China takes a wrecking ball to destroy trade rivals
Beijing’s export flood makes it impossible to do business with the world’s second-largest economy
What does China want from advanced nations across the world? Virtually nothing. Beijing’s cut-throat policies make it impossible to trade with the second-largest economy on the planet. You can still hear the words “self-sufficiency” echoing around the Great Hall of the People.
Yet this “deep sense of insecurity” is threatening industries and jobs in Europe, Japan, South Korea and the United States. Globalization that ushered in China’s rise is now acting as a wrecking ball in global markets.
“There is nothing that China wants to import, nothing it does not believe it can make better and cheaper, nothing for which it wants to rely on foreigners a single day longer than it has to,” Robin Harding, the Financial Times Asia editor, wrote last week after a trip to China.
“For now, [it] is still a customer for semiconductors, software, commercial aircraft and sophisticated production machinery. But it is a customer like a resident doctor is a student. China is developing these goods. Soon it will make them, and export them, itself,” he added.
The Chinese people have paid the price for President Xi’s vision.
What this means:
- These comments should come as no surprise. President Xi Jinping’s regime has manipulated the currency and injected massive state funding into industry.
- At the same time, Beijing has kept wages low to build the largest manufacturing model in the world, undercutting competitors and flooding foreign markets.
Delve deeper: But this “China Shock” strategy means that the country’s growth no longer expands global demand. It does the complete opposite as it shrinks market share elsewhere. An upgrade in China’s GDP forecast becomes a downgrade for others.
Between the lines: “In this case, the extra Chinese growth comes from exports, taking markets from other countries. Germany will suffer the most, according to Goldman Sachs [report],” Harding, of the Financial Times, stressed.
Big picture: Again, this road has been well signposted. “China’s ambition to achieve self-sufficiency and capture global markets was crystallized in its Made in China 2025 policy,” Henry Storey, of Dragoman consultancy, wrote for Lowy Institute’s Interpreter site.
Bottom line: Yet the Chinese people have paid the price for the “billions of subsidies and loans” channeled into Xi’s vision. Deflation is rife as debt rises, while living standards are being sacrificed to make China the only industrial superpower.
China Factor comment: Unless major democracies in the East and West push back against mercantile China, jobs and wealth will continue to evaporate. The fallout risks destabilizing governments and countries. The stakes are that high.