US-China trade war, coronavirus pandemic, decoupling and deglobalisation have soured the mood in Beijing towards the global economic system
Ahead of National People’s Congress, debate over China’s belligerent response to coronavirus pandemic was already under way in the capital
Up until last week, almost all the Angus beef raised on Robert Mackenzie’s 15,000 acre family farm in Newcastle, New South Wales, was bound for China.
But a trade spat which has seen meat from
banned from China’s massive consumer market over customs documentation mislabelling has caused “great worry” for the founder of premium beef exporter, Macka’s.
“After a month it will really start to hurt me. When there’s a suspension it hurts the farmer, the producer, the family, and the consumer. This time we’ve felt the brunt,” said Mackenzie, who uses one of the affected plants to process the meat from his farm.
While the trade actions have legitimate regulatory grounds, many have linked the ban to Canberra’s calling for an independent investigation into the
mirroring a form of economic coercion China has used previously to settle political scores.
Australian beef ranchers like Mackenzie, along with the barley exporters now facing an 80 per cent tariff to ship to China, can be added to South Korean retailers, banana farmers in the Philippines, Canadian canola growers, Norwegian salmon fishers, as unknowing business groups caught in the political crossfire with China over the years.
But the latest fracas comes as China is arguably becoming increasingly untethered from the global economic system, sparking fears that China could deploy even more aggressive trade actions as a matter of course.
, geopolitical rivalries, the coronavirus blame game, along with calls for deglobalisation, sanctioning and decoupling have left many in Beijing convinced that the world will become an increasingly hostile place for China over the coming years.
“It seems the central government will now put politics ahead of trade,” said Zhaokang Jiang, managing director of trade consultancy GSC Potomac and a former director in China’s customs authority. “China loves the multilateral system, but if it is not going to be acceptable to China, it will probably change direction.”
The speed with which Beijing has moved on new national security legislation over Hong Kong, which has drawn fierce criticism from Washington, Brussels and other seats of power and which some say could result in Hong Kong’s special trading status with the US being revoked, is a live example of the predilection for politics over trade.
Meanwhile, exports as a percentage of China’s gross domestic product (GDP) fell to 17.4 per cent in 2019 compared to 36.04 per cent in 2006. Imports fell from 23.37 per cent of GDP at their highest point in 2011 to 14.45 per cent last year. Trade in goods accounted for 64.4 per cent of the Chinese economy in 2006, World Bank data show, compared to 32 per cent last year.
China is less reliant on foreign trade than at any point in recent history and has, for years, been trying to steer its economy towards a domestic consumption-based model.
That Australia was not willing to toe the political line is significant, given China is by far its biggest trading partner, buying a record 38 per cent of its exports last year. In July 2019, China officially became the biggest buyer of
and while there is no chance China could domestically replace
it moved to loosen restrictions on
the same week it mulled tariffs on those from Australia.
The trade ties that previously bound governments to turn a blind eye to some of China’s political posturing appear to be wearing thin.
“Already, many countries were thinking about the dangers of putting all their eggs in one basket, and beginning to reduce their dependence on China,” said Dali Yang, a political scientist at the University of Chicago. “The pandemic truly hits the nail on the head and drives home the message really hard.”
Friday’s National People’s Congress (NPC), China’s delayed annual policy-affirming meeting, came at a pivotal time, with China’s role in the global economy being debated at home and abroad.
A recent advisory paper by the Chinese Academy of Social Sciences, a government-linked think tank, suggested that the next five years would present “major changes unseen in a century” for China, as “the strategic game between superpowers has intensified, while international systems and orders are reshuffled”.
The report referred to “rising hostility” and said that in response, China should become more inward looking, nurture home-grown technology and rely on its domestic economy to power growth over the coming years.
Language commonly used over the past decade about China’s “period of strategic opportunity” has largely disappeared from official texts, replaced by a more outwardly belligerent world view, embodied by a new breed of “wolf warrior” diplomats.
These officials, led by Ministry of Foreign Affairs spokespeople Zhao Lijian and Hua Chunying, have fanned tensions between China and the West over the course of the pandemic. In the sense that “all politics are local politics”, these diplomats are emblematic of a fiercely nationalistic turn that has blossomed under President Xi Jinping’s leadership.
“You’ve got these ‘wolf warrior’ diplomats going around acting like Tony Soprano,” said Jim McGregor, Greater China chairman at consultancy APCO, referring to the popular American television gangster. “China has usually had a pretty elite core of diplomats who were self-effacing and humble and got things done. And now they’re going out there in everybody’s face saying outrageous things. How’s that going to build trust for China?”
