China Research

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 100^th 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 100^th 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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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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