Ambassador Cao Zhongming was interviewed by the Belgian financial weekly Trends Tendances on November 19th, where he explained and interpreted the spirit of the Fifth Plenary Session of the 19th Central Committee of the Communist Party of China, and talked about the effective measures that China takes to control the COVID-19 epidemic as well as the strong economic rebound in China. The magazine published the interview on 3rd December as follows:

1. TRENDS TENDANCES: Belgium, like Europe, is experiencing a second wave of the COVID-19 pandemic. How is the situation in China?

Cao Zhongming: I can say that China is not experiencing a second wave. There have been some new sporadic outbreaks in some localities, in the Xinjiang Uyghur Autonomous Region and the Liaoning and Shandong provinces. But the local authorities took swift action to control the situation, so daily life has returned to normal. When clusters were discovered in some neighborhoods in Qingdao city, a test on nearly 10 million people was organized in five days. Our contact tracing makes it possible to find and isolate patients and close contacts. We are also attentive to imported cases: travelers coming from abroad are tested and isolation measures are taken, as in other countries. The catering industry picked up in October, with slight growth, and the important China International Import Expo (CIIE) was held in Shanghai at the beginning of November, with companies from 124 countries and regions. The eight days of national day holiday from October 1st to 8th resulted in 637 million trips in the country. All of these show there is no second wave in China.

2. In Europe, the COVID-19 crisis has led to calls for the relocation of certain activities. Now, China is seeing increasing export. Will it last?

For the first three quarters, we recorded an average growth of 0.7% in our exports, and even 2.9% for those to the European Union. China is the first country in the world to return to normal production, and the World Bank has indicated that China will be the only major economy to show growth this year. We spoke in February of a V-curve, it is true for China, less for Europe where it will be more of a W-curve. The majority of foreign investors keep their confidence in China. I don’t think they will go and produce elsewhere on a large scale, because our infrastructure is well developed, with wide-ranging industrial categories, and we have a market of 400 million middle-income consumers. And then relocating is the decision of companies. If it is imposed on them by the government, it would be contrary to free trade principles. China has never sought to be the factory of the world. Our production is the result of the international division of labor. Globalization is irreversible. If there is relocation, it will be limited to what some countries deem to be strategic sectors. So I don’t think this will have a practical effect for Belgium.

3. The Chinese government has always adopted the five-year plans, and has just announced a new one. The latest proposal of the Fifth Plenary Session offered suggestions on drafting the 14th Five-Year-Plan from 2021 to 2025 and has set long-range goals towards 2035. What is the goal of this approach as China is one of the handful of countries to adopt? Does the plan manage the entire economy?

The approach has evolved. It went from a plan in the strict sense of the term to a blueprint. The Five-Year-Plan started in 1953, after the founding of the People’s Republic of China, and is renewed every five years. In 2006, the Chinese title of the plan changed, indicating its nature shifted to more of a blueprint approach, where it is mainly providing guidelines. We no longer have the planned economy, but a socialist market economy. The market plays the decisive role in resource allocation. Companies are the major market entities. The government works to provide better business environment by improving market regulation, building new infrastructure, or cutting taxes and fees, to give a few examples, and also by guiding companies’ expectations by setting out where the economy heads towards in the future and setting out priorities for industrial policies. For instance it is put forward in the proposal that China will develop green economy and digital sectors. This way companies will be more assured when they invest in these sectors.

4. What are the government’s actions to make this plan a reality?

Fiscal and monetary policy are what government utilizes to manage macro-economy. China has a diverse form of ownership, where there are public enterprises, but also a lot of private companies. The latter represent 90% of the country’s businesses, 70% of innovations and more than 80% of urban jobs. You have heard of Alibaba, Tencent or Huawei. These are large private groups. China has also launched a new stock market in Shanghai, the Science and Technology Innovation Board (or Star Market, a sort of Chinese Nasdaq, Editor’s note) for innovative companies.

5. The new five-year plan speaks of a development based on a concept of “double circulation”, where you rely mainly on national demand. Is this a way to reduce China’s dependence on exports?

The “double circulation” is a new dynamic of development of which the domestic circulation is the main pillar and in which the domestic and international circulation (exports, Editor’s note) are mutually reinforcing. For several decades, China has been dependent on the outside, both for its raw materials and for exports. As the economy grows, it adjusts, and will increasingly be driven by domestic demand. Our degree of dependence on the external market will therefore decrease. This process is quite common in other major world economies. Take the largest, that of the United States: their volume of trade reaches 4.1 trillion dollars, with a dependence on foreign trade of 23%. China has made a gradual shift. It had a peak dependency degree of 62.4% in 2006, but it was at 31.8% last year. You have also noticed the temptation of protectionism and the effects of COVID-19 on the economy, which adds more uncertainties. We are therefore seeking to develop this internal market to benefit from more robust development.