But China is alienating its trading partners at a time when its own economy is struggling. In the first quarter of 2020, it shrank by
compared to the previous year, the first contraction of any sort since 1976, the year Mao Zedong died and the Cultural Revolution ended.
“The approach to all foreign countries has ratcheted up to the level of the hardliners,” said Chen Zhiwu, director of the Asia Global Institute at Hong Kong University. “Everything they say or do when dealing with other countries has been hardened. It is not just Australia, with most other countries China feels it doesn’t have to be so careful when dealing with things any more.”
In a reminder that while its export reliance is shrinking, it is not totally isolated from the world, a second wave of coronavirus shock from collapsed
elsewhere in the world is set to
in the second quarter.
Pre-pandemic, John Jiang was shipping 10 containers loaded with jewellery and accessories each month to foreign buyers out of three factories in China’s Anhui and Henan provinces, now he is only shipping one.
“We used to be 100 per cent export-oriented, but now we sell more of our products that were meant for export domestically,” Jiang said, adding that he has also started to import food products to sell in the 1.4 billion person domestic market as a hedge against a domestic slump in non-essential goods consumption.
“Our products are inexpensive, the most expensive item costs less than 40 yuan (US$5.6), so I don’t think our business will be affected much by the decreasing demand. But food is a necessity and Chinese people prefer imported food to domestic as it is better quality.”
Veteran officials and advisers have urged China to take a more cautious approach and not to burn the bridges that helped build the economy up over the past 40 years.
Long Yongtu, who negotiated China’s passage to the World Trade Organisation in 2001, which in turn sparked a dramatic period of economic growth, warned in May that China risks
from a new global economic order.
“China is also an important participant in globalisation, so when somebody begins to talk about ‘deglobalisation’, of course, we need to be highly wary of that,” he said.
Shi Yinhong, an adviser to the State Council, has urged the wolf warriors to tone it down, saying they do not recognise the complexity of modern geopolitics, and are acting “too hastily, too soon and too loudly in tone”.
The NPC, then, should provide crucial clues as to how China will approach the world in the fraught year ahead.
“There are Chinese who feel like they are less dependent [on the rest of the world],” said Yang at the University of Chicago.
The congress also came as the rest of the world is re-evaluating its relationship with China.
Already frayed ties with Europe and the United States have been hacked threadbare by the coronavirus fallout.
“Beijing’s willingness to embrace and magnify those divisions at such a sensitive juncture has brought about a backlash from the governments and institutions on the receiving end of its political manoeuvres,” read a European Council on Foreign Relations paper on China’s pandemic conduct.
Already, just four months after being signed, the
appears to be in trouble. Research from the Peterson Institute for International Economics showed that China bought US$19.8 billion worth of phase one-covered American products in the year to end of March, compared to a target of US$43.2 billion. US President Donald Trump has threatened to scrap the deal should China not meet its lofty purchase targets.
Meanwhile, any hope of negotiating a phase two deal to push structural reforms on the world’s second largest economy has dissipated, even by the most optimistic quarters.
“I think at this point just, given Covid-19 and the overall political dynamic, I am not personally optimistic that we’ll see much progress on phase two any time soon,” said Kelly Ann Shaw, a lead US negotiator on the deal, in an interview with the
“China came away with the deal that was basically offered to Xi Jinping at Mar-a-Lago,” said Andrew Small, a China watcher at the European Council on Foreign Relations, referring to the bilateral summit between the two presidents in April 2017. “I think they have calculated correctly that if they’re dealing with any individual actor, they have the capacity to face all of this stuff.”
The bruising trade war has not tempered China’s behaviour, instead, it seems to have emboldened it. Furthermore, its relative economic might and nationalist leadership have informed a more belligerent response to the pandemic than the “modest, but helpful” response to the global financial crisis, which bought Beijing goodwill with leaders across Europe, Small wrote in a recent paper.
“They can get away with more now, because the economy and the consumer market are on a certain scale. The indigenous capability and production capabilities are at a certain level,” Small said. “T
On his farm in Newcastle, Mackenzie has weathered drought, wildfires, coronavirus and now faces the biggest diplomatic fallout in years.
“It’s very important that our governments can work to maintain our strong relationship,” he said. “It’s important that we maintain this marriage – maybe they need some marriage counselling.”
The next story in the series will ask whether China is still a market economy and why it still needs a five-year plan.
Until then, you can read the first five parts of the series:
how it is likely to
the expectations for China’s new military budget; the sharp decline of
and where it may lead; and what
China will use to respond to fallout from the coronavirus pandemic.