China: The new face of globalisation

History is tricky business. Often it requires breaking a continuum at different points to demarcate the beginning or end of eras. This week is one such inflection point that future historians are likely to look back at to mark the beginning of a new dynamic in the world order.

With Donald Trump set to take charge in the Oval Office, on a bitterly cold day in the Swiss town of Davos, the leader of the world’s largest Communist Party, Xi Jinping of China pitched himself as the next standard bearer of globalisation and the liberal economic order.

Delivering the opening plenary speech at the World Economic Forum, Chinese President Xi Jinping hinted more clearly than ever before that Beijing is ready to move on from Deng Xiaoping’s vision of tao guang yang hui – roughly meaning: keep a low profile and bide your time while things get accomplished.

“We must remain committed to developing global free trade and investment, promote trade and investment liberalization and facilitation through opening-up and say no to protectionism. Pursuing protectionism is like locking oneself in a dark room. While wind and rain may be kept outside, that dark room will also block light and air. No one will emerge as a winner in a trade war,” Xi proclaimed to applause, chiding critics of globalisation.

A day later, Xi met United Nations General Assembly President Peter Thomson and new Secretary-General Antonio Guterres at the UN office in Geneva, pledging Beijing’s commitment to the organisation.

"The interests of all nations are connected, while their future is shared. The old way of chasing profits and hegemony must be banished, and should be replaced with a new pattern of using rules and institutions to better coordinate relationships and interests,” Chinese state media quoted him as saying.

Guterres and Thomson lauded those remarks as indicative of China’s reaffirmation to multilateralism.

In both Davos and Geneva, although Xi mentioned no names, the target of his rhetoric was clear. Ever since winning the elections, Trump has indicated that he intends to act on his protectionist campaign promises.

Apart from the much-talked about border wall, which Trump says Mexico will pay for, he has threatened carmakers like Toyota, General Motors, Ford and BMW with a border tax for manufacturing abroad and selling in the US. He’s also spoken about re-negotiating NAFTA and junking the Trans-Pacific Trade Partnership agreement. Added to that, he has vowed to get tougher on immigration, even for skilled workers, by raising the bar for H1-B visa applicants.

Trump’s rhetoric has not just been protectionist but also anti-multilateralism bordering on isolationism, at least in the context of long-standing American commitments in the global arena. From terming NATO “obsolete,” predicting the break-up of the EU and calling it an institution that serves German interests, to dismissing the UN as a “club” for people to “have a good time,” Trump has indicated that he wants US allies to carry their own weight.

It is this perceived pullback that the Chinese president is looking to capitalise on. For instance, in November, as the US was debating the outcome of the presidential election, Xi traveled to South America.

Beijing’s economic ties with the region have largely been in the context of raw materials and investments in infrastructure. China buys raw materials such as oil, minerals like copper and soybeans from Latin America. Its share in overall South American trade has climbed steadily since 2000. While the US’s share remains the largest, it has steadily declined. Moreover, although data shows that South America’s trade with China creates fewer jobs per dollar worth of exports, Beijing is looking to change that.

China is promising investments in oil and energy sectors, such as the Coca Codo Sinclair hydroelectric station in Ecuador or the Shanghai-based Envision Energy’s proposed wind farms in Argentina, along with undertaking mega infrastructure projects, such as the proposed 3,300-mile-long transcontinental railroad.

Beijing has been employing a similar approach elsewhere too. For instance, reports suggest that Africa is likely to slide down the new US administration’s priority list, with Trump questioning aid and security commitments along with the African Growth and Opportunity Act, which eliminated US import levies on 7,000 African products. China, meanwhile, is expanding its engagement in the region, ever since it overtook the United States as Africa’s top trade partner in 2009.

Estimates value China-Africa trade to be nearly 170 billion US dollars in 2015, dipping from over 200 billion US dollars in 2014. Chinese exports to Africa in 2015 reached 103 billion US dollars, which far outstrips the 27-billion-dollars worth of exports from the US.

In addition, many China-funded infrastructure projects in Africa, such as the Ethiopia-Djibouti Railway and the Abuja-Kaduna standard gauge railway in Nigeria, were completed in 2016. During his visit to the region at the beginning of 2017, Chinese Foreign Minister Wang Yi also extended an invite to African nations to join Beijing’s foreign policy cornerstone Belt and Road initiative.

Chinese media reports suggest that already 40 countries and organizations have signed deals in connection with the Belt and Road initiative, with Chinese investment in countries along the routes having surpassed 50 billion US dollars. In addition, the China-led 57-member Asian Infrastructure Investment Bank has already approved nine major projects in the last year, lending 1.7 billion US dollars, surpassing its initial target of 1.2 billion US dollars.

Added to that, with Trump indicating a US reversal on the TPP, Beijing is keen on pressing ahead with the Regional Comprehensive Economic Partnership, which brings together ASEAN members and its six FTA partners - China, Japan, South Korea, India, Australia and New Zealand.

However, China’s attempts to cement its position as a leader of the multilateral liberal economic order hinge on crucial changes in its domestic economic policy. First, Chinese growth is slowing, with GDP growth estimates for 2017 down to 6.5 per cent - the lowest in over 25 years. If that trend continues, it will place a serious question mark on Beijing’s ability to use its economic muscle to sway countries in its favour.

Second, while Chinese banks extended a record 12.56 trillion yuan (roughly $1.83 trillion) of loans in 2016, growing debt, particularly corporate debt with state-owned enterprises, remains a major concern. In a recent assessment, the IMF warned that China’s total debt rose to 247 per cent of its GDP in 2015. The economic slowdown and rising debt, along with external factors, are also contributing to the yuan’s depreciation.

Lastly, any attempts at leading the liberal economic order will require China to further ease access to its domestic markets. China still hasn’t been accorded ‘market economy status’ at the WTO and the recent 2016 Enabling Trade Index published by the WEF ranks China 121 out of 136 countries in terms of domestic market access, estimating average applied tariffs of 11.1 per cent.

Given the above, delivering on the rhetorical flourishes in Switzerland will require Xi Jinping to addresses domestic economic challenges, along with managing political tensions with countries like India, Japan and claimants in the South China Sea dispute.