March 21, 2018 / 3:19 PM / a year ago

Breakingviews - Hadas: Taking on the Chinese new world order

LONDON(Reuters Breakingviews) - China’s goal is to be “a global leader in terms of composite national strength and international influence”. Those are the words of Xi Jinping, who has just won approval to extend his term as president indefinitely. Xi wants the People’s Republic to supplant the United States as the world’s leading nation.

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The prospect is distant. China has come a remarkably long way, but the country is still relatively poor. Gross domestic product per person is lower than in Iraq and Thailand, according to International Monetary Fund data. The renminbi lacks global clout and Chinese institutions – government bureaucracies, the financial system and corporations – are immature.

Most important, China does not offer any dreams which can move the world. Xi’s “socialism with Chinese characteristics” is distinctly Chinese. Kevin Rudd, a sinologist and former Australian prime minister, identifies the Communist party’s key themes as Leninist politics, nationalist sentiment and an authoritarian and hierarchical neo-Confucian philosophy. All of those lack the global appeal of the 20th century American way of life, with its personal freedoms and cultural openness.

Yet while soft power remains elusive, Xi can be more confident of gaining some hard economic authority. After all, if recent rates of growth continue, the Chinese economy will overtake the European Union by 2025, on IMF measures, and America five or six years later.

Of course, it might not happen. To enable continued economic growth China needs to improve those institutions. Recent developments are not very encouraging. The China Economic Dashboard compiled by the Asia Society Policy Institute shows substantial progress in only two of the 10 core organising principles of the current reform agenda. The country is actually going backwards in three – fiscal policy, competition policy and labour reform.

Still, the Chinese ability to change has astounded the world for four decades and Xi is determined to keep up the momentum. Meanwhile, the United States is relinquishing many aspects of its global leadership under President Donald Trump. Foreign executives and politicians would be well advised to plan for a more China-centric world.

China is already decisive in many industries. It is the largest single market for steel, automobiles and semiconductors, according to trade associations. High Chinese spending on research and development, which the OECD calculates is at 80 percent of the U.S. level, presages ever-greater clout in ever more sophisticated products.

In the global economy, though, China still punches well below its weight. While the authorities have firm control at home, abroad they have mostly tried to fit into the established global consensus. Acceptance into the World Trade Organisation in 2001 was welcomed as a significant sign of global respectability. Such conformity made sense when the country needed to copy global leaders, import expertise and find export markets for low-value manufactured goods.

But confidence increases with prosperity. China has already started to throw its increased economic weight around. It is the global leader in investments in Africa and has begun to act on its ambitious plan to reshape trade routes throughout much of Asia. Attempts to create alternative multilateral institutions, like the Asian Infrastructure Investment Bank, remain in their infancy. Even so, more flaunting of power can be expected.

For foreigners, a good starting point is what is known as cognitive empathy. In other words, understand what the Chinese government is teaching its people to want and fear. Though Xi praises what he calls democracy, his idea of the popular will is based on the Communist party’s leadership, shared national sentiment and respect for those in power.

Western countries are increasingly responding with economic threats – blocking Chinese investments overseas, demanding that the People’s Republic open up its markets to foreign competitors, and even proposing tariffs. If China was ever weak enough for such a strategy to work, however, the time has passed. Its domestic market is now too large, its technology too advanced, its overseas friends too numerous and its military too strong to be cowed by economic bullying.

It is better to try to get along, choose battles that can be won, and accept some re-education in Chinese ways. That approach is defeatist, and rightly so. As China grows in power and confidence, it will not only go its own way, it will also shape more of the global rules.

Many Western businesses are catching on, but they could all do more. Studying the Chinese language, culture and history would undoubtedly increase cognitive empathy. A more unified response to Chinese investments in Asia would help slow down losses in economic influence.

The governments of prosperous Western countries are mostly miles behind. President Trump’s trade aggression is pointlessly disrespectful of Xi’s “Chinese Dream of national rejuvenation”. In Europe, mainstream political leaders seem too busy shoring up fading domestic political support to spend much time thinking about China.

As China rises, the global authority of today’s rich countries will inevitably decline. It is a shame that these relative losers seem intent on speeding up that process.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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