China’s economic rise is unstoppable – the US should explore a partnership instead

China is advancing as an economic power no matter what the US throws at it. This demands a response of acceptance and partnership rather than destructive opposition

Anthony Rowley

Published: 1:15am, 7 Dec 2020

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If you are an Olympic running champion and you glance over your shoulder to see a rival gaining on and threatening to overtake you, what do you do – put on an extra spurt to show you are still the best, acknowledge your worthy opponent, or try to hobble him so he falls behind?

For America, President Donald Trump chose the last option, launching trade wars, investment restraints and financial sanctions against China, a competitor nation breathing down its neck.

It is easy to see why any Oval Office inhabitant should feel uneasy. China is moving firmly and clearly ahead of its rivals, according to the latest Economic Outlook by the Organisation for Economic Cooperation and Development.

Alone among the major OECD economies, China’s growth is shown in a chart as a striking green bar, denoting expected economic expansion in 2020, while others show up as multiple red bars, denoting expected contraction – a graphic illustration that makes the point vividly.

The OECD suggests that China will record economic growth of 1.8 per cent this year, 8 per cent next year, then 4.9 per cent in 2022. In contrast, the United States will suffer a contraction of 3.7 per cent this year, before growing by 3.2 per cent in 2021 and 3.5 per cent in 2022. China’s Caixin/Markit manufacturing purchasing managers’ index has, meanwhile, surged to a 10-year high on improved demand.

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The report also highlighted China’s success in controlling the Covid-19 outbreak and its subsequent rising output and exports, while those elsewhere languish. Trump’s response has been defensive and aggressive, and the key question is whether this will continue under Joe Biden.

Even if Biden eschews such defensive and protectionist policies, he will find himself locked in somewhat by Trump’s measures, including a last-minute addition of key Chinese semiconductor and oil giants to a blacklist for US investors and a threatened delisting of Chinese firms in the US.

Almost as if in defiance of Trump’s moves, Willis Towers Watson, a leading US broking and advisory firm, recently urged investors to increase allocations to China. Chinese assets should build up to 20 per cent of global investor portfolios over the next 10 years, from 5 per cent now, the firm suggested.

How long can the US continue to hobble its main rival? How long can it focus on “containment” by putting together coalitions of rivals, rather than on cooperation among champions?

The OECD makes this point (subtly but tellingly) by noting that Covid-19 recovery will be uneven across countries, “potentially leading to lasting changes in the world economy”. China will account for “over one-third of world economic growth in 2021 [while the] contribution of Europe and North America to global growth will remain smaller than their weight in the world economy.”

In trade, too, China is outpacing its rivals with the Regional Comprehensive Economic Partnership (RCEP), from which the US is excluded, having pulled out of other pan-Asian accords. OECD secretary general Angel Gurría called the RCEP accord “great news” in a comment to the Post during a webinar.

“What this means, he said, “is that these [RCEP] countries are willing to go further into the process of integration of an area that is already one of the most dynamic and which has proven one of the most resilient in terms of the way to deal with the pandemic. It’s a double bonus.”

As the Atlantic Council in Washington noted: “The RCEP’s main winner will be China, which has secured a dominant position in one of the world’s most dynamic economic regions, giving Beijing the opportunity to establish its preferred rules and standards, and providing a major advantage for its companies to exploit these valuable markets.”

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China also has an eye on joining the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), said Wang Huiyao at the Centre for China and Globalisation, a Beijing think tank.

The RCEP is particularly important when, as the OECD says, world trade is projected to recover slowly, rising by around 4.25 per cent per annum over 2021-22, after declining by 10.25 per cent in 2020.

The real point about all this is that China continues to advance as an economic power no matter what the US throws at it, and that demands a response of acceptance and partnership rather than destructive opposition, whose only logical outcome will be to divide the world into two main blocs in a new cold war.

Unfortunately, Trump’s departure from the White House next month (hopefully not kicking and screaming) will not purge the US of destructive Trumpian sentiment. Instead of preparing to take sides, other powers should be doing their utmost to mediate between Washington and Beijing, to create a path towards compromise.

Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs

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