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Illustration: Brian Wang

AnalysisHow the economic slowdown and zero-Covid threaten China’s global ambitions

  • Premier Li Keqiang’s recent warning that the economy is struggling to stay on track may have a knock-on effect on its global investment plans
  • Some observers say the prospect of a slowdown will also hamper Beijing’s efforts to present itself as an alternative to the US
China’s Premier Li Keqiang’s recent warning that the economy is facing serious challenges as a result of its Covid-19 controls has raised fears the country may be facing its biggest economic slowdown – or even recession – in decades.

Chinese and international observers have suggested that Beijing may need to rethink its approach towards the West and scale down its global ambitions as it grapples with an increasingly hostile external environment.

They warned that economic headwinds may compromise China’s ability to compete with the United States and put further strains on the Belt and Road Initiative, its transcontinental investment strategy.

Senior Chinese officials, however, have put on a brave face over the past week, trying to play down such concerns while repeating their promises to developing nations.


Belt and Road Initiative explained

Belt and Road Initiative explained
Foreign Minister Wang Yi used a tour of the South Pacific to describe the region as the “southward extension” of the belt and road strategy and say the island states are “important economic and trade partners” for China.

During phone conversations with leaders from the United Arab Emirates and Zambia on Tuesday, President Xi Jinping also promised to expand cooperation on pandemic control, trade and investment under the umbrella of the initiative, his signature foreign policy project.

But Gu Su, a political scientist at Nanjing University, said the importance of Li’s comments during a video call with officials from around the country last month should not be underestimated because the economic fallout would have direct implications on China’s relations with the outside world.


“It is rare for a Chinese leader to admit the uncomfortable truth about the economy in front of thousands of officials. China is likely to enter a period of static development, with its gross domestic product about to record its lowest growth rate in decades this quarter. It will surely have a big impact on foreign policy,” Gu said.

China’s focus on economy underlines stabilising force of GDP growth

Li said the economy was at a “critical point”, which was “to some degree worse” than it had been at the start of the pandemic in early 2020. He called for all-out efforts to stabilise the economy and maintain growth.

Although some of the toughest anti-Covid restrictions – including a two-month-long lockdown of Shanghai, China’s financial and commercial hub – have been lifted this week, it has ravaged the economy and dealt a heavy blow to international confidence in the Chinese leadership ahead of a major reshuffle later this year.

Many economists expect China’s economy to shrink in the second quarter compared with the same period last year, following a 4.8 per cent growth rate in the first quarter.


Gu said there soon may be a major overhaul of the Belt and Road Initiative due to growing concerns about China’s ability to finance ports, railways, power plants and other infrastructure projects across Africa, Latin America and Asia.

“Li has made it clear that Beijing’s priority is to salvage the ailing economy and mitigate mounting concerns about its zero-Covid policy. He made no mention of the belt and road, but it is fairly clear that the limited resources will be focused on jump-starting the weak economy,” Gu said.


George Magnus, a research associate at Oxford University’s China Centre, said China’s lacklustre economic performance was increasingly being viewed as a more realistic and lasting phase in China’s development.

“We should not expect a vigorous recovery, and the economy will remain a hostage to the reintroduction of zero-Covid restrictions if new outbreaks should occur,” he said.

China’s economic slowdown would compromise its ability to demonstrate it is different from the US, he said, adding he expected America to record a higher growth rate this year.


“I’m not sure it will have a dramatic effect on the [belt and road strategy], where direct financing has been on the wane for some time anyway, with Chinese lenders constrained and a growing number of [belt and road] borrowers facing difficult debt burdens and debt servicing requirements,” Magnus said.

Did China just ‘lay the groundwork’ to abandon its 2022 GDP growth target?

“All in all, China’s economic heft, which is the basis for the projection of power, has certainly taken a step back in 2022, and the outlook is for more of the same in this coming decade.”

Analysts also noted that China had pushed to shift its investments towards public health projects in the past two years following accusations that its loans to African countries were a debt trap.

