National Security Law: "Chinese Power Will Create Instability in Hong Kong"

Text by: Stéphane Lagarde Follow

China is renouncing any growth target for 2020. The Chinese Premier made the announcement in his annual report this Friday in front of the nearly 3,000 delegates from the National People's Assembly (PNA). Li Keqiang recognizes that the second largest economy in the world is struggling to recover after the epidemic. In an uncertain global environment, Beijing is betting on digital technology and private enterprise while taking the risk of relaunching the crisis in Hong Kong. Decryption with Mathieu Duchâtel, director of the Asia program at the Montaigne Institute.

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RFI : In a context of difficult recovery, the modernization of the People's Liberation Army continues. How to interpret this increase in military spending announced by the Prime Minister?

Mathieu Duchâtel: 6.6% is an increase which remains fairly rapid, even if we remain a notch below the increase in official Chinese defense spending over the past five years which fluctuated between plus 7 and plus 10% . That said, this new growth brings China's military spending to $ 178 billion for the year 2020, in other words a very frank second behind the United States, and it must be seen that these official military spending does not include certain elements that are included in the defense budgets of other countries. I am thinking, for example, of spending on nuclear deterrence, but also of certain purchases of military equipment for the army, in particular imports of war material from abroad. What is important this year is that the growth of the defense budget is decorrelated from the economic growth of China.

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How to explain this decorrelation, when all the economic signals are red once again, especially concerning employment?

We are in a very special year where Chinese growth will be well below the rate of recent years. Chinese growth was generally in the range of 6 to 7%. The World Bank estimates it today at less than 3%, and it could be worse. There are real questions in China on this subject, and we note that, for the first time in Congress, Prime Minister Li Keqiang has given up setting a growth target for the country. Result; there is a complete decorrelation between the growth of defense spending and economic growth. This is new, because in recent years the growth of the military budget has always been slightly higher than the economic growth of China. The message was that the Chinese defense tool should accompany the rise of China. But this year is different. The signal that is sent is a signal of force, the military modernization programs are, let's say, protected from the context of the economic crisis in China, and the national security objectives remain the same. We are in a phase of very severe competition with the United States, China is spending what it takes to maintain continuity in its modernization programs.

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Beijing posts its victory over the coronavirus during these parliamentary sessions. For the propaganda apparatus, it is also a victory on the Western model.

Mathieu Duchâtel: China is doing better than the United States and certain Western European countries in terms of containing the Covid-19 pandemic, even if it failed to convince Westerners of the reality of official figures that she gave on the number of cases, the number of deaths. Overall, China will restart sooner than the United States and Western Europe. Is she in a position of strength or is she in a position of weakness? In any case, we can clearly sense that Beijing has decided to seize this windfall effect, to take advantage of the fact that the country emerged from the health crisis earlier to make very strong progress on Hong Kong. But there is also taking a real risk in the relations between mainland China and the special administrative region, and in the management of the crisis in Hong Kong. It also means taking the risk of further blunting relations with the United States, which has already reacted to this announcement.

By imposing national security legislation, the Chinese government will create instability and social unrest in Hong Kong , and in any case relaunch the crisis. China seized this opportunity by betting on a weak American and European response, but at the same time we see that on the economic level, China is forced to make choices that it had refused to make in previous years.

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What are these choices?

Mathieu Duchâtel: First, that of reviving the economy no longer through consumption, but through investment. We are awaiting announcements on China's investment plan, which will be dominated by infrastructure serving the digital revolution. In particular 5G infrastructure , data centers etc. So a real bet on the digital revolution to revive growth with a public spending plan and then also we see in the Prime Minister's announcements that it puts a little more on the private sector, with measures to facilitate the indebtedness of companies, as well as to free them from particularly strong taxation. We are therefore moving away from the triumphant state capitalism of recent years, where large state-owned enterprises were very much supported by the regime. We see here, in particular towards small and medium-sized enterprises, that China realizes that it will have to manage an employment crisis and manage economic problems at the local level and therefore, that it must a little bit to evolve its model.

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