tag:theconversation.com,2011:/uk/topics/china-economy-30080/articlesChina Economy – The Conversation2024-03-20T16:35:50Ztag:theconversation.com,2011:article/2235822024-03-20T16:35:50Z2024-03-20T16:35:50ZFriend-shoring: what Biden wants to achieve by trading with allies rather than rivals<p>The tendency to move production and trade away from countries considered to be political rivals or national security risks and towards allies, so-called <a href="https://home.treasury.gov/news/press-releases/jy0714">“friend-shoring”</a>, is a <a href="https://www.weforum.org/agenda/2023/02/friendshoring-global-trade-buzzwords/">hot topic</a> among economists. The term popped up during the COVID pandemic, a time of significant disruption to supply chains, and gained further traction when Russia invaded Ukraine.</p>
<p>One of the most high-profile results of a friend-shoring policy is that Canada and Mexico have recently replaced China as America’s largest trading partners by total trade, while Mexico has overtaken China as America’s top importer (see figures below). This followed the introduction of <a href="https://www.researchgate.net/profile/Zhaohui-Wang-22/publication/338085025_Understanding_Trump's_Trade_Policy_with_China_International_Pressures_Meet_Domestic_Politics/links/5fdf5d53299bf140882f7481/Understanding-Trumps-Trade-Policy-with-China-International-Pressures-Meet-Domestic-Politics.pdf">Donald Trump’s trade strategy</a>, which aimed to reduce US dependence on Chinese goods – partly for political reasons and partly because of Trump’s perception of China as a rival power. </p>
<p>Joe Biden has also <a href="https://www.cnbc.com/2022/08/09/biden-to-sign-chips-act-china-competition-bill.html">placed restrictions on trade</a> with China in an attempt to strengthen US competitiveness with China and grow the US tech industry.</p>
<p>The US <a href="https://www.piie.com/research/piie-charts/2019/us-china-trade-war-tariffs-date-chart">raised tariffs</a> on imports from China significantly during the Trump administration. These levels remain high, making the costs of importing goods from China to the US more expensive. </p>
<p>In addition, the International Labor Organization Global Wage <a href="https://www.ilo.org/wcmsp5/groups/public/---ed_protect/---protrav/---travail/documents/publication/wcms_862569.pdf">Report 2022-23</a> shows that China has experienced the highest rate of real wage growth among all G20 countries over the period 2008-22, also pushing up the price of Chinese goods. </p>
<p>The <a href="https://www.economist.com/the-economist-explains/2023/08/30/what-is-friendshoring">Biden administration</a> continues to champion friend-shoring, which has further encouraged companies to shift production from China to Mexico as they weigh up geopolitical risks against differences in the costs of production. </p>
<p>While data on the number of firms relocating production is not available, the latest trade data (see Figures 1 and 2) suggests Mexico has managed to <a href="https://www.ft.com/content/2ca4da83-f858-4215-88e7-544adf0aa18e">capitalise</a> on the US-China rivalry.</p>
<p>Closer relationships with allies can be created by forming new trade agreements, for example, the <a href="https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement#:%7E:text=The%20United%20States%2DMexico%2DCanada%20Agreement%20(USMCA)%20entered,farmers%2C%20ranchers%2C%20and%20businesses.">US, Mexico, Canada Agreement (USMCA)</a>, which is more about geopolitics and friend-shoring than lowering tariff barriers as was the case of its predecessor, the <a href="https://www.trade.gov/north-american-free-trade-agreement-nafta">North America Free Trade Agreement (Nafta)</a>. </p>
<p>But the USMCA was also a product of its time. US political will had shifted towards undermining political competitors and setting out anti-China political statements that resonated with voters. </p>
<p>Trump, a <a href="https://www.cfr.org/backgrounder/naftas-economic-impact">consistent critic of Nafta</a>, had argued that it undermined American jobs and wages, a statement that undoubtedly played well in US industrial states experiencing manufacturing decline. A paper from the National Bureau of Economic Research suggested that far more US jobs were lost due to <a href="https://www.nber.org/system/files/working_papers/w21906/w21906.pdf">competition with China</a>.</p>
<h2>Doing business with your friends</h2>
<p>Friend-shoring is a new term for something that has been around for a long time. Countries engaged in sanctions, blockades, and friend-shoring during the first and second world wars on a much <a href="https://yalebooks.co.uk/book/9780300270488/the-economic-weapon/">larger scale</a>. </p>
<p>In 1948, the US initiated economic sanctions against the Soviet Union, a 50-year-long strategy that started with export restrictions and was solidified by the Export Control Act of 1949. </p>
<p>These sanctions, intensified after the Battle Act of 1951, were aimed at limiting strategic goods to the Soviet bloc and became a permanent fixture of cold war policy following the escalation of the <a href="https://www.americanforeignrelations.com/E-N/Embargoes-and-Sanctions-Cold-war-sanctions.html">Korean war</a>.</p>
<p>Data analysis shows how trade responds to political factors. For over sixty years, trade economists have made extensive use of <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4037001">the gravity model</a> of trade, which has provided empirical evidence that countries tend to trade more with countries geographically closer to them as well as where there is a common language, common legal system, common exchange rate regime and shared colonial history. </p>
<p>Research also shows how political distance between countries and formal military alliances affects trade. </p>
<p><strong>Value of US imports from top five trading partners in 2010-23:</strong></p>
<p><strong>US trade with countries by value:</strong></p>
<p>Governments can use trade policy to strategically support their own industries, so reducing trade with rivals can be part of a political agenda based on boosting domestic manufacturing (and jobs) rather than relying on imports. The <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-strengthen-supply-chains-and-counter-china/">US Chips and Science</a> Act, and in the EU, the <a href="https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/europe-fit-digital-age/european-chips-act_en">European Chips Act</a>, are examples of policies that can inflict economic pain on adversaries while ensuring domestic production of this key component in high-technology manufacturing. </p>
<p>However, developing an industry takes time. By the time the industry is established, it <a href="https://www.piie.com/publications/piie-briefings/2021/scoring-50-years-us-industrial-policy-1970-2020">may not pay off</a>, either due to falling prices caused by increased supply or an economic slowdown that suppresses demand. </p>
<p>In the case of US chips, it is particularly interesting to note that the existing industry focuses on design and production of high-quality chips. Therefore, the latest policy will see low-cost microchips, the mainstay of the Chinese chip industry, start to be produced in the US and compete with the established US high-end suppliers. </p>
<p>The US has experienced the negative effects of these types of policies before. Just consider the US support for the steel industry, a popular choice among US presidents, including the <a href="https://www.ft.com/content/e0219409-b863-41fb-bbcb-6be9ad6f0a4e?emailId=c8a49fc1-229a-4246-984b-42598eccb2e6&segmentId=2785c52b-1c00-edaa-29be-7452cf90b5a2">current administration</a>. Under the Trump administration, this saw <a href="https://www.piie.com/blogs/trade-and-investment-policy-watch/trumps-steel-and-aluminum-tariffs-are-cascading-out-control">25% tariffs</a> imposed on steel imports, which benefited the US industry but imposed costs on steel users. </p>
<p>Countries such as <a href="https://www.smh.com.au/world/north-america/a-special-relationship-australia-safe-from-trump-s-tariffs-for-now-20190603-p51tyr.html">Australia</a> were exempt from this policy, while <a href="https://www.piie.com/blogs/trade-and-investment-policy-watch/trumps-steel-and-aluminum-tariffs-are-cascading-out-control">other allies</a>, such as the EU, were hit hard. Industrial policy can reduce dependence on rivals, but it’s not clear that friends always get special treatment.</p>
<p>Other policies can tie in with a friend-shoring agenda. The new generation of <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/twec.13213">EU trade agreements</a> deal with issues including labour rights and environmental protection, making it clear that third countries that want to do business with the EU need to meet the same standards. The EU has also been debating new anti-forced labour legislation, so this type of legislation may also start to get more serious consideration in the UK, for instance.</p>
<p>Friend-shoring policies aren’t new, but the slogan is. Self-sufficiency at the national level can inflict short-term pain on adversaries but may hold limited benefits in the medium term. However, there is broader acceptance that businesses need to have the certainty of trading bloc friends. </p>
<p><a href="https://www.oecd.org/trade/topics/regional-trade-agreements/#:%7E:text=Regional%20trade%20agreements%20(RTAs)%20cover,World%20Trade%20Organization%20(WTO).">Half of all trade</a> currently takes place between members of trade blocs, and recent trade data for the US and Mexico (see figures above) suggests that trade blocs may become more important over time as production moves.</p><img src="https://counter.theconversation.com/content/223582/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Canada and Mexico have replaced China as the US’s largest trading partners, due to friend-shoring policies.Karen Jackson, Reader in Economics, University of WestminsterOleksandr Shepotylo, Senior Lecturer in Economics, Aston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2256232024-03-19T14:07:44Z2024-03-19T14:07:44ZChina: why the country’s economy has hit a wall – and what it plans to do about it<p>China’s <a href="https://www.bbc.co.uk/news/world-asia-68508868">annual parliamentary meetings</a> in Beijing came to a close on March 11. They were conducted under great pressure: a weak economy and high expectations from both the domestic public and international observers as to what the government can do to get the economy out of the woods.</p>
<p>The country’s leaders did not shy away from mentioning all of the economic problems facing China. But they also attempted to boost the morale of the Chinese public by outlining how the country would march into the next chapter of the Chinese story – mainly by striving to become a global leader in technology.</p>
<p>The government used the meetings to <a href="https://npcobserver.com/wp-content/uploads/2024/03/2024-Government-Work-Report_EN.pdf">declare</a> that it was targeting GDP growth of 5% in 2024. This is lower than the <a href="https://www.reuters.com/world/china/chinas-q4-gdp-grows-52-yy-below-market-forecast-2024-01-17/">5.2% growth rate</a> that was achieved in 2023 but higher than the International Monetary Fund’s <a href="https://www.imf.org/en/Countries/CHN">forecast</a> of 4.6%. The Chinese government did not detail how this target will be achieved, but the target itself is indicative of the leadership’s confidence about the future.</p>
<p>Over the past four decades, China’s rapid economic growth has been attributed to market incentives, cheap labour, infrastructure investment, exports and foreign direct investment. But at the time of writing, none of these drivers are working effectively. </p>
<p>Market activities are intertwined with <a href="https://www.piie.com/research/piie-charts/2023/chinas-state-vs-private-company-tracker-which-sector-dominates">greater state intervention</a>. A declining population has weakened the labour supply. And uncertainty surrounding China’s economy and intensified geopolitical tensions have together driven foreign investment <a href="https://asia.nikkei.com/Economy/Foreign-direct-investment-in-China-falls-to-30-yearlow#:%7E:text=But%20FDI%20declined%20for%20the,recorded%20in%20the%20prior%20quarter.">out of China</a>. By January 2024, inward foreign direct investment in China was less than 10% of the US$344 billion (£270 billion) it received in 2021.</p>
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Read more:
<a href="https://theconversation.com/chinas-doom-loop-a-dramatically-smaller-and-older-population-could-create-a-devastating-global-slowdown-221554">China's doom loop: a dramatically smaller (and older) population could create a devastating global slowdown</a>
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<h2>Property crisis</h2>
<p>Many of the risks facing China’s economy stem from its ailing real estate sector. For decades, China’s economy was dependent on a <a href="https://www.imf.org/en/News/Articles/2024/02/02/cf-chinas-real-estate-sector-managing-the-medium-term-slowdown#:%7E:text=Real%20estate%20has%20long%20been,the%20buildup%20of%20significant%20risks">booming property market</a> driven by speculative investment returns. However, this growth was largely driven by debt. To maximise their profits, developers even began selling houses before they had been built.</p>
<figure class="align-center ">
<img alt="A view of a room full of people in China sat facing a stage." src="https://images.theconversation.com/files/582141/original/file-20240315-28-bsptnj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/582141/original/file-20240315-28-bsptnj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/582141/original/file-20240315-28-bsptnj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/582141/original/file-20240315-28-bsptnj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/582141/original/file-20240315-28-bsptnj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/582141/original/file-20240315-28-bsptnj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/582141/original/file-20240315-28-bsptnj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Delegates attending the closing meeting of the Two Sessions on March 11.</span>
<span class="attribution"><a class="source" href="https://epaimages.com/search.pp">Wu Hao/Shutterstock</a></span>
</figcaption>
</figure>
<p>China’s economy started to slow and, in 2020, Chinese regulators <a href="https://www.bloomberg.com/news/articles/2020-10-08/what-china-s-three-red-lines-mean-for-property-firms-quicktake">cracked down</a> on reckless borrowing. Beijing imposed widespread lending curbs on property developers, meaning they could not borrow more money to pay back their existing debts. </p>
<p>A crisis followed. In early 2024, Evergrande – the world’s most heavily indebted real estate developer – <a href="https://www.reuters.com/business/embattled-china-evergrande-back-court-liquidation-hearing-2024-01-28/">went bust</a>. And other large property developers are in trouble. <a href="https://www.bbc.co.uk/news/business-67142093">Country Garden</a> has defaulted and <a href="https://www.ft.com/content/e1ffbcb4-3222-4a8e-be61-e3a6051567f5">Vanke</a> is struggling to find the new loans it needs to stay alive. </p>
<p>The government confirmed its determination to deflate the property bubble in its annual meeting. It did not highlight how to protect more property developers from defaulting, and only hinted at giving some help to allow developers to complete property projects.</p>
<p>The current weak consumer demand in China’s economy is closely related to the real estate crisis. The value of houses is <a href="https://www.bloomberg.com/news/articles/2024-01-17/china-home-prices-fall-most-since-2015-as-downturn-persists">much lower</a> today than it was two years ago, creating fear about the future value of personal wealth. This has prompted more precautionary saving and less consumption in the face of weak social protection, leading to a general <a href="https://www.theguardian.com/business/2024/feb/08/china-consumer-prices-plunge-at-fastest-rate-for-15-years-as-deflation-fears-deepen">decline in the price</a> of goods and services. </p>
<p>Demand for Chinese goods from abroad has also been <a href="https://www.reuters.com/world/eu-us-pledge-joint-action-over-china-concerns-2023-05-13/">declining</a> due to trade restrictions imposed by the US and the EU, geopolitical concerns and shocks to global supply chains. This explains why throughout its annual meetings the government explicitly emphasised the need to strengthen the self-reliance of the Chinese economy. </p>
<h2>New drivers of growth</h2>
<p>The most eye-catching phrase to come out of the annual meetings was “new quality productive forces”. There are varying interpretations of the term, but they all focus on technology and innovation. </p>
<p>Chinese officials explicitly highlighted the need for China to strive to invent more products related to Artificial Intelligence (AI). The government envisions applications such as AI-powered travel agents and salespeople. </p>
<p>China has, up to this point, been better known for applying AI technologies. Beijing, Shanghai and Shenzhen are all <a href="https://dgap.org/en/research/publications/chinas-smart-cities-and-future-geopolitics">smart cities</a>, where advanced technologies such as AI, cloud computing and big data are used in various areas including transport, urban planning and public security.</p>
<figure class="align-center ">
<img alt="A robot police officer driving down a street in China." src="https://images.theconversation.com/files/582143/original/file-20240315-22-k4w6kp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/582143/original/file-20240315-22-k4w6kp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/582143/original/file-20240315-22-k4w6kp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/582143/original/file-20240315-22-k4w6kp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/582143/original/file-20240315-22-k4w6kp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/582143/original/file-20240315-22-k4w6kp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/582143/original/file-20240315-22-k4w6kp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Shanghai’s first robot police officer patrolling the streets in 2019.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shanghai-china-dec-20-2019-shanghais-1594426684">atiger/Shutterstock</a></span>
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<p>However, transforming China’s economy from one that is driven by investment and fuelled by debt to one that is driven by innovation and technology will bring some fresh challenges. </p>
<p>First, innovation requires incentives and an institutional guarantee to reward risk-taking. Hence, the private sector needs to grow faster. <a href="https://www.piie.com/research/piie-charts/2023/chinas-state-vs-private-company-tracker-which-sector-dominates">Research</a> has found that the share of China’s private sector among the 100 largest listed companies in China dropped to 36.8% at the end of 2023 from 55.4% in mid-2021. </p>
<p>Second, innovation requires more highly skilled human capital. A <a href="https://www.oecd.org/future-of-work/reports-and-data/AI-Employment-brief-2021.pdf">report</a> by the OECD in 2021 concluded that the application of AI technology increases the demand for skilled employees, despite replacing low-skilled labour. This will pose a challenge for China as, up to this point, the country’s growth has been spurred by low-skilled labour. </p>
<p>Third, high-tech industries such as AI and digital services are energy intensive. China has already taken steps to diversify its energy supply, but securing energy supply chains will be essential in the longer term. </p>
<p>Heightened geopolitical tensions and <a href="https://www.bbc.co.uk/news/business-63883047">revamped global supply chains</a> may well reduce exports of energy and other natural resources to China in the future. Many of these resources come from developing economies that have exchanged their resources for China’s infrastructure investment in the past. This is unlikely to be the case in the future.</p><img src="https://counter.theconversation.com/content/225623/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Hong Bo previously received funding from the British Academy. </span></em></p>China is facing many economic obstacles, but Beijing remains optimistic about growth.Hong Bo, Professor of Financial Economics, SOAS, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2257492024-03-15T15:15:16Z2024-03-15T15:15:16ZIs TikTok’s parent company an agent of the Chinese state? In China Inc., it’s a little more complicated<figure><img src="https://images.theconversation.com/files/582050/original/file-20240314-28-369bin.jpg?ixlib=rb-1.1.0&rect=5%2C5%2C3553%2C2358&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Some U.S. lawmakers have grown concerned about TikTok.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/people-walk-past-an-advertisement-featuring-the-tiktok-logo-news-photo/2075608549?adppopup=true">Greg Baker/AFP via Getty Images.</a></span></figcaption></figure><p>Does the Chinese government have officials inside TikTok’s parent company, ByteDance, pulling the strings? And does the storing of data from the popular social media app outside of China protect Americans?</p>
<p>These questions appear to dominate the current thinking in the U.S. over <a href="https://www.nytimes.com/2024/03/13/technology/tiktok-ban-house-vote.html">whether to ban TikTok</a> if its owner, Chinese technology giant ByteDance, <a href="https://www.cnbc.com/2024/03/14/tiktok-ban-china-would-block-sale-of-short-video-app.html">refuses to sell the platform</a>.</p>
<p>But in my opinion – forged through <a href="https://scholar.google.com/citations?user=vXeBa0kAAAAJ&hl=en">40 years as a scholar of China, its political economy and business</a> – both questions obscure a more interesting point. What’s more, they suggest a crucial misunderstanding of the relationship between state and private enterprise in China.</p>
<p>Simply put, there’s no clear line between the state and society in China in the same way that there is in democracies. The Chinese Communist Party – which is synonymous with the Chinese state – both owns and is the nation. And that goes for private enterprises, too. They operate like joint ventures in which the government is both a partner and the ultimate boss. Both sides know that – even if that relationship isn’t expressly codified and recognizable to outside onlookers.</p>
<h2>ByteDance under the microscope</h2>
<p>Take ByteDance. The company has become the focus of scrutiny in the U.S. largely due to the outsized influence that its subsidiary <a href="https://www.pewresearch.org/internet/2024/02/22/how-u-s-adults-use-tiktok/">plays in the lives of young Americans</a>. Some <a href="https://www.reuters.com/technology/us-house-vote-force-bytedance-divest-tiktok-or-face-ban-2024-03-13/">170 million Americans</a> are TikTok users, and U.S. politicians fear their data has a direct route back to the Chinese state via ByteDance, which has its head offices in Beijing.</p>
<p>Location aside, concerned voices in the U.S. cite the evidence of former ByteDance employees who suggest <a href="https://apnews.com/article/tiktok-china-bytedance-user-data-d257d98125f69ac80f983e6067a84911">interference from the Chinese government</a>, and reports that the state has quietly <a href="https://www.theinformation.com/articles/beijing-tightens-grip-on-bytedance-by-quietly-taking-stake-china-board-seat">taken a direct stake and a board seat</a> at Beijing ByteDance Technology Co. Ltd., ByteDance’s Chinese subsidiary.</p>
<p>Grilled by the House Committee on Energy and Commerce in March 2023, TikTok’s Singaporean CEO Shou Zi Chew <a href="https://apnews.com/article/tiktok-ban-ceo-congressional-hearing-bytedance-china-44d948c5b0ba18e2a714e0fa62d52779">said unequivocally</a> that ByteDance was not “an agent of China or any other country.”</p>
