The business community and democratic countries, particularly the U.S., helped bring China into WTO in 2001 in the hope that the CCP’s economic and political behavior would be more in line with the free world. Russia joined the WTO in 2012. They mistakenly assumed that greater integration into the global economic order would ensure that authoritarian regimes are going to liberalize their political system.
China and to a lesser extent Russia have benefited enormously from being part of a global, rules-based economic system. Now, the free world, after paying a heavy price, is learning that both authoritarian regimes are in fact destroying the current rules-based order, which have given prosperity to the world in the previous decades.
The world’s major free economies have made a pivotal decision and are poised to stand up to authoritarian regimes after witnessing Russia’s February 24 unprovoked and illegal invasion of Ukraine where Russian soldiers are intentionally and wantonly killing civilians and bombing civilian facilities, and after realizing that the still raging pandemic has exposed the dangers of over-reliance on the Chinese supply chains.
In time to come, as more countries take a unified stand against Russia’s invasion and impose sanctions, and private companies voluntarily sever business relationships with Russia, and as more countries and companies diversify from Chinese supply chains, there will be a permanent economic fissure between democracies and autocracies, fracturing the world into two opposing economic blocs based on ideology.
Against this backdrop, it is difficult for the self-proclaimed neutral parties to sit on the fence and try to reap benefits from the two opposing camps. In this new environment, the world will be divided economically as it will be politically and it will be increasingly difficult to separate economic consideration from the broader matters of national interest, including national security. Therefore, the remaining countries and companies will have to gravitate to whichever blocs that can satisfy their interests.
Xi and Putin: Brotherhood of dictators
When Putin attended the Winter Olympics in Beijing on February 4, in a joint statement, Xi Jinping has publicly stated that there is “no limit” to China’s friendship with Russia. Xi also declared a vision of a new international order with Moscow and Beijing at its core.
The CCP has refused to condemn Russia’s unprovoked and illegal invasion of Ukraine, refused to call it an invasion and even trivialized the brutal killings and suffering of civilians by saying it is an “Ukraine issue”. On March 30, in a meeting with the Russian foreign minister, the CCP foreign minister said he is “more determined to boost the relationship between China and Russia”.
It should also be remembered that when the Covid-19 virus was first discovered in the city of Wuhan, the CCP hid this fact, allowed its citizens to travel freely all over the world thus hastening the spread of the virus, and stopped the export of and hoarded all essential medical supplies including facemasks.
Importantly too, it should be emphasized that with an insistence on zero-Covid policy which is politically motivated and not based on science and medicine, the CCP mandated citywide lockdowns throughout the country, including in Shanghai, a major port city, financial and manufacturing hub with a population of 25 million, and resulted in massive global supply chain disruptions and serious repercussion for international trade.
Capitalism is dead in Communist China
The CCP’s solid support for Russia and the regular lockdowns, together with the ongoing human rights abuses, crackdowns on private enterprise and Xi’s common prosperity policy to “encourage” capitalists to share their wealth with commoners, are forcing the global business community to confront the reality of doing business with and in China.
Entrepreneurship, the cornerstone of capitalism and the source of innovation, is not able to survive in communist China. CEOs and investors have to realize that in Xi’s authoritarian regime, the free market is dead and the economy has come under the political control of the CCP. CEOs and investors cannot just focus on cost and profit alone, but also reliability, efficiency and resiliency, which they will not find in communist China.
CEOs and investors should be aware of the many perils of being economically tied to China. For example, the CCP has always weaponizes trade and imposes economic punishments on countries and companies that do not toe the party lines or do not sufficiently show loyalty.
It is unwise for the global business community to be highly reliant on Chinese supply chains and CEOs and investors should move their operations and investment to countries where they can count on a stable business-friendly climate, ongoing and reliable supplies, and where the governments share a strong respect for the rule of law and universal values. They need to deepen their business ties with this kind of partners where mutual benefits are assured.
Democracies are banding together in support of universal principles: free market economy, human rights, freedom of speech, opposition to aggression and widespread violence against civilians, and commitment to a rules-based global order that protects peace and prosperity. The future of the current rules-based order, both for peaceful security and economic prosperity, is at stake. There is no way that the unified coalition of democracies is backing down from China and Russia.
Even Germany, traditionally very dependent on Russia’s gas and which has imported an average of 55 percent via onshore pipelines, is biting the bullet to decouple quickly and sustainably from Russia. On April 15, the finance ministry said it has released nearly €3 billion (US$3.2 billion) to acquire floating liquefied natural gas import terminals.
The economic fissure between democracies and autocracies is not going to be easy, in fact it will be destructive, disruptive, abrupt and painful. Be that as it may, the dismantling of the current long-standing east-west economic integration to make way for new economic blocs is happening. In the process, there will winners and losers. Countries and companies still sitting on the fence must choose a side and quickly adapt to this new environment or fail.
Photo credit: Shutterstock/AndreyKrav