China: New Environment, Same Culture

By Major General (retired) Michael Snodgrass

Executive Summary

China’s priorities in 2023 are likely to be: addressing COVID, economic recovery, Japan, and Indo China relationships, and finally the US-China relationship.
Chinese decisions have become less predictable especially when viewed through a Western lens. Maintaining security is paramount and permeates all choices.
The structural parameters of doing business in China have changed. Xi has made national security into a core component of party ideology and it is the highest political priority.
Governments/businesses face a China more willing to accept economic losses to defeat security threats (perceived or real), through economic or Cyber actions.
CCP efforts to leverage Cyber abilities to monitor threats and pre-empt risks to public order and the party represent a threat to nations and international entities working with/in China.
Despite changes to law, if Hong Kong steps out of line again, retribution will likely follow.

Background

Decision-making in the Chinese Communist Party (CCP) is less clear now than four years ago. The decision to abandon “Zero COVID” was a major surprise. This continues a trend of mystifying Party decisions regarding COVID while trying to maintain international relationships.

Unpredicted turns have occurred as the government seeks to address public discontent with “Zero-COVID” while finding ways to restore the economy to pre-COVID performance. The diplomatic whipsaw of decisions regarding visa denials for South Korea and Japan businesses, tourism, medical treatment, and other private travel; follow moves to significantly ease previously strict border controls. These controls required entrants to the country, whether Chinese nationals or eligible foreign nationals, to undergo multiple Covid-19 tests and mandatory hotel quarantine.

As a result, Government credibility in China and globally has taken a setback. Recently, countries including the US, France, Canada, Japan, and Australia have mandated Covid-19 testing for travelers from China, citing concerns about the inadequate level of data reporting from the country and the potential for new variants of the virus to emerge from China.

Several inter-related factors affect any decision regarding the CCP:

Fundamentally the CCP’s historic goal to achieve a position of world greatness diplomatically, economically, and militarily is unchanged. At the same time, their compulsion to save face remains paramount.
Xi’s tendency to make decisions uninformed by facts causes confusion domestically and internationally. His primary fear: a loss of confidence by the masses leading to rebellion.
The necessity to address the spread of COVID.
Their desire for a return of capital investment and technology exchange to stimulate the economy and “leapfrog” the West. This suggests a stable and predictable business environment for nations/corporations wishing to invest.
The ambition to stimulate domestic consumption as an engine of growth.
The upsurge in emphasis on “Security” in the CCP’s National Security Strategy and the implications of implementation. Their current approach appears to work against establishing a stable business environment mentioned above.

Chinese 2023 priorities

In the first half of 2023 COVID’s spread should be addressed. However, Xi has a long record of ignoring advice on COVID (as well as private sector concerns on the economy). In early January, China officials suggested there had only been 37 deaths since December, out of a population of 1.4 billion. Recently China reported nearly 60,000 COVID-19 related deaths since early December. Infections have surged in the People’s Republic since the nation lifted its strict “Zero Covid” policy.

Subsequent to more transparent communication with the world on COVID as well as real reductions in COVID transmissions, the CCP needs to establish policies to stimulate their economy. After these two goals, relationships in the region and working on the US relationship / Taiwan seem to be of lesser concern.

Chinese retaliation against South Korean and Japanese citizens by no longer issuing visas works against their goals. “Visas for business, tourism, medical treatment, transit and general private affairs will be suspended for South Korean citizens effective (January 11^th),” the Chinese Embassy in Seoul said in a recent statement. These measures will be “adjusted” if South Korea cancels its “discriminatory” entry restrictions on China, the embassy added.

The restrictions mark China’s first retaliation against restrictions and screenings placed on Chinese travelers. Several countries now require testing of travelers from China, citing concerns over the recent surge of infections and limited data about the outbreak after Beijing dropped stringent Covid controls last month. The policy switch has led to a wave of infections across China, economic decline, and international concern with Britain, France and Spain imposing curbs on travelers from China at the end of 2022.

China’s actions were taken despite President Xi’s “new” policy approach announced last fall. Reportedly the intent was to be more focused on the new Chinese National Security Strategy and be more pragmatic. The visa retaliation decision seems to be heading in the opposite direction.

Xi’s NSS

Xi’s concept of “comprehensive national security”, officially introduced in 2014, has continued to expand, comprising 16 security areas. These are essential to China’s development, and the CCP’s survival, by keeping China domestically stable and internationally thriving. The NSS is closely linked to achieving the “rejuvenation of the Chinese nation” by 2049 and has been included in the revised Party Constitution and various party documents and laws.[1] In late 2021, the Politburo reportedly drew up a new National Security Strategy for 2021–2025. Xi instructed top security and legal officials in January 2022 that all party and state organs must improve efforts to prevent and contain internal and external threats to China’s national security and political system.[2]

As it has grown since 2014, the effect is to change the NSS from a statement of goals and policy initiatives (as used in the West) to a comprehensive litmus test for all government and private actor’s decisions. The “securitization of everything”, is predicated on the Chinese view of external and internal threats to the survival of the Party.

China is continually more willing to accept economic costs to defend against threats (perceived or real). The CCP will continue efforts to decrease reliance on the West while attempting to infuse more advanced technologies into their economy, resulting in increased tech sector competition. Foreign companies should expect new legislative prohibitions and political pressure from the party.

Bottom Line: Xi has made national security a core component of party ideology which becomes, by definition, the highest political priority. It is a state doctrine that permeates all aspects of China’s governance. National security actions are not only meant to avert threats but to proactively identify any potential new threats – domestic and international – and act accordingly.