<p>The history of the Chinese government’s dealings with private companies suggests something more subtle, however.</p>
<h2>The rise of China Inc.</h2>
<p>Over its century-long history, the Chinese Communist Party has sought to exercise control over all aspects of the country, including its economy. In its early days, this control took the form of a heavy-handed <a href="https://www.investopedia.com/terms/c/command-economy.asp">command economy</a> in which everything was produced and consumed according to government planning.</p>
<p>China took a step in a more capitalist direction in the latter half of the 20th century after the death of Mao Zedong, founder of the People’s Republic of China. But even the <a href="https://www.cato.org/publications/chinas-post-1978-economic-development-entry-global-trading-system">reforms of Deng Xiaoping</a> in the late 1970s and 1980s – credited for opening up China’s economy – were in the service of party goals. Because China’s economy was in ruins, the party’s emphasis was on economic development, and it loosened its grip on power to encourage that. The continuation of party control was still paramount – it just needed to reform the economy to ensure that goal.</p>
<p>That didn’t mean the party wanted pluralism. After decades of economic growth, and with a GDP surpassing that of the U.S. when <a href="https://www.scmp.com/economy/china-economy/article/3085501/china-overtakes-us-no-1-buying-power-still-clings-developing">measured by purchasing power parity</a>, the Chinese government once again started to shift its focus to a comprehensive control of China.</p>
<p>In recent years, under the increasingly <a href="https://www.uscc.gov/sites/default/files/2022-11/Chapter_1--CCP_Decision-Making_and_Xi_Jinpings_Centralization_of_Authority.pdf">centralized control of Xi Jinping</a>, the Chinese government has evidently opted to run the entire country as a <a href="http://doi.org/10.1108/IJOEM-12-2019-1103">giant corporation</a>, with the ruling party as its management.</p>
<h2>A party with unusual power</h2>
<p>Unlike political parties in democracies, which people freely join and leave, the Chinese Communist Party resembles a secret society. <a href="http://www.xinhuanet.com/english/download/Constitution_of_the_Communist_Party_of_China.pdf">To join</a>, you need to be introduced by two party members and tested for an extended period, and then pledge to die for the party’s cause. Quitting it also <a href="http://www.xinhuanet.com//politics/2017-02/05/c_1120413145.htm">needs approval by the party</a>. <a href="https://doi.org/10.1111/corg.12023">Orders are implicit</a>, and protecting one’s superior is crucial. </p>
<p>People who don’t cooperate face serious consequences. In 2022, an official warned a resident who disobeyed the official’s order in COVID-19 testing that three generations of the resident’s descendants <a href="https://www.rfa.org/cantonese/news/generation-05122022062839.html">would be adversely affected</a> if he were uncooperative. The same is true of businesses: Ride-sharing company Didi incurred the party’s displeasure by listing its stocks in the U.S., and was harshly punished and forced to delist as a result – <a href="https://www.reuters.com/technology/china-fines-didi-global-12-bln-violating-data-security-laws-2022-07-21/">losing more than 80% of its value</a>. </p>
<p>Since those who disobey the party are weeded out or are punished and seen to have learned their lessons, all surviving and successful private businesses are <a href="https://www.wsj.com/articles/jack-ma-makes-ant-offer-to-placate-chinese-regulators-11608479629?page=1">party supporters</a> – either voluntarily or otherwise.</p>
<p>The rapid emergence of <a href="https://doi.org/10.1017/9781009076210">China Inc.</a> has caught even seasoned Chinese entrepreneurs off guard. Consider the case of <a href="https://www.npr.org/2021/07/28/1021651586/chinese-billionaire-sun-dawu-is-sentenced-to-18-years-for-provoking-trouble">Sun Dawu</a>, a successful agricultural entrepreneur known for advocating for rural reform and the rights of farmers. That offended the party, and in 2020, authorities confiscated all his assets and sentenced him to 18 years in prison.</p>
<p>As if that weren’t enough, China’s National Intelligence Law granted broad powers to the country’s spy agencies and obligates companies to assist with intelligence efforts. That’s why some American lawmakers are concerned that ByteDance could be <a href="https://www.atlanticcouncil.org/blogs/new-atlanticist/will-the-us-crack-down-on-tiktok-six-questions-and-expert-answers-about-the-bill-in-congress/">forced to hand over Americans’ private data</a> to the Chinese state. <a href="https://newsroom.tiktok.com/en-au/the-truth-about-tiktok">TikTok denies</a> this is the case. However, recently <a href="https://www.pbs.org/newshour/world/leaked-hacking-files-show-chinese-spying-on-citizens-and-foreigners-alike">leaked files</a> of I-Soon, a Chinese hacking firm, reveal public-private collusion in data sharing is common in China.</p>
<p>That’s why I’m not convinced by TikTok’s argument that American users’ data is safe because it’s stored <a href="https://newsroom.tiktok.com/en-us/tiktok-facts-how-we-secure-personal-information-and-store-data">outside of China</a>, in the U.S., Malaysia and Singapore. I also don’t think it’s relevant whether the party has members on the ByteDance board or gives explicit orders to TikTok.</p>
<p>Regardless of whether ByteDance has formal ties with the party, there will be the tacit understanding that the management is working for two bosses: the investors of the company and – more importantly – their political overseers that represent the party. But most importantly, when the interests of the two bosses conflict, the party trumps.</p>
<p>As such, as long as ByteDance owns TikTok, I believe ByteDance will use TikTok to support the party – not just for its own business survival, but for the safety of the personnel of ByteDance and TikTok, and their families.</p><img src="https://counter.theconversation.com/content/225749/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Shaomin Li does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In China, ‘private’ businesses aren’t entirely private and the ultimate boss is the CCP, not the CEO.Shaomin Li, Eminent Scholar and Professor of International Business, Old Dominion UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2192992024-03-12T19:14:40Z2024-03-12T19:14:40ZChina’s green steel push could crush Australia’s dirty iron ore exports<figure><img src="https://images.theconversation.com/files/580605/original/file-20240308-20-db5ci3.jpg?ixlib=rb-1.1.0&rect=51%2C594%2C5760%2C2742&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hot-steel-on-conveyor-mill-341057252">Zhao Jian Kang/Shutterstock</a></span></figcaption></figure><p>Australia’s <a href="https://www.ibisworld.com/australia/industry-trends/biggest-exporting-industries/">largest export</a>, iron ore, has long been a <a href="https://www.nma.gov.au/defining-moments/resources/iron-ore-exports">powerhouse</a> of economic growth. Over the past two decades, its contribution to our national income has <a href="https://www.aspistrategist.org.au/the-australian-goose-that-lays-the-multi-billion-dollar-iron-ore-eggs/#:%7E:text=Since%202005%2C%20Australia's%20total%20iron,ore%20in%20a%20mutual%20dependency.">surged</a> from just A$8 billion in 2005 to over A$124 billion today. </p>
<p>But the Australian iron ore industry faces a major challenge as its biggest customers – China’s steel mills – move to drastically reduce their <a href="https://interactive.carbonbrief.org/the-carbon-brief-profile-china/">carbon footprint</a>. </p>
<p>The issue lies in the purity of our product. Most of Australia’s current iron ore exports are not classed as high grade. Typically, the lower the iron content of an ore is, the <a href="https://ieefa.org/resources/australia-faces-growing-green-iron-competition-overseas">more energy is required</a> to refine it. </p>
<p>Our competitors – countries such as Brazil and Guinea with higher-grade ores in relative abundance – are positioned to become the steel industry’s suppliers of choice. </p>
<p>Australia could adapt its production to meet this change in demand. But if it doesn’t do so quickly, it may find itself left behind in the new green economy. </p>
<h2>Iron ore’s biggest customer cleans up its act</h2>
<p>China is the largest importer of Australian iron by a hefty margin. Australia shipped <a href="https://www.watc.wa.gov.au/media/lbopz4i3/wa-iron-ore-profile-march-2023.pdf">736 million tonnes</a> – more than 80% of iron ore exports – to China in 2022. </p>
<p>Last year, China’s steel mills made up <a href="https://worldsteel.org/steel-topics/statistics/annual-production-steel-data/?ind=P1_crude_steel_total_pub/CHN/IND/WORLD_ALL">the majority of global steel production</a>. But they were also a major polluter, accounting for <a href="https://www.sciencedirect.com/science/article/abs/pii/S1001074223001936?via%3Dihub">about 15%</a> of China’s total greenhouse gas emissions.</p>
<p>They’re now facing a double whammy of decarbonisation pressures. </p>
<p>At home, the Chinese government has mandated the steel industry reduce its emissions as part of China’s wider <a href="https://interactive.carbonbrief.org/the-carbon-brief-profile-china/">“dual carbon” goals</a>. These will require emissions to peak before 2030 and for the country to become carbon neutral by 2060. </p>
<p>And internationally, <a href="https://ec.europa.eu/commission/presscorner/detail/en/ip_23_4685">upcoming tariffs</a> on carbon-intensive steel imports are set to make producing “dirty” steel much costlier. </p>
<h2>Australian ore doesn’t make the grade</h2>
<p>Making steel with low-grade iron ore isn’t at all carbon friendly. </p>
<p>For one, it <a href="https://www.researchgate.net/publication/290515326_Natural_resources_sustainability_Iron_ore_mining">consumes vastly more energy</a> in the traditional steelmaking process. My analysis shows that using one tonne of low-grade ore can emit over 200 kilograms more carbon dioxide in a blast furnace than high-grade.</p>
<p>A high level of impurities in low-grade ore also significantly reduces the efficiency of the process.</p>
<p>Reducing the use of low-grade ore has become a priority for Chinese steel mills, significantly affecting iron ore’s demand profile. </p>
<p>Much of the iron ore exported by competing nations like Brazil and Guinea is high-grade, containing <a href="https://ieefa.org/resources/australia-faces-growing-green-iron-competition-overseas">more than 65% iron</a>. But most of Australia’s current exports fall below that threshold, between <a href="https://ieefa.org/resources/australia-faces-growing-green-iron-competition-overseas">56% and 62%</a>.</p>
<h2>New technologies</h2>
<p>A number of new and emerging steelmaking technologies offer the promise of significantly lower emissions. </p>
<p>But common to all of them is a need for higher-grade iron ore than Australia produces.</p>
<p>There are four new steelmaking technologies in use or under construction by a number of Chinese steel corporations, including the world’s biggest steelmaker – <a href="https://www.reuters.com/markets/commodities/worlds-top-10-steelmakers-2023-12-19/#:%7E:text=1.,million%20metric%20tons%20last%20year.">China Baowu Group</a>. These include: </p>
<ul>
<li><p>hydrogen-enriched carbon recycling and oxygen furnace (<a href="https://worldsteel.org/case-studies/environment/china-baowu-development-and-application-of-low-carbon-metallurgical-technology-based-on-hycrof/">HyCROF</a>) </p></li>
<li><p>hydrogen reduction and electric smelting process (<a href="https://yieh.com/en/NewsItem/145738">HyRESP</a>) </p></li>
<li><p><a href="https://link.springer.com/article/10.1007/s12613-020-2021-4">hydrogen metallurgy</a> </p></li>
<li><p><a href="https://www.seaisi.org/details/21695?type=news-rooms">green hydrogen zero carbon fluidized bed iron making technology</a>.</p></li>
</ul>
<p>Here’s how these technologies could help China reduce its carbon emissions:</p>
<iframe title="CO₂ emissions reduction (%) achieved by new steelmaking processes" aria-label="Column Chart" id="datawrapper-chart-PuGJ0" src="https://datawrapper.dwcdn.net/PuGJ0/3/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="653" data-external="1" width="100%"></iframe>
<h2>Increased use of steel scraps</h2>
<p>Global demand for steel is forecast to increase to <a href="https://www.woodmac.com/press-releases/decarbonising-global-iron-ore-and-steel-industry-by-2050-necessitates-urgent-action-and-us$1.4-trillion-of-investment/">2.2 billion tonnes by 2050</a>. </p>
<p>But that won’t all translate into greater demand for our iron ore.</p>
<p>Overall demand for iron ore could be reduced by the increasing availability and use of steel scraps or “recycled steel”, such as scrapped vehicles, white goods and machinery. </p>
<p>Using one tonne of recycled steel for steelmaking <a href="https://worldsteel.org/wp-content/uploads/Climate-change-production-of-iron-and-steel-2021.pdf">saves 1.4 tonnes of iron ore and avoids about 1.5 tonnes of carbon dioxide emissions</a>.</p>
<h2>New tariffs on carbon</h2>
<p>A number of legislative measures are on the horizon for the global steel industry, which <a href="https://edgar.jrc.ec.europa.eu/report_2023">produced about 7% of global greenhouse gas emissions</a> in 2022. </p>
<p>One such international measure, the European Union’s Cross-Border Adjustment Mechanism (CBAM), has further accelerated a global drive toward sustainable steelmaking. </p>
<p>This <a href="https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en">legislation</a> acts as a carbon tariff on imports to the EU, initially aimed at carbon-intensive products such as steel. It will be fully in force by 2026. </p>
<p>EU importers of steel products will be required to pay an import carbon tax, at a price set by the EU, based on the differences in carbon emissions between traditional steel mills and the EU’s emission benchmarks. </p>
<p>Being forced to charge higher prices for carbon-intensive steel products will incentivise non-European steel mills to accelerate their transition to green steel.</p>
<h2>What lies ahead</h2>
<p>The global transition to green steelmaking is bound to shape the future of Australia’s iron ore industry. Reduced demand for Australia’s low-grade iron ore could put pressure on its producers’ revenue, or even force some smaller iron ore miners to shut down. </p>
<p>But it also presents opportunities. Here are two ways Australia could ride the wave:</p>
<p><strong>1. Substantially increase production and export of magnetite.</strong></p>
<p>Australia is abundant in magnetite, an ore type which <a href="https://www.ga.gov.au/scientific-topics/minerals/mineral-resources-and-advice/australian-resource-reviews/iron-ore">differs in composition from hematite</a> or “direct shipping ore” (DSO). Magnetite has a low iron content (between 30 and 40%), but can be processed to a higher grade through a process of removing impurities known as “beneficiation”. This process is energy intensive, but could become economically viable if we continue to see rapid uptake of renewable energy. </p>
<p><strong>2. Build direct reduction plants here in Australia.</strong></p>
<p>Unlike the traditional blast furnace process, which uses coal as a source of energy, the direct reduction process uses hydrogen to reduce iron ore into iron without melting it. </p>
<p>There has been <a href="https://www.afr.com/companies/energy/australia-a-hydrogen-superpower-only-if-solar-costs-plummet-20240125-p5ezvr">much hype</a> around Australia’s potential to produce cheap hydrogen with renewable energy. But if we pull it off, we could <a href="https://www.sciencedirect.com/science/article/pii/S0360319923022930">stand at the forefront</a> of the green steel revolution as a global production hub of direct reduced iron. </p>
<p>Decisions made by Australia’s major iron ore producers and political leaders will shape the outcome of this global shift. Rather than fear the transition, Australia could take on a leading role. </p>
<hr>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/green-or-blue-hydrogen-what-difference-does-it-make-not-much-for-most-australians-223351">'Green' or 'blue' hydrogen – what difference does it make? Not much for most Australians</a>
</strong>
</em>
</p>
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<img src="https://counter.theconversation.com/content/219299/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Charlie Huang does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>China’s steel mills are shifting to greener production processes which don’t favour Australian iron ore. Australian miners must quickly adapt or get left behind.Charlie Huang, Co-leader, Sustainable Global Business Operations and Development Research Group, School of Management, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2200142024-03-01T13:32:30Z2024-03-01T13:32:30ZIs the United States overestimating China’s power?<figure><img src="https://images.theconversation.com/files/577660/original/file-20240223-28-5lgbn4.jpg?ixlib=rb-1.1.0&rect=0%2C229%2C4144%2C2586&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Made it, Mao! Top of the World?</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/illustration/dominate-the-world-royalty-free-illustration/1456554749?phrase=china+power&adppopup=true">DigitalVision Vectors via Getty Images</a></span></figcaption></figure><p>Which country is the greatest threat to the United States? The answer, according to a large proportion of Americans, is clear: China. </p>
<p>Half of all Americans responding to a <a href="https://www.pewresearch.org/short-reads/2023/07/27/americans-name-china-as-the-country-posing-the-greatest-threat-to-the-us/">mid-2023 survey</a> from the Pew Research Center cited China as the biggest risk to the U.S., with Russia trailing in second with 17%. Other surveys, such as from the Chicago Council on Global Affairs, <a href="https://globalaffairs.org/research/public-opinion-survey/americans-feel-more-threat-china-now-past-three-decades">show similar findings</a>.</p>
<p>Senior figures in recent U.S. administrations appear to agree with this assessment. In 2020, John Ratcliffe, director of national intelligence under President Donald Trump, <a href="https://www.wsj.com/articles/china-is-national-security-threat-no-1-11607019599">wrote that</a> Beijing “intends to dominate the U.S. and the rest of the planet economically, militarily and technologically.”</p>
<p>The White House’s current National Defense Strategy is not so alarmist, <a href="https://media.defense.gov/2022/Oct/27/2003103845/-1/-1/1/2022-NATIONAL-DEFENSE-STRATEGY-NPR-MDR.PDF">referring to China</a> as the U.S.’s “pacing challenge” – a reference that, <a href="https://www.c-span.org/video/?c5038077/pacing-challenge">in the words</a> of Secretary of Defense Lloyd Austin, apparently means China has “the intent to reshape the international order and, increasingly, the power to do so.” </p>
<p>As someone who has <a href="https://www.hks.harvard.edu/centers/mrcbg/about/staff/dan-murphy">followed China</a> for over a quarter century, I believe that many observers have overestimated the country’s apparent power. Recent <a href="https://mitsloan.mit.edu/ideas-made-to-matter/new-book-details-chinas-economic-rise-and-now-its-fall">challenges to China’s economy</a> have led some people to reevaluate just how powerful China is. But hurdles to the growth of Chinese power extend far beyond the economic sector – and failing to acknowledge this reality may distort how policymakers and the public view the shift of geopolitical gravity in what was once called “<a href="https://www.economist.com/graphic-detail/2018/10/27/the-chinese-century-is-well-under-way">the Chinese century</a>.”</p>
<p>In overestimating China’s comprehensive power, the U.S. risks misallocating resources and attention, directing them toward a threat that is not as imminent as one might otherwise assume.</p>
<p>Let me be clear: I’m not suggesting that China is weak or about to collapse. Nor am I making an argument about China’s intentions. But rather, it is time to right-size the American understanding of the country’s comprehensive power. This process includes acknowledging both China’s tremendous accomplishments and its significant challenges. Doing so is, I believe, mission critical as the United States and China seek to put a floor underneath a <a href="https://www.nytimes.com/2023/02/15/opinion/balloon-china-taiwan-biden.html">badly damaged bilateral relationship</a>.</p>
<h2>Headline numbers</h2>
<p>Why have so many people misjudged China’s power? </p>
<p>One key reason for this misconception is that from a distance, China does indeed appear to be an unstoppable juggernaut. The high-level <a href="https://www.belfercenter.org/publication/us-china-relations-interview-graham-allison">numbers bedazzle observers</a>: Beijing commands the world’s <a href="https://chinapower.csis.org/tracker/china-gdp/#:%7E:text=China%27s%20nominal%20GDP%20is%20the,States%20by%20a%20considerable%20margin.">largest or second-largest</a> economy depending on the type of measurement; it has a rapidly growing <a href="https://www.iiss.org/en/publications/the-military-balance/2024/editors-introduction/">military budget</a> and <a href="https://www.forbes.com/sites/michaeltnietzel/2021/08/07/us-universities-fall-behind-china-in-production-of-stem-phds/?sh=5d2ae6084606">sky-high numbers</a> of graduates in engineering and math; and oversees huge infrastructure projects – laying down nearly 20,000 miles of <a href="http://eu.china-mission.gov.cn/eng/zywj/CSTNENG/202209/P020220915789898685371.pdf">high-speed rail tracks</a> in less than a dozen years and <a href="https://www.bloomberg.com/news/articles/2015-11-20/beijing-replaces-a-huge-highway-overpass-in-only-43-hours">building bridges at record pace</a>. </p>
<p>But these eye-catching metrics don’t tell a complete story. Look under the hood and you’ll see that China faces a raft of intractable difficulties.</p>
<p>The Chinese economy, which until recently was thought of as unstoppable, is beginning to falter due to <a href="https://www.cnn.com/2024/02/15/economy/deflation-explainer-us-china-economy/index.html">deflation</a>, a <a href="https://www.bloomberg.com/news/articles/2024-01-17/china-s-debt-to-gdp-ratio-rises-to-fresh-record-of-286-1">growing debt-to-gross domestic product ratio</a> and the impact of a <a href="https://www.scmp.com/business/banking-finance/article/3253325/restructuring-specialists-boost-hong-kong-staff-china-property-crisis-stokes-demand">real estate crisis</a>. </p>
<h2>China’s other challenges</h2>
<p>And it isn’t only China’s economy that has been overestimated.</p>
<p>While Beijing has put in considerable effort building its soft power and sending its leadership around the world, China enjoys <a href="https://www.pewresearch.org/global/2023/07/27/chinas-approach-to-foreign-policy-gets-largely-negative-reviews-in-24-country-survey/">fewer friends</a> than one might expect, even with its willing trade partners. North Korea, Pakistan, Cambodia and Russia may count China as an important ally, but these relationships are not, I would argue, nearly as strong as those enjoyed by the United States globally. Even in the Asia-Pacific region there is a strong argument to say Washington enjoys greater sway, considering the especially close ties with <a href="https://www.defense.gov/News/News-Stories/Article/Article/3498451/japan-south-korea-us-strengthen-trilateral-cooperation/">allies Japan, South Korea</a> <a href="https://www.state.gov/the-united-states-australia-relationship">and Australia</a>. </p>
<p>Even though Chinese citizens report <a href="https://ash.harvard.edu/news/ash-center-researchers-release-landmark-chinese-public-opinion-study">broad support</a> for the Communist Party, Beijing’s <a href="https://thediplomat.com/2023/01/how-beijing-accidentally-ended-the-zero-covid-policy/">capricious COVID-19 policies</a> paired with an <a href="https://www.theguardian.com/world/2022/dec/04/chinas-xi-jinping-unwilling-to-accept-western-covid-vaccines-says-us-intelligence-chief">unwillingness to use foreign-made vaccines</a> have dented perceptions of government effectiveness. </p>
