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China drives into global trouble

China may discover that more countries in the world now intend to stand up to Beijing’s actions, as the US finds a rare political unity in opposing its actions from technology to Hong Kong.

Cardboard boxes with text made in China and chinese flag on the roller conveyor

by
Charles Stanley

in Features

02.06.2020

In an ironic twist to the global story, China has relaxed its economy more and is making better progress with its recovery than most of the rest of the world. Early into the pandemic – and generally thought to be its source – China clamped down the affected region severely, took lesser action elsewhere and now reports low levels of infection.

China has recently changed its explanation of what went wrong. It now denies that the original passage of the virus was from another species in a wet animal market, whilst also continuing to refute the idea the virus escaped from the nearby research institute.

The failure of China to report the events immediately on the original outbreak has upset some and led to bitter exchanges with Australia, which seeks a proper international enquiry into the pandemic and the response. The World Health Organisation (WHO) has been on China’s side, agreeing with China that, after the early stages, China co-operated well with it and shared relevant information as other countries became overwhelmed by the disease.

Trump targets WHO

Donald Trump has been very critical of the WHO’s approach, and its proximity to China as he sees it. The US had been making, by far, the largest contributions to the WHO budget. The Administration was critical of the policy of lockdown favoured by the WHO, thought them slow to evaluate various medicines which might help – and found them unable to lead work that produced quick results for diagnosis, treatment or vaccination. Mr Trump backed the US private sector instead to tackle it.

Meanwhile, China has been falling out with plenty of other governments around the world. The Belt & Road model of Chinese development sold the idea of accelerated infrastructure investments to a number of emerging-market countries in a wide arc from China through the Middle East to Europe, taking in large parts of Africa by way of a detour.

In the initial stages, China would offer cheap financing for major projects. The government of a country would willingly accept, so the President or ruling party could offer better power or transport to their citizens with no up-front payment or tax rises. The small print often entailed Chinese businesses carrying out the project works and supervising or operating the final facility.

Rising opposition

When a new government arrives in office it will frequently probe the terms of these deals. The results have been numerous allegations of projects that were more expensive than they should have been, insufficient competition to build them, possible corruption over the contracts, and substantial future tax liabilities when the debts fall due.

In Sri Lanka, The Hambantota Port project is now operated by the Chinese Merchants Port company on a 99-year lease amidst a welter of accusations of bad value and high debts. Malaysia cancelled some Chinese pipeline projects that had been planned when a new government reviewed them. In Zambia, there is ill will about the number of Chinese people who have come to operate the projects – and claims that the Lusaka- Chirundu highway was badly built with sections swept away by rain. In Pakistan, a government enquiry into six power projects has produced a number of accusations of profiteering and overspending by Chinese firms.

The West is now also apprehensive about the new law for Hong Kong. Under the Basic Law agreed in the UK/China Treaty on the future of Hong Kong the territory has judicial independence assured by Clause 19. Chinese national laws do not apply in Hong Kong under Article 18 with a few exceptions relating to the flag, foreign affairs and defence. This is now being altered by the assertion of China’s right to tackle sedition, treason and independence movements. All those who look to these clauses to defend Hong Kong’s freedoms should read the whole article. Whilst it does offer independence of law-making and enforcement, it also goes on to say if “turmoil within the Hong Kong Special Administrative Region” “endangers national unity or security… the government may issue an order applying the relevant (Chinese) national laws in the region.”

China asserts itself

It looks as if China has decided to get tougher internationally and, if necessary, force the issue over Hong Kong. The reservation of laws over the flag, national anthem, territorial waters, the Garrison and the diplomatic services were there as a reminder that China takes the one country part of the mantra very seriously. The West is now being challenged to see how seriously they wish to defend the two systems part of the deal. There is no military way to enforce the Hong Kong Agreement, so this is a dispute which will be a wrestle for world opinion. Trade sanctions and tariffs will be the weaponry used in the struggle.

The Chinese economy is recovering, with substantial credit being extended and money growth up a bit. China will ride out its disagreements with a range of countries, rich and poor, around the world. The Belt & Road was always about expanding markets for Chinese companies and expanding China’s influence. It now has a lot of leverage over countries that owe it money and need its operational experience for key facilities.

China may also discover, however, that more in the world now intend to stand up to it as the US finds a rare political unity in opposing its actions from technology to Hong Kong. China is collecting a lot of opponents who will be tougher if they see others also standing up to Chinese pressure.

Meanwhile, China has been supporting its stock and bond markets with plenty of liquidity. There are schemes to ensure credit to companies and cash for banks to sustain their lending. The renminbi is drifting down, whilst the financial markets seem to have the government underpinning them to some extent. China is cutting back on purchases of US soybeans adding a further negative twist to the trade outlook. It’s a clear case of China first. A more-assertive China worldwide is now using its stronger position even where it brings new antipathies from the countries she deals with.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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