“Pursuing protectionism is just like locking one’s self in a dark room. Wind and rain may be kept outside, but so are light and air.” Chinese President Xi Jinping’s eloquence at the World Economic Forum in Davos last week.
It seems like, Under Donald Trump's leadership, the US may well turn inward and abandon its global economic leadership role, leaving a space that China is looking to fill.
I studied China's economy in detail during Emerging Market and Economies course and the study makes few points very clear where China had sown wrong seeds and reaped undesired & painful results. If China is to become a free trade champion it must deal with several challenges.
The first is the trifecta of state subsidies, zombie companies and oversupply. The problem dates back to 2008 and the financial crisis when Beijing excessively used state-owned enterprises (SOEs) as agents of state policy. Despite of bad history with SOEs around 1990s, Chinese banks threw loans at them that were used for irrational capital expenditure, creating housing and infrastructure bubbles, as well as seeding the steel oversupply problem that has become a trade flashpoint over the past few years.
In the late 1990s, Beijing had reformed SOEs aggressively for almost a decade. But that would mean layoffs numbering in the millions. An authoritarian regime delivering double-digits economic growth during the previous round of reforms could absorb that. Thus, instead of shutting down SOEs or privatizing them, Beijing is taking the merger route instead. This does little to address oversupply and trade-distorting subsidies.
Next on the list is the Renminbi and capital controls. In 2015, when the International Monetary Fund’s (IMF) approved including the Chinese currency in the Special Drawing Right (SDR) basket, it was supposed to be the renminbi’s coming out party; instead, it has stagnated since. Capital outflows due to concerns about China’s economic performance have led to significant depreciation.
The third problem is plain old-fashioned protectionism. Take China’s surging technology sector, one of the areas of focus for Beijing as it attempts to shift the economy from smokestack industries and export-led growth. Domestic companies like Baidu and Weibo are protected by a thicket of regulations that make it impossible for global giants such as Google, Facebook and their ilk to compete effectively.
There is a common theme of attempting to extend political control in China, and it’s no coincidence. Reaching back to Deng Xiaoping, successive administrations have prioritised pragmatism over ideology, moving away from Mao’s cult of personality brand of politics. Xi has broken with this trend emphatically. He is now held to be China’s most powerful—and authoritarian—leader in the post-Mao era.
Can globalization and free trade go hand in hand with authoritarianism and rigid political control?
(Few facts based on own study of the subject and remaining as highlighted in an article of Live Mint)