A historic speech given by China’s paramount leader Xi Jinping in late 2020 highlighted the past and future importance of Shenzhen, a city pivotal to the nation’s continued economic rise. Within his speech, Xi laid out a strategic vision for the future growth of the city, placing particular importance on economic reform, consumption-driven growth, and integration with the broader Guangdong-Hong Kong-Macau Greater Bay Area.
Author: Archit Oswal
After nurturing Tsinghua Unigroup into a major player in the global chip industry, the government appears ready to cut the company, and others like it, loose in an effort to let market forces rather than political considerations allocate resources in China’s economy. However, unless Beijing tackles the root causes of the implicit guarantees that SOEs receive—their overwhelming size and continued access to subsidized resources—rising SOE defaults will not lead to better run economic entities. Instead, they will simply bring to light the inefficiencies that have long plagued China’s state sector.
This month, China’s first comprehensive export control regime, the Export Control Law (ECL) came into force. Despite the geopolitical context, the ECL will likely have a limited impact on foreign companies compared to EAR, and do little in the future to prevent the US from acquiring or domestically developing any technological capabilities of Chinese origin. However, it offers useful insight into the strategic use of export controls in an age when national security encompasses broad economic interests and coalition-building has become increasingly difficult for the reigning hegemon.
A recent string of high-profile SOE defaults have revived hopes for market reform of China’s inefficient state sector. However, despite appearances to the contrary, Beijing continues to push for greater state control over the sector and an augmented role for SOEs in strategic industries and initiatives. As a result, the performance of China’s SOEs has stagnated and the state sector remains a burden to near-term economic growth.
Brussels has left little to the imagination for their expectations of heightened transatlantic cooperation under a Biden administration. For his part, Biden has promised to, unlike his predecessor, produce a coherent strategy for countering China that will include more robust engagement with traditional allies.
America’s emerging strategy for countering China’s influence received its trial by fire last week. While certain aspects emerged unscathed, others withered on touch. The principal concerns for the countries that Secretary Pompeo visited were economic development and sovereign claims, and they were all outwardly wary of entanglement. As a result, security partnerships, which connote political alignment, will likely develop at a much slower rate than economic ties.
President Xi has made clear his intention to protect China’s environment from further degradation and make China an “ecological civilization” by 2049. His surprise pledge in September to achieve carbon neutrality, or net-zero carbon dioxide emissions, by 2060 and peak emissions by 2030 fits this narrative. In a speech before the UN, President Xi emphasized public health and global environmental stewardship as the driving forces behind China’s increasingly ambitious climate goals. However, the motivating factors for China’s carbon neutral pledge are actually much broader.
In the run-up to Ant Financial’s behemoth IPO, the fintech giant’s suspiciously light balance sheet triggered the release of draft rules by Chinese regulators that would significantly impact the firm’s operating model. Consequently, Ant’s IPO was delayed, and investors went home disappointed. While regulators’ concerns were not unfounded, the consequences of these new regulations resurface big questions about the future of China’s consumer finance industry.
To achieve its goal of carbon neutrality by 2060, China needs to ditch coal-fired electric power plants for renewable alternatives. However, doing so will require dismantling an antiquated system of incentives that are in place for local officials and power producers. Whether Beijing can summon the political will to overcome powerful vested interests opposed to these changes will be an important indicator of China’s capacity for meaningful reform.
The next five-year plan is unlikely to reverse the trends that have gradually coalesced over the past several years as a response to geopolitical competition with the US. As Beijing doubles down on its current development strategy to compete more effectively with the US, foreign companies operating in China should not expect market reforms intended to even the long-term playing field any time soon.
Under the Trump administration, the US, once the foremost champion of a single, global internet, has embraced the internet’s inevitable bifurcation into two parts, one led by the US and the other by China. In order to get ahead of the curve, the US has subjected several Chinese technology companies to legal action and ramped up pressure on its allies to divest from Chinese internet and telecommunication technologies.
Furious lobbying by the semiconductor industry, which earns over a quarter of its revenue in China, softened the impact of last year’s ban on chip sales to Huawei by easing select restrictions on chips sales. However, as Washington’s stance hardens, American technology companies may have to prepare for a short-term hit to their bottom lines while preparing for a future that does not include China.
China’s leaders are meeting in October to finalize proposals for the country’s fourteenth Five-Year Plan (2021-2025). As tensions with the US intensify and economic growth slows, Beijing is under pressure to produce a five-year plan that delivers its “Made in China 2025” ambitions on time and is likely to turn to increased state intervention in strategic sectors of the economy as a central tenet of the upcoming five-year plan.