China’s two strategies

10:10 by Hubert Fromlet, Kalmar

A few weeks ago, I attended one of these interesting conferences on China. One of the presentations there focused on Chinese political strategies, singling out that China more or less exclusively concentrates on domestic developments. This is not quite in line with reality.

China’s global ambitions
Sure, politicians in all countries primarily work with the future of their own country. So does China, for example by putting more weight than before on private consumption at the expense of unnecessary investments – and by favoring education, research, innovation, technical progress (digitalization and AI) and competitive (new) products, also for exports.

Nonetheless, there is no doubt about China’s global ambitions. Economically, China already performs as the no 1 in the world when measuring total GDP in PPP terms – and in dollar terms this may happen in the next decade.

Global ambitions can be underlined by different kinds of clarifications. Huawei and a number of construction companies can serve serve as visible corporate (micro) examples.

Africa
On a geographical level, strong Chinese efforts can be watched in a number of African countries. The other week, there was quite an illuminating article in China Daily about China’s ambitions in Africa. They do not write about about China’s future needs of commodities. Instead, China Daily points at Chinese opportunities to contribute to Africa’s future development – for example by projects dealing with construction, energy, manufacturing, information and communications technology, AI, and by giving skills to Africans about the Chinese market.

The rapidly growing African population is frequently mentioned, probably as an indicator for market potential (despite the fact that African GDP-growth numbers are not really comparable to those of China because of their different levels of development).

Another example: China’s particularly ambitious Belt and Road Initiative (BRI) is intended to link together even several continents – Asia and Europe but obviously also to some extent Africa – because there is also a maritime component in the BRI project. China’s strongly prioritized BRI plans aim to increase cross-border trade for 65 countries by constructing roads, railways, harbors etc. – including both a land and maritime Silk Road. From China to Duisburg in Germany!

It will be most interesting to watch the future of the BRI project which is highly ranked by Chinese political leaders – but not sufficiently observed and analyzed in Europe. Perhaps more Chinese transparency would be helpful in this respect.

Also the international upgrading of the currency renminbi fits into China’s internationalization strategy. The renminbi is now part of the IMF:s Special Drawing Rights (SDRs). Furthermore, the renminbi (RMB) belongs these days to the five most frequently used currencies in international trade finance – which happened without convertibility of the RMB. Thus, reality reflects the importance of China in international trade.

Potential threats
Certainly, American protectionism will remain a threat to Chinese globalization efforts – at least as long president Trump remains in power. But China will also make strong attempts to intensify or enlarge other international or bilateral alliances. The UK is already quite aggressive in getting closer to China.

Another threat – so far not outspoken – may some day come from potential deficits in the current account. The net of Chinese exports and imports will this year end quite close to zero and – in any case – confirm the weakening trend of the current account balance.

Persisting deficits at some point in the future – if they should show up but the risk is there – could shatter at least to some extent China’s ambitious global strategy.

Simply because China would have less own money to invest outside the country.

I wish you all a wonderful holiday season!

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

 

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