How China Could Emerge Even Stronger After COVID-19

It was an emotional reunion for Qi Xiaoyu, who was bouncing in anticipation even before Mickey and Donald padded into view. The 27-year-old nurse visited Shanghai Disneyland over 200 times between its 2016 opening and its closing in January due to the coronavirus.

Qi says regular trips to the theme park boost her mental well-being, which has suffered over the 15 weeks she’s spent on the front line of the coronavirus pandemic. Her only respite has been dressing up at home in one of her 20-odd Disney princess costumes, she says, to escape the real world of death in her hospital. “Disney is pure happiness and takes my mind off all the pressure I feel at work,” Qi says, grinning behind her face mask as she enters Shanghai’s iteration of the Magic Kingdom on May 11, the day it reopened. “Here, everything is wonderful.”

If ever the world needed a dose of magic, it’s now. But of the dozen theme parks that Disney runs across the globe, only the Chinese park is open today. The reopened facility may be operating at 30% capacity, under strict social-distancing regulations, but in the U.S., all Disney parks remain mothballed. The company has furloughed 100,000 workers, closed stores and theme parks, and put its star-studded box-office productions on ice. Its share price has tumbled by almost a third.

Watching families in Shanghai browse $14 Winnie the Pooh mugs while Americans remain in the grip of the coronavirus, it’s hard not to wonder whether the mixed fortunes of this most iconic of American institutions indicate a broader changing of the guard. The world’s two biggest economies were already locked in a trade war that could cost the global economy $470 billion. They also spar over intellectual-property theft, cyberespionage, the North Korean nuclear threat and the incarceration of more than 1 million ethnic Muslims in China’s Far West. Differences in how each has handled the pandemic may be not only the latest rupture, but the one that shapes the future.

When the coronavirus emerged in December, China acted quickly and forcefully to halt it in its tracks. It ordered a population equivalent to a fifth of humanity to barricade themselves at home, and hoisted up the drawbridge to visitors. Those draconian measures cost China an unprecedented 6.8% drop in GDP in the first quarter, but they worked–the country’s official (though disputed) infection count is now below 85,000, compared with 1.3 million in the U.S. In the virus epicenter of Wuhan, final-year students are scheduled to go back to class on May 20. Their parents, like adults across the country, are getting back to work.

In America, President Donald Trump has encouraged states to reopen as they see fit, but the U.S. so far has lagged in providing the tools needed to do that safely–tests to detect the disease and track outbreaks. Over the course of the pandemic, the U.S. has so far tested around 9 million people, less than 3% of its population. Meanwhile, to address a new outbreak in Wuhan, China announced plans to test all 11 million of the city’s residents over the space of 10 days.

The U.S. response to COVID-19 has been so muddled, it’s not yet possible to say how much of the sluggishness is due to unreadiness, how much to incompetence, and how much to the American system of governance, with its emphasis on individual freedoms over centralized authority. What does seem clear is that the performance of the Chinese system of broad state controls–over both citizens and the economy–offers Beijing a unique chance to steal a march on the future. During a recent tour of China’s northern province of Shaanxi, President Xi Jinping instructed cadres to “turn the crisis into an opportunity.” How well it succeeds in doing so could have ramifications for the entire world order.

XI already had grand plans. The President’s “China Dream” to take “center stage of the world” includes strategies like Made in China 2025 to upgrade to hightech manufacturing, and China Standards 2035 to become the dominant writer of rules that govern future technologies. Beijing’s new goal, analysts say, is to leverage the pandemic to catalyze 10 years of reform into just two. Speaking in Shaanxi in April, Xi stressed the need to “push forward with investment in 5G, the Internet of things, artificial intelligence, the industrial Internet and other new-type infrastructure.”

China already appears to be bouncing back. Its economy–built on a combination of manufacturing expertise, connectivity and first-class infrastructure, plus the world’s largest middle class of domestic consumers–was operating at 87% of typical output on May 12, according to the Trivium National Business Activity Index. In April, though imports were down 14.2%, China’s exports were up 3.5% year on year, surpassing predictions largely because of medical products sent overseas.

But the economy won’t be the same as before. Crises act like centrifugal forces–the sturdier and well-positioned institutions can survive, but weaker outliers are likely to be ripped to shreds. And while China has taken some measures to rescue companies–tax breaks and loan deferments for small and medium enterprises (SMEs)–no grand cash injection is expected like the $586 billion plowed into state projects following the 2008 financial crisis. “The support policies introduced earlier are adequate,” Premier Li Keqiang said May 6. The message appears to be that the true way out of the crisis is investing in innovation.

