CHINA TAKES THE HIGH ROAD: 2018 / SEEKING ALPHA

China Takes The High Road: 2018

by: John M. Mason

 

Summary

 

- In January 2017, Xi Jinping, China's president, assumed leadership of the world's movement to greater globalization, as the United States appeared to be backing off from this role.

- This year, the longer term strategy of Mr. Xi and China has become clearer: to tie other regions or nations more closely to China and to support massive technological innovation.

- Right now, the rest of the world seems to be quite receptive to Mr. Xi and the Chinese and are open to achieving closer ties politically, financially, and technologically.

 

Last year, around this time, Chinese President Xi Jinping gave a speech in Davos, Switzerland, which basically put China at the forefront of the leadership in world globalization.

 

I wrote about this at the time, "China Takes the High Road," but wondered what this new path would look like.

 

This is an important issue because Chinese leaders, as I had been wisely advised in the early 1990s, think in terms of decades, while the leaders of other countries, like the United States, think in terms of years.

 

Modern China, up until early 2017, had focused on becoming more competitive in world markets, accepting the fact that world markets were "open" and based on market performance. As a consequence, China was emphasizing in most of its decisions, a movement toward greater market competitiveness and opening up of trade with the world.

 

But, in early 2017, it was apparent that the new leader of the United States wanted to pull the United States back from its leadership in globalization and back from its efforts to build open trade agreements with communities of nations, like NAFTA and the Trans-Pacific Partnership.

 

Also, there was the withdrawal of the United States from the Paris climate agreement.

 

What would China do? How would it react to the new political environment?

 

Well, after observing China's behavior over the past year, it seems as if one can focus on two initiatives that set the tone of Mr. Xi's strategy.

 

But this strategy must be put into the context that, more than a year ago, Mr. Xi assured established himself as the dominant force in China as he has apparently established his supreme control over the Communist party, and the Communist party over the Chinese state, and the Chinese state over the Chinese people.

This movement must be remembered given that a good part of his "strategy" is based upon the performance of others that exist on the edge of greater openness. How Mr. Xi navigates this brush with openness and his vision of the Chinese future is something that remains to be seen.

 

Let's return, now, to the two initiatives that seem to be setting the tone of Mr. Xi's strategy.

 

One of Mr. Xi's efforts is addressed at winning over other the leaders of other nations by improving the relationship between China and the other nations and by providing resources to these other nations to help them better themselves.

 

Recent evidence of this move is seen in the efforts to tie Latin America more closely to the Chinese.

"China's emergence as a global economic rival to the U.S. is perhaps most obvious in Latin America. 

The U.S. in recent years has lost its status to China as the top trading partner in parts of Latin America, such as copper-rich Chile and agriculture and mining powerhouse Brazil.  

Now, all the uncertainty surrounding U.S. President Donald Trump's plans - from building a southern border wall, to re-freezing Cuba relations and exiting the Paris climate change accord supported by Latin America - could give an opening for China to seize more ground in the región. 

Meanwhile the Chinese government is ready to expand its dominance in a region already supplying it expanding economy with everything from farm goods to raw materials."

China is attempting to fill the void left by the United States, something that was not available to it previously. It is doing this in other parts of Asia, in Africa, the Middle East, and even in Europe.

 

Its efforts to build trade channels, like the new "Silk Road" plans to tie Europe and China together, inclusive of all the nations in between.

 

These are plans that succeed over decades, but the important thing to China is that it is planting the seeds now and will be entrenched in these areas over the years, based on the foundation it is now putting down.

The second path is also of a longer term nature and focuses upon the future of technology. China is attempting to lead the Asian boom in innovation.

"For the past 15 years, we have seen an impressive rise in technologies created in emerging Asian economies….Measured by the number of patents granted in the U. S., the 'Asian Miracles' are already contributing more than European economies to global technological progress. China's patents granted in the U. S. went from about 100 in 200 to over 8,000 in 2015, more than the UK or France (about 6,500in 2015)."

Not only do these innovations help China and the Chinese, but they also can help the China's "friend nations," the nations in Latin America and Africa and elsewhere, to leap into the twenty-first century, something they lack the resources to achieve just by themselves.

 

The China initiative "Made in China 2025" not only speaks to the advancement of those in China, itself, but also speaks to the spread of Chinese innovation spreading to global markets and investors.

 

And, the other thing that this initiative builds is the education and training of the people. For the Chinese to play the role in the world that Mr. Xi and China's leadership want to achieve, the lifetime education system of the Chinese must be second to none. And, this also takes decades.

 

Martin Wolf argues in the Financial Times that the disorder in the West has created an opening for China and Mr. Xi picked up the "mantle of globalization." Mr. Xi has achieved this as "the position of today's high-income countries, though still enormously powerful, is in relative decline."

 

Mr. Wolf continues:

"the share of high-income countries in world output has fallen by about 20 percentage points since the beginning of the century, at market prices, and their share in world merchandise trade has fallen by 17 percentage points."

 

By reducing its leadership at the same time this economic position is falling, the United States is only opening up greater opportunity for someone else to gain traction in world markets. China is doing this by building closer friendships with lower-income countries.

Furthermore, Mr. Wolf writes that with China's taking on the mantel of globalization, "modern western ideals of democracy and liberal global markets have lost prestige and appeal…." Although most nations are not willing to assume a political structure like the Chinese one, the decline in "prestige and appeal" has opened up opportunities for the discontented in these countries to gain a greater voice in what is going on.

 

Right now, Mr. Xi's strategy seems to be a winning one. At least given the current political problems faced by the West, his strategy is likely to be around for a while.