<figure class="align-center ">
<img alt="A seated man sits at. desk while another man is seen on a TV screen." src="https://images.theconversation.com/files/579043/original/file-20240229-16-cm5y8a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/579043/original/file-20240229-16-cm5y8a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/579043/original/file-20240229-16-cm5y8a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/579043/original/file-20240229-16-cm5y8a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/579043/original/file-20240229-16-cm5y8a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/579043/original/file-20240229-16-cm5y8a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/579043/original/file-20240229-16-cm5y8a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">President Joe Biden participates in a virtual meeting with Chinese President Xi Jinping.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/president-joe-biden-participates-in-a-virtual-meeting-with-news-photo/1353512956?adppopup=true">Alex Wong/Getty Images</a></span>
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<p>Further, China’s population is <a href="https://www.nytimes.com/2023/01/16/business/china-birth-rate.html">aging and unbalanced</a>. In 2016, the country of 1.4 billion saw about 18 million births; in 2023, that number dropped to <a href="https://www.nytimes.com/2024/01/16/business/china-birth-rate-2023.html">about 9 million</a>. This alarming fall is not only in line with trends toward a shrinking working-age population, but also perhaps <a href="https://www.washingtonpost.com/opinions/2023/02/28/behind-china-collapse-birth-marriage-rates/">indicative of pessimism</a> among Chinese citizens about the country’s future.</p>
<p>And at times, the actions of the Chinese government read like an implicit admission that the domestic situation is not all that rosy. For example, I take it as a sign of concern over systemic risk that China detained a million or more people, as has happened with the <a href="https://www.cfr.org/backgrounder/china-xinjiang-uyghurs-muslims-repression-genocide-human-rights">Muslim minority in Xinjiang province</a>. Similarly, China’s policing of its internet suggests <a href="https://www.science.org/content/article/study-internet-censorship-reveals-deepest-fears-chinas-government">concerns over</a> collective action by its citizens. </p>
<p>The sweeping anti-corruption campaign Beijing has <a href="https://apnews.com/article/health-china-business-covid-economy-6618e65ef6148e0c75fce4dc2a28011f#">embarked on</a>, <a href="https://www.reuters.com/world/china/sweeping-chinese-military-purge-exposes-weakness-could-widen-2023-12-30/">purges of the country’s military</a> and the <a href="https://www.nytimes.com/2023/02/17/business/bao-fan-china-banker.html">disappearance</a> of leading business figures all hint at a government seeking to manage significant risk. </p>
<p>I hear many stories from contacts in China about people with money or influence hedging their bets by establishing a foothold outside the country. This aligns with research that has shown that <a href="https://www.hks.harvard.edu/centers/mrcbg/programs/growthpolicy/meg-rithmire-china-global-economy">in recent years</a>, on average as much money leaves China via “irregular means” as for foreign direct investment. </p>
<h2>A three-dimensional view</h2>
<p>The perception of China’s inexorable rise is cultivated by the governing Communist Party, which obsessively seeks to <a href="https://www.cfr.org/backgrounder/media-censorship-china">manufacture and control narratives</a> in state media and beyond that show it as all-knowing, farsighted and strategic. And perhaps this argument finds a receptive audience in segments of the United States concerned about its own decline.</p>
<p>It would help explain why a recent <a href="https://globalaffairs.org/research/public-opinion-survey/americans-feel-more-threat-china-now-past-three-decades">Chicago Council on Global Affairs survey</a> found that about a third of American respondents see the Chinese and American economies as equal and another third see the Chinese economy as stronger. In reality, per capita GDP in the United States is <a href="https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=CN-US">six times that of China</a>. </p>
<p>Of course, there is plenty of danger in predicting China’s collapse. Undoubtedly, the country has seen huge accomplishments since the People’s Republic of China’s founding in 1949: Hundreds of millions of people <a href="https://www.npr.org/sections/goatsandsoda/2017/01/17/509521619/whos-lifting-chinese-people-out-of-poverty">brought out of poverty</a>, extraordinary economic development and <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=CN">impressive GDP growth</a> over several decades, and <a href="https://www.washingtonpost.com/world/2023/09/21/china-global-influence-takeaways/">growing diplomatic clout</a>. These successes are especially noteworthy given that the People’s Republic of China is less than 75 years old and was in utter turmoil during the <a href="https://www.theguardian.com/world/2016/may/11/the-cultural-revolution-50-years-on-all-you-need-to-know-about-chinas-political-convulsion">disastrous Cultural Revolution</a> from 1966 to 1976, when intellectuals were sent to the countryside, schools stopped functioning and chaos reigned. In many cases, China’s successes merit emulation and include important lessons for developing and developed countries alike.</p>
<p>China may well be the “pacing challenge” that many in the U.S. believe. But it also faces significant internal challenges that often go under-recognized in evaluating the country’s comprehensive power.</p>
<p>And as the United States and China <a href="https://www.pbs.org/newshour/show/biden-pushes-for-stable-u-s-relationship-with-china-during-summit-with-xi">seek to steady</a> a rocky relationship, it is imperative that the American public and Washington policymakers see China as fully three-dimensional – not some flat caricature that fits the needs of the moment. Otherwise, there is a risk of fanning the flames of xenophobia and neglecting opportunities for partnership that would benefit the United States.</p><img src="https://counter.theconversation.com/content/220014/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dan Murphy does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Most Americans see China as the biggest threat to the US. But away from headline economic figures, China has a slew of challenges.Dan Murphy, Executive Director of the Mossavar-Rahmani Center for Business and Government, Harvard Kennedy SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2206852024-01-09T17:02:27Z2024-01-09T17:02:27ZChina: Xi’s new year’s address wasn’t a threat against Taiwan – it was a strategic move for legitimacy<figure><img src="https://images.theconversation.com/files/568260/original/file-20240108-19-vqrmp3.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3738%2C2678&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/moscow-russia-march-23-chinese-president-132906761">Kaliva/Shutterstock</a></span></figcaption></figure><p>In his <a href="https://www.mfa.gov.cn/eng/zxxx_662805/202312/t20231231_11215608.html">new year address</a>, Chinese president Xi Jinping claimed that Taiwan would “surely be reunified” with China. Against the backdrop of increased Chinese military posturing in the Taiwan Strait, some western journalists are framing Xi’s remarks as an <a href="https://www.ft.com/content/fc1dfe48-a390-48c3-b27c-7e405978c166">overt and direct threat against Taiwan</a>. They argue that Xi’s rhetoric validates concerns about a potential invasion.</p>
<p>This framing misses the point and overlooks the domestic political context of Xi’s speech. Xi also celebrated the successes of the Chinese nation and economy, while acknowledging the economic struggles of the Chinese people. Rather than threatening Taiwan, this rhetoric is intended to protect Xi’s regime.</p>
<p>Western governments draw their legitimacy from a popular mandate, which is established through elections. The legitimacy of the Chinese Communist Party (CCP) to govern China is also premised on a mandate. But instead of through elections, this mandate is established through the party’s record on ensuring continued economic prosperity and national success.</p>
<p>In this context, Xi’s emphasis on economic growth and the nation should be considered performative – an example of political theatre portraying the CCP in a carefully curated way for a Chinese audience.</p>
<p>Following the Cultural Revolution (which had <a href="https://www.theguardian.com/world/2016/may/11/the-cultural-revolution-50-years-on-all-you-need-to-know-about-chinas-political-convulsion">disastrous consequences</a> for China’s people and economy) and Mao’s death in 1976, the CCP re-established its legitimacy on <a href="https://www.cambridge.org/core/journals/china-quarterly/article/abs/chinas-new-remembering-of-the-antijapanese-war-of-resistance-19371945/84F3184AF89EBA79F54561774379EAC6">twin pillars of economic prosperity and nationalism</a>. </p>
<p>Former leader Deng Xiaoping secured the economic pillar in the 1980s through reforms that <a href="https://www.worldbank.org/en/country/china/overview">raised 800 million people out of poverty</a>. The nationalist pillar involved retelling Chinese history. The regime emphasised historical achievements, commemorated national struggles and portrayed the CCP as the vanguard of the Chinese nation. </p>
<p>Under Mao, Japan’s invasion of China in the second Sino-Japanese war (the Chinese theatre of the second world war) was presented as an ideological class struggle. According to this narrative, both Chinese and Japanese workers were exploited by militaristic bourgeois elites. Nowadays, China’s nationalist narrative presents Japan as a foreign oppressor that China heroically resisted and overcame under the CCP’s leadership.</p>
<p>Such narratives of Chinese history have resulted in a <a href="https://www.jstor.org/stable/10.1525/as.2004.44.2.276">contemporary Chinese nationalism</a> sensitive to what it considers renewed victimisation of the Chinese nation. This includes international opposition to reunification with Taiwan, a historic province of China.</p>
<h2>Relying on nationalism</h2>
<p>As China’s economy slows, the CCP has become increasingly reliant on the nationalist pillar to retain its legitimacy. This limits the CCP’s options in nationalistic disputes as it must act in such a way that upholds its nationalist credentials. </p>
<p>In 2005, China saw large anti-Japanese protests triggered by Japan’s downplaying of the atrocities it committed during its invasion of China. Within the context of <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=CN">11.4% economic growth</a>, the CCP shut down public transport to block protesters from arriving in the largest cities and officials condemned the protests.</p>
<p>But, by 2012, China’s <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=CN">economic growth had slowed to 7.9%</a>. And the CCP was notably silent during similarly large anti-Japanese protests over the Senkaku Islands (known as the Diaoyu Islands in China) – a <a href="https://www.e-ir.info/pdf/98119">territorial dispute in the East China Sea</a> associated with the second Sino-Japanese war.</p>
<p>China’s nationalist movement <a href="https://www.reuters.com/article/us-china-japan-politics-idUSBRE88I0AU20120919/">criticised the CCP</a> for being too soft on Japan, prompting then vice-president Xi to <a href="https://www.theguardian.com/world/2012/sep/19/china-japan-senkaku-diaoyu-islands">publicly renounce</a> Japan’s territorial claim. This constitutes a performative acquiescence to nationalist pressure, with Xi acting to secure the nationalist pillar while the economic pillar faltered.</p>
<h2>Understanding Xi’s performance</h2>
<p>Xi’s mention of national reunification with Taiwan in his new year address is in keeping with the CCP’s increased reliance on nationalism to secure legitimacy as China’s economy slows.</p>
<p>This can also explain China’s posturing in the Taiwan Strait. China experienced <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=CN">3% economic growth in 2022</a>, the lowest growth rate since Deng’s reforms (excluding the height of the COVID pandemic). So to deflect scrutiny, the CCP is intensifying its embrace of brinkmanship in the Taiwan Strait.</p>
<p>Ultimately, this brinkmanship is unlikely to culminate in a war considering how an invasion could backfire on the CCP. In the event of an unsuccessful invasion, the CCP would suffer significant damage to its reputation. Even a successful but <a href="https://theconversation.com/taiwan-how-the-porcupine-doctrine-might-help-deter-armed-conflict-with-china-169488">prolonged conflict with heavy losses</a> would have a similar effect.</p>
<p>Either way, the near-certain economic consequences, such as sanctions and embargoes, would topple the party’s economic pillar.</p>
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Read more:
<a href="https://theconversation.com/taiwan-how-the-porcupine-doctrine-might-help-deter-armed-conflict-with-china-169488">Taiwan: how the 'porcupine doctrine' might help deter armed conflict with China</a>
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<h2>Acknowledging economic shortcomings</h2>
<p>More interesting than Xi’s talk of reunification is his admission of the economic struggles of the Chinese people. In his address, Xi explained that “some people had difficulty finding jobs and meeting basic needs”. </p>
<p>There is very little precedent for acknowledging the shortcomings of the CCP’s delivery of economic prosperity. Doing so contradicts the economic pillar. It is particularly odd given that the CCP has recently <a href="https://www.theguardian.com/world/2023/dec/29/china-cracks-down-on-negativity-over-economy-in-bid-to-boost-confidence">suppressed negative commentaries</a> on China’s economy to avoid damaging public confidence in its economic stewardship.</p>
<p>As brinkmanship in the Taiwan Strait reaches its limits, it seems the CCP is shifting away from an over-dependence on the nationalist pillar. Instead, it may be pursuing a less immediately risky strategy, acknowledging current economic issues while emphasising the potential for economic growth under the CCP. This approach would be a safer way to maintain the party’s legitimacy than escalating tensions in the Taiwan Strait.</p>
<p>Xi’s speech indicates a changing nuance in CCP discourse – one that may become increasingly apparent over the course of the coming year.</p><img src="https://counter.theconversation.com/content/220685/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lewis Eves does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Xi’s New Year address wasn’t about threatening Taiwan – there’s more going on than we think.Lewis Eves, Teaching Associate in Politics and International Relations, University of SheffieldLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2201812024-01-05T13:46:13Z2024-01-05T13:46:13ZThe US invented shopping malls, but China is writing their next chapter<figure><img src="https://images.theconversation.com/files/567756/original/file-20240103-29-8zgelg.jpg?ixlib=rb-1.1.0&rect=32%2C0%2C5449%2C3641&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">People walk under a light projection at a shopping mall in Beijing. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/people-walk-under-a-light-projection-at-a-shopping-mall-in-news-photo/1782952230">(Photo by Jade Gao / AFPJade Gao/AFP via Getty Images)</a></span></figcaption></figure><p>On a recent research trip to China, I wandered through the Oasis Mall in suburban Shanghai. Like many Chinese shopping centers, this complex was filled with empty stores that reflected the <a href="https://www.bloomberg.com/news/features/2020-02-07/ghost-malls-in-china-s-once-teeming-megacities?embedded-checkout=true">end of China’s 30-year-long economic expansion</a>. But there also were surprises. </p>
<p>Along a stretch of the mall’s interior walkway, a cluster of parents and grandparents sat on chairs. They were looking through a plate glass window, watching a dozen 5- to 7-year-old girls practice ballet steps, carefully following their teacher’s choreography. A space initially designed for retail had been turned into a dance studio.</p>
<p>From 1990 through 2020, <a href="https://www.taylorfrancis.com/books/mono/10.4324/9781315609065/shopping-malls-public-space-modern-china-nicholas-jewell">large, shiny shopping malls</a> embodied China’s spectacular economic growth. They sprouted in cities large and small to meet consumer demand from an emerging middle class that was keen to express its newfound affluence. These centers look familiar to American eyes, which isn’t surprising: U.S. architectural firms <a href="https://doi.org/10.1080/13467581.2023.2182639">built 170 malls in China during this period</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/567757/original/file-20240103-15-n9ojl6.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A curved modern building labeled Oasis, with towers in the background." src="https://images.theconversation.com/files/567757/original/file-20240103-15-n9ojl6.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/567757/original/file-20240103-15-n9ojl6.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=232&fit=crop&dpr=1 600w, https://images.theconversation.com/files/567757/original/file-20240103-15-n9ojl6.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=232&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/567757/original/file-20240103-15-n9ojl6.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=232&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/567757/original/file-20240103-15-n9ojl6.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=291&fit=crop&dpr=1 754w, https://images.theconversation.com/files/567757/original/file-20240103-15-n9ojl6.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=291&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/567757/original/file-20240103-15-n9ojl6.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=291&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The Oasis (blue building) is one of some 6,700 shopping malls in Chinese cities. Hundreds of new centers open yearly.</span>
<span class="attribution"><span class="source">John Rennie Short</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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<p>Like their <a href="https://www.businessinsider.com/shopping-mall-rise-fall-timeline-1950s-to-today-2023-1">U.S. counterparts</a>, many Chinese malls have fallen on hard times. The COVID-19 pandemic and the rise of online shopping have devastated foot traffic, leaving the nation with a huge overhang of retail space. But many Chinese malls are being re-imagined by owners and users as palaces of experience – civic areas for communities to meet and interact, with new configurations of public and private space. </p>
<p>As a <a href="https://scholar.google.com/citations?user=oMPNYhQAAAAJ&hl=en">longtime urban policy scholar</a>, I was fascinated by the new uses I saw for malls in China. In my view, these experiments could become models for new, creative uses of retail space in the U.S., where the mall was invented. </p>
<h2>Serving a new consumer class</h2>
<p>China <a href="https://www.brookings.edu/books/how-china-opened-its-door/">opened up to foreign trade and investment</a> less than 50 years ago. Since then, it has become the <a href="https://www.forbesindia.com/article/explainers/top-10-largest-economies-in-the-world/86159/1">world’s second-largest economy</a>, surpassed only by the U.S. </p>
<p>Rising incomes and a massive population shift from rural areas to cities have created a <a href="https://www.goldmansachs.com/intelligence/macroeconomic-insights/growth-of-china/chinese-consumer/">growing middle class</a> with significant purchasing power. GDP per capita increased <a href="https://finance.yahoo.com/news/china-squandered-golden-opportunity-overtake-110000713.html">from US$293 in 1985 to $12,500 by 2021</a>. </p>
<p>Today, approximately 350 million Chinese – 25% of the total population – <a href="https://onlinelibrary.wiley.com/doi/epdf/10.1111/cwe.12400">can be considered middle class</a>. More recent economic growth has generated growing income inequality that now is <a href="https://sccei.fsi.stanford.edu/china-briefs/rise-wealth-private-property-and-income-inequality-china">equivalent to U.S. levels</a>.</p>
<p>Malls became a motif of modernity during the country’s economic expansion. They offered consumers year-round protection from heat, humidity, cold and frost, as well as from busy streets and polluting traffic. Malls were safe environments where the steadily increasing numbers of more affluent Chinese families could shop and eat, stroll and meet.</p>
<p>Over the past 30 years, China’s malls have <a href="https://discovery.ucl.ac.uk/id/eprint/10154812/">faced economic booms and slumps</a>. For example, the <a href="https://www.atlasobscura.com/places/new-south-china-mall">New South China Mall</a> in Dongguan – which is twice the size of Minnesota’s Mall of America, its largest U.S. counterpart – opened in 2005. But most of its 2,300 storefronts remained closed for over a decade as China <a href="https://www.imf.org/external/pubs/ft/fandd/2010/06/yueh.htm">fought off recession</a> after the 2008 world financial crisis. </p>
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<figcaption><span class="caption">This 2013 news report takes viewers inside the then-deserted New South China Mall in Dongguan.</span></figcaption>
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<p>China weathered that downturn through <a href="https://insight.kellogg.northwestern.edu/article/china-credit-expansion-unintended-consequences">aggressive economic stimulus policies</a>, and within a decade it replaced the U.S. as the <a href="https://www.reuters.com/article/idUSKBN1XF218/">world’s top driver of economic growth</a>. This expansion buoyed its retail sector, including <a href="https://www.chinadaily.com.cn/a/201901/11/WS5c380388a3106c65c34e3e65.html">shopping centers</a>. By 2018, a renovated and modernized New South China Mall was <a href="https://theculturetrip.com/asia/china/articles/worlds-biggest-shopping-mall-china-no-longer-ghost-mall">near full occupancy</a>. </p>
<p>Then COVID-19 struck in 2020. The Chinese government adopted a rigid <a href="https://www.voanews.com/a/what-is-china-s-zero-covid-policy-/6854291.html">zero-COVID policy</a>, in which local governments could impose lockdowns after detecting just a few cases. Hundreds of millions of people were restricted to their homes for weeks or months at a stretch. </p>
<p>This policy was lifted only <a href="https://publichealth.jhu.edu/2023/no-more-lockdowns-chinas-new-covid-landscape">in late 2022</a>. China’s economy has yet to fully recover, and many experts argue that it <a href="https://www.wsj.com/world/china/china-economy-debt-slowdown-recession-622a3be4">will never again reach its previous rates of growth</a>. An <a href="https://asia.nikkei.com/Spotlight/The-Big-Story/China-s-aging-population-threatens-a-Japan-style-lost-decade">aging population</a>, <a href="https://www.reuters.com/article/idUSKBN1ZF2YQ/">trade wars with the U.S.</a> and a government focused on centralizing power under the Communist Party are all acting as drags on the economy, and online shopping is drawing consumers away from stores. </p>
