What Are China’s Intentions?

When China offers itself as a champion of globalization, as it did recently before the good and the great gather at Davos, reality must intrude.  There are, of course, aspects of globalization that China treasures.  It has built its prosperity on what can only be described as an export machine.  But in many ways, China has balked at the steps needed to become a truly open economy, much less a champion of globalization.

A thorough review of the ways in which China resists globalization would extend far beyond the space available here.  Some seem minor, such as the remarkable number of local content subsidies provided by Beijing and provincial governments.  Other matters stand out as more significant impediments in any conventional definition of openness.  Two in particular should provide a sense of why President Xi’s assurances that “China will keep its door wide open and not close it” is more rhetoric than reality.

A globalized economy, much more a champion of globalization, would not manipulate the value of its currency as China actively does.  Much has been made in political circles about labeling China a “currency manipulator.”  That has legal implications that go beyond this discussion.  Whatever legalities apply, it is nonetheless clear that China consistently intervenes in currency markets to adjust the yuan’s value to suit its objectives.  For years, Beijing held the yuan’s value artificially low in order to promote exports.  More recently, it has adopted a more complex set of objectives, of late trying to stem capital outflows by supporting the yuan’s value.  The change to a more sophisticated set of objectives matters less, however, than that Beijing continues to peg its currency in ways that open economies do not.

Beijing maintains significant restrictions on capital flows into and out of the country, including the ability of foreign financial firms to operate in the country’s capital markets.  Not only do these policies support Beijing’s efforts to control the value of its currency, they also support a top-down government control of the allocation of capital within the economy.  It is hardly a surprise that such policies emerge from a government that still aims to control most every aspect of life.  But it is hardly a hallmark of an open, globalized economy to exercise such control and especially one that has recently put itself forward as a nation that, in Xi’s words, “allows both other countries to access the Chinese market and China itself to integrate with the world.”

As indicated, this is hardly a complete picture of ways in which China runs afoul of globalization’s requirements.  It is nonetheless sufficient to show how China’s economic intentions differ for those characterized by Xi.  No doubt his audience in Davos wanted to believe that China would step up to the role.  All, with some justice, feared that Trump will relinquish America’s long-standing leadership position as an advocate of globalization.  But even when confronted by great anxiety and uncertainty, few can reasonably swallow Xi’s remarks as offering the world a viable substitute to fight for globalization.

 

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