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AB 2000 studies

Alain Boublil Blog


Where China is going to ?

The absence of the Chinese president Xi Jinping at the two major international meetings in Roma (G20) and Glasgow (COP 26) has triggered a wave of comments about the “isolation” and the “withdraw into itself” of the second biggest economy of the planet, whose growth model had been until now based on an active contribution to the globalization expansion. In 2020, its exports reached 18% of the world exports. The explanation given by Beijing, the sanitary context and the very strict measures adopted in the country to slow the development of the pandemic, have not convinced.

In the same time, yet, was organized the Shanghai Fair which welcomed more than 3 000 companies exporting to China. L’Oreal, whose financial results this year have been strongly stimulated by its achievements in this country was present there as Sanofi, which develops projects regarding the digitalization of health techniques. The inauguration speech by video of the Chinese president was exactly going in the opposite direction of the given interpretation of its absence at the G20. He has reminded the importance China granted to its international economic relations and so has brought a denial to the largely diffused information in the U.S and in Europe about the country withdrawal into itself. The rebalancing policy in favor of its internal market must not be understood as a return to the past. For the same reasons, the commitment, exposed by Beijing to recover its independence and its sovereignty through controlling some strategic components of the production lines must not give the way to wrong conclusions. In fact it is not quite different from the speech we hear in France, without for that imagining that the country is looking for isolating itself.

The pessimistic analysis about the last Chinese growth figures, i.e. a worrying slowing, is quite also disputable. After growth rates of 18% and 7.9% in the 1st and 2nd quarters, the Chinese economy would have only grown by 4.9% during the 3rd quarter. But the figures are not comparable because, due to the pandemic, the activity has been hurt on a very different timing during last year. If we consider the cumulated production of these three quarters, then we see a 9.8% increase year-on-year. During the 4th quarter the slowing would continue, due to the basis effect and also, to the difficulties the country, as all the others, is coping at regarding the commodities, the strategic components and even the power supplies of its industrial companies. So the industrial production has only increased year-on-year in September by 3.1% after 5.3% in August. But that would not impeach the country to reach this year its objective, i.e. a 6% growth.

As the other major economies, the growth structure will have been atypical, being mainly based on household consumption and foreign trade. Enterprises investment has only grown since the beginning of the year by 7.3% but foreign exchanges show a very strong rebound (+23%) during the first nine months year on year and the trade surplus is not reducing itself with near 50 billion dollars in September. Household consumption is penalized, as everywhere, by the scarcities affecting some products but this effect is attenuated by the local travel expenses. They are strongly increasing because Chinese families did not have the possibility to go outside of the country.

Despite the absence of its president at the COP 26, China remains strongly committed to slow the growth of its greenhouse gas emissions. The reopening of several coal mines must not be wrongly interpreted. It is transitory. The point is to cope at, in a context of an economic rebound, the natural gas supply problems we also endured in Europe, and at climate incidents which have affected several regions. But that wouldn’t put in question the long term strategy of a reduction of the emissions of the power plants with the coal decline. Its growth had been strongly reduced for the last five years, as in the U.S. and for the same reason, i.e. the progressive but irreversible switch from coal to natural gas whose consumption jumped in ten years from 110 to 330 billion m3. To reduce its foreign dependence, China is starting to put into production its very important oil and natural gas shale fields which have recently been discovered.          

The non-fossil fuels power source share, thanks to investments in nuclear and renewable, would reach 20% in 2025 and 30% in 2030. Progresses in power storage are also to be expected. The great hydro-electric dams built these last years will be equipped with systems allowing to pumping water during low consumption periods in order to re-inject them into the network during peak consumption periods. That will also allow to coping at the wind farms and solar panels intermittency. It is scheduled that these installations reach a120 GW power capacity in 2030. Investments programs dedicated to energy transition, by large financed by Chinese state banks, will them too bring their contribution to growth.

During that time, the Chinese production apparel transformation has gone on with the emergence of local digital giants. The tax decided by the State to reach to a wealth redistribution must not mislead about the government intentions. The point is to correct the excesses and not to put back into question the economic development model which has brought its proofs for more than thirty years and which lies on an important private sector. It also includes partnership with foreign companies, frequently American and European, and more rarely Japanese and Korean. That model also lies on a progressive liberalization and an opening of the financial markets which has been put in place at the same time.

That economic strategy has been enriched since Xi Jinping accession to power with the Belt and Road Initiative, another major signal of the country determination to not isolating itself and even less to withdraw into itself. Through the financing of the infrastructures connecting China with its neighbors, and, over them, to Europe and Africa, Beijing gets a triple reward. That gives business to its enterprises which work on these projects. That opens new logistic facilities, and the current crisis shows to which point it is important, for its exports and that profits to the related countries which will become at their turn clients of the Chinese companies. But, when in Europe, these projects are criticized, they seem to ignore that these infrastructures are not one-way ones and so will be able in the future to facilitate our enterprise exports to China and to its neighbors. We also could add that offering a rail track between Asia and Europe contributes to reduce the carbon consequences of the commercial trends and, in the same time diminishes the delays and the supply costs.

In reality, China is confronted with a dilemma. Western countries reproach it for its political system and are afraid by its economic successes. Until now, this system has not constituted an obstacle to its exceptional economic success. So, the asked question inside the country, today, is that one: can that situation last ?     



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