<p>As a result, Chinese media reports abound with stories about <a href="https://new.qq.com/rain/a/20230720A06YQI00">well-known stores</a> and <a href="https://www.jiemian.com/article/9356769.html">venerable malls</a> closing. In China, as in the U.S., what scholars once described as the “<a href="https://doi.org/10.1111/j.1467-8306.1993.tb01921.x">magic of the mall</a>” has become an “<a href="https://www.discoursemagazine.com/p/the-allure-of-ruins">allure of ruins</a>.” </p>
<h2>Malls with Chinese characteristics</h2>
<p>But the Chinese are making creative use of excess mall space. New users are filling nonretail areas, such as indoor walkways and atriums that now house café tables. Others have become children’s play spaces filled with giant inflatable figures. The <a href="https://www.capitaland.com/en/find-a-property/global-property-listing/retail/raffles-city-shenzhen.html">Raffles City Mall</a> in Shenzen has a rooftop pet playground, a stage, an art display area and a sun-shaded lawn. </p>
<p>China’s informal economy of food stalls and sidewalk merchants is also filling the void. Although street vending has a long history in China, government officials sought to suppress it in recent years, calling it <a href="https://epaper.chinadaily.com.cn/a/202009/18/WS5f63fbf0a31099a2343506f3.html">unsanitary and a throwback to pre-modern times</a>. Now, however, they are encouraging it as a way to reduce growing unemployment, especially among young people, which <a href="https://theconversation.com/chinas-youth-unemployment-problem-has-become-a-crisis-we-can-no-longer-ignore-213751">currently exceeds 20%</a>. </p>
<p>During my trip, I saw small-scale entrepreneurs selling produce, street food and crafts in mall parking lots and around public entrances. The <a href="https://www.routledge.com/Pseudo-Public-Spaces-in-Chinese-Shopping-Malls-Rise-Publicness-and-Consequences/Wang/p/book/9781032177991">distinction between public and private spaces</a> is being reconfigured as vendors set up stalls in areas that once were open space. </p>
<p>Empty store spaces are also being repurposed. Some have been converted into <a href="https://www.bloomberg.com/news/articles/2021-03-08/luxury-malls-are-the-new-car-showrooms-for-chinese-ev-makers?sref=Hjm5biAW">electric vehicle showrooms</a>, <a href="https://doi.org/10.1080/14702029.2022.2061750">art museums</a> and <a href="https://doi.org/10.1080/14733285.2022.2050675">children’s play centers</a> with dance studios, paddling pools, small skating rinks, gyms and yoga centers. Others have been redesigned as sites for art or cooking classes, or for <a href="https://thebusinessofesports.com/2021/07/02/china-opens-countrys-first-esports-themed-shopping-mall/">multiplayer electronic gaming</a> and <a href="https://franchise.sandboxvr.com/what-u-s-franchisees-can-learn-from-the-chinese-mall-experience/">virtual reality experiences</a>. The Dream Time Mall in Wuhan contains <a href="https://indoorsnownews.com/2023/03/03/wuhan-opens-indoor-snow-centre-as-part-of-worlds-new-largest-mall/">an indoor snow center</a> that offers ski lessons, ice mazes and tubing.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/567752/original/file-20240103-15-8btgm3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="People crowd into a curved atrium around a giant screen." src="https://images.theconversation.com/files/567752/original/file-20240103-15-8btgm3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/567752/original/file-20240103-15-8btgm3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/567752/original/file-20240103-15-8btgm3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/567752/original/file-20240103-15-8btgm3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/567752/original/file-20240103-15-8btgm3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/567752/original/file-20240103-15-8btgm3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/567752/original/file-20240103-15-8btgm3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">People at Joy City Shopping Complex in Yantai, China, watch a live broadcast of the 2023 League of Legends world championship final on Nov. 19, 2023. League of Legends is a multiplayer online battle arena video game.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/people-gather-at-joy-city-shopping-complex-to-watch-a-giant-news-photo/1802127612">Tang Ke/VCG via Getty Images</a></span>
</figcaption>
</figure>
<p>I see these experiments as a shift in the meaning of the mall. What began as a cathedral of retail consumerism is becoming a place where people can connect and enjoy individual and collective experiences that aren’t available online. </p>
<p>Some U.S. malls are <a href="https://www.retaildive.com/news/5-creative-ways-malls-are-repurposing-their-space/594580/">moving in this direction</a>, but China is doing it on a much larger scale. Just as former Chinese leader Deng Xiaoping once asserted that his government was pursuing <a href="https://www.cgtn.com/how-china-works/feature/What-does-path-of-socialism-with-Chinese-characteristics-mean.html">its own version of socialism, with “Chinese characteristics</a>,” the U.S.-designed mall is being rewritten with Chinese characters.</p><img src="https://counter.theconversation.com/content/220181/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Rennie Short does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>China has a lot of vacant retail space, including many underused shopping malls. An urban policy scholar describes how the Chinese are rethinking what the mall is for.John Rennie Short, Professor Emeritus of Public Policy, University of Maryland, Baltimore CountyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2137512023-10-08T19:27:10Z2023-10-08T19:27:10ZChina’s youth unemployment problem has become a crisis we can no longer ignore<figure><img src="https://images.theconversation.com/files/550512/original/file-20230927-27-lvu3t0.png?ixlib=rb-1.1.0&rect=149%2C286%2C1757%2C712&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Youth unemployment is a global problem, but in China the rate - <a href="https://www.visualcapitalist.com/youth-unemployment-in-oecd-and-china/#:%7E:text=Listed%20below%20is%20the%20youth,the%20second%20quarter%20of%202023.&text=Announced%20in%20June%2C%20China's%20youth,when%20it%20was%20below%2010%25.">21.3%</a> - is particularly alarming, not just because it’s high, but because it could affect other economies and geopolitical relations.</p>
<p>The release of the rate, which more than doubled the pre-COVID rate of May 2018, coincided with China’s National Bureau of Statistics announcing it would no longer report age specific data because it needed to “<a href="https://www.nytimes.com/2023/08/15/business/china-youth-unemployment.html">improve and optimise labour force survey statistics</a>”.</p>
<p>Youth unemployment is a complex issue, but even more so in China as a result of government policy and society’s expectations.</p>
<p>Under the <em>Hukou</em> system, households in China are required to register, and authorities then determine where they live and work and which public services they can access.</p>
<p>The system often stops rural residents taking advantage of urban opportunities, which can limit their work prospects.</p>
<p>The stress and uncertainty experienced by this demographic is only worsened by the expectations that come with being the only child in the family as a result of China’s one child policy, which was abandoned only seven years ago.</p>
<h2>The “Ant Tribe” phenomenon</h2>
<p>The term “Ant Tribe” was <a href="https://www.abebooks.com/ant-university-graduates-village-inhabited-Record/8875034122/bd">coined in 2009</a> by sociologist Lian Si to describe highly educated young people stuck in low-paying, temporary jobs that hinder skill advancement.</p>
<p>These young people can’t accumulate social capital, leading to a negative cycle that’s hard to escape. This diminishes their return on their investment in education and highlights a breakdown in the career ecosystem.</p>
<p>The “Ant Tribe” phenomenon is more than just a sign of a flawed economy. It also reveals a deeper emotional and psychological issue. Being over educated and underemployed causes significant <a href="https://hbr.org/2012/03/tackling-the-trauma-of-unemplo">emotional trauma</a>, including anxiety, depression and hopelessness.</p>
<p>This emotional toll is further complicated by societal shifts such as the “<a href="https://www.bloomberg.com/news/features/2021-12-07/why-people-are-quitting-jobs-and-protesting-work-life-from-the-u-s-to-china">lying flat</a>” movement and the rise of “<a href="https://edition.cnn.com/2023/07/26/economy/china-youth-unemployment-intl-hnk/index.html">full time children</a>” in China.</p>
<p>These trends challenge traditional markers of success and redefine family expectations, adding another layer to the psychological complexities faced by the younger generation. The impact can be long-lasting, leading to a <a href="https://pubmed.ncbi.nlm.nih.gov/24567295/">less productive and innovative workforce</a>.</p>
<h2>Weaknesses in the education system</h2>
<p>Despite rapid expansion in higher education, a disconnect exists between university curricula and job market needs.</p>
<p>Programs often favour theory over practical skills, leaving graduates ill-equipped for work. For example, engineering students might focus on equations and theories but miss out on real-world applications such as internships.</p>
<figure class="align-center ">
<img alt="Chinese students in a classroom taking notes" src="https://images.theconversation.com/files/551925/original/file-20231003-15-y9vbtu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/551925/original/file-20231003-15-y9vbtu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=319&fit=crop&dpr=1 600w, https://images.theconversation.com/files/551925/original/file-20231003-15-y9vbtu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=319&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/551925/original/file-20231003-15-y9vbtu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=319&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/551925/original/file-20231003-15-y9vbtu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=401&fit=crop&dpr=1 754w, https://images.theconversation.com/files/551925/original/file-20231003-15-y9vbtu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=401&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/551925/original/file-20231003-15-y9vbtu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=401&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Overqualified candidates flood the jobs market, forcing many to return to study.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/search/chinese-academics?image_type=photo">Shutterstock</a></span>
</figcaption>
</figure>
<p>Additionally, the market faces a glut of overqualified candidates, especially in the technology, finance and healthcare sectors. This imbalance drives many towards further studies.</p>
<p>In 2023, a total of 4.74 million students took the postgraduate entrance exam, a staggering <a href="https://www.statista.com/statistics/1207914/china-number-of-applicants-for-postgraduate-entrance-examination/#:%7E:text=The%20number%20of%20applicants%20for,generally%20been%20rising%20in%20China">135% increase</a> on the 2.01 million test takers in 2017. This cycle exacerbates youth unemployment and underemployment. </p>
<h2>The wider impact</h2>
<p>The ripple effect of China’s youth unemployment crisis is not to be underestimated. Drawing on warnings from <a href="https://www.unicef-irc.org/article/1061-violence-peace-and-stability-the-youth-factor.html">UNICEF</a>, high unemployment rates can lead to <a href="https://www.epi.org/blog/link-joblessness-social-unrest/">civil unrest</a>, especially in nations with a large youth population.</p>
<p>The Chinese Communist Party has long maintained its <a href="https://theconversation.com/how-china-combined-authoritarianism-with-capitalism-to-create-a-new-communism-167586">authoritarian approach</a> by securing a social licence based on economic stability and prosperity.</p>
<p>If rising youth unemployment erodes this licence by fostering political disengagement or radicalisation, China could experience a significant <a href="https://www.bloomberg.com/news/articles/2023-07-03/china-s-jobless-youths-may-pose-political-risk-top-adviser-says">internal power shift</a>.</p>
<p>In a globally connected world, such turmoil could spill over into international relations. Civic unrest can make a country less stable and thus <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1468-0343.2007.00318.x">less attractive to foreign investment</a>, especially among nations with close economic ties to China.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/inside-the-worlds-largest-higher-education-boom-74789">Inside the world's largest higher education boom</a>
</strong>
</em>
</p>
<hr>
<p>Such an internal upheaval also threatens to destabilise supply chains globally, given China’s pivotal role in <a href="https://www.gmfus.org/news/chinas-dominance-global-supply-chains">global supply chains</a>.</p>
<p>Historical examples such as the <a href="https://theconversation.com/fading-hope-why-the-youth-of-the-arab-spring-are-still-unemployed-60588">Arab Spring</a> and <a href="https://theconversation.com/what-young-britons-really-think-about-brexit-and-their-prospects-outside-the-eu-86490">Brexit</a> show internal dissatisfaction and social unrest can have ripple effects on a country’s international relations.</p>
<p>The Arab Spring led to the overthrow of multiple governments, created regional instability, influenced global oil prices, and necessitated the resetting of foreign policy by Western countries.</p>
<figure class="align-center ">
<img alt="Large group of people carrying placards protesting against Brexit" src="https://images.theconversation.com/files/551939/original/file-20231004-21-471onj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/551939/original/file-20231004-21-471onj.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=402&fit=crop&dpr=1 600w, https://images.theconversation.com/files/551939/original/file-20231004-21-471onj.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=402&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/551939/original/file-20231004-21-471onj.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=402&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/551939/original/file-20231004-21-471onj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=505&fit=crop&dpr=1 754w, https://images.theconversation.com/files/551939/original/file-20231004-21-471onj.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=505&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/551939/original/file-20231004-21-471onj.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=505&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Instability in Britain caused by Brexit led to changes in foreign policy.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/search/brexit-protests?image_type=photo">Shutterstock</a></span>
</figcaption>
</figure>
<p>Similarly, Brexit impacted global trade agreements, led to political realignment, and <a href="https://www.jstor.org/stable/48544279">caused the European Union to reconsider its future direction</a>, affecting its collective foreign policy.</p>
<p>While youth unemployment is a global dilemma, the extent of the problem in China and its potential broader impact on interconnected economies means we can’t afford to ignore it.</p>
<h2>What can China do to solve the problem?</h2>
<p>China can find policy inspiration from successful initiatives in other countries, such as Germany’s <a href="https://www.bibb.de/datenreport/en/175376.php">dual vocational training system</a>. This system ensures students are both academically prepared and practically skilled, better aligning education with labour market demands.</p>
<p>Addressing the urban/rural divide is equally crucial. By offering financial incentives including tax breaks and grants, China could promote job growth in rural areas. Australia and the United States have adopted similar models to attract healthcare workers to <a href="https://www.ruralhealth.org.au/partyline/article/targeting-incentives-attract-more-doctors-nurses-and-allied-health-professionals-rural">less populated regions</a>. </p>
<p>China also needs to do something to reduce the emotional toll of chronic unemployment which worsens the longer graduates are out of work. Post-COVID, the issue is exacerbated, with 40% of Chinese youth <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7173777/">reported</a> to be susceptible to mental health challenges. </p>
<p>This is where <a href="https://headspace.org.au/">mental health services</a> such as those available in Australia that are tailored to <a href="https://www.headtohealth.gov.au/support-for-young-people#:%7E:text=headspace%20provides%20assessment%2C%20early%20intervention,online%20support%20through%20their%20website">young people</a> could help. Besides benefiting the individual, these programs contribute to a more engaged, productive workforce essential for national well being.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/young-educated-and-underemployed-are-we-building-a-nation-of-phd-baristas-53104">Young, educated and underemployed: are we building a nation of PhD baristas?</a>
</strong>
</em>
</p>
<hr>
<p>The precarious nature of the gig economy can further deepen the unemployment crisis. Some European countries such as <a href="https://www.reuters.com/business/autos-transportation/french-court-orders-uber-pay-some-18-mln-drivers-company-appeal-2023-01-20/#:%7E:text=In%202020%2C%20France%27s%20top%20court,workers%20such%20as%20paid%20holidays.">France</a> and <a href="https://www.reuters.com/world/europe/dutch-court-rules-uber-drivers-are-employees-not-contractors-newspaper-2021-09-13/">the Netherlands</a> consider gig workers employees and offer social security benefits. A similar model could be implemented in China, providing benefits such as health insurance and retirement plans.</p>
<p>Finally, the scale and complexity of youth unemployment requires a multi-pronged approach that extends beyond national borders.</p>
<p>Countries should actively share successful employment strategies and cooperate on international initiatives to create job opportunities for youth. Collaboration is the key to developing a globally stable, productive young workforce.</p>
<p>Investing in young people isn’t just good policy. It’s a moral imperative for global stability and shared prosperity.</p><img src="https://counter.theconversation.com/content/213751/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christian Yao does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Youth unemployment is a complex issue but even more so in China as a result of government policy and society’s expectations.Christian Yao, Senior Lecturer, Te Herenga Waka — Victoria University of WellingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2135392023-09-18T20:00:56Z2023-09-18T20:00:56ZIn China, Albanese might find an economy as uncertain as Japan’s 30 years ago<figure><img src="https://images.theconversation.com/files/548726/original/file-20230918-21-css6uf.png?ixlib=rb-1.1.0&rect=269%2C568%2C3616%2C1916&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>When Prime Minister Anthony Albanese <a href="https://theconversation.com/politics-with-michelle-grattan-asia-expert-richard-mcgregor-on-anthony-albaneses-coming-visit-to-china-213471">visits China</a> later this year he will encounter a nation whose future is about as uncertain as it was 50 years ago when Gough Whitlam became the <a href="https://www.smh.com.au/national/when-gough-whitlam-went-to-beijing-towering-over-all-20230907-p5e2wg.html">first</a> Australian prime minister to visit in late 1973.</p>
<p>Then China was poor, in the process of reengaging the rest of the world after decades of isolation under Communist Party Chairman Mao Zedong. Today it is, on one measure, the <a href="https://www.investopedia.com/insights/worlds-top-economies/">second-biggest</a> economy in the world, one of the top five along with the United States, Japan, Germany and the United Kingdom.</p>
<p>Along the way, it has become by far the biggest customer for Australian exports, accounting for <a href="https://www.dfat.gov.au/sites/default/files/australias-goods-services-by-top-15-partners-2021-22.pdf">30%</a> of everything Australia sells, and Australia’s biggest source of imports, providing 27% of all the goods and services that come into the country.</p>
<p>But like Japan before it (which was Australia’s biggest customer before the rise of China) its economy is at a crossroads.</p>
<p>The similarities between China today and Japan in late 1991 are eerie.</p>
<p>Japan’s phenomenal economic growth had been fuelled by a blend of government investment, cheap labour and export-led growth, alongside something else not given enough credit at the time – continually climbing real estate prices.</p>
<p>When those prices collapsed amid mountains of debt, Japan was thrown into what became known as its <a href="https://www.investopedia.com/articles/economics/08/japan-1990s-credit-crunch-liquidity-trap.asp">lost decade</a>. This was a decade in which the economy barely grew, notwithstanding ultra-low interest rates, rolling into a <a href="https://www.rieti.go.jp/en/publications/rd/003.html">second lost decade</a> in which the economy barely grew, even though interest rates had <a href="https://www.investopedia.com/articles/markets/080716/why-negative-interest-rates-are-still-not-working-japan.asp">turned negative</a>.</p>
<h2>Eerie similarities</h2>
<p>Some of the similarities between China today and Japan in the early 1990s are too uncanny to ignore.</p>
<p><strong>Corporate debt:</strong> China’s rapid growth was accompanied by a surge in debt, both in the corporate sector and among local governments. </p>
<p>Just as Japan struggled with unproductive “<a href="https://www.afr.com/policy/economy/japan-must-start-culling-its-zombie-companies-soon-20230119-p5cdqv">zombie companies</a>” during its crisis, China faces a similar challenge with state-owned enterprises that <a href="https://www.piie.com/blogs/china-economic-watch/china-only-nibbling-problem-zombie-state-owned-enterprises">for the moment</a> continue to operate despite heavy debt burdens, relying on government support.</p>
<p><strong>Unstable financial institutions:</strong> China’s banking sector, like Japan’s in the 1990s, is heavily exposed to non-performing loans. Some of Japan’s banks survived only because of <a href="https://internationalbanker.com/history-of-financial-crises/japans-lost-decade-1992/">taxpayer funded bailouts</a>.</p>
<p><strong>Decelerating economic growth:</strong> from the 1990s to 2010 Chinese annual economic growth was rarely below 10%. It has spent much of the time since COVID <a href="https://tradingeconomics.com/china/gdp-growth-annual">below 5%</a>, raising the prospect of falls toward zero - as experienced by Japan from time to time throughout its lost decades.</p>
<p><strong>Ageing, shrinking populations:</strong> both China’s and Japan’s populations are turning <a href="https://theconversation.com/chinas-population-is-now-inexorably-shrinking-bringing-forward-the-day-the-planets-population-turns-down-198061">down</a>, in China’s case because of limited immigration and the aftermath of the <a href="https://www.scmp.com/economy/china-economy/article/3135510/chinas-one-child-policy-what-was-it-and-what-impact-did-it">one-child policy</a>, and in Japan’s case because of limited immigration and a decline in the birthrate to well below <a href="https://www.weforum.org/agenda/2022/01/japan-global-birth-rate-decline/">replacement level</a>.</p>
<p>In <a href="https://data.worldbank.org/indicator/SP.POP.65UP.TO.ZS?locations=JP">Japan</a>, the proportion of the population aged 65 and above has climbed from 8% to 30% since 1980. In <a href="https://data.worldbank.org/indicator/SP.POP.65UP.TO.ZS?locations=CN">China</a>, the proportion has climbed from 4% to 14%.</p>
