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Economy

Coping with a Changing World

Dec 05 , 2018

The world has changed dramatically.

Globally, more and more people have found that global governance and order are in serious danger. It is necessary to consider liberal elites as the foremost challenger. In the US they have control over capital, the media, and academia. Over the years, they have distanced themselves from the masses, especially the “White grassroots”, at home with their selfishness, arrogance, and blind and unrestrained extravagance. The broad and severe financial crisis that broke out in the fall of 2008 offered them warnings that couldn’t have been clearer. They would not have been awakened had it not been for the Brexit referendum in the UK and the election of Donald Trump as US president. To sum up, the existing global order has already lost, or at least is losing part of its support in the developed world.

Donald Trump’s election as well as his basic policies since assuming office indicate that the world people have been accustomed to since around the end of the Cold War faces serious danger. Or the world people have been accustomed to since around the end of the Cold War is coming to an end, or already has.

What should China’s focus be?

In order for globalization to achieve true sustainability, it not only has to become relatively just and balanced in favor of developing countries, just as the Chinese government has repeatedly advocated over the years, but make proper adjustments in accordance with advanced countries’ increasing anger so as to make sure it restores its support in those countries. China has for many years been deemed enormously deficient with regard to the latter. On such a matter of overwhelming significance, Chinese measures have long been too slow and too inadequate. Most importantly, it has sustained longstanding, tremendous trade surpluses, access to its capital market has long stagnated, even partially contracted, and there has been increasingly stricter state control over economic activities, as well as special preferential treatment for major state firms. Now we are facing difficult tests, including trade war between China and the US. Generally speaking, the world’s problem is not only that of common prosperity of developing and developed nations, but also between China and other countries, as well as that within developed nations themselves.

Amid such dynamism and uncertainty,  China must first “safeguard the bottom line”, and prudently make progress on such a basis. In other words, China must safeguard its economy. ”Safeguarding the bottom line” and “preserving stability” mean concentrating on China’s own stability and progress. Expanding domestic demand, stabilizing growth, adjusting structures, deepening reform, and expanding openness should become the strategic focus.

In addition, the following four sub-strategies are needed. First, in response to the Trump administration’s estrangement from US allies, quasi-allies, and strategic partners in East Asia and the West Pacific, China should continue improving relations with them. Second, through structural adjustments and comprehensively deepening reforms, strive to exploit the still tremendous potential of the domestic market and domestic resources, hence reducing the country’s dependence on external markets, resources, and technology. Third, although China still needs to continue building its own military capabilities, it must change its habitual practice of excessive propaganda, at the same time it should actively consider starting preliminary arms control negotiations with the US. Fourth, China should adjust to developed countries’ increasing anger. For that it must conspicuously reduce trade surpluses, widen access to the Chinese market, and reduce unnecessary state control over its economic activities.

The current priority is to deal with the trade war properly.

On relations with China, Trump is a merciless strategist and shrewd tactician, periodically concentrating on a battle he has launched, then after a short truce, focusing on another battle he has initiated. His strategy and tactics include exerting unprecedented pressure and threats, occasionally offering the other party a carrot, all for winning maximum gains. He did this to China in 2017 on the Korea issue, and starting from the beginning of 2018, he has cruelly applied it to economic ties with China. After a period of tit-for-tat trade retaliation, China must make concessions to the US on economic issues, dramatically increasing imports from the US and broadening access for US capital to the Chinese market.

Correctly coping with the China-US trade war has no doubt become a top priority for China to prevent the country’s vulnerable domestic economy from suffering too much. The strategic fronts (including the Korea issue, maneuvers regarding Taiwan and the South China Sea, China-US military competition in the West Pacific, strategic/military cooperation with Russia, and the Belt & Road initiative) have already taken a back seat.

Only maneuvers regarding Taiwan and military competition with the US could be given relative priority. All-round improvements in relations with neighboring countries will continue and be further developed so that China’s overall interests will not be compromised in a world driven by a capricious US under Donald Trump.

China needs to keep in low profile and make new contributions.

Looking back now, China has made unprecedented great achievements in its external relations in the past five to six years, but there were also weaknesses, i.e. moving too fast on the strategic front, while having done too little on the trade front. A pressing task in the next period five to six years or so should be keeping a low profile and making contributions.

Since early 2018, the US is reaching free trade arrangements with other advanced economies, and on the other hand, its trade relations with China have worsened, so that the latter can only rely on friendly developing nations (especially those collaborating with it under the Belt & Road Initiative).

China should improve ties with Europe, Japan, South Korea, Australia, and Canada as much as possible, as well as with multi-lateral economic regimes like the proposed Regional Cooperative Economic Partnership. This may also include promoting economic and technological cooperation across the Taiwan Strait, in spite of major obstacles.

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