China’s newfound insularity is about more than COVID restrictions

Chinese president Xi Jinping’s decision to skip last week’s COP26 climate talks in Glasgow and the G20 summit in Rome has fueled Western speculation that the world’s second-largest economy is retreating from the global stage.

The Financial Times, in a weekend “Big Read,” contrasts Xi’s Glasgow no-show with his confident, in-person defense of globalism at the World Economic Forum in Davos in 2017. Authors interpret the Chinese leader’s absence at the climate talks—along with the fact that he hasn’t set foot outside his own country since January 2020—as a response to “acute domestic pressures and mounting hostility abroad” that demonstrates China is “turning inward.”

The FT‘s Gideon Rachman, in a column yesterday, lambastes Xi, whose country pumps more carbon dioxide into Earth’s atmosphere than the U.S. and EU combined, for blowing off the climate confab with a written statement of fewer than 500 words. “Xi’s dismissive attitude to the climate talks was not so much Middle Kingdom as middle finger,” Rachman fumed.

The “self-imposed isolation” narrative can be woven from many strands. Start with the Draconian system of border controls and health checks China has adopted to keep the coronavirus at bay. Anyone entering the country must endure strict hotel quarantine for a minimum of two weeks. (Been there, done that.)

China is the only major economy clinging to a policy of zero tolerance for COVID-19. And while the rest of the world, including formerly “COVID zero” countries like Australia, New Zealand, and Singapore, is gradually reopening, China seems unlikely to relax its restrictive quarantine policies anytime soon.

China has announced that it will ban foreign spectators from the Winter Olympics in Beijing in February. Indeed, health experts and business executives queried by Fortune say they expect strict quarantine rules to remain in place through a November 2022 congress of the Chinese Communist Party that is expected to confirm Xi as leader for the next five years.

The quarantine rules have shut out foreign visitors from China, prompted long-time expat residents to leave, and discouraged young Chinese from studying overseas.

But there are other drivers of China’s new insularity. Xi is far more focused on lobbying party elites to secure that third term than he is on climate issues at the moment. Meanwhile, Washington’s protracted standoff with Beijing over matters of trade and technology has compelled the Chinese leader double down on his policy of “dual circulation,” which calls for expanding production at home and minimizing reliance on the U.S. and its allies for critical technologies and materials.

The FT notes that “increasingly Chinese consumers favor local brands over foreign ones and Chinese job hunters would rather work for a successful Chinese company than a multinational.” That squares with what I heard and saw in Hangzhou and Shanghai last month. Even Hollywood is losing its allure.

As we’ve reminded readers often in this space, China remains a crucial market for global firms. The Commerce Ministry last week reported that it expects foreign investment this year to top $160 billion, a 10% gain over last year. But at a press conference to announce those figures, Zong Changqing, head of the ministry’s foreign investment department, warned that future growth would be modest. “The current external environment for stabilizing foreign investment,” he said, “remains complex and grim.”

More Eastworld news below.

Clay Chandler
clay.chandler@fortune.com

This edition of Eastworld was curated and produced by Grady McGregor. Reach him at grady.mcgregor@fortune.com. 

Eastworld news

Supply ease

Supply chains in Southeast Asia are returning to normal amid a dramatic drop in COVID-19 infections across the region. In Vietnam, roughly 200 Nike suppliers have fully resumed operations, while electronic component and auto industry suppliers are similarly returning to full strength after months of dealing with government-imposed capacity constraints due to COVID-19 outbreaks. Malaysia, similarly, is returning to full capacity at factories now that over 90% of adults are fully vaccinated. Nikkei Asia

Open for business

On Monday, Japan re-opened its borders to business travelers and foreign laborers, putting the world’s third-largest economy at odds with its more closed-off neighbor China. Foreign travelers need to self-isolate for three days before mixing with Japan’s population, and tourists continue to remain banned from entering its borders. But now that over 70% of Japan’s population is fully vaccinated, and COVID-19 infections have dropped precipitously from a September peak, Japan appears intent on opening itself up to the world. Wall Street Journal

Too cheap

Amid Beijing’s attempts to rein in its speculative property market and a crisis at indebted giant Evergrande, developers across the country are beginning to lower prices for new apartments. But some customers who bought properties before the price cuts have protested the reductions, and steep property discounts threaten to disrupt an important engine of Chinese economic growth. Now some local governments have begun to put in price floors to keep property prices from dropping too low. Financial Times

A win is a win

Chinese authorities may not like gaming, but they appear to like winners. Over the weekend, Edward Gaming, a Shanghai-based e-sports team, won the 2021 League of Legends World Championship, leading to widespread celebrations across the country. Chinese state-run media outlets hailed the victory just weeks after China imposed some of the world’s harshest gaming restrictions for minors, signaling that Beijing may still support the development of online gaming and e-sports even as it attempts limit its youth from playing online games. SCMP

Markets and movers

Livestreaming – China’s securities regulator this week banned online influencers from recommending individual stocks, saying they could only focus on macro aspects of the economy and markets when live streaming on Chinese social media platforms. The order comes as more fund managers are enlisting livestreamers to attract new clients.

Pfizer – Pfizer’s Friday announcement that its new antiviral pill Paxlovid is 89% effective in preventing deaths and hospitalizations from COVID-19 infections triggered a selloff among Asia’s vaccine makers on Monday, with Chinese vaccine makers Cansino Biologics and Wuxi Biologics each dropping 17% and 9% on Monday. On Tuesday, Cansino’s share price dipped 3% while Wuxi’s stock price went up 8%.

PricewaterhouseCoopers – The American account firm is planning to double its presence in China, announcing expansion plans on Monday that include creating 20,000 new jobs in China and investing $8 billion in the market over the next five years. PwC is the most heavily reliant on Asia among the Big Four accounting firms, drawing nearly 20% of its global revenues from the region.

Tencent Music – The music division of the Chinese tech giant reported on Monday that it now has 71.2 million online music customers, up 37.7% from one year ago. Total revenue for the Spotify-like service beat analyst estimates, rising 3% in the third quarter to $1.22 billion even as China’s government imposed anti-trust regulations this summer that barred Tencent from holding exclusive copyright contracts for its music library.

Adaro –Garibaldi Thohir, CEO of the Indonesian coal giant, said Monday that he aims to decrease Adaro’s reliance on coal from 90% of its revenues to 50% in the next ten to fifteen years. Thohir said Adaro plans to ramp up its renewable energy business, but the transition to clean energy will take time in developing countries like Indonesia.

South China Morning Post – Bloomberg reported on Friday that Chinese state-owned media group Bauhinia is preparing an offer to buy Hong Kong newspaper the South China Morning Post, which is owned by Chinese tech giant Alibaba. Alibaba co-founder Joseph Tsai later denied that Alibaba was considering selling the paper, according to a note sent to SCMP staff from CEO Gary Liu.

The Philippines – The Asian nation’s GDP grew 7.1% in the third quarter compared to one year ago, beating analyst estimates of 4% growth but falling short of the country’s 12.1% second-quarter increase. Experts said stronger-than-expected household consumption helped stem the effects of strict lockdowns Manila imposed in recent months to contain COVID-19 outbreaks.

Final figure

$54 billion

The Japanese investment group Softbank reported Monday that it lost $54 billion in net assets in the last three months due in large part to China’s crackdown on its tech giants. Softbank owns a nearly one-quarter stake in e-commerce giant Alibaba, which has been in the crosshairs of Chinese regulators since Beijing blocked the IPO of Alibaba’s fintech affiliate Ant Group one year ago. Alibaba’s stock price has dropped 43% in the last year.