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The highlights this week: Estonia and Latvia officially leave China’s diplomatic forum in Central and Eastern Europe behind, Chinese leadership wraps up its secretive retreat in Beidaihe , and disappointing economic indicators dim hopes for recovery.

Welcome to Foreign Policy’s China Brief.

The highlights this week: Estonia and Latvia officially leave China’s diplomatic forum in Central and Eastern Europe behind, Chinese leadership wraps up its secretive retreat in Beidaihe, and disappointing economic indicators dim hopes for recovery.

If you would like to receive China Brief in your inbox every Wednesday, please sign up here.

Estonia and Latvia Break With China Forum

Estonia and Latvia have both pulled out of China’s diplomatic and trade forum in Central and Eastern Europe—a group once known as the 17+1 that is now down to 14 countries and Beijing, furthering a slide into irrelevance. The latest move follows Lithuania’s departure last year, leaving all three Baltic states out of the group. Other countries may follow suit, including Slovakia, which in recent years has become a fierce China critic.

The withdrawal shows how deeply China’s diplomacy has felt the impact of Russia’s war in Ukraine. Beijing’s failure to condemn Moscow’s invasion, along with its casting blame on NATO and making excuses for Russian President Vladimir Putin, have not gone down well in Eastern Europe, which previously suffered under Russian imperialism and faces new threats from Russian state media. Unsurprisingly, China’s biggest supporter left in Europe is Hungarian Prime Minister Viktor Orban, a Putin ally.

These issues are particularly salient in the Baltic states, which the Soviet Union violently annexed in 1940; they may see a certain shared identity with Taiwan, a democratic state threatened by a far larger neighbor. China’s bullying of Lithuania last year after a dispute over Taiwan’s diplomatic status in the country sharpened anti-China sentiment; Beijing ultimately cut trade ties with Vilnius and sought to force other countries to do the same.

The 17+1 group began as the 16+1 in 2012, with Greece added in 2019. Chinese analysts saw it a major milestone for China in Europe—while concerned Europeans saw a potential way for Beijing to undermine unity on the continent. China made big pledges for investment and infrastructure as part of the grand Belt and Road Initiative narrative, oversold in both Beijing and Washington as a masterpiece of diplomatic and economic strategy. But the initiative has fallen short of being a global Marshall Plan, with broken promises and blowback from perceived debt traps for developing countries.

The 17+1 is no exception: Even before Lithuania pulled out, the body had become practically irrelevant. A signature rail line between Belgrade, Serbia, and Budapest, Hungary, is far over schedule and over budget; independent Hungarian media have estimated it may take 130 years for the route to turn a profit. Construction on power plants hasn’t even started. By 2019, several leaders had started dropping the Chinese-European grouping’s events from their schedules.

Central and Eastern European countries aren’t the only ones turning against China; its image is now damaged throughout the continent. A major trade deal between China and the European Union has been dead in the water since March 2021, when Beijing sanctioned European politicians for calling out its human rights record. China’s biggest remaining asset is Germany, where leaders have consistently prioritized business interests, but public opinion there is shifting. Meanwhile, European firms in China are increasingly thinking about leaving the country.

Furthermore, Chinese President Xi Jinping’s own unwillingness to travel overseas since the start of the COVID-19 pandemic has created a persistent problem for high-level diplomacy. Xi hasn’t left China since January 2020, although it’s hard to tell if that stems from concerns about COVID-19 or about losing control at home in his absence. Recently, there have been conflicting reports about upcoming travels. Saudi sources say Xi will visit Riyadh soon, and Chinese sources report he plans to visit Southeast Asia in November, where he could meet U.S. President Joe Biden.

The Southeast Asia trip seems more likely, not least because it would likely come after the crucial National Congress of the Chinese Communist Party (CCP) in November. Xi’s power within the party appears to be nailed down, but the president taking off for the Middle East at a time of political uncertainty would still be a bold move. Even with Xi back in play, the relentlessly aggressive tone of Chinese diplomacy is proving a permanent turnoff for the developed world.

