Siah Hwee Ang gazes into a crystal ball to see what next year has in store for China's impact on NZ, trade and globalisation

By Siah Hwee Ang*

China’s accession to the World Trade Organization in 2001 came with some conditions.

Fifteen years later, these conditions are subject to different interpretations, causing China to be upset about the delay in granting it market economy status. Questions are being raised as to what it means to be called a market economy, and all the while the World Trade Organization is fighting for its own legitimacy as an international institution.

In 2018, we should expect to hear more from China on this issue, as pushing for being recognised as a market economy will shape its trade strategies.

At an estimated GDP of US$11.8 trillion in 2017, the second largest economy in the world is larger than the sum of the next three largest economies - Japan, Germany and the UK.

For an economy that will hit more than US$12 trillion in 2018, China’s likely sustained economic growth at above 6.0% in the next five years is amazing.
The question is whether it comes at a cost. A slowdown to address market imbalances and reforms is necessary.

Given its size, and also being the largest trading nation for the last four years, China wants more recognition of its big role in the global economy. China accounted for about a quarter of the world’s growth in 2014. This contribution is now one-third.

China has been shifting towards becoming more investment-oriented rather than being trade-driven.

But uncertainties surrounding government policies towards foreign companies and the competitive environment have led to a slowdown in this area.

The Government is actively opening its doors to encourage more foreign direct investment. In saying that, we should also see more free trade zones set up in the country.

One other significant movement is capital outflow control. While there are reasons to believe that slowing this outflow is unlikely, the signs provided by mergers and acquisitions across the globe suggest otherwise.

We should also observe more regulations around local content and higher degrees of localisation in many industries. This might increase the cost of engaging in the market, but comes with the prize of the market.

Related to this is the message that came out of this year’s 19th Communist Party National Congress around more government intervention in the business environment. Conventional theories of business do not advocate such intervention. But government participation in business is not new in emerging economies and is likely needed in larger developing economies.

Crying out for more collaboration on the One Belt One Road (OBOR) Initiative is the other aspect of China’s strategy that will pick up speed in the next years, as this is now written into the Communist Party Constitution.

Running alongside this is the Made in China 2025 Initiative that will both provide opportunities and threats for firms across many technological fields. This means that there is a need to develop a better awareness of the thinking and functioning of the Communist Party in order to appreciate how the changes are connected and how each change will impact on any dealings with the Chinese market.

As China focuses on internal reforms, poverty reduction and sustainability issues, it recognises the need to be more balanced on the internal and external economic fronts. Its leading status around e-commerce and the rise of the Chinese Renminbi as a transaction currency across the globe are upon us.

While the world is moving towards a protectionism mode as countries are increasingly unable to protect their own interests under the globalisation umbrella, China is calling out for more open trade.

Maybe there is a middle ground where the developed and the developing can converge after all. Managing ties with China beyond 2017 will have to take into account this shift towards the middle ground.
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*Siah Hwee Ang is the BNZ chair in business in Asia and also chairs the enabling our Asia-Pacific trading nation distinctiveness theme at Victoria University. You can contact him here.

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18 Comments

See what Martin Jacques tell from his crystal ball.

https://www.youtube.com/watch?v=Vvw_0-9vsQg

Martin Jacques is a Communist so of course he has to repeat ad nauseum that America is going into decline.
Why do those people hate America so much?
Is it because they govern by the principles of capitalism?
We all know how Communism has been an utter failure for the workers. China has nothing to be proud of before they adopted some of the systems of capitalism.

"".. is larger than the sum of the next three largest economies - Japan, Germany and the UK."" Sounds impressive until you add up the populations and realise China outnumbers these 3 countries 5 to 1.
The reality is China is very very big and it has had impressive growth and lifted many people from poverty. On the other hand when the Communist party of China took control it had nothing but neither did Taiwan, Japan, South Korea, Hong Kong and Singapore. Judged by those countries GDP per capita then the Chinese government has lagged badly economically and also with civil rights and rule of law.
Yes NZ should give China high priority but merely because of its size not its competence.

Keep these thoughts and re-assess them in 2030, and then in 2050.

Money alone does not make a good stable country. Human Rights, democracy and freedom of speech are just as important.
Try to say something a totalitarian government doesn't like and see where you end up ...as you would know xingmowang.

Exactly Lapun
China population near 1.4Billion cannot be ignored merely because some feel communism is worse than crony capitalism
The way Trump & the GOP are expanding crony capitalism is protectionist defeatist yesteryear
China seeks to dominate US unlike India which also has a population only a little smaller than Chinas
The future remains globalist regardless of Brexit & Trumpism bluster

Yes NZ should give China high priority but merely because of its size not its competence.

Exactly - China's potential global reserve currency status cannot be ignored.