Some of China’s most successful companies are helping choose winners–and reinjecting liquidity into the market. MYbank, run by Jack Ma’s online shopping colossus Alibaba, is on track to issue a record $282 billion in new loans to SMEs this year, up nearly 18% from 2019. Delivery service Meituan has been working with state banks to distribute low-interest loans totaling $2.8 billion since early February to 20,000 restaurants and retailers on its platforms, repurposing sales data to quickly assess which clients require the most urgent help.

The pandemic is already providing a springboard for change. Shanghai has published plans to build 100 unmanned factories by 2025, guarding against future labor disruptions. Before the crisis, online health care service JD Health took 10,000 consultations per day. But as hospitals and clinics became swamped with coronavirus patients, that rocketed to 150,000, with the firm’s own pharmacy delivering prescription medicines directly to patients’ homes. Xin Lijun, CEO of the $7 billion–valued company, says the added convenience of online health care means that muscle memory will remain after the COVID-19 crisis abates, helping ease pressure on China’s overstretched, hospital-centric health care system. “People have developed the habit of getting diagnosis and treatment online,” Xin says. “This greatly reduces the pressure on traditional hospitals.”

For Kai-Fu Lee–a venture capitalist; former Google, Microsoft and Apple executive; and author of AI Superpowers: China, Silicon Valley, and the New World Order–China’s tech firms are better positioned to aid recovery as they bridge the gap between the online and physical world. “So that means the Alibaba, JD or the Meituan networks are more structurally advantaged to contribute to the economy because they have their tentacles in the offline part as well.”

China is also capitalizing on its leadership in green technology. Its apex Politburo Standing Committee has backed $1.4 trillion spending on so-called new infrastructure, including a wide range of low-carbon technologies, transitioning away from fossil fuels and expanding its economic influence. That funding includes support for technologies specifically aimed at reducing emissions, like electric-vehicle charging, high-speed rail and long-distance power transmission that brings renewable power to cities. “Undoubtedly, China has taken the lead,” former U.S. Secretary of State John Kerry tells TIME of China’s pre-pandemic position in the low-carbon economy.

There are also signs China is using the economic chaos of the pandemic to go on a global shopping spree for new businesses and investments. According to the GlobalData analytics firm, China secured 57 outbound merger and acquisition deals worth $9.9 billion and 145 outbound investment deals worth $4.5 billion globally from January to April. U.S. policymakers say Beijing is exploiting economic vulnerabilities to boost its regional clout, mimicking its acquisition of an 11% stake in Australia’s distressed Rio Tinto mining company in 2008 or the strategically placed Hambantota Port in Sri Lanka in 2017. “China is a predatory firesale investor,” says Patrick M. Cronin, Asia-Pacific security chair at the Washington-based Hudson Institute.

The pandemic is a “two-sided coin” for China, says Derek Scissors, a Chinese-economy specialist at the American Enterprise Institute. Sure, there may be some opportunities for the country to build up domestic enterprise and acquire beaten-down firms on the cheap, especially in nations desperate for export credit because of cratering demand in the northern hemisphere.

But on the flip side, China’s exportreliant economy will struggle while consumers–especially in the U.S.–aren’t buying its products. Domestic consumption cannot replace the $2.5 trillion that China sold overseas last year. Although the state’s jobs figures are notoriously unreliable, unemployment has surged during the pandemic. Lu Zhiming, whose exporting business M.H. Furniture employs 22 people at a 30,000-sq.-ft. factory in the southern Chinese city of Dongguan, says a slump in demand because of COVID-19 has already forced competitors to lay off staff and he may have to follow suit. “If the pandemic continues, it will be catastrophic for manufacturing.”

Some analysts predict the supply-chain vulnerabilities spotlighted by the crisis will accelerate the decoupling process already under way between the U.S. and China. As the Trump Administration has piled sanctions on China, U.S. companies are attempting to shift their supply chains for goods and services to other Asian countries, to avoid exposure to tariffs. The shock of COVID-19 may bring us closer to the moment when Washington and Beijing represent separate, opposing poles of economic influence–especially as the Trump Administration casts China in hostile terms. Trump has described the coronavirus pandemic as the “worst attack” ever on the U.S., in his mind eclipsing even Pearl Harbor and 9/11, and has pushed the so-far unsubstantiated theory that the coronavirus originated in a Wuhan laboratory. In recent weeks, the White House and Labor Department have directed the Federal Retirement Thrift Investment Board, which controls federal retirement funds, to stop investing in Chinese companies, according to documents seen by CNBC. U.S. and British officials have accused Chinese hackers of trying to steal research into COVID-19 vaccines. Several Republican Senators introduced a bill that would allow Trump to sanction China for refusing to cooperate with investigations into the virus’s origins.