<p>In both cases the increasing proportion of aged citizens means a greater stock of savings to be invested, but in both cases much is invested aboard where the returns are often better.</p>
<h2>Different this time? Maybe</h2>
<p>China can learn a lot from Japan’s painful experiences, but putting the lessons into practice won’t be easy. </p>
<p>Just as cross-shareholdings ensured Japan’s bad loans permeated the economy for much longer than they should have, China’s system of enmeshed government and private entities threatens to do the same thing.</p>
<p>The world is watching as China navigates these challenges. It has seen what happened elsewhere.</p>
<hr>
<p><em>Richard Gruppetta, a former diplomat and trade commissioner to Tokyo, assisted with the preparation of this piece.</em></p>
<p><em>Correction: this article originally stated Mao had passed away by the time of Whitlam’s visit, this has been amended.</em></p><img src="https://counter.theconversation.com/content/213539/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tim Harcourt does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Japan’s “lost decades” of near-zero economic growth began when its economy looked eerily similar to China’s today.Tim Harcourt, Industry Professor and Chief Economist, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2134862023-09-13T17:27:30Z2023-09-13T17:27:30ZHow action over parliamentary spying scandal could affect the UK’s economic relationship with China<p>The arrest of a parliamentary researcher on suspicion of spying for China has fuelled calls in Westminster for tougher action against China by the UK government. This could impact the UK economy since China is an important trading partner and industry investor. </p>
<p><a href="https://www.mfa.gov.cn/eng/xwfw_665399/s2510_665401/202309/t20230911_11141145.html#:%7E:text=The%20allegation%20that%20China%20spies%20on%20the%20UK%20is%20entirely%20groundless.">Chinese officials</a> and <a href="https://www.bbc.co.uk/news/uk-politics-66773052">the researcher</a> have both denied the spying claims. But prime minister Rishi Sunak <a href="https://news.sky.com/story/pm-conveys-to-china-significant-concerns-about-interference-in-uk-parliamentary-democracy-no-10-12958311">reportedly ticked off</a> his Chinese counterpart, premier Li Qiang, on the sidelines of the G20 in New Delhi last weekend, accusing China of undermining parliamentary democracy. </p>
<p>Deputy prime minister Oliver Dowden has also said there is a <a href="https://www.bbc.co.uk/news/uk-politics-66780515#:%7E:text=Mr%20Dowden%20said%20there%20was%20a%20%22strong%20case%20to%20be%20made%22%20for%20this">“strong case” for the government</a> to officially designate China as a threat to the UK, but that it was unrealistic to “completely disengage”.</p>
<p>This is an early Christmas present for <a href="https://www.politico.eu/article/not-just-china-spy-scandal-7-flashpoint-britain-uk-tory-hawks/">the hawkish side of the Conservative party</a> which has called for the UK to take a tougher stance on China for several years. A more critical engagement with China is long overdue, but clumsy mitigation policies won’t safeguard the UK’s relationship with China – economic or otherwise.</p>
<p>Leaving aside the political theatrics, little is known yet of the nature of the charges of the two persons arrested in March under the Official Secrets Act over alleged espionage-related offences. One of these people was a parliamentary researcher whose alleged identity was recently published in the media. But China is unlikely to ignore such a slight. </p>
<p>So what could this mean for British firms and the UK economy? A look at trade, investment and broader UK cooperation with China gives a sense of the economic hit the UK might sustain from any action against China.</p>
<h2>What does the UK import from China?</h2>
<p>China is the UK’s <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1178757/china-trade-and-investment-factsheet-2023-08-18.pdf">fourth largest trading partner</a>, accounting for <a href="https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/datasets/uktotaltradeallcountriesseasonallyadjusted">6.1% of total UK trade</a> in goods and services, which was £107.6 billion over the 12 months to the end of March 2023. Of this, the UK exported £38 billion of goods and services to China, but <a href="https://www.gov.uk/government/statistics/trade-and-investment-factsheets-latest-update/latest-trade-and-investment-factsheets-collection">imported £69.5 billion from China</a>. </p>
<p>In other words, the UK imports substantially more from China, meaning it has an overall trade deficit with the Asian country.</p>
<p>This deficit, however, is concentrated in goods rather than services. China is the UK’s second largest source of physical product imports, accounting for 10.4%. But as a destination for exports, it is the UK’s fifth largest export market, taking 6.6% of British goods. </p>
<p>Major UK imports from China include telecoms and sound equipment, office machinery, clothing and cars. The leading UK exports to China include cars, crude oil, pharmaceuticals and scientific instruments. The largest category, unspecified goods (41%), could include products like Scottish salmon, whiskey and luxury clothing from British brands like Burberry.</p>
<h2>How could China squeeze the UK economy?</h2>
<p>Services are a bright spot for UK exports to China. At £9.9 billion, the UK latest annual services exports are three times the value of those China sells to the UK. Especially important are <a href="https://www.china-briefing.com/news/uk-china-trade-and-investment-analysis-2023-updates/#:%7E:text=asset%20management%20powerhouse.-,The%20UK%2DChina%20Strategic%20Plan%20for%20Financial%20Services,-Because%20of%20the">financial services</a> and educational services. More than <a href="https://www.statista.com/statistics/372922/number-of-chinese-students-in-the-united-kingdom/">150,000 Chinese students are studying in the UK</a> right now. </p>
<p>These students directly and indirectly support local economies. Universities and their host towns, cities or areas are typically heavily reliant on student spending in general, not just those from China and other countries.</p>
<p>The recent spying allegations could encourage Chinese government retaliation against the UK comparable to <a href="https://www.china-briefing.com/news/china-australia-bilateral-ties-opportunities-challenges-latest-updates/">action it has taken against Australia</a> in recent years. This included restricting imports, which would hurt and widen the merchandise deficit. Australia <a href="https://www.pm.gov.au/media/press-conference">toughed it out</a>, and China softly wound back its restrictions over the past year. </p>
<p>But UK industries aren’t as heavily dependent on Chinese demand as some of those in Australia such as <a href="https://www.china-briefing.com/news/china-to-lift-restrictions-on-australian-coal-imports/#:%7E:text=The%20significance%20of%20Australian%20coal%20to%20China">coal mining</a>, <a href="https://www.trademinister.gov.au/minister/don-farrell/media-release/statement-reinstatement-barley-exporters-china#:%7E:text=Prior%20to%20the%20imposition%20of,barley%20with%20China%20effectively%20ceased.">barley</a> and <a href="https://www.reuters.com/business/retail-consumer/australian-wine-industry-faces-hangover-chinas-high-tariffs-2023-08-18/#:%7E:text=The%20curbs%20battered%20the%20wine,pandemic%20began%20to%20take%20hold.">wine production</a>. Also, exports of UK services could be less affected by government action because Chinese people’s demand for things like education is so strong government action may not dull this demand.</p>
<p>It’s more difficult to predict the impact of potential government action on foreign direct investment (FDI). This is when companies invest in other countries, often encouraged by subsidies or tax breaks. </p>
<p>The total stock of FDI into the UK in 2021 was <a href="https://commonslibrary.parliament.uk/research-briefings/cbp-8534/#:%7E:text=FDI%20in%20the%20UK&text=The%20value%20of%20foreign%20direct,up%20very%20slightly%20from%202020.">£2 trillion</a>, of which a third comes from the US, while <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1178757/china-trade-and-investment-factsheet-2023-08-18.pdf">China accounts for just 0.3%</a>. But how much investment comes into the UK from China via tax havens and third countries is a big unknown. Total Chinese money invested in firms, real estate and other ventures in the UK could well exceed official accounting.</p>
<p>Brexit has already been a major disincentive for Chinese state and private investors. The electric vehicle maker BYD, now the world’s largest producer, shied away from the UK <a href="https://www.theguardian.com/business/2023/mar/12/china-byd-blames-brexit-as-it-rules-out-uk-for-first-european-car-plant">for that very reason</a>. </p>
<p>If the UK is seen as an increasingly hostile environment for China, it won’t help encourage Chinese FDI. For the more hawkish on China that might seem like a good thing. But this is short sighted. Decoupling from China is neither feasible nor desirable. </p>
<figure class="align-center ">
<img alt="Two speech bubbles filled with British flag and China flag, dark clouds in the background." src="https://images.theconversation.com/files/548069/original/file-20230913-23-e0gdrf.jpg?ixlib=rb-1.1.0&rect=0%2C17%2C5946%2C2901&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/548069/original/file-20230913-23-e0gdrf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=300&fit=crop&dpr=1 600w, https://images.theconversation.com/files/548069/original/file-20230913-23-e0gdrf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=300&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/548069/original/file-20230913-23-e0gdrf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=300&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/548069/original/file-20230913-23-e0gdrf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=377&fit=crop&dpr=1 754w, https://images.theconversation.com/files/548069/original/file-20230913-23-e0gdrf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=377&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/548069/original/file-20230913-23-e0gdrf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=377&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Officials believe the UK and China should keep talking.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/uk-china-brexit-negotiation-talks-3d-1621857976">Ink Drop/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Managing the UK’s relationship with China</h2>
<p>UK foreign secretary James Cleverly subtly captured the problem when <a href="https://www.gov.uk/government/news/foreign-secretary-visits-beijing-to-further-british-interests">he said before a recent visit to China</a> that the challenge was to “manage our relationship with China across a range of issues”, citing climate change, pandemic prevention, economic instability and nuclear proliferation. “China’s size, history, and global significance means they cannot be ignored,” he said, adding that China had to fulfil its international commitments and obligations.</p>
<p>There are very real risks to UK security from China. But addressing this will require a deft hand by policymakers. Continued engagement is needed with China if the UK is to tap into the technological advances it has made in green technologies and other sectors vital to an advanced economy. </p>
<p>China needs to be kept inside the tent. Left outside, it will become so much more difficult to observe, let alone to share in economic developments that might be beneficial for the west. Sensible risk mitigation and collaboration strategies will be much more fruitful for the UK economy than name calling.</p><img src="https://counter.theconversation.com/content/213486/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Morgan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As a key UK trading partner, the government should tread carefully when addressing the very real risks posed by China.Stephen Morgan, Professor of Chinese Economic History (Emeritus), University of NottinghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2125932023-09-13T08:07:31Z2023-09-13T08:07:31ZWhy China’s real estate crisis should make the global travel industry nervous<figure><img src="https://images.theconversation.com/files/547128/original/file-20230908-23-4t57w9.jpg?ixlib=rb-1.1.0&rect=66%2C0%2C10671%2C4464&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The global tourism industry is rebounding – but cautious Chinese consumers are choosing to stay closer to home.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/shanghai-royalty-free-image/859753342">DuKai photographer/Moment/Getty Images</a></span></figcaption></figure><p>Once upon a time – in 2019 – tourists from China were among the best-traveled in the world. They collectively spent <a href="https://www.wsj.com/articles/worlds-biggest-tourism-spenders-arent-travelingand-may-not-for-years-3195de39">more than US$250 billion</a> abroad – nearly twice as much as their nearest competitors, the Americans – and <a href="http://www.xinhuanet.com/english/2020-11/11/c_139509342.htm">logged more than 150 million departures</a> on international flights that year.</p>
<p>The COVID-19 pandemic <a href="https://doi.org/10.1177/13548166211041209">shook the Chinese travel industry</a>, as it did the world’s. But despite the easing of pandemic restrictions – and a <a href="https://www.unwto.org/news/tourism-on-track-for-full-recovery-as-new-data-shows-strong-start-to-2023">global tourism rebound</a> – Chinese tourists have been <a href="https://www.ft.com/content/0d27a68c-7ca0-4069-a401-a5522755d9d1">slow to return</a> to the global skies. The reason, interestingly enough, could be found in the very land and houses Chinese planes fly over.</p>
<p>As <a href="https://scholar.google.com/citations?user=GG5p4TkAAAAJ&hl=en">a professor of marketing</a> who specializes in consumer psychology, I’m interested in how China’s <a href="https://www.nytimes.com/2023/08/20/business/china-property-crisis-country-garden.html">struggling real estate sector</a> is dragging down consumer spending – and having an effect on tourist destinations around the world.</p>
<h2>Real property, real problems</h2>
<p>To understand the issue, first you need to understand China’s current real estate crisis. Just how bad is it? China’s largest developer, Country Garden, lost <a href="https://www.nytimes.com/2023/08/30/business/china-country-garden-share-sell.html">$7.1 billion</a> in the first six months of 2023; investors concerned about <a href="https://www.reuters.com/business/default-dodged-country-gardens-upcoming-debt-payments-stir-worries-2023-09-07/">potential debt default</a> have sent its stock plummeting. </p>
<p>Another major developer, the troubled China Evergrande Group, posted a <a href="https://www.bbc.com/news/business-66636359">$4.5 billion loss</a> over the same period and <a href="https://www.reuters.com/world/china/china-evergrande-files-protection-us-court-part-32-bln-debt-overhaul-2023-08-18/">sought bankruptcy protection</a> in the U.S. last month. It gained international attention in 2021 after it <a href="https://www.cnn.com/2021/12/10/business/evergrande-government-intervention-intl-hnk/index.html">defaulted on $300 billion</a> of debt, sparking the current crisis. </p>
<p><iframe id="mMvLx" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/mMvLx/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>One major – if indirect – reason China’s real estate industry is so shaky is that local governments are <a href="https://www.thepaper.cn/newsDetail_forward_13283501">heavily dependent</a> on tax revenue from land sales, as well as property taxes and real estate development fees. At the same time, about 70% of the general population’s assets are <a href="https://www.sohu.com/a/665428422_121123889">invested in real estate</a>.</p>
<p>Those facts enticed developers and local governments alike to borrow excessively to fund new development. When the central government started to implement <a href="https://pdf.dfcfw.com/pdf/H301_AP202305101586440193_1.pdf">more stringent regulations</a> to curb speculation and control prices, the market predictably cooled – and has kept cooling. In July 2023, new home sales from China’s top 100 developers were down 33% from the previous year. Prices are slumping, too.</p>
<p>This has had a cascade of effects on the Chinese economy. Most immediately, as demand for construction materials and labor has fallen, hiring has cooled and consumers are <a href="https://www.wsj.com/world/china/chinas-economy-shows-fresh-signs-of-weakness-in-factories-consumer-spending-ad46fa8a">tightening their belts</a>. Local governments are also struggling to stay afloat with less revenue, with some provinces being forced to <a href="https://www.voanews.com/a/civil-service-pay-cuts-reflect-china-s-economic-struggles-/7202609.html">slash government salaries and benefits</a>.</p>
<h2>Why staycations suddenly appeal</h2>
<p>The situation is especially challenging for homeowners, who are burdened with shrinking wealth as housing prices fall. This has had a ripple effect on spending, as cautious consumers increasingly prioritize their savings – worsening the economic challenge for businesses across the country.</p>
<p>Unsurprisingly – at least to anyone who’s paid attention to the world economy – what happens in China doesn’t stay in China. And the global tourism industry has been hit particularly hard as newly budget-conscious Chinese homeowners pare back their spending. </p>
<p>As of April 2023, Chinese tourism to Japan <a href="https://www.163.com/dy/article/I5GR1FB40544QVMF.html">was down some 85% since 2019</a>, even though overall visits to Japan had rebounded to 70% of pre-pandemic levels. Chinese tourism to popular European destinations such as France, Switzerland, Greece and Spain <a href="https://www.handelsblatt.com/unternehmen/handel-konsumgueter/reisebranche-europa-wartet-sehnsuechtig-auf-touristen-aus-china/29020102.html">has also fallen sharply</a>. All in all, China’s outbound travel spending is forecast to be <a href="http://travel.china.com.cn/txt/2023-06/05/content_86374824.shtml">down nearly 70%</a> this year from its pre-pandemic peak.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/547612/original/file-20230911-23-ppbxez.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Beneath a sign reading Sal Tours, a man and woman behind a desk show paperwork to a woman in front of the desk." src="https://images.theconversation.com/files/547612/original/file-20230911-23-ppbxez.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/547612/original/file-20230911-23-ppbxez.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/547612/original/file-20230911-23-ppbxez.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/547612/original/file-20230911-23-ppbxez.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/547612/original/file-20230911-23-ppbxez.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/547612/original/file-20230911-23-ppbxez.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/547612/original/file-20230911-23-ppbxez.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A customer discusses overseas travel opportunities with two employees at an agency in Chengdu, China, on Feb. 10, 2023.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/citizen-consults-about-overseas-travel-products-at-a-travel-news-photo/1247045092">Tang Wenhao/Xinhua via Getty Images</a></span>
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</figure>
<p>To be fair, tourism within China is bouncing back – to a degree – as frugal travelers increasingly opt to <a href="https://www.cnbc.com/2023/07/26/china-travel-boom-happen-but-recovery-is-underway.html">vacation closer to home</a>. The China Tourism Academy predicts that domestic tourism will hit <a href="https://www.bloomberg.com/news/articles/2023-07-28/china-s-domestic-tourism-to-hit-90-of-pre-covid-levels-in-2023">90% of pre-pandemic levels</a> in 2023. But that alone won’t offset the impact of lower consumer confidence. Part of the reason is that the amount of money <a href="https://www.reuters.com/world/china/chinas-domestic-travel-recovery-marred-by-anti-spending-special-forces-2023-05-17/">travelers are willing to spend</a> is down.</p>
<p>And faced with demand challenges as well as the effects of COVID-19 and geopolitical strife, Chinese travel agencies have been shuttering en masse in recent years. From January to April 2022, some 8,500 tourism agents and firms <a href="https://finance.sina.com.cn/chanjing/cyxw/2022-05-12/doc-imcwiwst7042907.shtml">declared bankruptcy</a>. Even assuming some reopen, that churn and disruption bode ill for the sector.</p>
<p>Global tourism has faced a challenging few years, with the pandemic and increased fuel costs putting off would-be travelers. With Chinese consumers feeling down in the dumps over the economy and opting for modest vacations, a recovery will be that much harder.</p><img src="https://counter.theconversation.com/content/212593/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Zhiyong Yang does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Big-spending Chinese tourists once buoyed the global travel industry. But with Chinese economy looking a little shaky, more are staying at home.Zhiyong Yang, Professor of Marketing, Miami UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2127772023-09-06T20:13:32Z2023-09-06T20:13:32ZAustralia’s not likely to catch a cold, just a sniffle from China’s economic downturn<p>There are few more <a href="https://www.smh.com.au/business/if-china-sneezes-well-catch-more-than-a-cold-20110501-1e2xp.html">reliable narratives</a> in the business and financial press than, “If China sneezes, Australia will catch a cold”.</p>
<p>Such simple stories are likely part of the explanation why <a href="https://www.australiachinarelations.org/content/utsacribida-poll-2023">polling by the Australia-China Relations Institute</a> finds three-quarters of Australians think our economy is “too reliant on China”. </p>
<p>In the middle of last year, indicators emerged that China’s large, and iron-ore-hungry, property construction sector was struggling. This meant, <a href="https://www.news.com.au/finance/economy/australian-economy/disaster-looming-in-australian-economy-as-iron-ore-demand-falls/news-story/75b7221eacd50e4639b0f076b575b7b4">according to an analysis</a> published by News.com.au, that “disaster loomed” for the local economy. </p>
<p>Late in 2022, there were hopes the Chinese economy more broadly might get a much-needed bounce after Beijing abandoned its harsh COVID-19 lockdown measures.</p>
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Read more:
<a href="https://theconversation.com/australians-feelings-towards-china-are-thawing-but-suspicion-remains-high-lowy-2023-poll-208103">Australians' feelings towards China are thawing but suspicion remains high: Lowy 2023 poll</a>
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<p>But with that recovery beginning to splutter in the second quarter of this year, we are <a href="https://au.finance.yahoo.com/news/the-china-risk-and-how-australia-is-exposed-235704148.html">now again being warned</a> that a recession in China “could easily spark a recession in Australia”.</p>
<p>Last month, Treasurer Jim Chalmers appeared to add his official imprimatur to such assessments, <a href="https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/transcripts/interview-andrew-clennell-sunday-agenda-sky-news-1">calling</a> China’s slowdown one of the “biggest challenges” facing the Australian economy.</p>
<p>He repeated this again on Wednesday when asked on ABC Radio National whether he thought there would be more interest rate rises:</p>
<blockquote>
<p>… We already know that the combination of those two things, China and interest rates, is slowing our economy quite considerably.</p>
</blockquote>
