Year: China’s economic change can give winners and losers International Trade News

When America dominates, the world gets cold. So says the saying. Now that China is embarking on what could be the biggest economic change in decades, the world is ready to prove that the aphorisms are true for its second largest economy and largest trader.

In a speech in August, Chinese President Xi Jinping stressed his intention to focus on what he describes as the country’s economic priorities as “common prosperity”. The phrase, which has since become a ubiquitous slogan in statements by the Communist Party of China and state media reports, generally refers to a transformative effort to tackle profound income inequality after four decades of tremendous growth.

The exact contours of the campaign are unclear, however Beijing’s recent crackdown on the rise of the nation’s fintech, edutech, real estate and gaming industries it has already sounded the alarm bells in some of the fastest growing sectors in the country.

In late 2020, China blocked the financial services company Ant from launching what was expected to be the largest IPO ever. The government has made it harder for deep-sea real estate developers to seek more loans, amid concerns that the huge Evergrande construction, which has debts of more than $ 1.3 billion, has collapsed and the housing sector could fall. Beijing has banned private non-profit education companies from upsetting $ 120 billion in industry. In early December, policy changes eliminated $ 1.5 trillion in combined stock values.

Analysts say that other emerging economies, ranging from those that feed China’s insatiable hunger for raw materials to those dependent on Beijing for investment, are also likely to feel shaky.

“It will have a pretty big external impact,” Michael Pettis, a senior Fellow at the Carnegie-Tsinghua Center and a professor of finance at Peking University, told Al Jazeera. “And they may be playing for years to come.”

Reduce appetite

China has the largest number of millions in the world, but about 600 million people live on a per capita income of more than $ 1,600 a year. China’s readjustment will lead to “slower growth rates” in the transition, Pettis said.

This will lead to a reduction in energy and mineral appetite. “Commodity-dependent exporters will be most affected by China’s changes, and more diversified countries will be able to cope with the change with relatively less impact,” said Ryan Hass, a senior member of the Brookings Institution.

Russia, which exported $ 23.8 billion worth of oil to China in 2020, could be particularly hurt by its largest export destination in 2020, especially because Western sanctions already restrict Moscow’s trade with other nations in defense technology, for example. Angola, which sells 70 percent of its crude to China, and Brazil, which sends nearly 64 percent of its oil to the East Asian nation, will likely also make blood.

In contrast, countries such as Saudi Arabia and Iraq, which export about a quarter of oil to China, will suffer less because they are not heavily dependent on a single buyer. But Kazakhstan, which sells 47 percent of its gas to Beijing, and Indonesia, which sells coal, gas and palm oil to China, the largest destination for its exports, is ready to take the plunge.

One unforeseen beneficiary could be Iran, which sells oil to China at subsidized rates, an attractive proposition for Beijing if its reforms slow economic growth.

Brazil sells 59 percent of its iron ore to China [File: Washington Alves/Reuters]

Then there are the other commodities that are essential in modern industry. Australia exports more than 85 per cent of its iron ore to China, and typically a country can become vulnerable to threats and attractions while demand tightens. But as Australia has “many other sources of money” other than iron ore, Hass told Al Jazeera that it could be pressured to comply with China’s demands at a time when relations with Canberra-Beijing are low. But Brazil and South Africa, whose economies are often dependent on the global commodity market, could fight harder: Brazil sells 59 percent of its iron ore to China and South Africa to 52 percent.

The global market for other minerals may also witness disruptions. Chile, the largest exporter of copper, sells 52 percent of its metal to China. Peru, another major producer, is even more dependent on the East Asian giant, which accounts for 68 percent of its copper in Beijing. However, these figures are fading compared to China’s dominance in the cobalt industry. The Democratic Republic of the Congo is the world’s largest producer of metals, a major component of lithium-ion batteries. And almost all of its cobalt — 98 percent — goes to China. “Resource-rich African states may feel the most significant consequences,” Hass said.

‘Good for the world’?

If the slowdown in the economy leads Chinese consumers to buy fewer electronics, shock waves could shake the country’s neighbors: Malaysia, Vietnam, Taiwan and the Philippines are the main sources of integrated circuits and other components, from mobile phones to television.

The recent rise in new multi-industry regulations could derail new foreign investment in the country. “If the government creates an atmosphere of uncertainty, this could hinder investment in the short term,” said Bert Hofman, director of the East Asian Institute at the National University of Singapore.

If China’s savings rate falls, it could affect investments in its Belt and Road initiative, analysts say. [File: Waldo Swiegers/Bloomberg]

But what about China’s foreign investment, including Xi’s major Belt and Road Initiative, a global network of railway, port, highway and other infrastructure projects under construction in Beijing, mostly through loans to other nations?

If a common prosperity campaign succeeds in reducing economic inequality, this should increase domestic consumption as it increases the spending power of ordinary people. “China would be a consumer-driven society,” Hofman told Al Jazeera. “But that would lead to less savings. And it is these savings that are driving foreign investment, which would be reduced. ” From Ethiopia to Egypt and Vietnam to Venezuela, a large number of emerging economies that are counting on Chinese investment could be shaken.

However, China’s left-wing economic turnaround is not necessarily bad news for most of the world in the long run. Increasing domestic consumption will lead to a sharp recovery in energy and mineral demand, so economies such as South Africa, Brazil and Chile, which are suffering in the short term, should boost exports to China.

And focusing on the domestic economy means narrowing the gap between China’s exports and imports – the country currently has a huge trade surplus of $ 535 billion – which would solve a significant source of imbalance in the global economy, Pettis said. . “It would be good for the world,” he added.

In many ways, Xi’s latest campaign seeks to fulfill an idea outlined by China’s father of economic reform, former leader Deng Xiaoping. In 1986, Deng said, “Our policy is to allow some people and some areas to be enriched by first driving and supporting backward areas, first by advanced areas and then by having a duty to support backward areas.”

The first part of this mention is that China’s rapid economic reforms have been embodied, albeit at the cost of widening the income gap. Most Beijing observers forgot the last part of Deng’s message. Xi and his party clearly did not.