Cyber Capabilities

Party fears of networked resistance (think of the “Arab Spring” demonstrations across the Middle East and North Africa), has led to an expansion of China’s surveillance capabilities. To establish a “peaceful China”, the government has created smart- and safe-cities and communities. The Party has made concerted efforts to leverage new digital technologies to monitor target groups and pre-emptively detect risks to public order and the party.

Called the “grid management system”, grassroots party personnel are responsible for a number of individuals. Their function is to monitor threats/mitigate issues where possible. Their wide-ranging duties include delivering social services to monitoring and reporting on citizens.[3] Building on the Great Firewall and other internet controls, CCP leadership has invested heavily in controlling online spaces. These advanced capabilities were evident early in the pandemic when the death of whistle-blower Dr. Li Wenliang sparked mass calls for free speech, and later during criticism of harsh pandemic policies.

Whereas in the early 2010s, public incidents and scandals were often followed by weeks of critical discussion, today within hours of detection online spaces are quickly censored and flooded by messages supportive of the party.[4]

NSS and Cyber Capability Implications

The decades long Chinese approach to Computer Network Operations (offense and defense) and their extensive cyber ability to reach into personal technology allows them to manipulate, block, or send CCP approved messages about events such as COVID policy protests. This is clearly a potential threat for countries / businesses that are globally intertwined with the Chinese.

Cyber manipulation and/or espionage can help China gain technology it otherwise would not be able to produce domestically, or legally procure due to tightening export controls: leapfrogging the West by illegally obtaining technology and exploiting adversary weaknesses. There is considerable precedent for these actions in the last 30 years. As pointed out in the 2010 U.S. Quadrennial Defense Review, “the speed of cyber-attacks and the anonymity of cyberspace greatly favors the offense. This advantage is growing as hacker tools become cheaper and easier to employ by adversaries whose skills are growing in sophistication.”[5] (emphasis added)

Between 1995 and 2009, several high-profile cases of Chinese espionage against the US surfaced. These targeted aerospace programs, space shuttle design, F-16 / F-35 design, submarine propulsion, C4ISR (Command, Control, Computer, Communications Intelligence, Surveillance and Reconnaissance) data, high-performance computers, nuclear weapons, cruise missiles, semiconductors, integrated circuit design, and details of US arms sales to Taiwan. In 2011 the Department of Defense learned of a new Chinese fighter aircraft, the J-31, which subsequently flew in 2017 and bears a remarkable resemblance to the US F-35 (except that the F-35 is single engine while the J-31 has two motors.) Cyber theft allows China to save tens of billions in R&D, necessary experimentation, and the testing a new weapon must go through before it reaches the battlefield.

The party has tightened control over private companies, such as Alibaba, by launching anti-monopoly, data security and other crackdowns. Under CCP pressure, Alibaba is diverting billions into chip development and pursuing party initiatives. Internally, the party has stepped up censorship of media and the internet, increased public surveillance and tightened the CCP’s control over private life through its “social credit” initiative: tracking individuals and punishing infractions from fraud to littering.[6]

It is clear China will conduct any activity it feels will enhance security: traditional technology transfer or illegal acquisition of technologies from cyber espionage. Companies must view any relationship with China with eyes wide open, and a more than random glance behind their backs.

Hong Kong

Hong Kong and mainland China resumed quarantine-free travel on January 8th, signaling the end of zero-Covid policy which kept borders effectively closed for nearly three years.

This decision was followed three days later with retribution against South Korea and Japan (see above). In fact, restrictions instituted by South Korea and Japan are not unlike the controls in place in many nations, but China reacted severely in any event.

The tendency to react to immediate circumstances without apparently considering long term impacts on international relationships and markets under the guise of “security” will probably continue. It is likely the combination of unpredictability, cyber intrusions for short term “strategic gains” and retribution against threats to state security may continue to decrease confidence in the Party’s conduct of affairs in a manner that allows for investment and consumer confidence to grow.

Hong Kong’s sustained public protests in 2014 and 2019, the landslide victory of the pan-democratic camp in 2019 and weak identification with the PRC were seen as a threat to China’s security. In 2020, the Hong Kong National Security Law imposed Beijing’s version of national security, substantively changing Hong Kong’s political and legal system. The Hong Kong of 1996 no longer exists as a recognizable entity. The last two years show how strongly “political and ideological security” concerns affected law and related policies. Specialized national security sections have been formed in the police and judiciary. Mainland security forces now operate in Hong Kong. New laws require patriotic candidates in Hong Kong elections. If Hong Kong steps out of line, retribution will likely follow.

Conclusion

National security will permeate future CCP decisions and policies. Chinese bureaucracies are required to consider national security at every layer of decision-making. Consent can be withdrawn even after approval of business activities. Foreign nations and companies face additional risk, as Beijing is clearly willing to protect China’s ever widening core interests. Multiple laws and regulations now have explicit clauses allowing “reciprocal measures” when state or corporate actions endanger China’s “sovereignty, security or development interests.”[7]

Consequently, the underlying parameters of doing business in China have changed. Entities wishing to engage with Chinese companies, or the Party must prepare to deal with growing uncertainty. Companies may face national security investigations, market restrictions, boycotts, and fallout from broader economic coercion measures, even if they have been legally compliant in China.

Learn more about the author, Advisory Board member and retired U.S. Air Force Major General Michael Snodgrass.

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[7] Ibid