Is Xi Jinping finally walking the talk on opening up China’s economy as the trade war heats up?

  • David Dodwell says Xi has been touting China’s commitment to globalisation but foreign players’ access to the country’s huge consumer market remains limited
  • However, the World Bank’s ‘ease of doing business’ study speaks to the substantive progress China has made in some areas
PUBLISHED : Saturday, 10 November, 2018, 3:01am
UPDATED : Saturday, 10 November, 2018, 4:10am

As most Americans – and many others worldwide – wallowed in midterm election introspection this week, China began its long march to win the hearts and minds of the world’s traders, to put some substance behind two years of mainly rhetorical commitment to globalisation and mainland market liberalisation.

There is a certain elegant symmetry to starting the week with the massively hyped China International Import Expo in Shanghai, with tens of thousands of buyers from across the country flocking to purchase imported goods, and finishing the week with Alibaba’s Singles’ Day orgy of domestic consumer spending.

As the US-China trade war deepens, it is the right time to remind the world of the importance of China’s increasingly affluent consumer market and of the policy shift away from export-reliance and towards a heavier focus on the domestic consumer market.

After the import expo, Chinese President Xi Jinping will move on to win friends at the Association of Southeast Asian Nation summit in Singapore, where there are still faint hopes of finalising negotiations on the Regional Comprehensive Economic Partnership. He will then go on to Port Moresby for the Asia-Pacific Economic Cooperation leaders’ gathering – the second opportunity in three weeks to talk trade liberalisation with Japan’s Shinzo Abe and other members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

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No effort is being spared to reinforce China’s message that it stands fully behind liberalising its economy, opening it further to international competition and using multilateral deals to do it. As Donald Trump waits for his dinner date with Xi at the G20 meeting in Buenos Aires at the end of the month, the US preference for bilateral deal-making is being firmly snubbed, despite hints from Trump to the contrary.

Watch: Why trade war with US has sparked a thaw in China’s relations with Japan

While Beijing may have drawn comfort from the Democrats’ recovery of control of the US House of Representatives, and the possibility that it might trigger a review of the style and strategy of the Trump administration, on the trade front there was little in the election result to provide comfort. Democrats are by tradition sceptical about the merits of globalisation, and Trump remains confident that his tough positioning on trade – with China in particular – continues to rally support.

If China is to rebuff Trump’s trade war, it is by now clear that the battle will be a long one, and must involve China being more successful in winning over other significant trading partners to trust the market-opening rhetoric that Xi has maintained over the past two years – from Davos in January last year, through the Boao Forum in Hainan last April, and now at the Shanghai expo.

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Most of China’s trading partners remain sceptical and complain that there is little substance yet underpinning Xi’s liberalising mood music. Xi promised that China would import US$30 trillion in goods and US$10 trillion in services in the next 15 years, but economists correctly noted that this does little more than maintain current trade trends. Pledges to open up the health care, education, financial services, telecom and mining sectors provided some encouragement, but China’s leaders still have much to do to build trust.

Watch: Xi Jinping reveals economic plans at Boao Forum

However, the Shanghai Expo has successfully reminded the world of the rising importance of China’s consumer economy. China’s household consumer market has grown tenfold from 3.3 trillion yuan (US$480 billion) in 2000 to 36.6 trillion yuan in 2017. Further growth of US$1.8 trillion is predicted by 2021 – which the Boston Consulting Group points out is equivalent to the entire German consumer market.

Nationwide, China’s disposable income per capita has risen to 36,000 yuan a year compared with 7,000 yuan in 2000 – and the consuming power of the growing mainland upper-middle class is becoming noticeable. According to China’s National Bureau of Statistics, over 90 per cent of Chinese families today own a washing machine and refrigerator. And the average Chinese urban household owns between two and three mobile phones.

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Spread across a population of more than 1.4 billion, this amounts to formidable consuming power – well illustrated by the spending extravaganza of Singles' Day. Last year, Alibaba reported a one-day shopping spree worth US$25 billion – around eight times the US$3 billion Black Friday sales on the Thanksgiving weekend in the US. Who knows how much will be sold on Singles’ Day this year?

Watch: Alibaba lets AI, robots and drones do the heavy lifting on Singles’ Day

Even if China’s spending is mainly concentrated in the nine wealthy eastern coastal provinces, this clearly explains why so many international businesses piled into the Shanghai expo last week, and why they are so truculent about the slow pace at which China is opening up its domestic market to international competitors.

Away from the Shanghai headlines and Xi’s promises, the World Bank [has] quietly provided endorsement of China’s claim of steadily opening up

Away from the Shanghai headlines and Xi’s promises, the World Bank last week quietly provided endorsement of China’s claim of steadily opening up. In its annual Doing Business study – perhaps the world’s most comprehensive and rigorous assessment of the barriers that block access to the world’s markets – it reported that China now ranks 46th out of 190 economies worldwide.

That is, in its own right, not impressive. It reflects the still formidable barriers to entry to its market. But it compares with a ranking of 78th in 2017, and highlights intensive efforts to streamline bureaucracy surrounding setting up a business. Even its byzantine tax system has seen improvement – up from 130th place to 114th.

Here at last is measurement of substantive progress. Still too slow, perhaps, but substantive.

Such progress is far from persuading Trump to call off his attack. Many reforms are needed over access to China’s huge market. But as Xi makes his way through this autumn’s diplomatic round, there is a sense that progress is being made in showing that China is beginning to put its money where its mouth is. It needs to do so to succeed. The vitality of our liberal, multilateral trading system may depend on it.

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view