China faces economic crossroads

opinion December 18, 2018 01:00

By Suwatchai Songwanich
CEO Bangkok Bank (China)

Today, December 18, marks an important anniversary in China as it is four decades since Deng Xiaoping set the country on a path to economic transformation.

This is more than a symbolic occasion as the Chinese leadership stands at a crossroads – whether to accelerate economic reforms or withdraw into isolation and protectionism in response to the trade conflict with the US. While the trade war is experiencing a temporary reprieve following the recent G20 meeting between the Chinese and US presidents Xi Jinping and Donald Trump, the arrest of Huawei Chief Financial Officer Meng Wanzhou in Canada has created new tensions.

The indications so far are that China does not wish to inflame either conflict, indeed there are signs that it wants to mend the rift. China has resumed buying soybeans and has agreed to cut tariffs on American cars from 40 per cent to 15 per cent. Meanwhile the official Chinese response to Meng’s arrest has been relatively muted and she has been released on bail.

So what can we expect to see to mark the 40th anniversary of China’s opening up of its economy? A key Chinese Communist Party meeting to discuss the country’s economic direction was due to be held last month but this was postponed. Some speculated that this was due to differences of opinion between the centrists and the reformers on how far to open up the economy, especially regarding the power of state-owned enterprises.

Now we are waiting for President Xi to signal China’s direction and it is rumoured he will soon deliver a major policy speech on this matter. This could cover China’s domestic economic strategy, China’s position on international trade, as well as contentious issues such as intellectual property and the Made in China 2025 policy.

Forty years ago Deng launched an economic miracle that lifted China out of poverty but made it far more dependent on the global economy. Given this economic dependence, the situation that faces President Xi today is far more complex and he has to choose which way to go – should he assert China’s power and turn inwards, or move it forwards to a new era?

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