China's strategic adjustment

China's strategic adjustment

Geminello Alvi | Columnist and writer
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In its first few months in office, Donald Trump's presidency has revised the extreme positions adopted towards China during the election campaign. But Beijing has also changed its stance
We might wonder about #Trump's change of attitude

In its first few months in office, Donald Trump's presidency has revised the extreme positions adopted towards China during the election campaign.  And the adjustment has brought positive results. The Trump we knew - who accused Beijing of currency manipulation, promised import duties, and reopened the Taiwan issue - has calmed down. China has agreed to open its market to imports of U.S. beef, financial services, and liquefied natural gas. And without imposing any duties, President Trump has achieved a reduction in America’s trade deficit with China. No doubt the shortfall in American domestic savings will result in the redistribution of this reduction across other nations. America’s overall deficit cannot be expected to improve until there are significant rises in interest rates and the domestic savings rate increases. Nevertheless, the most worrying economic scenario has been avoided and there have been some benefits for U.S. exports. And what’s more, the geopolitical situation with North Korea has not precipitated. The alliance with Japan and South Korea has been consolidated through the deployment of THAAD missiles, and Beijing neither shored up North Korea nor did it stand in the way of American strategy.

The Trump we knew - who accused Beijing of currency manipulation, promised import duties, and reopened the Taiwan issue - has calmed down

China's new awareness

We could reflect on the reasons for Donald Trump’s change of attitude, but it is more interesting to observe that it coincides with a significant shift in the way Chinese positions have evolved. President President Xi Jinping has shown he is fully aware of the fact that China has to behave as a responsible actor in globalization and that exploiting its benefits is no longer enough. And this new awareness is consistent with the practical implementation of the so-called "China Dream", which until quite recently seemed no more than empty propaganda. The idea that the country is regaining a global position is taking concrete shape. The Chinese international infrastructures plan known as One Belt, One Road is in fact closely linked with the Asian Infrastructure Investment Bank, the new BRICS Development Bank and the Silk Road Fund. But it becomes especially significant when seen from the perspective of recent developments in China's economy.  Since 2010, consumption as a percentage of GDP has risen by just 2.5%, which is low in relation to the increase in the disposable income of the population, which is as high as 7.3% for the urban population. This has made the Chinese leadership realize that implementing a strategy centered on the growth of private consumption is a complicated matter in China. Chinese capitalism seems to entail the survival of a 'despotic' Eastern model centered on supply and a centrally planned economy, rather than on demand. And the plan for a global infrastructure and geopolitical domination in South East Asia, the Pacific and Siberia is actually consistent with this goal. The increasingly worrying excess in production capacity would otherwise have to be downsized by restructuring demand with the focus on private consumption. This would be very risky, particularly in view of the centralized nature of the system, for which the infrastructural plan seems to be the only possible compromise, with state enterprises as the drivers of change. This makes it possible for the Chinese state to avoid reducing public investment, which would be dangerous not just for its economic balance but also for its political balance.

China's domestic imbalances, the slowdown in global trade, and increased protectionism translate into a geopolitical strategy that may be complicated but is easier for Beijing to manage

A new and complicated balance

China's domestic imbalances, the slowdown in global trade, and increased protectionism translate into a geopolitical strategy that may be complicated but is easier for Beijing to manage than an uncertain economic restructuring centered on consumption. A more global China, however, involves a foreign policy based on the expansion of Chinese interests. The territorial disputes in the South China Sea and Chinese initiatives in Africa and Latina America are key elements in this. And that is where the problem gets more complicated still. Suffice to think of India's opposing interests. Thus, the delicate balance found during this early part of the Trump presidency is not a stable one. With Trump's America First policy and China's hegemonic aims to fill the vacuum left by the U.S., the outcomes are not easy to predict. Further tensions, in addition to North Korea, are bound to erupt soon, and to complicate China's redrawing of the balance in order to become the second global political power and time protect its economic model at the same.