<p>Yet what most reporting and commentary misses is the basic fact there has never been a straightforward, one-to-one relationship between the ups and downs of economic activity in China and those in Australia. </p>
<p>Rarely mentioned amid the current doom and gloom about China’s economy is that in the year to June, Australia’s goods exports there <a href="https://www.abs.gov.au/statistics/economy/international-trade/international-trade-goods-and-services-australia/latest-release">hit a record high</a> of A$192 billion. Since the end of last year, China’s share of Australia’s goods exports has jumped from 30.2% to 39.4%. </p>
<h2>Might the coming year be different?</h2>
<p>Perhaps. But there is little hard evidence suggesting it will be. </p>
<p>Resources giant BHP says the impact on China’s demand for iron ore from weak housing construction <a href="https://www.bloomberg.com/news/articles/2023-08-28/why-iron-ore-remains-so-resilient-despite-china-s-property-woes">is being offset</a> by “solid demand from infrastructure, power machinery, autos and shipping”. Independent commodity analysts <a href="https://www.reuters.com/markets/commodities/chinas-iron-ore-imports-may-hold-up-despite-gloomy-economy-2023-08-15/">concur</a>. </p>
<p>Not surprisingly, then, <a href="https://www.sgx.com/derivatives/products/iron-ore">iron ore future contracts</a> put the price in September next year at more or less the same level as now.</p>
<p>Meanwhile, China’s slowing economy hasn’t stopped massive new areas of trade opening. In the seven months to July, <a href="http://english.customs.gov.cn/">China imported</a> nearly US$10 billion worth of Australian unprocessed lithium. During the same period in 2020, it was just US$327 million. </p>
<p>Post-pandemic, Australia-China services trade is also roaring back.</p>
<h2>Visitor numbers start to climb</h2>
<p>In June, there were 37,330 short-term <a href="https://www.abs.gov.au/statistics/industry/tourism-and-transport/overseas-arrivals-and-departures-australia/latest-release">visitor arrivals from China</a>. That’s still well down on 80,680 in pre-pandemic June 2019, but quadruple the flow before Beijing relaxed its border controls last December. </p>
<p>In July, <a href="https://data.gov.au/data/dataset/student-visas">visa applications</a> from would-be Chinese international students in Australia’s higher education sector stood at 8,379. This exceeded the 7,660 submitted in the same month in 2019.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/chinas-population-is-now-inexorably-shrinking-bringing-forward-the-day-the-planets-population-turns-down-198061">China's population is now inexorably shrinking, bringing forward the day the planet's population turns down</a>
</strong>
</em>
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<p>The present resilience in bilateral trade is not unusual.</p>
<p>China’s growth rate has been grinding down since 2018. Yet between 2018 and 2022, <a href="https://www.dfat.gov.au/trade/trade-and-investment-data-information-and-publications/trade-statistics/trade-time-series-data">Australia’s exports</a> there rose by more than one-third. </p>
<p>Going back even further, China’s growth rate suddenly halved when it was hit by the effects of the Global Financial Crisis. Chinese demand for Australian commodity exports, however, <a href="https://www.rba.gov.au/publications/bulletin/2019/jun/pdf/spillovers-to-australia-from-the-chinese-economy.pdf">surged</a>. </p>
<h2>The perception is not necessarily the reality</h2>
<p>While all this data might appear at odds with common perceptions, it’s <a href="https://www.tandfonline.com/doi/abs/10.1080/17538963.2022.2117180">not news</a> to those who haven’t resorted to lazy analysis. </p>
<p>The University of Western Australia’s Nic Groenewold <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/1467-8454.12121">modelled</a> the effect of a permanent three percentage-point fall in Chinese GDP growth. He found this would reduce Australia’s GDP growth rate by between 0.15 and 0.57 percentage points depending on the time frame, summarising that: </p>
<blockquote>
<p>While not trivial, given Australia’s current growth rate, these estimates are hardly enough to justify prophecies of doom.</p>
</blockquote>
<p>Using a different modelling technique, the Reserve Bank of Australia <a href="https://www.rba.gov.au/publications/bulletin/2019/jun/spillovers-to-australia-from-the-chinese-economy.html">estimated</a> the implications of a sudden four percentage-point fall in Chinese growth.</p>
<p>In the most plausible scenario, it found greater short-run effects, albeit still unlikely to be recession-inducing. And after three years, Australia’s GDP was just 0.3% lower than if the shock had not occurred.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/chinas-demand-for-coal-is-set-to-drop-fast-australia-should-take-note-181552">China's demand for coal is set to drop fast. Australia should take note</a>
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<hr>
<p>Aside from bilateral trade resilience, there are other factors that limit spillovers from China to Australia too. </p>
<p>An economic slump in the United States spills over to hurt Australia mostly via investment connections. In 2022, <a href="https://www.abs.gov.au/statistics/economy/international-trade/international-investment-position-australia-supplementary-statistics/latest-release#level-of-investment">Australia’s stock of investment</a> in the US stood at A$1.1 trillion. This channel is much weaker in the case of China, where Australia’s investment stock is only $62.5 billion. </p>
<h2>Australia’s safety net</h2>
<p>The Australian economy also has inbuilt “automatic stabilisers”. If there ever was a collapse in Chinese demand for Australian iron ore, the Australian dollar would immediately depreciate, improving export competitiveness across the board.</p>
<p>There would still be some painful costs, of course, such as households having to pay more for imported goods, and <a href="https://budget.gov.au/content/bp1/download/bp1_bs-8.pdf">government revenues</a> taking a hit. </p>
<p>Finally, some perspective is in order. It’s certainly true that China is, by far, Australia’s most important export market. Still, the value of these exports amount to around 7.5% of GDP. Compare that with <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/mar-2023">domestic sources of demand</a> such as household consumption that stand at 50% of GDP. </p>
<p>The key takeaway? If China sneezes, whatever the headlines might blare, don’t be surprised if Australia only gets a mild case of the sniffles.</p><img src="https://counter.theconversation.com/content/212777/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>James Laurenceson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There are several good reasons why fears that a recession in China could spark a recession in Australia need to be kept in perspective.James Laurenceson, Director and Professor, Australia-China Relations Institute (ACRI), University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1932432023-05-09T15:28:22Z2023-05-09T15:28:22ZHow China makes economic plans: key moments explained<p>A meeting of some of China’s most senior politicians at the end of April 2023 concluded with a <a href="https://www.msn.com/en-xl/money/markets/china-s-politburo-meeting-says-demand-growth-key-to-durable-economic-recovery/ar-AA1at3ep">fairly cautious assessment</a> of the country’s economic recovery. Things are improving, they said, but domestic demand needs to improve. </p>
<p>The meeting in Beijing, headed by President Xi Jinping, was a review of China’s first-quarter economic performance and set the tone for how the Communist Party will respond. On this occasion, the <a href="https://www.cnbc.com/2023/04/28/chinas-top-leaders-say-the-economy-doesnt-have-enough-internal-drive.html">key message</a> was the need for a return to pro-growth policies. </p>
<p>Those policies, which will have enormous impact across the world, will be worked out over the coming months and years in a political system which can appear fairly bewildering to outsiders. </p>
<p>But there is a fixed structure in place, with key moments when China makes plans for its – and in effect the world’s – economic and political future. Here is a brief guide to some of the most important recurring events in China’s decision-making calendar.</p>
<h2>Two sessions</h2>
<p>The national legislature of China (around 3,000 delegates) meets for two weeks every March at the “two sessions”. A progress report of sorts, the two sessions often indicate the planned direction of Chinese policy. </p>
<p>For instance, after the 2019 event, <a href="https://www.chinadaily.com.cn/a/201903/20/WS5c91f568a3104842260b1a23.html">I wrote</a> about how the two sessions revealed China’s desire to improve its level of innovation. This involved <a href="https://sloanreview.mit.edu/article/understanding-chinas-next-wave-of-innovation/">major investment in research</a> and development capability, a focus on modernising traditional industries through internet platforms, and becoming a major international player in artificial intelligence. </p>
<p>In 2023, the two sessions’ headline moment was the official declaration of President Xi Jinping’s <a href="https://edition.cnn.com/2023/03/14/china/china-two-sessions-takeaway-intl-hnk/index.html">third term</a> as general secretary of the Chinese Communist Party. It was a historic moment, but entirely expected, as the move had already been agreed at the party’s congress last October. </p>
<p>The current Chinese policy focus on investing in technology and the urgent vying for microchip independence were both hinted at during two sessions events.</p>
<h2>Study sessions of the politburo</h2>
<p>The “politburo” is the name given to the top tier of the Communist Party’s “central committee”, and meets frequently to decide on relatively short term, day-to-day affairs. Its top ranking seven members also hold monthly meetings known as “study sessions”, where they learn from experts about subjects considered to be of strategic importance. </p>
<p>Afterwards the leaders publicly outline related policy preferences and priorities. For example, after years of studying new technologies to drive industrial policies and <a href="https://mitpress.mit.edu/9780262547895/pioneers-hidden-champions-changemakers-and-underdogs/">encourage investment</a>, during one 2018 study session the focus turned to developing a new generation of artificial intelligence. </p>
<figure class="align-center ">
<img alt="AI graphic linking brain illustration to various industries." src="https://images.theconversation.com/files/524585/original/file-20230505-29-epn7ao.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/524585/original/file-20230505-29-epn7ao.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/524585/original/file-20230505-29-epn7ao.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/524585/original/file-20230505-29-epn7ao.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/524585/original/file-20230505-29-epn7ao.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/524585/original/file-20230505-29-epn7ao.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/524585/original/file-20230505-29-epn7ao.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">AI investment is a priority.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/ai-concept-artificial-intelligence-various-industries-683800897">metamorworks/Shuttterstock</a></span>
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<p>This led to a marked increase in government investment and a <a href="https://medium.com/geekculture/chinese-computer-vision-startups-riding-the-auto-wave-27cc536d997d">boom for companies</a> such as Sensetime, Hikvision and Dahua.</p>
<h2>The plenums</h2>
<p>Another key feature of the Chinese political calendar are the “plenums”, which follow the Chinese Communist Party congress. Seven plenary sessions, attended by a few hundred senior party officials, are convened over the five year period between each congress and are designed to establish a unified vision for China. </p>
<p>At one of the 2020 plenums, the perceived inequity of education was addressed. Later that year, a plan was proposed which <a href="https://www.reuters.com/world/china/exclusive-china-unveil-tough-new-rules-private-tutoring-sector-sources-2021-06-16/">essentially banned</a> the private after school tutoring sector. This had global consequences, as almost overnight a whole sector of the economy, worth an <a href="https://www.theguardian.com/world/2021/aug/03/chinas-crackdown-on-tutoring-leaves-parents-with-new-problems">estimated US$150 billion</a> (£108 billion), and involving many tech companies providing software for tutoring millions of Chinese children, was wiped out. </p>
<p>Of particular interest is the third plenum, roughly two years in, which typically introduces the new leadership’s economic and political goals. Perhaps the most notable third plenum <a href="https://blogs.worldbank.org/eastasiapacific/reflections-on-forty-years-of-china-reforms">took place in 1993</a>, kicking off China’s successful transition into a market driven economy.</p>
<p>The third plenary session of 2018 set the stage for <a href="https://link.springer.com/chapter/10.1007/978-981-16-8356-5_2">increased cybersecurity</a> measures, which were further strengthened in 2022, and again <a href="https://wsj.com/articles/china-locks-information-on-the-country-inside-a-black-box-9c039928">in April 2023</a>. After each plenum, certain directions (normally formulated in ambiguous terms) go to the various government ministries. But before that happens, an important commission enters the stage. </p>
<h2>The central financial and economic affairs commission</h2>
<p>This leads the design of policy directives, before they are implemented as policies. The commission, which is chaired by President Xi and meets two or three times a year, represents the highest level of discussion on economic issues. </p>
<p>In April 2022, for example, the commission called for <a href="https://www.bloomberg.com/news/features/2022-08-25/how-china-will-spend-1-trillion-on-infrastructure-to-boost-economy">stronger investment in infrastructure</a> to beef up the economy. Key projects included new energy production, new water systems and large scale transportation projects. </p>
<p>All of these will be expected to happen on Xi’s watch as he looks ahead to many more years leading China. But challenges abound. </p>
<p>A maturing economy after decades of high growth brings friction, as does the increasingly dominant and visible role that China is taking on the world stage. How Xi deals with these issues in the various decision-making gatherings his party stages will be carefully observed by politicians, business leaders and citizens across the world.</p><img src="https://counter.theconversation.com/content/193243/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Greeven does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The decision-making process can be difficult to follow.Mark Greeven, Professor of Innovation and Strategy, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2023232023-03-22T16:46:24Z2023-03-22T16:46:24ZThe view from Moscow and Beijing: What peace in Ukraine and a post-conflict world look like to Xi and Putin<figure><img src="https://images.theconversation.com/files/516998/original/file-20230322-20-cdc6b4.jpg?ixlib=rb-1.1.0&rect=43%2C847%2C7200%2C4083&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Opening the doors to Russia and China's perception.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/chinese-president-xi-jinping-arrives-at-the-grand-kremlin-news-photo/1248945771?adppopup=true">Getty Images</a></span></figcaption></figure><p>Just a few days after being <a href="https://theconversation.com/why-the-international-criminal-courts-indictment-of-putin-has-symbolic-importance-202111">branded a war criminal</a> in an international arrest warrant, Russian President Vladimir Putin was talking peace with his most important ally, Chinese president Xi Jinping.</p>
<p>The setting <a href="https://apnews.com/article/xi-putin-russia-china-summit-06b296bc6b1c0c73634ed6329d9d2015">for the get-together</a> was the late-15th-century Faceted Chamber, the ornate throne room of Muscovite grand princes and czars. The main topics of discussion were fittingly grandiose: How should hostilities in Ukraine end? And after the war is over, how should the international security system be reshaped?</p>
<p>The reaction of many in the West to the proposals put forward by China and discussed with Russia has been notably suspicious of intentions. U.S. Secretary of State Antony Blinken <a href="https://www.c-span.org/video/?c5062702/secretary-blinken-chinese-president-xi-visit-moscow">warned the world</a> not to be “fooled by any tactical move by Russia, supported by China … to freeze the war on its own terms.”</p>
<p>Such sentiment is understandable. Putin launched a <a href="https://theconversation.com/why-did-russia-invade-ukraine-178512">brutal, unprovoked war</a> in Ukraine. Amid the heightened emotional environment of <a href="https://www.reuters.com/world/europe/pro-ukraine-group-sabotaged-pipelines-intelligence-suggests-nyt-2023-03-08/">missile attacks on civilians</a>, horrific atrocities against ordinary citizens and <a href="https://www.bbc.com/news/world-europe-64985009">deportation of children from Ukraine</a>, even a cool evaluation of ways to end the fighting, declare a cease-fire, and begin talks by the belligerents has led to <a href="https://www.atlanticcouncil.org/blogs/ukrainealert/western-advocates-of-appeasement-need-a-crash-course-in-putinology/">accusations of appeasement</a>. And the <a href="https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/202302/t20230224_11030713.html">peace plan</a> put forward by China on Feb. 24, 2023, and discussed with Putin during a March 20-22 meeting in Moscow has been criticized as overly vague and lacking concrete suggestions. </p>
<p>In such circumstances, it can be difficult to consider what the interest of the other side might actually be in bringing the killing to an end, and their sincerity of any purported efforts to do so.</p>
<p>But as <a href="https://lsa.umich.edu/history/people/emeritus/rgsuny.html">a historian</a>, I ask, what does the world look like from the other side? How has the run-up to the war and the war itself been understood by Russia and China? And what do Xi and Putin envision a post-conflict world to look like?</p>
<h2>Playing by the rules – but whose?</h2>
<p>The rulers of both Russia and China see the West-dominated “<a href="http://atlanticcouncil.org/content-series/atlantic-council-strategy-paper-series/strategic-context-the-rules-based-international-system/">rules-based international order</a>” – a system that has dominated geopolitics since the end of the Second World War – as designed to uphold the global hegemony of the United States.</p>
<figure class="align-center ">
<img alt="Two men are seen in the background flanked by giant China and Russian flags. Chandeliers hang overhead." src="https://images.theconversation.com/files/517018/original/file-20230322-399-vhvyus.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/517018/original/file-20230322-399-vhvyus.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=394&fit=crop&dpr=1 600w, https://images.theconversation.com/files/517018/original/file-20230322-399-vhvyus.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=394&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/517018/original/file-20230322-399-vhvyus.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=394&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/517018/original/file-20230322-399-vhvyus.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=495&fit=crop&dpr=1 754w, https://images.theconversation.com/files/517018/original/file-20230322-399-vhvyus.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=495&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/517018/original/file-20230322-399-vhvyus.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=495&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Russian President Vladimir Putin meets with China’s President Xi Jinping at the Kremlin.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/russian-president-vladimir-putin-meets-with-chinas-news-photo/1248940335?adppopup=true">Pavel Byrkin/Sputnik/AFP via Getty Images)</a></span>
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<p>The two men’s stated preference is for <a href="https://www.brookings.edu/blog/order-from-chaos/2021/04/19/it-is-now-time-to-focus-on-multilateral-order/">a multilateral system</a>, one which would most probably result in a number of regional hegemons. This would include, to be sure, China and Russia holding sway in their own neighborhoods.</p>
<p>Xi put the <a href="https://english.news.cn/20230320/208baba76dc14ed78d308bfa32b9d4e2/c.html">matter rather gently</a> during his Moscow trip: “The international community has recognized that no country is superior to others, no model of governance is universal, and no single country should dictate the international order. The common interest of all humankind is in a world that is united and peaceful, rather than divided and volatile.”</p>
<p>Reflecting his more street tough style, Putin <a href="http://en.kremlin.ru/events/president/transcripts/70743">was more blunt</a>. Russia and China “have consistently advocated the shaping of a more just multipolar world order based on international law rather than certain ‘rules’ serving the needs of the ‘golden billion,’” he said, <a href="https://www.npr.org/2022/11/21/1134445639/russia-putin-conspiracy-theory-golden-billion">referencing a theory</a> that holds that the billion people in the richest countries of the world consume the greatest portion of the world’s resources.</p>
<p>Continuing in this vein, Putin said the “crisis in Ukraine” was an example of the West trying to “retain its international dominance and preserve the unipolar world order” while splitting “the common Eurasian space into a network of ‘exclusive clubs’ and military blocs that would serve to contain our countries’ development and harm their interests.”</p>
<h2>China as peacemaker?</h2>
<p>Beijing appears intent to play the role of negotiator-in-chief in this transition to a multipolar world order.</p>
<p>After its success shouldering aside the United States and <a href="https://www.foxnews.com/world/us-left-out-china-iran-on-top-latest-deal-saudi-arabia-sign-times">brokering a rapprochement</a> between Iran and Saudi Arabia, China has turned its attention to Ukraine.</p>
<p>With its <a href="https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/202302/t20230224_11030713.html">peace proposal on Ukraine</a>, China has deftly established certain principles to which other nations would eagerly subscribe. </p>
<p>“The sovereignty, independence and territorial integrity of all countries must be effectively upheld. All countries, big or small, strong or weak, rich or poor, are equal members of the international community,” holds the first principle in language that would be hard to object to.</p>
<p>But those anodyne sentences point in two directions at once. Upholding sovereignty appears, at first, to be <a href="https://theconversation.com/ukraine-war-has-exposed-the-folly-and-unintended-consequences-of-armed-missionaries-197609">aimed at Russia a year after</a> it had so clearly violated the sovereignty of neighboring Ukraine. But the principle also can be read to include the <a href="https://theconversation.com/us/topics/taiwan-china-relations-80761">conflict over Taiwan</a>, which is recognized by Beijing and some other states as a part of China. It is perhaps no accident that the plan’s wording comes as the U.S., which officially recognizes the position that Taiwan and mainland China are one country, has toughened its stance, vowing to <a href="https://theconversation.com/biden-again-indicates-that-us-will-defend-taiwan-militarily-does-this-constitute-a-change-in-policy-190946">defend the island</a> should it be invaded.
