions to operate in the domestic market.