The Russian government has recently announced it will issue nearly $1 billion equivalent in state bonds, but denominated not in US dollars as is mostly the case. Rather it will be the first sale of Russian bonds in China’s yuan. While $1 billion may not sound like much when compared with the Peoples’ Bank of China total holdings of US Government debt of more than $1 trillion or to the US Federal debt today of over $20 trillion, it’s significance lies beyond the nominal amount. It’s a test run by both governments of the potential for state financing of infrastructure and other projects independent of dollar risk from such events as US Treasury financial sanctions. Read more

Yes, it's a 'war' the US [knows it] won't win. Hence the threat of military escalation. If only we could detach ourselves from the 'world' - given, it's nuts;

http://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=11965505

indeed.

Russia’s nuclear forces provide reliable strategic deterrence, but it is necessary to further develop them, Russian President Vladimir Putin said at an enlarged board meeting of the Defense Ministry on Friday.

"Today our nuclear forces operate at a level, which provides reliable strategic deterrence but at the same time we need to further develop them," the Russian leader said. Read more

In reply to a comment written We all know how Communism has been an utter failure for the workers.

People need to remember what China was like before it was Communist in 1949.

It was very corrupt and its politics were rotten to the core. If the average Chinese had little or no money, they were nothing and no say at all . Education was totally out of the question.

This was a fact of life for the vast majority of the Chinese population. No future at all.

I am surprised that this has not been mentioned, When people make criticize Chinese Communism.

Are Russian and Chinese populations (in general) unhappy with their goverments? Do the monied classes in our so called democracies influence how we perceive both countries. Time will tell which are the better systems but only if war does not allow this to happen.

Time will tell which are the better systems but only if war does not allow this to happen.

Interesting point. When you think about it - post-WWII the US became a dominant global force principally on the back of Hollywood and the intended, (and resultant) consumer capitalism. Using those forces, it very much captured the Western allies, but not Russia or China (also allies during WWII).

The interesting thing about the vote in the UN in days just past regarding the US declaring Jerusalem the capital of Israel, is that the UK and Europe - and NZ - and China and Russia - voted against them. Whereas, Aus and Canada abstained.

So, since the Gulf War - we can see that Britain and Europe are no longer playing ball with the victors of WWIl - they are going it on their own, along with us - and China and Russia.

Whereas Aus and Canada (and Mexico, who also abstained) are squaring off in favour of the US.

When I look at it and ask myself - are we better to snub the US? I'd have to say, I think we are - they've been a socio-economic basket case for more years than I'd like to remember. And I was born there.

What an interesting world we live in. I'd recommend everyone (re)read this;

https://en.wikipedia.org/wiki/On_the_Beach_(novel)

over the summer hols - not pleasant but usefully thought provoking.

But these aren't my original thoughts, so I should give credit to one of my favourite authors from the planning discipline, John Friedmann, who states;

American ideology, repeated ad nauseam by our leaders and reinforced by the media, incorporates the idea of bliss in a consumer society, so that a better world is chiefly one of greater material affluence for individuals.

This is the ideology we are selling around the world.

Along with a belief in a never-ending abundance of material goods, it includes the rhetoric of representative democracy, and blind trust in the powers of technology to overcome whatever problems that might be encountered along the way to a ‘free society’.

From a really good journal article:

Friedmann, J. (2000) ‘The Good City: In Defense of Utopian Thinking’, International Journal of Urban and Regional Research 24(2): 460-472.

Well i read it or at least as much as I could stand. Yes all those large blemishes but the headline 'is not and never was a democracy' only works if you redefine democracy to be an identikit match with the authors brain. Democracy like other words has a meaning which is conferred by common usage. The USA for good or bad is and has long been a democracy. Proven by the election of people that the power elite (in the USA this means mainly the wealthy) did not want as president and that includes maybe the best and worst presidents the country has had in the last 100 years: Truman and Trump.

Two first-hand pass-throughs

A family member is married to a USA medical professional. They live in California. Medic states he is in the top 2% of income earners in the USA, and they cannot afford to buy a home in California. When they come and stay with us, after dinner, they get out their iPhones and spend the nect 3 hours doing iPhone things - doing what I know not

Talking to an ag contractor this week. Had his 30 y/o son-in-law with him. Standing in the middle of a paddock chatting away. Son-in-law is from southern Florida. Just migrated to NZ. Arrived 2 weeks ago. Got a 2 year visa. Will apply for PR. Asked why they have moved to NZ. Says USA politics are toxic. In southern states racism and hatred are intolerably toxic. USA tax-reform means his taxes will go up. When the conversation turned to another in the group he immediately dis-engaged and played iPhones. Constantly. Out in the middle of a paddock. Quite engaging and social apart from that.

One Second hand info item - although it is in the media if you google it
There is a significant exodus of peoples out of California - mainly going to Texas
Expect some to lob into NZ

lol - at the iphoneys and the nandroids - try sparking a conversation on public transport at the moment - Chiropractors and Otorhinolaryngologists will be raking it in in a few decades