To Beijing, the United States appears intent on turning a rival, China, into an enemy.</p>
<p>Nations, China asserts, have the right to enhance their security but not at the expense of others. This principle echoes directly one of Putin’s most frequently expressed reasons for the conflict with Ukraine: the <a href="https://theconversation.com/the-ukraine-conflict-is-a-war-of-narratives-and-putins-is-crumbling-192811">expansion of NATO into Eastern Europe</a> and the alliance’s promise to expand further by <a href="https://www.nato.int/cps/en/natolive/official_texts_8443.htm">admitting Georgia and Ukraine</a>. In Putin’s view, such NATO encroachment is an existential threat to Russia’s security interests.</p>
<p>But the <a href="https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/202302/t20230224_11030713.html">Chinese plan also</a> rejects Putin’s <a href="https://www.state.gov/secretary-antony-j-blinken-on-the-2022-country-reports-on-human-rights-practices/?utm_campaign=wp_the_daily_202&utm_medium=email&utm_source=newsletter&wpisrc=nl_daily202">nuclear saber-rattling</a>: “The threat or use of nuclear weapons should be opposed.” </p>
<p>Meanwhile, the Chinese strongly insist on the need for an immediate cease-fire and the start of negotiations, a call that Washington <a href="https://www.washingtonexaminer.com/policy/defense-national-security/blinken-xi-putin-diplomatic-cover-russia-war-crimes">vehemently rejected as a concession</a> that amounted to “diplomatic cover for Russia to continue to commit” war crimes. </p>
<h2>What will Russia settle for?</h2>
<p>Russia’s aims in the Ukraine war are simple enough to dissect, though they have been reduced after the <a href="https://abcnews.go.com/International/russia-ukraine-war-ukraines-surprising-resistance-rise-wartime/story?id=97255342">effective Ukrainian resistance</a> to the initial invasion. </p>
<p>Instead of taking over all of Ukraine, and perhaps setting up a puppet government, Moscow has been forced to accept limited territorial gains in the Donbas and the coastal crescent linking both the region and Russia with Crimea. Reduced though they are, such Russian goals are completely unacceptable to Ukraine and to the Western alliance – and, indeed, to all countries that accept that principle that international borders cannot be legitimately changed unilaterally by military force.</p>
<p>Although not clearly spelled out, this principle is even contained in the very first sentence of the <a href="https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/202302/t20230224_11030713.html">Chinese peace plan</a>: “Universally recognized international law, including the purposes and principles of the United Nations Charter, must be strictly observed.”</p>
<p>That notwithstanding, <a href="https://www.theguardian.com/world/2023/mar/21/putin-welcomes-chinas-controversial-proposals-for-peace-in-ukraine">Putin has welcomed</a> the intervention of China and the plan in general terms.</p>
<h2>Rival global ambitions</h2>
<p>So what’s in this for Beijing, given that to many, the peace plan is already a non-starter?</p>
<p>The conflict in Ukraine is not only devastating to the two belligerents involved, but <a href="https://theconversation.com/ukraine-war-has-exposed-the-folly-and-unintended-consequences-of-armed-missionaries-197609">destabilizing for states</a> around the world. In the short run, China may be benefiting from the war because it consumes attention and <a href="https://www.defense.gov/News/News-Stories/Article/Article/3318508/us-sends-ukraine-400-million-in-military-equipment/">armaments from the West</a> and diverts its gaze from East Asia. The U.S. “<a href="https://www.brookings.edu/articles/the-american-pivot-to-asia/">pivot to the east</a>” – a planned refocusing from the Obama administration onward aimed at countering the perceived threat of China – has stalled.</p>
<p>But there is an argument that Xi is most concerned with China’s renewal of economic development, which would rely on less confrontational relations with Europe and the United States. Stability, both domestically and internationally, works to China’s economic advantage as a major producer and exporter of industrial goods. And Beijing is mindful that a <a href="https://www.cnn.com/2023/03/06/economy/china-two-sessions-lowest-gdp-target-analysis-intl-hnk/index.html">slump in foreign demand and investment</a> is hitting the country’s economic prospects.</p>
<p>As such, Beijing’s new role as peacemaker – whether in the Middle East or Eastern Europe – may indeed be sincere. Further, Xi may be the only person on the globe able to persuade Putin to think seriously about a way out of war.</p>
<p>Standing in the way of peace, however, is not only the current intransigence of Russia and Ukraine. The United States’ long-held foreign policy aim of maintaining its “<a href="https://foreignpolicy.com/2014/11/06/the-myth-of-the-indispensable-nation/">indispensable nation</a>” status runs counter to Russia and China’s ambition to end American global dominance.</p>
<p>It presents two, seemingly insurmountable, rival ambitions.</p>
<p><em>Editor’s note: This article was amended on Mar. 24, 2023 to clarify the U.S.’s position on the “One China” policy.</em></p><img src="https://counter.theconversation.com/content/202323/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ronald Suny does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The setting was grand, so too was the plan. But behind the peace plan put forward by China and welcomed by Russia, is the question, what do both nations seek?Ronald Suny, Professor of History and Political Science, University of MichiganLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1946742023-01-11T06:12:35Z2023-01-11T06:12:35ZChina: the rise of gen Z will have massive consequences for business and politics<figure><img src="https://images.theconversation.com/files/503397/original/file-20230106-6872-bvp86r.png?ixlib=rb-1.1.0&rect=0%2C2%2C1592%2C1020&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">All the rage: bunny balaclavas from fashion chain Ambush to help Chinese youth celebrate the Year of the Rabbit.</span> <span class="attribution"><span class="source">Ambush</span></span></figcaption></figure><p>As China prepares to celebrate new year on January 22, luxury brands are gearing up for the year of the rabbit with an <a href="https://www.thetimes.co.uk/article/brands-cash-in-on-the-year-of-the-rabbit-to-lure-chinese-consumers-8fz0r2bnt">array of luxury rabbit-themed goods</a>: a £29,000 gold and diamond-encrusted rabbit watch by Dior, perhaps, or an £850 floppy-eared hat from Burberry. Japanese streetwear brand Ambush has reportedly sold out of its £380 pink bunny balaclavas.</p>
<p>The target market? China’s 400 million-strong army of young consumers, who have the power to make or break foreign brands seeking their fortune in China.</p>
<p>Like their western peers, China’s “gen Z” consumers are avid users of social media, but that is where the similarities end. This generation has grown up during China’s rapid economic development in the 2000s and 2010s, which is a marked contrast to their peers in the west, who came of age in the shadow of the 2008 financial crisis. As a result, they have been characterised as being more confident and better educated than previous generations.</p>
<p>Another notable characteristic of this generation has been its size, being one of the largest generations since the baby boomers in Europe and North America. The parallels between the two have been readily apparent with both enjoying significant cultural, economic and political influence, with China’s gen Z <a href="https://www.afr.com/markets/equity-markets/the-next-baby-boomers-are-china-s-millennials-20210621-p582qf">being labelled</a> as the next “baby boomers”.</p>
<p>As a result, China’s young adults are well placed to influence future decisions, which will be based on their world view. Questions about how they will use their influence have <a href="https://www.mckinsey.com/cn/our-insights/our-insights/chinas-gen-z-are-coming-of-age-heres-what-marketers-need-to-know">already been asked</a> – and the answer can be seen in their habits as consumers.</p>
<h2>China chic</h2>
<p>One of the most notable signs of this has been in the rise of <em>guochao</em> (国潮), roughly translated as “national wave”. Brands from this movement have sought to combine Chinese traditions with modern designs. This emerged from Li Ning’s Wu Dao collection, showcased at New York’s Fashion Week <a href="https://www.chinastory.cn/PCywdbk/chinastory/wap/en/detail/20190906/1012700000042741567732893478802390_1.html">in 2018</a>. Li’s Taoist-inspired designs have marked a wider trend for Chinese consumers to embrace domestic brands.</p>
<p><em>Guochao</em>’s success has been illustrative of several developments within China. Firstly, it shows how consumer habits have changed, with more younger consumers wanting to see their culture incorporated into consumer goods, favouring local brands over foreign ones. </p>
<p>This reflects a different view of Chinese identity among gen Z and millennials for whom China has always been a strong nation that rivals the western world. <em>Guochao</em>’s efforts to redefine the meaning of “Made in China” strikes a chord as it aims to move away from its association with cheap, poor-quality products that were the hallmark of the early days of China’s development.</p>
<p>As a result, the consumer habits of younger Chinese have not only shaped China’s perceived identity but has presented a notable challenge for foreign brands.</p>
<p>Another development that has illustrated the influence of younger Chinese consumers has been the popularity of traditional clothing, most notably the traditional long sleeved robe, the <em>hanfu</em> (汉服). The market for the costume has grown significantly and is expected to be worth <a href="https://www.scmp.com/news/people-culture/trending-china/article/3190171/cultural-power-not-suit-and-tie-hanfu">US$1.85 billion (£1.54 billion)</a> in 2022. </p>
<p>As with <em>guochao</em>, <em>hanfu</em> fever has also been driven by younger consumers, with TV period dramas and social media platforms playing a notable role in popularising the costume. This was demonstrated by how <em>hanfu</em>-related content has been viewed 47.7 million times on Douyin (Tik Tok). Young Chinese consumers have popularised a costume that had once been the preserve of a small number of enthusiasts.</p>
<p>In keeping with <em>guochao</em>, the popularity of the <em>hanfu</em> has also been illustrative of a wider effort to redefine China’s identity by tapping into vintage tropes. This has been typical of newly affluent and confident societies which seek to reshape their identity into one that is in keeping with their perceived status – most notably South Korea at the height of its cultural influence and Japan during its long postwar economic boom. </p>
<h2>A tougher customer</h2>
<p>The most obvious challenge posed by young Chinese consumers has been in how they favour domestic brands over foreign ones. This has often been interpreted as a form of “consumer nationalism”, most notably in the <a href="https://www.bbc.com/news/business-57606588">boycotts against Nike and Adidas</a> in 2021 over their decision not to use cotton from Xinjiang province. The fact that neither brand has fully recovered its position in the Chinese market illustrates the potency of this.</p>
<p>Coincidentally, it was this backlash that would see Chinese brands such as Anta and Li Ning Co <a href="https://www.bloomberg.com/graphics/2022-china-nationalistic-online-shoppers/">outpace their western rivals</a>) for the first time since their entry to the Chinese market. In this way, shopping has become another outpost of politics.</p>
<p>This consumer nationalism is a reflection of a broader disenchantment among young people with the west, revealed in the way many have begun to perceive nations – most notably the US – as foes. Such a change was <a href="https://academic.oup.com/cjip/article/15/1/27/6548121">noted by a 2022 study</a> from the University of Oxford, which found that Chinese people born after 1990 are more likely to hold negative views of the US. </p>
<p>It’s important to note that rather than being the result of top-down anti-western state propaganda, this antipathy is largely driven by western anti-China sentiment as promulgated, for example, by former president Donald Trump during his term of office.</p>
<p>This is likely to place greater pressure on the Chinese Communist Party (CCP) to take a more assertive stance towards the west. And a future politburo made up of millennials and gen Z may also result in a more confrontational China. In both business and politics, foreign concepts – be they fashion items or western-style democracy – no longer have the same appeal that they enjoyed with previous generations.</p><img src="https://counter.theconversation.com/content/194674/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tom Harper does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>For China’s new youth generation, shopping has become an outpost of politics.Tom Harper, Lecturer in International Relations, University of East LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1957522022-12-02T13:35:53Z2022-12-02T13:35:53ZHow China’s response to zero-COVID protests could affect global business<p>The recent protests in China against the country’s zero-COVID policy have been unprecedented in their scale, intensity and distribution. Protestors numbering in the thousands were <a href="https://www.economist.com/graphic-detail/2022/11/16/how-common-are-protests-in-china">reported</a> in dozens of cities. Not since <a href="https://www.bbc.co.uk/news/world-asia-48445934">1989’s Tiananmen Square protests</a> has there been such widespread civil disobedience.</p>
<p>The protests do not signify the imminent collapse of the Chinese Communist Party regime, but they are a big challenge to the authority of the party’s general secretary Xi Jinping, the president of China. They also have far-reaching implications for China’s domestic economy and society, as well as for international firms and the global economy.</p>
<p>International reaction to the protests was a mix of awe at the scale and <a href="https://www.theguardian.com/world/2022/nov/28/clashes-in-shanghai-as-protests-over-zero-covid-policy-grip-china#:%7E:text=Chinese%20stocks%20fell%20sharply">fear about the consequences</a>. But there was also hope that <a href="https://uk.finance.yahoo.com/news/oil-prices-slide-concerns-over-014448364.html">COVID controls might be loosened further</a>, reopening China and unblocking recent global supply chain bottlenecks.</p>
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Read more:
<a href="https://theconversation.com/shanghai-worlds-biggest-port-is-returning-to-normal-but-supply-chains-will-get-worse-before-they-get-better-182720">Shanghai: world's biggest port is returning to normal, but supply chains will get worse before they get better</a>
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<p>World stock markets <a href="https://www.cnbc.com/2022/11/28/china-covid-protests-send-global-stocks-lower-as-strategists-see-disruption-persisting.html">dived initially</a> on the Monday following the first weekend of protests on November 26 and 27. By Tuesday, a massive police presence at protest sites and early arrests of protestors led to a <a href="https://www.reuters.com/breakingviews/china-investors-desperately-seek-market-bottom-2022-11-02/">market rebound</a> as foreign investors poured back into Chinese markets.</p>
<p>Investors now appear to have discounted further protests and are <a href="https://www.ft.com/content/78a9ce92-286d-4b1c-852e-750d68e7768e?desktop=true&segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8#myft:notification:daily-email:content">reportedly optimistic</a> that Beijing will be forced to change course and open up the economy again. There have already been signs of a <a href="https://www.bbc.co.uk/news/world-asia-china-63805188">loosening of controls</a>, with vice-premier Sun Chunalan quoted as saying the current virus iteration is less virulent. However, enthusiastic investors risk ignoring the long-term challenges of China’s current political culture, domestic economy and outlook for international business.</p>
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<img alt="President of the People's Republic of China, Xi Jinping during the G20 summit in Hangzhou, China" src="https://images.theconversation.com/files/498561/original/file-20221201-20-1hg0bx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/498561/original/file-20221201-20-1hg0bx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/498561/original/file-20221201-20-1hg0bx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/498561/original/file-20221201-20-1hg0bx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/498561/original/file-20221201-20-1hg0bx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/498561/original/file-20221201-20-1hg0bx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/498561/original/file-20221201-20-1hg0bx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">President of China, Xi Jinping.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hangzhou-china-09052016-president-peoples-republic-1376982239">Gil Corzo / Shutterstock</a></span>
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<h2>Shifting Chinese policy</h2>
<p>At the heart of contemporary political culture in China is regime survival. Xi wants China to be rich and powerful, but believes controlling domestic politics and addressing geopolitical challenges matters most. The economy comes second to security, a view Xi has expressed many times and <a href="https://www.fmprc.gov.cn/eng/zxxx_662805/202210/t20221025_10791908.html">reiterated at the Party Congress</a> in October. International investors need to realise this because China’s domestic economy and politics affect international firms involved with the country, as well as global markets.</p>
<p>So it’s important for investors and businesses to note that China is not prepared for a surge in COVID infections. Only two-thirds of the over-60s have had a third booster vaccination, although the government wants to <a href="https://www.reuters.com/world/china/china-ramp-up-covid-vaccinations-elderly-2022-11-29/">increase this</a>. But opening the economy again could bring a <a href="https://www.ft.com/content/9b81b9f0-e13d-4b0a-8bdf-91c97c7d61e7">massive increase in deaths</a> because of China’s fragile health system, <a href="https://www.researchgate.net/publication/338520008_Critical_Care_Bed_Capacity_in_Asian_Countries_and_Regions">insufficient ICU beds</a> and low natural immunity.</p>
<p>Any economic growth from the lifting of COVID controls is also likely to be short-lived for China. The domestic economy is floundering. Growth has been anaemic since 2020, after discounting initial bounces from periodic loosening. GDP <a href="http://www.stats.gov.cn/english/PressRelease/202210/t20221025_1889685.html">grew just 3%</a> for the first three quarters of 2022 and will miss the government’s target of 5.5%.</p>
<p>House prices and investment have also been on a slide. Apartment prices have been flat or negative for most of the 70 largest cities in China since 2020 – both for <a href="http://www.stats.gov.cn/english/PressRelease/202211/t20221116_1890350.html">new builds</a> and <a href="http://www.stats.gov.cn/english/PressRelease/202211/t20221116_1890352.html">resales</a>. Investment in residential floor space is down 38.5% for the year to October. Property sector woes have squeezed the revenues of local government, which bears the costs of Beijing’s dictates to control virus outbreaks. </p>
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Read more:
<a href="https://theconversation.com/china-property-crisis-why-the-housing-market-is-collapsing-and-the-risks-to-the-wider-economy-189082">China property crisis: why the housing market is collapsing – and the risks to the wider economy</a>
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<p>Meanwhile, for the first ten months of 2022, <a href="http://www.stats.gov.cn/english/PressRelease/202211/t20221116_1890351.html">consumer retail sales</a> were down 0.5% and sales of food services were down 8.1% – although that is better than the 23% year-on-year fall during the spring 2020 lockdowns in Shanghai, Sichuan and Guangdong. And the <a href="http://www.stats.gov.cn/english/PressRelease/202211/t20221101_1889909.html">Purchasing Managers’ Index</a> (which gives an idea of how positive the manufacturing and services industries are feeling) declined in October to 49.2 and has been below 50 for six of the first ten months this year. Any number less than 50 indicates the economy is contracting.</p>
<h2>China’s global role</h2>
<p>Internationally, China’s role as the motor of the global economy could diminish. The continuing slowing of the Chinese economy – whether COVID controls are lifted or not – and Beijing’s prioritising of security over the economy will push international firms to act. </p>
<p>While many firms have already relocated, others have stayed – such as Apple, which gets much of its <a href="https://www.ft.com/content/e917d76a-62af-4cfc-95d1-aec67cde4e84">new iPhone Pro stock</a> from the large Foxconn-owned plant in Zhengzhou. This plant was the scene of battles between police and workers in November protesting COVID controls and <a href="https://www.reuters.com/technology/foxconn-covid-woes-may-hit-up-30-iphone-nov-shipments-zhengzhou-plant-source-2022-10-31/">lack of benefits</a>. Apple’s share price has held up remarkably well this year, as have those of major carmakers, but all are heavily dependent on China as a market and manufacturing base.</p>
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<img alt="Head and shoulders shot of UK prime minister Rishi Sunak at an event in Cardiff, Wales in August 2022." src="https://images.theconversation.com/files/498560/original/file-20221201-6191-b952h6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/498560/original/file-20221201-6191-b952h6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/498560/original/file-20221201-6191-b952h6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/498560/original/file-20221201-6191-b952h6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/498560/original/file-20221201-6191-b952h6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/498560/original/file-20221201-6191-b952h6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/498560/original/file-20221201-6191-b952h6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Prime minister Rishi Sunak has signalled a change in relations between the UK and China.</span>
<span class="attribution"><span class="source">ComposedPix / Shutterstock</span></span>
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<p>For some politicians in the west, one solution is to <a href="https://www.bbc.co.uk/news/uk-politics-63787877">accelerate decoupling from China</a>. But doing so is neither feasible nor desirable despite their justified security concerns. Science and technology innovation is international in scope and depends on openness and exchange to a certain extent. It will be difficult to freeze China out if western firms want to share in Chinese growth and developments in these areas. </p>
<p>Recent US efforts to restrict the sale of semiconductors have come about only because of a belated realisation of how aggressive China has been acquiring technology since the 2000s. Too many people in the west were not reading Xi’s speeches in the early 2010s, only waking up around 2016 after Beijing had laid bare its strategy in the <a href="https://www.cfr.org/backgrounder/made-china-2025-threat-global-trade">Made in China 2025 plan</a>.</p>
<p>The pursuit of profits in China’s very large domestic market has led international firms to neglect the politics of the China marketplace. It’s time to realise that <a href="https://doi.org/10.2307/j.ctv1mvw8x7.11">the business of government in China</a> ultimately rests on ensuring business serves the interest of the party-state and its goals.</p><img src="https://counter.theconversation.com/content/195752/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Morgan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Recent unrest will affect China’s domestic economy as well as international businesses with a stake in the country.Stephen Morgan, Professor of Economic History (Emeritus), University of NottinghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1688522021-10-03T19:00:22Z2021-10-03T19:00:22Z3 ways the collapse of Evergrande will hurt the Australian economy<figure><img src="https://images.theconversation.com/files/423976/original/file-20210930-20-4cxkwj.jpg?ixlib=rb-1.1.0&rect=0%2C180%2C3647%2C1845&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Miyuki Yoshioka/AP</span></span></figcaption></figure><p>Evergrande, China’s second-largest property developer, is in peril. After a decade of massive growth, including investing in “<a href="https://www.bloomberg.com/news/articles/2021-07-22/china-evergrande-is-said-to-explore-listing-of-tourism-business">Fairyland</a>” theme parks, an <a href="https://www.scmp.com/business/companies/article/3150633/evergrande-autos-ev-production-plans-hit-bump-debt-ridden">electric car company</a> and a professional football team (<a href="https://gzfc.evergrande.com/english/about.aspx">Guangzhou FC</a>), it is now struggling to service debts exceeding US$300 billion. </p>
<p>So far it has avoided the fate of dozens of its unfinished apartment towers — demolished in spectacular fashion in recent weeks — by selling off assets to make its payments. </p>
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<p>But this is not a sustainable strategy. Credit rating agency Fitch has in the past week <a href="https://www.fitchratings.com/research/corporate-finance/fitch-downgrades-evergrande-subsidiaries-hengda-tianji-to-c-28-09-2021">downgraded Evergrande</a> to a “C”, indicating <a href="https://info.creditriskmonitor.com/Help/FitchGlossary.asp">exceptionally high risk</a>, with default “imminent or inevitable, or the issuer is in standstill”.</p>
<p>Without intervention by the Chinese government, the company will collapse. Here are three key ways in which that could affect Australia.</p>
<h2>1. Lower demand for iron ore</h2>
<p>Evergrande’s collapse will reverberate throughout China’s real estate market. Investors and lenders will be more cautious, potentially resulting in a credit crunch. This could severely dampen property development, and thereby demand for construction materials including steel, made using mostly imported iron ore. </p>
<p>China is by far the world’s biggest steel producer, and accounts for <a href="https://oec.world/en/profile/hs92/iron-ore">nearly 70%</a> of global iron ore imports. About 60% of that iron ore has been imported from Australia. </p>
<p>This trade has made iron ore Australia’s most valuable export commodity, worth an <a href="https://publications.industry.gov.au/publications/resourcesandenergyquarterlyjune2021/index.html">estimated AU$149 billion</a> in the 2020-2021 financial year. About <a href="https://publications.industry.gov.au/publications/resourcesandenergyquarterlyjune2021/documents/Resources-and-Energy-Quarterly-June-2021-Iron-Ore.pdf">75% went to China</a>. Any drop in Chinese demand will therefore affect the Australian economy.</p>
<p>China has already been seeking to <a href="https://www.9news.com.au/national/iron-ore-prices-why-is-it-falling-china-cuts-steel-output-carbon-emissions-explainer/b444b066-a740-43c3-9ef8-6ff9468bdcbe">cut back steel production</a>, a high-energy process, to reduce carbon emissions. The iron ore price has halved since July. </p>
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<p><strong>Plummeting demand for iron ore</strong> </p>
<figure class="align-center ">
<img alt="Iron ore spot price (US$ per tonne)" src="https://images.theconversation.com/files/424123/original/file-20211001-13-1t3ecdd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/424123/original/file-20211001-13-1t3ecdd.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=330&fit=crop&dpr=1 600w, https://images.theconversation.com/files/424123/original/file-20211001-13-1t3ecdd.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=330&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/424123/original/file-20211001-13-1t3ecdd.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=330&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/424123/original/file-20211001-13-1t3ecdd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=414&fit=crop&dpr=1 754w, https://images.theconversation.com/files/424123/original/file-20211001-13-1t3ecdd.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=414&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/424123/original/file-20211001-13-1t3ecdd.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=414&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Iron ore spot price (US$ per tonne)</span>
<span class="attribution"><a class="source" href="https://tradingeconomics.com/commodity/iron-ore">tradingeconomics.com/</a></span>
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<p>Further falls in demand and thus prices will affect the Australian businesses and <a href="https://www.minister.industry.gov.au/ministers/pitt/media-releases/pilbara-iron-ore-powering-australias-economy">45,600 jobs</a> employed directly by the industry, as well as the thousands of jobs sustained though their wages, and government revenues from mining-related royalties and taxes.</p>