The U.S. Commerce Department also recently announced new export-control rules to prevent commercial companies in China–as well as Russia and Venezuela–from acquiring sensitive U.S. technology. For the investor Lee, decoupling may be understandable for true national-security reasons, but it stands to egregiously undercut competitiveness “if it’s done purely from lack of trust or nationalism.”

But Trump officials argue that, with China, national security blends with competitive advantage. Keith Krach, the Under Secretary of State for Economic Growth, Energy and the Environment, says Beijing is using a “three-prong strategy” of “concealment, co-option and coercion” to insert itself into crucial U.S. manufacturing supply lines, procuring proprietary foreign intellectual property (IP) in the process. He says supply chains can include 10 to 20 layers of contractors and subcontractors, making any technology therein vulnerable to theft, given that, he says, Chinese firms are obligated to share trade secrets or intellectual property with their government.

The Trump Administration’s goal, says Krach, is to “protect and diversify U.S. supply chains, particularly from overreliance” on China by exploring options like publicprivate R&D partnerships, special manufacturing zones, and cash or tax incentives to stay in the U.S. “When you build a manufacturing plant in China, you’re not just giving the blue-prints, you’re giving them process engineering and training their labor force,” he says. “You can see that, in case after case from … mobile phones to semiconductors to automobiles.”

Still, the costs of decoupling would be steep, and unwanted during a time of deep global recession. And the U.S. bullishness fails to account for the reality of how interconnected the two economies still are: China produces 97% of America’s antibiotics. Apple, the most valuable U.S. company and the world’s first trillion-dollar one, still produces the vast majority of its wares in China. And Chinese enterprise is still finding success in the U.S. Lockdown favorite videoconferencing service Zoom, for example, was created in Silicon Valley by an entrepreneur born in China’s Shandong province.

Lu, the furniture manufacturer, doubts any rival could compete with China, in manufacturing at least. He says some friends who shifted businesses to Vietnam because of rising costs have now returned to China, chastened by labor disputes and other headwinds. Meanwhile, his business partners in Copenhagen have to pay staff $25 per hour–10 times more than equivalent skilled workers in China. “With such high costs, how is it possible for manufacturing to return to Europe?”

In the early days of the coronavirus, China saw an opportunity to recast itself from being the source of the deadly pandemic to the provider of much-needed aid and expertise. It sent teams of medics to Italy, Iran and Iraq as their outbreaks spun out of control, and personal protection equipment (PPE) to allies and critics alike; on April 2, as rows of field-hospital tents were being built to treat COVID-19 patients in New York City’s Central Park, a plane carrying masks, gloves and other supplies arrived in the city from China. It followed up with 1,000 ventilators.

But the hard edges of the soft-power campaign swiftly became apparent. Masks sent to the Netherlands failed to meet international standards and were recalled. Testing kits delivered to Spain and Slovakia turned out to be inadequate.

Popular praise lavished on China by grateful ally Italy turned out to be partly fabricated; according to recent analysis by data firm Alkemy, for Italy’s Formiche media group, 46% of tweets using the hashtag #forzaCinaeItalia, which translates as “Come on China and Italy,” were generated by automated bots. For #grazieCina, meaning “Thanks China,” it was 37%.

The ham-fisted attempt at so-called mask diplomacy has proved to be ineffective in changing minds about China. E.U. chief diplomat Josep Borrell warned in a blog post that China’s “politics of generosity” concealed “a geopolitical component including a struggle for influence.” Beyond Trump’s crude attempts to shift blame by labeling COVID-19 the “Chinese virus,” a growing coalition of countries now support an investigation into the true origins of the outbreak, including Australia and the E.U. Beijing has pushed back against any suggestion of deliberate deception. “There has never been any cover-up and we do not allow cover-ups,” China’s Foreign Ministry spokesperson Zhao Li-jian told a news briefing April 17.

The attempt to pose as a munificent superpower is in line with China’s broader attempts to fill the vacancy on the world stage left by the U.S. under Trump. It has inserted nationals into key posts in many multinational institutions–from the U.N. and Interpol to the IMF–and its contributions to the World Health Organization, the U.N.’s health agency, have grown by 52% since 2014, up to $86 million in 2018 and 2019 (though still only about a 10th of the U.S. contributions in the same period). China has found a willing partner in the Kremlin to reorientate the world order away from the U.S. “Being among the main victor powers in World War II and permanent members of the U.N. Security Council, China and Russia shoulder the task of safeguarding global peace,” Xi told Russian President Vladimir Putin in a call on May 8.

