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China seeks to exploit western weakness

China will lead the world economic recovery this year and will have better figures than the rest but the country will also encounter more headwinds in the next stage of development.

Financial stock exchange market display screen board on the street

by
Charles Stanley

in Features

21.10.2020

A Republican Congressman has proposed a Bill called ‘Naming the Enemy’ to ban the use of the title President for Xi Jingpin, the General Secretary of the Chinese Communist party, Head of State and Head of the Chinese Armed forces. He thinks that the use of a western title that implies elected and democratic authority is misleading as a description for an autocratic ruler with massive power.  His Bill is unlikely to find a majority, but it captures a mood in the USA that wishes to expose the imperfections they see in the Chinese approach to government and international relations. Mr Trump’s creation of a new cold war with China finds support from Democrats as well, who are more hawkish than him in condemning Chinese violations of human rights in their approach to Hong Kong, the western Muslim communities, and political opponents of the Xi regime. 

It is important to understand that the conventional Chinese attitude is to see democracy as a weak and foolish system.  Why they argue should a country put on display for the world to see all its mistakes, shortcomings and foibles of its rulers? Why pay salaries to people in an official opposition whose main task is to oppose government, often by trying to prove they are useless or corrupt?  Why, they ask, does it help to have constant disagreements and the creation of legitimate political forces in a country seeking to undermine, dilute or cancel the agreed policy of the government? In China, they seek loyalty, respect and buy into the decisions of the rulers. An opposition leader has to be persuaded to toe the line or made to recant, to accept the conventional wisdom or is put out of harms way in detention or a retraining institution.

The Chinese also have at best an ambivalent attitude to competition. They have now opened up more sectors of their economy and allowed private sector companies to operate alongside nationalised businesses, but they still see full-throated competition between free world companies as an opportunity to exploit. It means they can do better deals with them because the foreigners foolishly compete with one another, and means they can often buy access to superior western technology from the weakest companies that have access to it in the West on cheap terms. The US government also now reports investigations into 1000 cases of alleged intellectual property theft, as the West gets more nervous about the way some in China simply steal good ideas.

This is the background to China’s claimed success at taming the virus and getting her economy back to normal. The latest third-quarter figures show China is on track to record modest growth for 2020 as a whole before going on to resume her high growth rate next year. President Xi has adopted a new approach to China’s development to tackle the twin problems of Western resistance to the Chinese trading model and the continuing negative impact of the pandemic on western economies. He calls for a dual circulation economy. This will reduce China’s dependence on exports overseas, foster more domestic consumption and encourage domestic technology development. It is a realistic recognition that China will encounter more difficulties buying, joint venturing and stealing western digital technology from here, and will encounter more difficulties in expanding her huge exports to a wide range of advanced country markets.  Mr Xi warns us that “Globalisation is facing a reversal, with rising protectionism and unilateralism”.

On the official figures, China has controlled the virus and hits the occasional small outbreak with mass testing and isolation of anyone at risk. Her official case and death figures are now very low. China claims it is a lie put round by opponents that Mr Xi’s coughing fit when making his important speech about the economic future in Shenzen was anything serious. The tame tv cameras did their best to avoid filming it. In Golden Week many Chinese travelled and spent money on domestic holidays, reflecting the new enthusiasm for domestic consumption. It seems true that China is no longer locked down and the economy is bouncing back, though it was interesting that Mr Xi’s attentive audience were all masked.

The Chinese Central Bank is not reporting any moves to loosen conditions more and seems content with the current rate of economic progress. The Governor has recently appeared at the International Platform on Sustainable finance. He signed up to joint working with the EU on the taxonomy of green investment and finance, to promote more green and sustainable development. It shows the global model is not yet dead, with the Chinese latching on to the huge commercial opportunities for themselves if they work well with the EU on its large de-carbonisation project. China has a strong position in batteries, wind and solar energy and the raw materials to make them and wishes to export more of those items. She has also been careful to carry on building plenty of coal power stations, as she herself wants to make sure the factories keep on turning even when the wind does not blow. Maybe she sees the green policies of the West as another weakness she can exploit by owning many of the resources and technologies it takes to go green. She is pledged to reach net zero herself by 2060 but plans to spend most of this decade expanding her CO2 output further to give her the world's highest carbon mountain by far to descend when it finally suits her. 

China will lead the world economic recovery this year and will have better figures than the rest. China will also encounter more headwinds in the next stage of development and will put off some western investors by her approach to world issues.

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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