What next for China’s economy and it’s role in the world?

by | Jan 18, 2017

Let’s look at the facts: It’s population is over 1.3 billion and it is the largest exporter in the world. These are things we already know, but more importantly, what does the future hold for China’s economy? Just yesterday, the Chinese President Xi Jinping stood on the stage and delivered the opening address at the World Economic Forum in Davos, Switzerland. He was the first Chinese leader to ever attend the summit, let alone open the proceedings.

This fact alone is interesting, it shows an increased willingness from China to engage in talks with western business leaders and politicians, but the content of the speech was more important. China is still a communist country, but has benefited massively from adopting a capitalist western-style free market economy. Despite the fact it’s communist, Jinping defended the concepts of free trade and globalism during his speech, whilst standing at what some might call the spiritual home of western capitalism. He directly referenced Trump’s protectionist rhetoric and saber rattling over China devaluing it’s currency, saying that a trade war is in no ones interests and that protectionism is like locking oneself out of a dark room. At a time when Donald Trump is hoping to lead the US economy towards more protectionism, these statements showed a signal of intent that China wants to uphold the trade values that would normally be expected of America. But what is expected is out the window.

These are not ordinary times, especially with the new US administration facing a flood of questions about how it will conduct foreign policy when Trump takes office in a few days time. What happened at Davos matters because it says a lot about where China now sees itself and where it’s poised to go. On the surface, it looks as if a massive shift in perspective is due to take place, a role reversal of epic proportions, whereby a communist state looks outwards and a ‘beacon of freedom’ (as it sees itself) looks inwards. But just how true is this?

Though Xinping was selling China as an open economy at Davos – recent research from the American Chamber of Commerce in Beijing says this is not being felt on the ground for foreign businesses in China. It published it’s annual survey today and the take-away’s are mostly negative. Here are the headlines: The 2017 business climate survey which looked at more than 400 responses out of 849 member companies, found that 72 % of respondents feel that a positive bilateral relationship between the US and China is critical for business, yet 83% felt relations between the pair would remain the same or get worse in 2017. What else? Even among companies keeping their bases in China, most respondents said that China’s environment discourages investment. 8 in 10 said they feel foreign companies are less welcome than in the past. Amazingly, more than 60% have little or no confidence that the government is committed to opening China’s markets further in the next 3 years.

Indeed, Trump’s pick for Commerce Secretary, the billionaire Wilbur Ross, directly referenced the contrast between China’s words on free trade and the reality of how it operates as an economy. At his confirmation hearing in January. He said: “They have both very high tariff barriers and very high non tariff trade barriers to commerce. So they talk much more about free trade than they actually practice. We would like to levelize that playing field and bring the realities a bit closer to the rhetoric.”

The question arises as to whether, like Trump, China’s leader is going to make good on his words of changing his country’s economy. Actions speak louder than words and though talk of more imports and foreign investment sounds positive, we still don’t know what will happen. ‘All talk, no action’ was a quip that Trump made hundreds of times during his campaign when talking about career politicians like Hilary Clinton, but if Xi Jinping is a doer not a talker, could we see China replacing the US as the world’s foremost free market economy?

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ALL RIGHTS RESERVED © INVSTR LTD. 2017

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