The Chinese National Party Congress (NPC) last week caught global attention mainly because of the announcements around the prospect of an end to fixed terms for Chinese Presidents. “Even though Xi was already due to remain until 2023, the western media became very excited about China’s ‘imperial ambitions’ and may well have been the trigger for the increased talk on tariffs. The reality is however that the US policy of containing China has shifted gear,” says Mark Tinker, Head of AXA IM Framlington Equities Asia. The point of his following comments is to highlight the different attitudes to China currently pertaining in each continent.
In the United States, the prevailing attitude is a defensive one. China is seen as a threat, but very much through the prism of the ‘old economy’, as this week’s announcements on tariffs on steel and aluminium highlight. In Europe, by contrast, and certainly in the UK, there seems to me to finally be a realisation that China matters. Partly this reflects the visible nature of Chinese tourism – especially at Chinese New Year – but also the growth in perceived business opportunities in Asia, particularly in the service sector. In Australia, the mining sector already knows everything about the ‘old economy’ in China, but Australians are also advanced in understanding the opportunities offered by the 375 million (and growing) middle class Chines consumers. The same goes for much of the rest of Asia.
In Africa, however, is still very much about the prospects for investment capital from China. There is much talk about BRICs (Brazil, Russia, India and China) and how China would perceive the new government of Cyril Ramaphosa. On the one hand the Uber drivers (always a good source of anecdotes and in South Africa a necessity) thought that the levels of corruption of the previous government had got to what was essentially intolerable levels and that a Chinese style purge on corruption was not only likely but essential and would be a good thing. It seems that the water crisis in Cape Town has essentially been the catalyst that finally brought down the government of Jacob Zuma whose attempts to blame it on climate change or the previous apartheid regime were increasingly disbelieved, but it was interesting that the South Africans were not worried about what ‘the west’ thought, but rather what China did. However, on the other hand most of them seemed worried about the vote for expropriation of land without compensation. In this they are certainly in tune with mainstream investor opinion where the memories of similar policies in Zimbabwe are still raw, if not apparently in the calculations of the South African politicians. Here again, the attitude of the Chinese seemed to be seen as vital.
Many in the US administration and in the foreign relations departments and their associated think-tanks seem to be suggesting according to the Economist that “America now has not just an economic rival, but an ideological one too”. This shift to a multi-polar world with competing ideologies actually began after the Global Financial Crisis ten years ago, but it seems only now is it starting to influence US policy. The fact that the Trump administration appears to have back-tracked somewhat on the tariff announcements following revelations that they would actually damage ‘allies’ such as Canada and the EU is supportive of this. It also suggests that if the real motivation is containment of China then the US may revisit the Trans-Pacific Partnership (TPP) – which, remember, was originally formatted to explicitly exclude China. The TPP 11 (i.e. excluding the US) are meeting in Chile this week to sign the long delayed trade pact which will be cutting tariffs on old economy items such as steel, but much more importantly allow greater trade in new economy areas such as cloud computing and storage. In other words, trade between Australia, Canada, Japan and most of Asia is becoming easier and more importantly with a greater emphasis on less obvious new economy relationships. I suspect therefore that the US could once again shift policy and that this will include trying to engage with ideological ‘allies’ on new economy trading while also seeking to limit China’s involvement.