Will China Save the World?

Will China Save the World?

The Chinese leader Xi Jinping advocates globalization, which may increasingly aid the long-term development of the world economy. The US president Donald Trump does not serve globalization or even hinders the development of the world economy. Maybe some of his actions will revive the US economy in the short run, but they are harmful to the global economy. And later on, there will be a growing imbalance, including another budget deficit and public debt within the US itself. The new American president believes that his “Trumponomics” is a present-day Reaganomics, but it’s just his illusion. 35 years ago Reaganomics was the grist to the mill of neoliberalism whose harmful effect is only fully visible ex post. The harmful effect of Trump’s economic nationalism will also become increasingly clear with time.

Visions rather than illusions

While the multi-year period of 3-percent GDP growth is the American president’s pipedream, the so called new Silk Road is a realistic initiative of the Chinese president, which incorporates his country even further than to date into the irreversible globalization. At the same time, this is an attempt to make it more inclusive. The US president harbours illusions whereas the Chinese leader has a vision. Quite the opposite of the situation half a century ago. Such dissonance has colossal implications for the world’s future.

It is quite typical that at the time the 45th president of the United States, being sworn in on the stairs of Capitol Hill, was saying (or actually shouting) America first!, at the World Economic Forum in Davos, the president of China was appealing for the defence of free trade, warning that there can be no winner in the trade war Trump threatened to wage not only against China. I’ll go even further: if such war should actually break out as a result of accusing China of currency manipulations and of imposing punitive, prohibitively high customs on Chinese goods purchased by the USA, China stands to lose less than the United States.

It is characteristic that when president Xi ensured the new French president, Emmanuel Macron, in a phone conversation, that he would defend the Paris agreement of December 2015, aimed to limit climate change by controlling the greenhouse gas emissions, president Trump is still threatening to withdraw from this agreement, one reached with such difficulty and so badly needed.

Who is the biggest?

Though certainly China will not become, by the end of the 21st century, the “middle country” as there will be no such thing in the multipolar world of the future, its economy, with a PPP GDP of USD 21.3 trillion, is already bigger than the American one by nearly 15 per cent (calculated at market exchange rates, the US GDP of USD 18.6 trillion is 63% bigger than the Chinese one) and 11 per cent bigger than that of European Union, still including the United Kingdom (calculated at market exchange rates, UE’s GDP of 16.3 trillion is bigger than the Chinese one by nearly 43 per cent). Let us not forget, however, that all this might comes not only from Shanghai or Shenzhen, as China still has more people (33.6 per cent) working in agriculture, which produces just 8.6 per cent of the GDP, than in industry (30.3 per cent), contributing 40.7 per cent of the GDP. Services account for only half of its national income (80 per cent in the USA).

China is the world’s biggest exporter (USD 2 trillion in 2016) and second biggest importer (USD 1.44 trillion, the biggest importer being the USA with 2.2 trillion). Beijing has amassed the world’s largest foreign-exchange reserves amounting to the equivalent of ca. USD 3 trillion (six times Poland’s GDP); it’s more than the sum total of foreign-exchange reserves held by four economies ranking below it on this list: Japan, Switzerland, Saudi Arabia and Taiwan. If we were to look far ahead into the future and see Chinese reserves together with those held by Taiwan and Hong Kong, then the currency reserves of such “greater” China exceed the sum total of the aforementioned countries plus those of Russia, India and South Korea.

Peaceful expansion or Chinese imperialism?

Therefore, China has enough not only to maintain the stability of its own economy, but it also has at its disposal an immense capital to invest outside the country. It is already doing so, because, even though the cumulated direct foreign investment, DFI, in China amounts to USD 1.46 trillion, and the Chinese FDI abroad to 1.29 trillion, the Chinese DFI in other countries has, for two years now, been higher than foreign investment in China. In 2016, Chinese FDI reached a historically high level of USD 189 billion, as much as 40 per cent more than a year before. Over 37 billion of this amount (as much as 77 per cent more than in the previous year) went to European Union member states. It’s curious that while some seek – and rightly so – to attract Chinese capital, others accuse China of a sort of Chinese imperialism. There is no threat of the latter as to Beijing the Chinese outward economic expansion is mostly an instrument of the policy that serves internal affairs. At this stage, it’s a good way to ensure high economic growth and, consequently, rising incomes and to hold in check the immense internal migration from the countryside to cities.