But while China has won representation in international institutions, its values often remain at odds with their goals. “As China tries to fill the void left by the U.S., we shouldn’t forget that the [Communist Party] prioritizes its own interests over those enshrined in those institutions,” says Lucrezia Poggetti, an analyst with the Mercator Institute for China Studies in Berlin. When those interests clash, China’s tend to win out–as when Interpol’s Chinese chief Meng Hongwei was arrested in 2018 and later jailed as part of an anticorruption drive by Xi.

Trump makes no pretense of leading the world. When a global virtual summit toward finding a COVID-19 vaccine was held May 4, Washington chose not to attend. “The two largest, most powerful countries in the world are not participating in efforts to stop this pandemic and contribute to the knowledge base,” says Dr. Maureen Miller, an infectious-disease epidemiologist at Columbia University.

But China’s lack of interest in shared global values is not lost on the general public. According to a Pew survey published in December, Xi inspires less confidence than any of the current leaders of the U.S., Germany, France and Russia, at just 28%. (Though Trump scores only a single percentage point better.) Roughly two-thirds of Americans have an unfavorable view of China. Even the usually myopic CCP is waking up to the fact. In a report presented to Xi in early April, China’s Institutes of Contemporary International Relations, which is overseen by the Ministry of State Security, concluded that global anti-China sentiment is at its highest since the 1989 Tiananmen Square crackdown.

This is not likely to matter much to Xi while the world remains in the shadow of the coronavirus. Beijing is acutely paranoid and puts party legitimacy above all else, and so external ambitions will always be sacrificed to domestic stability–especially important as a slowing economy gnaws away at jobs and livelihoods. Inside China, surveillance measures installed for public health will be ramped up with an eye to stemming future social strife. “This train is only moving in one direction, and that is toward increased ability to surveil and control,” says Ker Gibbs, president of the American Chamber of Commerce in Shanghai.

Control isn’t fertile ground for creation, though. What Chinese leaders often miss is that American influence stems more from its dynamic colleges, Hollywood and the NBA than the Belt-way. Yet a defining characteristic of Xi’s “China Dream” is its inability to cultivate the kind of soft power that gives other countries a larger presence on the world stage. While South Korea has K-pop and the U.K. has Premier League soccer, China has stifling control. Last year, censors blurred the pierced earlobes of male pop stars lest their “feminism” corrupt the nation’s boys. Chinese rock musician Li Zhi had a tour canceled, his social-media accounts deleted and music expunged from streaming sites after he obliquely referenced the Tiananmen Square massacre. Even record-breaking period drama Story of Yanxi Palace–China’s equivalent of Downton Abbey–was taken off the air last year after state media decried the “negative influence on society” of its extravagant tales of imperial intrigue.

Instead, artists must be absurdly passive or patriotic. The latest hit from Chengdu-based rap collective CD Rev is titled “Mr. President,” and includes chest-thumping lyrics like “We don’t pick up a fight but we ain’t intimidated by hawks/ 1.4 billion people we on a warship/ maybe you strike me first try to destroy Huawei/ that makes me sick you full of hate.” Speaking with TIME, lead singer Wang Zixin denied all songs prop up the party: “We also do antidrugs songs and songs promoting feminism.”

Not exactly “F-ck tha Police.” Under Xi, there’s simply not enough creative space to build cultural currency outside an ever narrowing Chinese society. China’s political system boosted its internal COVID-19 response and shields its economy, but global leadership is ham-strung by a lack of shared culture or values. That is not going to change unless China opens up and reforms–a complete reversal from its current course. “China’s influence stems almost entirely from its money,” says Scott W. Harold, an East Asia expert at the U.S. policy think tank Rand Corporation. That in itself might give it a temporary boost coming out of the coronavirus, but not enough of one to transform the world.

As night set on Shanghai Disneyland, a kaleidoscope of light emblazons the Magic Castle with “thanks” in different languages to honor frontline medical workers, bringing tears to the eyes of the nurse Qi. “America is the home of Disney,” Qi says. “It would be a dream to visit there one day.” If American political leadership has receded, its deep cultural bonds are more difficult to replace. That is the kryptonite to Communist China’s global ambitions–to lead, it has to be liked, too.

–With reporting by KIMBERLY DOZIER, JOHN WALCOTT and JUSTIN WORLAND/WASHINGTON