China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

China and the U.S. election

November 3, 2020

During my many visits to China I used to get the impression that the Chinese mostly looked at the U.S. with mixed feelings – feelings that also included some kind of admiration. The American dream of developing from a poor origin to a wealthy person attracted many Chinese on micro levels. Some kind of capitalist socialism or vice versa was born in the 1990s.

Politically, China and the U.S. kept quite some distance in the new millennium all the same. Tensions continued during Bill Clinton’s presidency but his support for China’s entry into the WTO in 2001 was appreciated. This move turned out to be the main driver for China’s rise to become the largest economy in the world (in terms of total GDP and PPP), together with the simultaneously ongoing globalization. President Obama’s relations to China had a number of ups and downs as well. President Trump, finally, could be increasingly regarded as an opponent to China during the past four years.

In 1997, professor David Shambaugh wrote in Current History (September) that “China and the United States are likely to be the dominant world powers in the twenty-first century. It is imperative that these two continental giants learn to live and work together productively and cooperatively”. Altogether, the conclusion above on the two leading world powers turned out to be right – but the recommendation of working together did not really come true, particularly not in the past four years. Biden could make some difference – but probably not in a significant manner.

The Trump years of 2017-2021 – and now?

President Trumps leitmotiv of “America first” did quite some harm to China, the global economy and also to the U.S. itself, particularly due to the revival of protectionism. This is certainly a bad development. But what do the Chinese themselves feel about today’s election?

Despite many unfriendly words from the Trump-administration, the Chinese support Trump’s aversion or doubts against traditional allies such as NATO and his attempt to weaken American (Western) democracy. Chinese media also take the chance of describing the superiority of its authoritarian system, exemplified by what the official China calls the victory against the covid-19 crisis. China remains the top issue for the Chinese and certainly not the U.S. The result of the presidential election in the U.S. does not make a major difference – neither to President Xi Jinping or the Chinese people (according to my own understanding of Chinese press). However, there is no clearly visible preference for Biden either.

Competition with the U.S. will remain the keyword for the future of China – when it comes to the economy, technology, research and military power. However, in my view three possible and necessary changes may happen in the future with a President Biden: a (somewhat) stronger priority of  the environment, a (somewhat) better political predictability and a more polite style of communication between the two superpowers.

And we should not give up hope for better cooperation!

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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China’s new face

October 20, 2020

During many years, I have made the acquaintance with China as a country that indeed tried hard to receive recognition both at home and from abroad. This was still the case in early 2019 when China with strong words tried to defend the good sides of free trade. Consequently, China opposed decisively against the increasing protectionism of the Trump administration. The Western world liked this positioning of the Chinese political leadership.

However, developments in Hong Kong changed things dramatically. Interventions there initiated by Beijing started to irritate the U.S., the EU and single Western governments increasingly in the past year. Poor transparency about the corona virus in the beginning of 2020 worsened things further. China missed then the chance of regaining recognition from the Western hemisphere.

All this reflects a negative development and is certainly not good for China itself, the U.S., the EU and the whole global economy. It means a major loss of global trust and confidence after a long period with a positive Chinese contribution to global GDP growth, in most years in the past decade by one fourth to one third of global growth. Many companies in our part of the world have become highly dependent on good business with China – and the other way around in a Chinese perspective. How long time can it take until the worsened trade relations – particularly with the U.S. – may become relatively normal again? Such a reversal would be a commercial win-win situation. Today, nobody can give an applicable answer.

Major parts of the answers to the questions above are linked to politics – an area that has become more and more complicated to predict. Today, we do not know about the outcome of the American presidential election. We do not even know whether a possible President Biden would work for really improving relations to China – if yes probably not very quickly.

The important 100th anniversary of China’s Communist Party in 2021

Today, we cannot foresee either how the Chinese political leadership wants to define and organize its future. Determined by renewed pragmatism or mainly by dogmatic ideology?

But we do know that China has been changing face in the past few months. There may be different reasons for this. One important reason is certainly the 100th anniversary of the Communist Party (CPC) in 2021. No doubt, for these anniversary celebrations three most important developments have to be met:

¤ strong political leadership of the CPC in mainland China and also in Hong Kong;                                                                      

¤ a good economic recovery after the corona crisis (which was “confirmed” after I had written this article by the official announcement of China’s GDP growth at 4.9 percent for Q3, yoy; thus, China will be the only major economy that will achieve a positive GDP growth in 2020 – though to a high extent pushed by governmental support to SoEs);

 ¤ a strong international position that can resist pressure from the United States.

China’s new face means for the time being that domestic priorities dominate when they are conflicting with international sympathy points. Until recently, China has been working for reasonable compromises in such conflicting situations. This chapter is now closed.

For how long time?

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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Important questions about China’s future

September 8, 2020

China has advanced to an increasingly important player on world (financial) markets. This special position increases China’s responsibility to avoid future economic and financial imbalances – partly because of the well-known cross-border contagion risks.

Some big questions in a financial deregulation context are for China in the next five to ten years (also part of ongoing discussions with students at Linnaeus University):

¤  Generally: Will China’s GDP growth be big enough for being able to introduce initially hurting reforms?  How will China handle the restructuring of its state-owned companies and the shift to competitive modern technology and products? We know from the Swedish financial deregulation that such a new policy stance should happen from a position of strength.

¤  Can China achieve surpluses in the current account balance in the longer run – also when regarding the possibility of renewed harsh American protectionism?

¤  How rapidly will China deregulate its capital account – and open for speculative capital flows?

¤  Can China handle its global power and strong international influence in an appropriate way and develop into an appreciated global partner politically, financially and economically? What will happen in Hong Kong?

¤  Will China’s version of the market economy be reversed at some point – or rather be improved in a longer perspective?

¤  How will China come out of the post covid-19 challenges in the medium run and what about the impact on unemployment also from this factor?

Altogether, there is a lot of room for further optimization of Chinese economic policy and of financial markets. Such improvements would be good for China’s own economic growth and stability but also in a global perspective – particularly when applying a long-term view.

Why not trying to reflect on these issues a little bit on your own?

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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