Described by some as the “health silk road”, Chinese investments in public health projects rose by nearly 250 per cent over that period from US$130 million in 2020 to US$450 million last year, according to a report by Fudan University’s Green Finance and Development Centre in Shanghai.

But such efforts, mainly due to Beijing’s determination to lead the global response to the pandemic, have also been hampered by China’s stringent Covid-19 curbs, supply chain disruptions and the backlash against the zero-tolerance approach.

“China’s economic slowdown is inevitable, at least for a time until it recovers, and while we currently see only relatively minor effects, these are set to become more significant in the near future,” said Doron Ella, a research fellow in the Israel-China programme at Tel Aviv University’s Institute of National Security Studies.

Despite some initial successes in China’s vaccine diplomacy in developing countries, “the rather low effectiveness of Chinese vaccines, especially against new variants, makes them less attractive”, Ella said.

Philippe Le Corre, a non-resident fellow in the Europe and Asia programmes at the Carnegie Endowment for International Peace, also believed Beijing was likely to scale down investments in the coming years.

“Instead of being ‘global’, the [belt and road] has become a targeted strategy for some regions in the world where China doesn’t face too much competition from the West, for example Latin America, Africa, South Asia and Central Asia. Projects are still going on in many places but we are far from the announced 14,000 projects,” he said.

The war in Ukraine has also made Chinese state-owned enterprises hesitant to go into countries where China might be affected by economic sanctions against Russia and Belarus, according to Le Corre.

“I think [the belt and road] is still a major policy from China but … I don’t expect new developments in the near future,” he said.

‘Sharp decline’: China export growth lowest in 2 years amid zero-Covid pressure

But Austin Strange, an assistant professor at the University of Hong Kong’s department of politics and public administration, said a slowing domestic economy did not necessarily mean drastically shrinking the belt and road.

“Despite the pandemic, many of the underlying economic motivations for the belt and road and China’s global infrastructure drive are presumably still in place. China’s government wants to continue to search for bankable projects abroad to stimulate foreign demand for Chinese goods and services, offload excess capacity, and internationalise and support Chinese state-owned enterprises,” said Strange, a co-author for the book Banking on Beijing: The Aims and Impacts of China’s Overseas Development Program.

He said another reason for China to provide continued development finance would be Beijing’s understanding of “the strategic value of diplomatic support from many countries that are now part of the belt and road”, especially in the midst of the US-China rivalry.

Premier Li Keqiang has sounded the alarm over the economy. Photo: Xinhua

China’s deepening geopolitical and ideological feud with the US and the continued decoupling of their economies also makes it harder for other countries to accept Beijing’s promises that its investments come without strings attached, according to Pang Zhongying, an international affairs specialist at the Ocean University of China in Qingdao.

“On top of the split between Beijing and the West over the Ukraine war, China’s excessive response to the Covid-19 outbreaks and the economic fallout have also raised questions about Beijing’s credibility and the sustainability of the belt and road projects,” he said.

In light of domestic and external challenges, Nanjing University’s Gu said creating a less hostile external environment should be Beijing’s top foreign policy priority.

“The key for avoiding an economic crisis will be to prevent the exodus of foreign companies and investment, apart from rolling out economic incentives,” he said.

“It is not an easy task, but Beijing must show it is capable of reining in its Wolf Warrior diplomats and easing tensions with major Western powers before it gets too late.”

Shanghai reopening fails to impress stock traders as recovery remains bumpy

According to Gu, diplomats in Beijing, including Wang Yi, have toned down their anti-American rhetoric in the past few days, signalling concerted efforts to rescue the Chinese economy.

Wang, who had become increasingly vocal in his criticism of the US administration of Joe Biden, struck a conciliatory tone on Tuesday, claiming that relations cannot deteriorate any further.

“I hope that people from all walks of life in China and the United States will no longer remain silent and speak out actively, bringing new hope to the people of the two countries,” Wang said, according to state media reports.

Additional reporting by Kandy Wong