While Americans save 17.6 per cent of their national income (21.4 per cent in EU), the value for China is as huge as 46 per cent. This is a lot and though China is trying to slowly reduce the propensity to save, favouring a relatively higher consumption growth, the country still has huge funds for domestic and foreign investment. No wonder then that it is looking around all over the world for attractive places to place them. Striding the new Silk Road, China also reaches Central East Europe, and this current will pick up speed with the “16+1” initiative addressing countries of our region – from Estonia and Latvia in the north through Czech Republic and Hungary in the middle all the way to Albania and Macedonia in the south. Poland, the largest economy in this 16-strong group, has absorbed, to date, less Chinese FDI than Slovakia and Hungary, but in 2016 the amount stood already at over half a billion USD.

New pragmatism with a Chinese characteristic

In the same way as it was naïve, a quarter of a century ago, with the cold war coming to an end following the collapse of the Soviet Union, to expect that the USA, taking advantage of its economic power, including financial, political and military might, would “save the world” and effectively become its progressive leader, it would be equally naïve at present to expect something similar from China. Despite its might, it has neither funds, nor – unlike USA – the intentions to do so, the way it is suspected of by some and even accused of by others. China by no means wishes to dominate the world, it just wants to use globalization to its advantage, not necessarily at the expense of others, and sometimes even helping them, too.

Unlike in nature, in politics and economy no system is pure as we are always dealing with some sort of mixture of them. This is also the case of China, where elements of socialist centrally-planned economy, not yet fully removed, interplay with the elements of open free market economy, which have been predominant for at least a dozen or so years; where still significant symptoms of statism co-exist with liberalised capitalist enterprise.

It is very important that China of all places – the country that means so much to the future of the world – is where new pragmatism is coming to the fore. Advocating globalisation while pointing out the imperative of making it more inclusive, realising the necessity to decrease the scale of trade and financial imbalance in the global economy, taking even greater care of the environmental balance than some highly developed countries (admittedly, first having greatly contributed to disrupting it in the past), China is slowly entering the path of economic policy suggested by new pragmatism. There is hardly any neoliberalism there, a corrupted state capitalism is increasingly fading (though it is still too prevalent), while more and more new pragmatism ideas are gaining ground. Indeed, nobody else, on such a great scale and with such global consequences, can equally effectively couple the might of the invisible hand of the market with the visible hand of the state. Only Nordic economies do it better, also Canada, but their impact on processes taking part in the global economy is minimal.

Battle to streamline the globalization

A great battle to streamline the globalization is on. This – coupled with security issues and the concern for environment – may determine the “to be or not to be” of our civilisation. China can significantly help co-shape the desirable face of the future, limiting the mounting global threats and the risk of a great disaster that goes far beyond the economic dimension. And this is what the world is in for if, on the one hand, the economy is switched back to neoliberal business as usual groove, and, on the other hand, if we fail to control the escalation of new nationalism. However, we can hope that neither of the two happens, and the credit for that should go, to a great extent, to China.

If that country manages to defend free trade from the designs of economic nationalists – this time headed by USA; if it saves the Paris agreement of all of the world’s countries on counteracting climate warming, and talks the USA out of its reprehensible intention to leave this project; if, by investing trillions of US dollars in the coming decades in Africa and Middle East, it will stimulate a high growth rate there, which, by improving living conditions and slowing down the demographic explosion, will save Europe from the influx of tens of millions of immigrants; if it helps find a solution to the festering conflict around North Korea’s nuclear programme, the way it helped about Iran, then we will all benefit from it. So one should not fear China. One should count on it.

Waiting for G-20

In our beautiful democratic world there is always a referendum or election going on, in Greece or Italy, in the UK or France, in Austria or the Netherlands, in Spain or Germany, and meanwhile all is quiet in China… Somewhere, in the faraway Brazil, Madam President is removed from office, somewhere closer, in South Korea also Madam President is ousted, and meanwhile all is quiet in China … In Northern Africa and in the Middle East the Arab Spring compromises itself, and meanwhile all is quiet in China… Well, relatively quiet at least. This is one more factor making it possible only for that country to inspire a huge project such as One Belt One Road and to set about its implementation with verve.

At the July G-20 summit in Hamburg – a meeting of countries accounting in total for ca. 85 per cent of the global output and 90 per cent of the global trade – all eyes and cameras will be not only on the host, chancellor Angela Merkel, but most of all on the president of the USA and on the Chinese leader. And while the former will be mostly looked at as out of curiosity, the latter, in principle, for practical reasons. After all, there is no shortage of problems to solve and it so happens that China may have the most to offer on the matter. China will not save the world, but can help, better than anyone, prevent it from turning upside down.