Badmouthing China benefits no economies
It is achievable: you can bring to a standstill a 400-meter-long fully loaded oil tanker cruising full throttle in the open sea. But for that, you first need to catch up with the ship with fast, small boats, climb up the vessel using sophisticated devices and innovative techniques, tie all its tools and resources with ropes and cables, and then transfer them to an even bigger ship or lots of smaller ships.
It can be achieved, but at a very high cost, because productive resources, in this case other ships, skilled and unskilled manpower and technology innovations, would have to be redirected toward stopping the giant. And to the direct cost of the operation, you need to add the massive cost of unloading and loading the cargo and transporting them back on the ship.
Needless to say, a small ship can be stopped easily and at a lower cost.
Regardless of the set of data chosen, the Chinese economy is a major driver of global economic growth, not only quantitatively but also qualitatively, given the increasingly high-tech components of the value-added chains in which it participates.
All this makes China like that big ship sailing across the oceans of an interdependent world. China is not alone, certainly, for it shares that space with the United States and other large economies, but its comparative importance cannot be overemphasized.
According to the World Bank, China's GDP in 2022 was about $18 trillion, second only to the US' $25 trillion, which means the two countries, together, account for more than 40 percent of the world's GDP. Other major economies such as Japan and Germany are far behind the US and China, in third and fourth places with GDP of $4.2 trillion and $4.1 trillion, respectively.
However, in terms of purchasing power parity, China's GDP adds up to $30.3 trillion, almost 19 percent higher than the comparable figure for the US, and nearly three times the GDP (PPP) of Japan and Germany taken together.
In terms of international trade, China is even closer to the US. In 2022, China's total exports and imports reached $6.2 trillion compared with $7 trillion for the US and far above that of Germany and Japan. Outward foreign investment, which amounted to $160 billion in 2022, is another indicator of China's vital role in the global economy, although it still has a long way to go to catch up with the US. As a matter of fact, among the world's four largest economies, China is in the last position, with Germany and Japan in the second and third.
This, by the way, should end the argument that China is seeking to influence the world by acquiring foreign assets. In this regard, it seems other countries are the culprits. If there is some truth in the ludicrous argument that foreign investment is a way of controlling other countries' economies and that it is bad for the recipient countries, China would be a victim, for in this respect it is second only to the US. In 2022, inward foreign investment in China was $189 billion, less than the US' $285 billion but more than that of Japan and Germany combined.
Another way to assess the comparative dimensions of the Chinese economy is to look at its foreign exchange reserves. As of September 2023, its foreign exchange reserves added up to $3.12 trillion (including $400 billion from the Hong Kong Special Administrative Region), almost two and a half times that of Japan ($1.3 trillion) and more than 10 times that of Germany (about $300 billion).
The US reports a rather low figure ($240 billion). But given the position of the dollar as the paramount tool of global transactions, the US' reserves of foreign exchange are practically unlimited, which renders irrelevant any comparison. By the way, as part of its foreign exchange reserves, China holds more than $800 billion in US government bonds. In fact, China is a major foreign holder of US debt and thereby a major financier of the US' accumulated fiscal deficits.
These and the value of production of specific goods — in which China outshines every other country by a large margin — call into question the idea that it can be held back in its quest for achieving higher levels of development. Certainly, its current growth rate of about 5 percent is about half its average growth rate of the 30 years since the launch of reform and opening-up, but it still outperforms all advanced economies and, with very few exceptions, the rest of the Global South.
Humanity needs mature adults in the room, not zealous macho populists with a zero-sum mentality. Let there be no doubt that even if the efforts to contain China do not push the world toward confrontation, the costs of merely trying to contain China would be huge, costs that every country, not least those trying to contain China, would have to bear.
The author is a professor at Instituto Empresarial University in Spain and was special advisor to the president of Costa Rica from 2018-2022.
Consumption recovery fuels rise of Global South
Launched in 2018, the China International Import Expo, which opened in Shanghai on Sunday, is an important barometer of consumption in China. Latest data show the recovery of consumption is accelerating.
In the third quarter of this year, China's economy grew at a faster-than-expected pace — faster than the same period last year. Consumption recovery, in fact, is helping the central government achieve its full-year GDP growth target of "about 5 percent". In the third quarter, China's GDP grew by 4.9 percent year-on-year, beating all projections.
