China talks capitalism in Davos
The message from communist China at this year’s World Economic Forum gathering of the capitalist elite in Davos, Switzerland, is that the country’s long march backwards to Mao-style economic pessimism is over and Xi Jinping is ready to re-embrace the market. There are good reasons to be wary that China’s actions might not match its words but it is, nonetheless, a sure sign that things could be changing in post-Covid-zero Beijing. Chinese Vice-Premier Liu He told a receptive audience in Davos that returning to a planned economy was not possible, but China would pursue “a socialist market economy”. “We must let the market play the fundamental role in the allocation of resources, and let the government play a better role”, Mr Liu said. “Some people say China will go for the planned economy. That’s by no means possible,” he added.
Following years of retaliatory trade sanctions, Mr Liu said: “China’s door to the outside will only open wide.” Rather than look inward for trade, relying on the strength of its domestic economy alone, China will now pursue a new development paradigm of “dual-circulation” and promote “economic re-globalisation”. Mr Liu said the policy of common prosperity – which raised concerns about confiscation and redistribution of private property – did not represent a return to communist uniformity but rather “there will be equal opportunities, but no guarantee of equal outcomes”.
His comments have been interpreted as a signal that having secured a historic third term at the 20th Party Congress in October, Mr Xi is ready to normalise relations with the outside world. Since the congress, there has been a reboot in dialogue with the US and talk of efforts to rebuild political and trade relations with Australia. Travel restrictions have been lifted with the abandonment of Mr Xi’s unsustainable Covid-zero policy. The background has been a faltering Chinese economy, which has exposed deep problems in the critical real estate sector and highlighted the structural dilemma of an ageing population.
Mr Xi’s policies have cut consumer spending and industrial manufacturing and sparked an unemployment crisis. China’s economic growth has slowed to 3 per cent, and the country’s population shrank last year for the first time since the early 1960s.
Mr Xi’s crackdown on China’s tech sector and the super rich, his assertive foreign policy and his widespread trade sanctions have spooked international markets. A decision by the US to deny China access to advanced semiconductor chips and act to break the near-monopoly China has on the global supply of critical minerals has raised the stakes considerably.
Meanwhile, China’s aggressive diplomacy has hardened the resolve of like-minded democracies including the US, Japan, India and Australia to stand against it. Any hope that Russia’s invasion of Ukraine could represent a new dawn for autocracies has ended in embarrassment.
Aware of scepticism in business circles about China’s true economic intentions, Mr Liu said “entrepreneurs, including foreign investors, will play a critical role as they are the key elements of social wealth creation”. As a major trading partner, Australia has a lot riding on Beijing abandoning its wolf warrior stance and coming back to its trading senses. There are early signs that this might be happening. But for context, it is worth remembering China’s recent performances in Davos. In 2017, China stole the show when a Trump-wary world celebrated Mr Xi’s hour-long defence of globalisation and free trade and rejection of protectionism. In 2019, China sent its largest ever delegation to Davos, where Vice-President Wang Qishan restated China’s commitment to global trade, open markets and international co-operation. “We should work together to make the cake bigger and fairer distribution,” said Mr Wang. Shortly afterwards, the world was thrown into chaos by Covid and China doubled down on the use of trade sanctions to further its political aims. As always, the proof of China’s free-trade cake will be in the eating.