What We’re Following

Summer CCP retreat ends. The Chinese leadership’s annual visit to Beidaihe, a resort town that hosts secretive meetings in the run-up to political events, appears to have wrapped up this week. The retreat is nominally a break for CCP leaders, but in reality it is a chance for politicking. The meetings are not formally announced, but officials disappear from the news, as Xi did two weeks ago; both he and Chinese Premier Li Keqiang reemerged in recent days.

This year’s retreat may have been particularly Machiavellian, given the upcoming National Congress at which Xi will secure his third term. Chinese technocrats and Western businesses have engaged in wishcasting that China’s recent economic and diplomatic failures will strengthen unnamed reformers inside the CCP, creating a counterweight to Xi. There is little evidence of that happening, although Li paying homage to the statue of former leader Deng Xiaoping in Guangdong stirred some rumors. (Deng’s unannounced Southern Tour in 1992 was a move of support for economic reform.)

However, there is no sign of diminished power for Xi, who continues to receive fulsome praise—or of any shift away from prioritizing political control and COVID-19 restrictions over economic growth.

Taiwan visits. U.S. House Speaker Nancy Pelosi’s visit to Taiwan has been followed by a more routine congressional delegation to the self-ruled island this week, as shows of force by China continue. The official drills have ended, but air intrusions across the median line that divides the Taiwan Strait are becoming more common. Taiwan unveiled a shiny new fighter jet in response, although it may not have the personnel to fly it.

As Hilton Yip writes in FP, Taiwan trained just 21 pilots between 2011 and 2019; China’s tactics are designed to fray the island’s defense—and to normalize intrusions to provide potential cover for an actual assault.

Culture clashes. The wave of anti-Japanese feeling in China in the wake of the Nanjing temple incident continues to produce ridiculous results, such as the detention of a Chinese woman this week for wearing a Japanese-style kimono in public. In the video, the police yell that she should instead wear hanfu—an ancient style of Chinese dress linked to ethnonationalist revivals. This reflects one small part of increasing cultural interference, driven in part by police and censors who need to justify their existence.

Online, China’s popular web novels, epics often crafted by gig writers, something like the serialized fiction of the 19th century, are coming under scrutiny, with even kissing scenes cut by overzealous watchdogs. Some novel drafts in WPS Office—the loose Chinese equivalent of Google Docs—have been censored, likely by algorithm, before they’re published, leaving authors locked out of their works.

Tech and Business

Disappointing economic data. Several of China’s economic indicators came in below expectations this week, dimming hopes that the economy might be recovering after dire figures followed COVID-19 lockdowns earlier this year. Chinese retail grew by just 2.7 percent over last year, while property prices and new projects continued a nearly yearlong decline. (In China, real estate accounts for 25 percent of GDP by some estimates.) In the first half the year, GDP grew by just 2.5 percent—not on track to meet this year’s 5.5 percent target.

China’s central bank has responded by cutting two interest rates by 0.1 percent, while the premier, Li, called on the six most populous provinces—which make up 45 percent of China’s GDP—to shoulder the growth burden. But the economic problems will continue at least until the government lifts its zero-COVID policy. The uncertainty of lockdowns makes many personal and business decisions difficult, from opening new restaurants to going on vacation.

Meanwhile, there is little good news in the once-vibrant tech sector, despite hopes that the government had finished rolling out new restrictions. Internet giant Tencent posted its first-ever revenue decline after limits on youth gaming and government pressure to sell its stake in delivery service Meituan. Government intervention could lead to new firms emerging as monopolies are broken up, but the atmosphere for entrepreneurs is worse than ever.

Power shortages. China is suffering its worst heat wave since recordkeeping began in 1961. In the southern province of Sichuan, daily temperatures around 104 degrees Fahrenheit have strained the energy supply. Not only is energy usage up 19 percent compared to last year, but production has also dropped by nearly 7 percent due to low water levels for hydropower. As a result, factories in 19 out of 21 cities in the province have been ordered to close for six days.

China’s electricity grid has greatly improved in the last two decades; after all, blackouts in Beijing were once routine. But as analyst Lauri Myllyvirta points out, outdated grid operation still causes problems, such as the serious shortages last fall. Paradoxically, the bleak economic outlook may cause problems this winter for both energy and the environment. When GDP growth declines, restrictions on energy-intensive and polluting industries also tend to be eased.