The acceleration of consumption recovery is evident on a quarter-by-quarter basis. From July to September, the country's GDP grew by 1.3 percent quarter-on-quarter — much more than the second quarter of 0.8 percent and higher than the 1.0 percent forecast.
Retail sales reflect broad-based advancement, as headline growth hastened from 4.6 percent year-on-year in August to 5.5 percent in September. Relative to the 2019 pre-COVID-19 pandemic levels, domestic tourist traffic and tourism revenue increased by 4 percent and 1.5 percent, respectively. This trend is likely to continue in October due mainly to the eight-day Mid-Autumn Festival and National Day holiday.
Despite being weary of external and internal headwinds, however, Chinese consumers are back in full force, but are more discriminate and cost-conscious. Still, China's industrial profits, that is, the profits of major industrial enterprises, rebounded by 7.7 percent year-on-year in the third quarter.
Besides, along with consumption, fiscal stimulus will also play a key role in strengthening the economy. In September, infrastructure investment and other State investments grew by 6.2 percent and 7.2 percent, respectively, with railways and electricity recording double-digit growth.
Also, China approved the issuance of sovereign bonds worth one trillion yuan ($137 billion) late last month, with the aim of rebuilding flood-hit areas and improving the urban infrastructure to cope with national disasters in the future. Investment in infrastructure supports imports of items such as iron ore, crude oil and copper, which bodes well for commodity exporters to China.
What can consolidate consumption recovery? Watch the labor market. As the headline jobless rate fell to 5 percent in September, wage income increased by almost 7 percent year-to-year in the first three quarters. The question is: Can such employment growth be sustained in the months to come?
However, the real challenge remains the under-performing property market. One promising sign, though, is that the recent stimulus for the property sector may have had a positive effect in first-tier mega-cities such as Shanghai and Guangzhou, and some second-tier cities.
As long as policymakers can minimize the downside risks in the property market, and revive consumers' confidence, growth will increase and stability consolidate. In this challenging balancing act, positive outcomes are premised on reforms. The need is to "cross the river by feeling the stones", as late leader Deng Xiaoping used to say.
In September, China reported a smaller-than-expected decline in exports from a year ago, perhaps because the misguided protectionism policies and geopolitical games of the West have hit global trade and investment hard since 2017. In contrast, China has pushed for global economic cooperation and development. Two years ago, China granted zero-tariff treatment to 98 percent of taxable items originating in 10 least-developed countries. The move will raise China's imports from the least-developed countries, which in turn will expedite economic development in those countries.
China is also strengthening trade and investment ties with the member states of the Regional Comprehensive Economic Partnership, which are the source of nearly a third of China's total trade value.
Similarly, the Belt and Road Initiative has facilitated Southeast Asia's economic recovery. China's trade with ASEAN member states has been growing two-to-three times faster than the European Union and the United States. And Belt and Road projects are moving ahead, from South Asia and Eurasia to Latin America, the Middle East and Africa.
No wonder China is projected to contribute more than 30 percent to global economic growth in 2023, Kristalina Georgieva, head of the International Monetary Fund, affirmed recently. The pursuit of global development has not been easy, though. From China's trade with the least-developed countries, the RCEP member states to the country's growing trade with Belt and Road countries and the Association of Southeast Asian Nations, in each case, the West has tried to divide these blocs to check China's rise.
Worse, the ongoing Palestine-Israel conflict — which is the result of decades of misguided policies — has already caused energy prices to climb. And a prolonged conflict would cause an energy shock, which would translate into higher food prices, that is, another Ukraine-style proxy war. Still worse, further escalation of the conflict would mean an atrocious dual shock that will lead to more severe global repercussions.
Over a decade ago, I met in Shanghai Helmut Reisen, then research head of the Development Center of the Organization for Economic Cooperation and Development. His team was among the first to show that the impact of China's growth on the low- and middle-income countries increased significantly in the 2000s: every 1 percentage point of growth in China boosts 0.3 percentage point of growth in other countries connected to China.
In other words, if external headwinds caused by foreign interests reduce China's growth by 1 percent, the consequent negative effect would be especially damaging for emerging market and developing economies. Notice that the projection was made before China further strengthened trade ties with countries through the RCEP, the Belt and Road Initiative and ASEAN. Today, these impacts — positive and negative — would be far more severe. Those who launch unwarranted trade wars and indulge in geopolitical games to contain China undermine development in and the overall rise of the Global South.