6. Is this “double circulation” a response to the trade war with the United States? Or a new stage in the development of the Chinese economy?

Both. The friction between China and the United States reflects profound changes in the environment. The unilateral policy of the United States putting maximum pressure on China, the rise of protectionism and the contracting global market highlight the importance of rooting development in the internal market.

7. Do you hope that the newly elected president, Joe Biden, will be less confrontational, more predictable on trade issues, than Donald Trump?

As a diplomat, instead of commenting on the American elections, I would say that the tensions in the relations between China and the United States are the result of unilateral policies and bullying by the latter, and do not serve the interests of all parties including the EU. Our hope is that the relationship becomes more predictable, more conversational and more cooperative.

8. To come back to the concept of economic dual circulation, does this mean less imports from China, less foreign investment?

A lot of people wonder about this. Banking on domestic demand does not mean isolation. This does not call into question the country’s opening up policy. Above all, it is about improving internal circulation, which also means better connecting it with international markets. China will open up more. Among our population of 1.4 billion, there are around 400 million with an average income, which is a huge market and magnet for international products and investments. In mid-November, the Regional Comprehensive Economic Partnership (RCEP) agreement established the world’s largest free trade area among 15 countries, including China, Australia and Japan. China is ready to negotiate a free trade agreement with Europe. This year, between January and September, the volume of trade between Belgium and China reached 19.96 billion dollars, up 7.4%. Umicore is very active in China. Bone Therapeutics has signed a license agreement there which represents 55 million euros. China wishes to deepen these relations. It is hoped other countries also maintain openness to Chinese investment in a non-discriminatory manner.

9. Speaking of this RCEP agreement, what does it bring to international trade?

It establishes a balance between participants for trade in goods and services, with differential treatment for the benefit of the least developed countries. It covers a very large population. It provides for a zero tariff for around 90% of products. It has 20 chapters and over 14,000 pages. I haven’t read it in full, but it covers a lot of aspects: investments, agricultural products, services.

10. An important point of the five-year plan is technological innovation. China wants to become a driving force in this area: 5G, semiconductors, health, etc. Is it also to reduce your dependence on US patents, which has suffered from the restrictive measures of the Trump administration?

We have learned by doing that it is not a good thing to be dependent on others on key technologies. And using national security as a pretext to curb supplies to Huawei or other companies made us realize that it was important to develop technological autonomy. We do not pursue innovation in isolation, China always welcomes foreign companies. Nokia and Ericsson are participating, for example, in the development of 5G networks in our territory. We will continue exchanges and dialogue in innovation, engage in project cooperation with international partners, and enhance the protection of intellectual property.

11. The Chinese authorities have announced long-term objectives for 2035. Among them, there is the very important one, to reach a level of moderately developed country, in terms of GDP per capita. What do you mean? Which countries are you setting the benchmark on?

I think it means medium level among developed countries. As Chinese President Xi Jinping has indicated, long term goals give qualitative goals instead of specific numbers. The goal is for China’s per capita GDP to be somewhere in the middle of advanced economies.

12. Finally, there is the environmental issue. President Xi Jingping has announced that China will become carbon neutral by 2060. The country is the leading producer of electric cars, but it is also developing coal-fired power plants a lot. How can you achieve this goal?

To keep it short, I would say that China has already made decisions in previous plans. It has succeeded in fulfilling ahead of schedule an international commitment to reduce emissions by 40-45% by 2020, as compared with 2005. President Xi Jingping announced on behalf of the country a new target for achieving carbon peak in 2030, and carbon neutrality for 2060. So China will move from carbon peak to carbon neutrality in 30 years, a very short period. The European Union peaked in 1990, and has a goal of neutrality in 2050. The United States reached the peak in 2005 and is talking about neutrality in 2050, in 45 years. So China’s promised time moving from carbon peak to neutrality is 30 years shorter in comparison. To achieve this, China is focusing on two axes: developing a low-carbon economy, reducing fossil fuel consumption and switching to other sources of energy. We are working to build a national market for CO2 emission rights. You talk about coal plants. Because of China’s resource endowment, coal has been a main source of energy, but in recent years we have been looking to improve the energy mix. We have worked on the closure of coal-fired power stations producing a total of 100 million kW. I know that Belgium promotes renewable energies and that the current government has a policy on nuclear energy. If China is developing renewable energies, I would point out that this is not under external pressure, but to improve the living environment of citizens and because it agrees with its own agenda for development.