A resilient China tries to navigate a hostile world


Instability is the new global norm. From Russia’s invasion of Ukraine and tensions in the Taiwan Strait to the COVID-19 pandemic and climate change, the challenges facing the world are as varied as they are volatile. But, despite their transnational nature, building resilience towards them must occur, first and foremost, within the confines of nation states.

Certainly, effective multilateral cooperation has an important role to play. But the intensification of geopolitical rivalries limits its potential. Moreover, even if countries worked together, their ability to deal with destabilizing global and regional trends and imbalances would largely depend on the work each country does to build financial, economic and social resilience at home.

But there are many obstacles to effective action at the national level. As public trust in government wanes in much of the world, few political leaders have the political mandate or legitimacy they need to make the tough choices the situation demands. General mistrust of the media does not help matters.

Rather than addressing these trust deficits in an honest and sustained way, many political leaders and journalists, particularly in the West, have sought to unite their populations by framing and highlighting external threats, especially with China. and Russia. This is a dangerous distraction that will undoubtedly leave the West less safe.

If countries remain on a war footing, they will devote insufficient attention and resources to national imperatives such as achieving net zero targets, building demand, providing quality health care, ensuring social protections adequate and the reduction of economic inequalities. Without progress in these areas, discontent will only grow, further undermining national, regional and global stability.

China, for its part, recognizes that trying to address domestic challenges while waging a “war of words” in the media and managing a cold war with the United States is a zero-sum game. With this in mind, in 2020 it introduced its “dual circulation strategy”, focused on strengthening China’s autonomy and therefore its ability to withstand external pressures and disturbances.

As China has begun to implement this strategy, it has also maintained a strict zero COVID policy. Importantly, it has allowed it to keep the total number of deaths low: If China’s COVID-19 death rate matched that of the United States, some 4 million Chinese would have died. Instead, China has recorded only a few thousand deaths from COVID-19.

In addition to saving lives, China’s zero-COVID policy has allowed the country to avoid the economic drag of prolonged nationwide shutdowns, facilitating a rapid resumption of production and consumption. This gave the government the confidence to implement structural adjustment policies aimed at improving the quality of growth and advancing the goal of “common prosperity”.

For example, policymakers have acted decisively to reduce risk in the real estate sector and rein in internet platform giants. While these reforms have come with short-term costs – gross domestic product growth slowed to 4% in the fourth quarter of 2021 – full-year growth reached 8.1% (from 5.7% in the United States) and China’s current account surplus was $315.7 billion. (1.8% of GDP).

Further underscoring China’s commitment to addressing imbalances, the country’s macroeconomic leverage ratio (a measure of the economy’s overall leverage) has declined for five consecutive quarters. In 2021, the ratio fell by 7.7 percentage points to 272.5%. For comparison, in June 2021, the macroeconomic leverage ratio stood at 286.2% in the United States, 416.5% in Japan and 284.3% in the euro area.

Fiscal and monetary prudence also helped ensure that the value of the yuan rose only 2.7% against the US dollar in 2021, compared to 6.7% in 2020. In addition, consumer prices n grew by only 0.9% in 2021, compared to 7% in the United States.

Producer prices rose sharply in 2021, with annual growth peaking at 13.5% in October, due to volatile commodity markets and supply chain disruptions. But the government’s stabilization policies are already acting to counter this trend, reflected in the subsequent slowdown in producer price inflation, which stood at 9.1% in January.

And China is just getting started. In the quest for shared prosperity, the government will continue to use a combination of market incentives and fiscal transfers both to sustainably expand the economic pie and to ensure that the gains are more evenly distributed. Voluntary charitable contributions will also make a difference here.

A second priority is to achieve a more balanced and disciplined use of capital, using both incentives (such as to support productivity growth) and regulations (to protect against speculative practices or price monopoly). As part of this effort, China is encouraging the use of long-term equity, instead of debt.

The Chinese government is also working to ensure an adequate supply of strategic natural resources, energy, raw materials, industrial materials and agricultural products to protect against a hostile geopolitical environment. In addition, it is improving its systems for forecasting, managing and mitigating major financial or non-financial risks, including low-probability, high-impact black swan events and slow-onset gray rhino risks such as climate change. climate and biodiversity loss. And it remains committed to peaking carbon emissions before 2030 and achieving carbon neutrality by 2060.

It is an ambitious program and success is not guaranteed. China’s own track record shows that in designing and implementing bold policies, missteps are inevitable. But China also has a long history of learning from its mistakes and adapting to changing conditions. Either way, at a time of deep uncertainty and open hostility, China has no choice but to prepare for the worst. Fortunately for the rest of the world, whatever progress China makes in addressing internal imbalances will only strengthen global stability.

Andrew Sheng, Distinguished Fellow of the Asia Global Institute at the University of Hong Kong, is a member of the UNEP Advisory Council on Sustainable Finance. Xiao Geng, chairman of the Hong Kong Institution for International Finance, is a professor and director of the Institute of Policy and Practice at the Shenzhen Finance Institute at the Chinese University of Hong Kong, Shenzhen. © Syndicate Project, 2022

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