The author is the founder of Difference Group and has served at the India, China and America Institute (US), Shanghai Institutes for International Studies (China) and the EU Centre (Singapore).
Investment environment has been improving, not deteriorating
Some Western media and politicians have been spreading rumors about "China's deteriorating investment environment" and "investment risks" in the Chinese market, and claiming that China's focus on safeguarding national security may "deter" foreign investment.
Such sordid attempts to tarnish China's investment environment and downplay China's economic prospects appear to be part of a campaign orchestrated by the US-led West to attract investments away from China, expedite "reshoring" of manufacturing enterprises, and promote the "de-risking" strategy by influencing public opinion and waging a psychological warfare.
In fact, the investment atmosphere in China is quite the opposite. In recent years, China has taken coordinated measures to improve the business environment for foreign investment and promote institutional openness. Foreign businesses can now more easily access the Chinese market thanks to measures such as shortening of the negative list.
The authorities have shortened the negative list for foreign investment seven times since 2013, removing all items related to manufacturing, and further opened up the service sector. The items on the negative list for foreign investment have been reduced from 48 in 2018 to 31 at present. And for free trade zones, the items on the negative list for foreign investment have been reduced from the initial 190 to 27.
The State Council, China's Cabinet, recently issued the "Opinions on Further Optimizing the Business Environment for Foreign Investment and Further Attracting Foreign Investment", which comprises 24 policy measures aimed at improving the utilization of foreign direct investment, extending national treatment to foreign-invested enterprises, and better protecting FDI from six different aspects.
The measures not only demonstrate the authorities' commitment to improve the business environment for foreign investment and promote high-level opening-up, but also help boost the confidence of multinational corporations in the Chinese market and project China as an ideal market for investment.
As a matter of fact, China has been steadily attracting FDI and maintaining a healthy growth rate because the government has been continuously expanding its strategic initiatives and widening its institutional opening-up even amid sluggish global growth and geopolitical uncertainties, and intensifying "reshoring" efforts by US- and EU-based manufacturing enterprises.
Since 2022, China has maintained a leading position both in terms of scale and growth in inward FDI. According to Ministry of Commerce data, in the first three quarters of this year, China attracted 919.97 billion yuan ($125.90 billion) in FDI, and saw 37,814 new foreign-invested enterprises set up shop in the country, which is an increase of 32.4 percent year-on-year.
"Innovating with China" has become an important strategy for some multinational companies to gain a competitive edge in the market. Many multinational companies have adopted development strategies such as "In China, for China" and "In China, for the world", while others have transitioned from initially importing products to manufacturing locally and exporting products overseas. And after localizing their value chain, they have leveraged the Chinese market to expand globally.
According to data from fDi Markets, the share of high-tech manufacturing in the total FDI in manufacturing increased from $9.89 billion in 2017 to $12.06 billion in 2021, that is, from 29.5 percent to 35.8 percent. Besides, industries in the high-tech manufacturing sector such as electronic industrial equipment and general instrument manufacturing have seen significant improvement in the utilization of FDI.
In the first three quarters, actual FDI in high-tech manufacturing increased by 12.8 percent, with those in medical equipment and instrument manufacturing, and electronic and communications equipment manufacturing rising by 37.1 percent and 21.5 percent respectively.
Since China's service sector market is massive in scale and has huge potential, foreign companies are interested in either investing in it or setting up service-providing businesses. No wonder the service sector now attracts the highest percentage of FDI.
But compared with developed economies' markets, China's service market still has room for improvement, especially in terms of openness in areas such as finance, telecommunications, digital services, culture, education and healthcare.
China also lacks a unified negative list for service trade on a national level. True, China has established a negative list management system for fields such as cross-border supply. But some restrictions still exist in areas like the movement of natural persons. As such, China needs to focus on improving the transparency of the service sector.
Over the past 40 years, China's approach to opening-up has been characterized by policy-driven opening-up, but now it is shifting toward institutional opening-up, with its main feature being the establishment of an open, transparent, stable and predictable system. This shift is expected to have a lasting impact on the confidence of both domestic and foreign market participants, including foreign investors, and will promote the long-term development of the Chinese market.
As for the narratives of a "deteriorating investment environment" and "investment risks" in China, they are likely to fade away as China continues to open its door wider to FDI.
The author is deputy director of the Institute of American and European Studies, China Center for International Economic Exchanges.