<h2>2. Overall weakening of China’s economy</h2>
<p>Beyond the direct effects, problems in China’s real estate and financial sectors could ripple across China’s economy, hurting Chinese demand for other goods and services in which Australia is a major provider. </p>
<p>To put <a href="https://www.abs.gov.au/articles/australias-trade-goods-china-2020">trade with China</a> in context, Australia’s exports to China are about three times those of our second-most valuable market, Japan. Even with iron-ore exports removed from the equation, China is still our biggest export market.</p>
<p>The effect of China buying less from Australia has been a matter of considerable debate. Some have argued Australia can compensate by diversifying into other markets. But such things take time. Economists Rod Tyers and Yixiao Zhou, who have simulated the <a href="https://theconversation.com/an-all-out-trade-war-with-china-would-cost-australia-6-of-gdp-151070">effects</a> of Australia-China trade being shut down, have argued short-term effects could be severe.</p>
<h2>3. Global contagion</h2>
<p>Evergrande’s debt crisis has echoes of the case of Lehman Brothers, the US investment bank whose bankruptcy in 2008 played a big part in precipitating the Global Financial Crisis. </p>
<p>Although most of Evergrande’s debt is localised in China, in financial and real estate sectors there is always a risk of investors and banks in other markets getting spooked, leading to a credit crunch throughout global markets. </p>
<p>Australian share markets have already fallen off their highs over the past few weeks, certainly in part over concerns about China’s economy. The mining sector has experienced the real <a href="https://www.mining.com/mining-stocks-carnage-as-iron-ore-copper-prices-fall/">carnage</a>, but there are indicators of general unease in falls across all sectors. </p>
<h2>Will the Chinese government intervene?</h2>
<p>Without external help Evergrande has a very high likelihood of failure. All the signs are there. It is averting bankruptcy by servicing the interest payments on its massive debt by selling assets at unfavourable prices.</p>
<p>All eyes are now on the Chinese government as a potential saviour through some form of debt restructure or guarantees. </p>
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Read more:
<a href="https://theconversation.com/vital-signs-evergrande-may-survive-but-for-its-executives-expect-a-fate-worse-than-debt-168930">Vital Signs: Evergrande may survive, but for its executives expect a fate worse than debt</a>
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<p>So far it <a href="https://www.nytimes.com/2021/09/26/business/china-evergrande-crisis.html">has not committed itself</a>, and it has taken a <a href="https://www.reuters.com/article/us-china-property-policy-idUSKBN2761ES">strong stance against high debt</a> by developers. But it may consider Evergrande “too big to fail” — its collapse having potentially disastrous local and global implications. So some form of intervention to stabilise the situation seems more likely than not.</p>
<p>Australians, and the rest of the world, will need to wait to see exactly what hand the Chinese government will play.</p><img src="https://counter.theconversation.com/content/168852/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Powell does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Evergrande has a very high likelihood of failing without intervention by the Chinese government.Robert Powell, Professor, Edith Cowan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1516362021-02-01T09:12:40Z2021-02-01T09:12:40ZArtificial intelligence must not be allowed to replace the imperfection of human empathy<p>At the heart of the development of AI appears to be a search for perfection. And it could be just as dangerous to humanity as the one that came from philosophical and pseudoscientific ideas of the 19th and early 20th centuries and led to the horrors of colonialism, world war and the Holocaust. Instead of a human ruling “master race”, we could end up with a machine one.</p>
<p>If this seems extreme, consider the anti-human perfectionism that is already central to the labour market. Here, AI technology is the next step in the premise of maximum productivity that replaced individual craftmanship with the factory production line. These massive changes in productivity and the way we work created opportunities and threats that are now set to be compounded by a “<a href="https://theconversation.com/the-fourth-industrial-revolution-could-lead-to-a-dark-future-125897">fourth industrial revolution</a>” in which AI further replaces human workers.</p>
<p>Several <a href="https://www.bbc.com/news/business-54622189">recent research papers</a> predict that, within a decade, automation will replace half of the current jobs. So, at least in this transition to a new digitised economy, many people will lose their livelihoods. Even if we assume that this new industrial revolution will engender a new workforce that is able to navigate and command this data-dominated world, we will still have to face major socioeconomic problems. The disruptions will be immense and need to be scrutinised. </p>
<p>The ultimate aim of AI, even narrow AI which handles very specific tasks, is to outdo and perfect every human cognitive function. Eventually, machine-learning systems may well be programmed to be better than humans at everything. </p>
<p>What they may never develop, however, is the human touch – empathy, love, hate or any of the other self-conscious emotions that make us human. That’s unless we ascribe these sentiments to them, which is what <a href="https://www.businessinsider.com/jwt-speak-easy-study-people-fantasised-about-alexa-2017-4?r=DE&IR=T">some of us are already doing</a> with our “Alexas” and “Siris”. </p>
<h2>Productivity vs. human touch</h2>
<p>The obsession with perfection and “hyper-efficiency” has had a profound impact on human relations, even human reproduction, as people live their lives in cloistered, virtual realities of their own making. For instance, several US and China-based companies have produced robotic dolls that are selling out fast as substitute partners. </p>
<p>One man in China even <a href="https://www.chinadaily.com.cn/a/201811/13/WS5bea3605a310eff3032884ca.html">married his cyber-doll</a>, while <a href="https://www.news.com.au/lifestyle/relationships/sex/french-woman-wants-to-marry-a-robot-as-expert-predicts-sex-robots-to-become-preferable-to-humans/news-story/fa40fc51a55564627589e80d3a527059">a woman in France</a> “married” a “robo-man”, advertising her love story as a form of “robo-sexuality” and campaigning to legalise her marriage. “I’m really and totally happy,” she said. “Our relationship will get better and better as technology evolves.” There <a href="https://www.buzzworthy.com/meet-men-married-robots/">seems to be</a> high demand for robot wives and husbands all over the world. </p>
<p>In the perfectly productive world, humans would be accounted as worthless, certainly in terms of productivity but also in terms of our feeble humanity. Unless we jettison this perfectionist attitude towards life that positions productivity and “material growth” above sustainability and individual happiness, AI research could be another chain in the history of self-defeating human inventions.</p>
<p>Already we are witnessing discrimination in algorithmic calculations. Recently, a popular <a href="https://www.theguardian.com/world/2021/jan/14/time-to-properly-socialise-hate-speech-ai-chatbot-pulled-from-facebook">South Korean chatbot named Lee Luda was taken offline</a>. “She” was modelled after the persona of a 20-year-old female university student and was removed from Facebook messenger after using hate speech towards LGBT people.</p>
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<p>Meanwhile, automated weapons programmed to kill are carrying maxims such as “productivity” and “efficiency” into battle. As a result, war has become more sustainable. The proliferation of drone warfare is a very vivid example of these new forms of conflict. They create a virtual reality that is almost absent from our grasp.</p>
<p>But it would be comical to depict AI as an inevitable Orwellian nightmare of an army of super-intelligent “Terminators” whose mission is to erase the human race. Such dystopian predictions are too crude to capture the nitty gritty of artificial intelligence, and its impact on our everyday existence. </p>
<p>Societies can benefit from AI if it is developed with sustainable economic development and human security in mind. The confluence of power and AI which is pursuing, for example, <a href="https://theconversation.com/facial-recognition-is-spreading-faster-than-you-realise-132047">systems of control and surveillance</a>, should not substitute for the promise of a humanised AI that puts machine learning technology in the service of humans and not the other way around. </p>
<p>To that end, the AI-human interfaces that are quickly opening up in prisons, healthcare, government, social security and border control, for example, must be regulated to favour ethics and human security over institutional efficiency. The social sciences and humanities have a <a href="https://theconversation.com/singularity-how-governments-can-halt-the-rise-of-unfriendly-unstoppable-super-ai-121999">lot to say</a> about such issues. </p>
<p>One thing to be cheerful about is the likelihood that AI will never be a substitute for human philosophy and intellectuality. To be a philosopher, after all, requires empathy, an understanding of humanity, and our innate emotions and motives. If we can programme our machines to understand such ethical standards, then AI research has the capacity to improve our lives which should be the ultimate aim of any technological advance. </p>
<p>But if AI research yields a new ideology centred around the notion of perfectionism and maximum productivity, then it will be a destructive force that will lead to more wars, more famines and more social and economic distress, especially for the poor. At this juncture of global history, this choice is still ours.</p><img src="https://counter.theconversation.com/content/151636/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Arshin Adib-Moghaddam is the convenor of a new module, Artificial Intelligence and Human Security, at SOAS: details are here: <a href="https://www.soas.ac.uk/courseunits/15PPOH048.html">https://www.soas.ac.uk/courseunits/15PPOH048.html</a></span></em></p>The revolution in AI harbours dangers for humanity – here’s why.Arshin Adib-Moghaddam, Professor in Global Thought and Comparative Philosophies, SOAS, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1302892020-01-27T18:58:56Z2020-01-27T18:58:56Z2020 survey: no lift in wage growth, no lift in economic growth and no progress on unemployment in year of low expectations<figure><img src="https://images.theconversation.com/files/311739/original/file-20200124-81411-2qr7n4.png?ixlib=rb-1.1.0&rect=77%2C23%2C3562%2C1970&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Wes Mountain/The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>2020 is shaping up as a dismal year for the economy, with no progress on many of the key measures that matter for Australians.</p>
<p>Unemployment will stay above 5% and probably rise rather than fall. </p>
<p>Economic growth will continue to have a “1” in front of it, instead of the “2” or “3” that used to be common, and living standards will grow more slowly. </p>
<p>Wage growth, forecast in the budget to climb to 3%, will instead remain stuck near 2.2%, where it has been for half a decade.</p>
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Read more:
<a href="https://theconversation.com/we-asked-13-economists-how-to-fix-things-all-back-the-rba-governor-over-the-treasurer-126283">We asked 13 economists how to fix things. All back the RBA governor over the treasurer</a>
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<p>Those are the <a href="https://cdn.theconversation.com/static_files/files/857/2020___CONVERSATION_ECONOMIC_SURVEY.pdf?1579661077">central forecasts</a> of a panel of 24 leading economists from 15 universities in six states assembled by The Conversation to review the year ahead, a year they expect to be marked by one only more interest rate cut, more modest growth in house prices, and a return to slower growth in the share market. </p>
<p>The panel comprises macroeconomists, economic modellers, former Treasury, IMF, OECD, Reserve Bank and financial market economists, and a former member of the Reserve Bank board. Combined, their forecasts are more likely to be correct than those of any individual member. One-third are women.</p>
<p>They expect the long-promised budget surplus to all but disappear as a result of responses to the bushfires and weaker-than-predicted economic growth.</p>
<h2>Economic growth</h2>
<p>The Treasury believes the Australian economy is capable of growing at a sustained annual pace of <a href="https://www.smh.com.au/business/the-economy/australias-economy-grew-08-per-cent-in-june-quarter-20170906-gybpqu.html">2.7%</a>, but it hasn’t grown that fast since mid-2018. Growth slipped below 2% in March 2019 and hasn’t recovered. It now has been below 2% for <a href="https://theconversation.com/gdp-update-spending-dips-and-saving-soars-as-we-stash-rather-than-spend-our-tax-cuts-128297">three consecutive quarters</a>, the longest period since the global financial crisis.</p>
<p>The panel’s central forecast is for economic growth to stay at or below 2% for at least another year, producing the longest period of low economic growth since the early 1990s recession. The average forecast for the year to December is 1.9%.</p>
<p>Panellist Saul Eslake says it will be the result of persistently slow growth in household disposable incomes, reflecting “very slow growth in real wages, the increasing proportion of gross income absorbed by tax, and weakness in property income (interest and rent) as well as (at the margin) the impact of the drought on farm incomes”.</p>
<p>It will be domestic rather than overseas conditions that hold back Australian growth. US economic growth is expected to remain little changed at 2.1% notwithstanding trade friction with China, and China’s officially reported growth is expected to ease back only slightly from 6% to 5.8%. </p>
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<h2>Living standards</h2>
<p>One of the best measures of overall living standards (the one the Reserve Bank watches) is real net national disposable income per capita, which takes better account of buying power than gross domestic product does. In the year to September it climbed an unusual 3.3%, pushed up by a resurgence in iron ore export prices. </p>
<p>The iron ore price has since slid from US$120 a tonne to around US$90 a tonne, and the panel’s average forecast is for it to fall further.</p>
<p>As a result it expects growth in living standards to slow to 2.4% in 2020, a result that will still be better than between 2012 and 2016 when a dive in export prices sent it backwards.</p>
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Read more:
<a href="https://theconversation.com/why-weve-the-weakest-economy-since-the-global-financial-crisis-with-few-clear-ways-out-122942">Why we've the weakest economy since the global financial crisis, with few clear ways out</a>
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<p>Growth in nominal GDP, the raw total unadjusted for inflation, is also expected to slow, slipping from 5.4% to 4.4% as export prices weaken, producing a decline in revenue growth the government has already factored in to the budget.</p>
<p>The unemployment rate is expected to end the year near the top of the 5%-to-5.5% band it has been stuck in for the past two years, rather than falling to the 5% forecast in the budget or towards the <a href="https://www.rba.gov.au/publications/smp/2019/nov/overview.html">4.5%</a> the Reserve Bank believes is possible.</p>
<p>Only one of the panel, Warren Hogan, expects the unemployment rate to end the year below 5%. </p>
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<h2>Wages and prices</h2>
<p>The panel’s central forecast is for inflation to remain below the bottom of the Reserve Bank’s 2-3% target band, where it has been for most of the past five years.</p>
<p>One panellist, Margaret McKenzie, breaks ranks. She expects the drought and bushfires and floods to sharply push up the cost of food and essential items including energy, quickly pushing inflation into the range the authorities have long wanted, but not for the reasons they wanted.</p>
<p>“I don’t think people have thought about it, because there hasn’t been inflation for so long,” she says. “The problem is that the fires are likely to contract an already weak economy, impelling the Reserve Bank to cut interest rates further, even though its inflation targeting regime would tell it not to.”</p>
<p>Wage growth is forecast to be well below the highest inflation forecast and only a little above the central forecast, resulting in continued low real wage growth and seeing the budget miss its wage growth target for the eighth year in a row. </p>
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<h2>Business</h2>
<p>Household spending barely grew in the year to September, inching ahead by a shockingly low 1.2%, the least since the financial crisis, and not enough to account for population growth. </p>
<p>The panel’s central forecast is for a recovery in spending growth to a still-low 2.4%, with spending held back by low consumer confidence and what former Organisation for Economic Co-operation and Development director Adrian Blundell-Wignall calls a “sense that we are living on borrowed time”. </p>
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Read more:
<a href="https://theconversation.com/gdp-update-spending-dips-and-saving-soars-as-we-stash-rather-than-spend-our-tax-cuts-128297">GDP update: spending dips and saving soars as we stash rather than spend our tax cuts</a>
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<p>“China is slowing, bank-financed housing has been pushing the envelope and is very expensive, and the governments have never had a plan for the next phase of sustainable growth,” he says. “This perception of no confidence in the government has not been helped by the bushfire events.” </p>
<p>There are few signs of a recovery in business investment, notwithstanding record-low interest rates. </p>
<p>The panel’s average forecast is for investment by mining and non-mining companies to grow by only 1.7% and 1.9% in 2020, which will represent a turnaround for mining, in which investment fell 11.2% in the year to September.</p>
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<h2>Markets</h2>
<p>Financial markets should provide less support to households in the year ahead, with the ASX 200 share price index expected to climb only 6.4% after soaring 20% in the year just ended. </p>
<p>None of the panellists expect last year’s growth to continue.</p>
<p>The Australian dollar is expected to end the year at 68 US cents, close to where it is at present. The iron ore price is expected to fall to US$75, a smaller slide than was assumed in the budget.</p>
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<h2>Home prices</h2>
<p>Housing investment (homebuilding) is expected to stabilise in 2020, falling only slightly from here on, after sliding 9.6% in the year to September 2019. </p>
<p>Sydney and Melbourne home prices are expected to continue to recover, growing by 5% in 2020. </p>
<p>Panellist Nigel Stapledon says the higher home prices will in time boost perceptions of wealth, opening up the possibility that consumer spending will “surprise on the upside”. </p>
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<h2>Interest rates and budget</h2>
<p>The panel’s central forecast is for only one more cut in the Reserve Bank’s cash rate this year, in the first half, followed by no further cuts in the second half. This would allow the bank to avoid so-called unconventional monetary policy or “quantitative easing” in which it forces down longer-term rates by buying government and private bonds, an option Governor Philip Lowe said it would only resort to after it had cut its cash rate to 0.25%.</p>
<p>The single cut would take the cash rate to an all-time low of 0.5%. In anticipation the ANZ cut its online saver account rate from 0.1% to <a href="https://www.smh.com.au/politics/federal/anz-cuts-deposit-rates-to-all-time-low-20200123-p53tzd.html">0.05%</a> on Thursday. </p>
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Read more:
<a href="https://theconversation.com/now-we-know-the-reserve-bank-has-spelled-out-what-it-will-do-when-rates-approach-zero-127697">Now we know. The Reserve Bank has spelled out what it will do when rates approach zero</a>
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<p>The cut could come as soon as next week when the board holds its first meeting for the year on February 4. Governor Lowe has scheduled an address to the National Press Club for <a href="https://www.rba.gov.au/media/">the following day</a>.</p>
<p>Most of the panel think quantitative easing will not be needed and many question its effectiveness, saying the government could achieve much more by fully abandoning its commitment to surplus in order to stimulate the economy.</p>
<p>The panel expects the government’s 10-year bond rate to remain historically low at 1.3%. That makes it about as cheap as it has ever been for the government to borrow for worthwhile purposes.</p>
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<p>Treasurer Josh Frydenberg has abandoned his absolute commitment to return the budget to surplus this financial year, saying his first priority is “<a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/transcripts/doorstop-interview-treasury-canberra">meeting the human cost of the bushfires</a>”.</p>
<p>The 2019-20 surplus was forecast at A$7.1 billion in the May budget and then downgraded to $5 billion in the December update. </p>
<p>The panel’s average forecast is for a bushfire-ravaged $2.2 billion. </p>
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<p>Most of the panel believe that with good management the government can avoid a recession for another two years, propelling the Australia economy into what will be its 30th straight year of expansion. </p>
<p>On average they assign a 27% probability to a recession within the next two years, down from their average forecast of 29% in June.</p>
<p>Several point out that, whereas the main risks to continued growth come from overseas, China appears to be managing its slowing economy better than expected, although the emergency triggered by the new and deadly <a href="https://theconversation.com/should-we-be-worried-about-the-new-wuhan-coronavirus-130366">Wuhan coronavirus</a> might change that.</p>
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Read more:
<a href="https://theconversation.com/their-biggest-challenge-avoiding-a-recession-117381">Their biggest challenge? Avoiding a recession</a>
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<p>Among those who do fear a home-bred recession is Julie Toth who has lifted her estimate of the likelihood of a recession from 25% to 50%, saying growth is already so weak that it won’t take much to send it backwards.</p>
<p>“The bushfire disaster presents the real and immediate possibility of two quarters of negative growth for the fourth quarter of 2019 and the first quarter of of 2020,” she says.</p>
<p>“Even if disaster relief and fiscal stimulus are delivered swiftly, resource constraints (a lack of skilled tradespeople, water, equipment and appropriate building materials) mean reconstruction will be very slow.”</p>
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<p>The panel began compiling its responses when the bushfires weren’t as bad as they subsequently became and before the emergence of the Wuhan coronavirus. </p>
<p>It delivered its final forecasts on January 20 when the worst of the bushfires appeared to have passed but before the coronavirus had <a href="https://theconversation.com/the-wuhan-coronavirus-is-now-in-australia-heres-what-you-need-to-know-130580">spread</a> to Australia. </p>
<p>The effects of both won’t be known for some time.</p>
<p>2020 is turning out to be a year of uncertainty, as well as low expectations.</p>
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<h2>The Conversation 2020 Forecasting Panel</h2>
<p><em>Click on economist to see full profile.</em></p>
<p><iframe id="tc-infographic-457" class="tc-infographic" height="400px" src="https://cdn.theconversation.com/infographics/457/bf44ce885daf5a3f6f0c3f21add509bc262c561f/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p>
<p><a href="https://cdn.theconversation.com/static_files/files/1355/2020_survey_-_Raw_data.pdf?1607169630">PDF OF RESULTS</a></p>
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Read more:
<a href="https://theconversation.com/buckle-up-2019-20-survey-finds-the-economy-weak-and-heading-down-and-thats-ahead-of-surprises-119455">Buckle up. 2019-20 survey finds the economy weak and heading down, and that's ahead of surprises</a>
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<img src="https://counter.theconversation.com/content/130289/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Conversation’s 2020 economic survey points to a dismal year, with no progress on many of the key measures that matter for Australians and an increase in the unemployment rate.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1251902019-10-17T11:39:42Z2019-10-17T11:39:42ZChina’s worldwide investment project is a push for more economic and political power<p>Inspired by the <a href="https://www.cfr.org/backgrounder/chinas-massive-belt-and-road-initiative">ancient Silk Road</a>, China is investing in a massive set of international development projects that are raising concerns about how the country is <a href="https://www.hurstpublishers.com/book/belt-and-road/">expanding its power around the world</a>. </p>
<p>Initially announced in 2013 by Chinese President Xi Jinping, the so-called “<a href="https://www.fpri.org/article/2019/08/unequal-sequel-chinas-belt-and-road-initiative/">Belt and Road Initiative</a>” has China planning to invest in economic development and transportation in <a href="https://www.yidaiyilu.gov.cn/info/iList.jsp?tm_id=126&cat_id=10122&info_id=77298">more than 130 countries and 30 international organizations</a>. Projects range across Asia, but also include places in Africa, the Caribbean, Europe and South America.</p>
<p>With a projected cost of <a href="https://www.morganstanley.com/ideas/china-belt-and-road">more than US$1 trillion</a>, it may be the most ambitious infrastructure project undertaken in human history. The country hopes it will all be completed by 2049, the 100th anniversary of the founding of the People’s Republic of China. <a href="https://scholar.google.com/citations?view_op=search_authors&mauthors=Amitrajeet+A.+Batabyal&hl=en&oi=ao">My research</a> in <a href="https://theglobepost.com/2019/03/28/huawei-us-threat/">international economics</a> with <a href="https://theglobepost.com/2019/07/23/us-china-trade/">particular reference</a> to China shows that Beijing has both economic and political plans for how these investments will pay off. </p>
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<h2>Economic effects</h2>
<p>A rapidly growing China needs reliable access to energy. The Belt and Road Initiative includes pipeline construction and other building projects in <a href="https://af.reuters.com/article/africaTech/idAFL4N1XN3DF">oil- and gas-rich central Asia</a>. </p>
<p>China also has an ambitious goal to <a href="http://english.www.gov.cn/policies/latest_releases/2015/05/19/content_281475110703534.htm">dominate global production of electric cars</a> – as well as other high-tech equipment – for which it needs reliable supplies of cobalt, a key ingredient in <a href="https://theconversation.com/how-do-lithium-ion-batteries-work-99164">high-capacity batteries</a>. <a href="https://www.cbsnews.com/news/cobalt-children-mining-democratic-republic-congo-cbs-news-investigation/">More than half of the world’s supply</a> comes from the Democratic Republic of Congo. <a href="http://www.chinafrica.cn/Homepage/201906/t20190617_800170917.html">China’s investment there</a> has helped secure much of that crucial element for Chinese production.</p>
<p><a href="https://www.foreignaffairs.com/articles/china/2016-07-13/rebalance-rebalance">Analysts and scholars have criticized</a> these and other moves for economic dominance, arguing that taking the country’s money is like drinking from a “<a href="https://www.cfr.org/backgrounder/chinas-massive-belt-and-road-initiative">poisoned chalice</a>” – a brief refreshment leading to certain death.</p>
<p>Sri Lanka, for instance, defaulted on debts it owed China for <a href="https://www.nytimes.com/2018/06/25/world/asia/china-sri-lanka-port.html">development at the port of Hambantota</a> – and was forced to <a href="https://www.nytimes.com/2017/12/12/world/asia/sri-lanka-china-port.html">give the Chinese government control of the port</a> for 99 years. </p>
<p>Chinese <a href="http://cpec.gov.pk">investments in the Pakistani port of Gwadar</a> have set Pakistan up to owe China <a href="https://www.indiatoday.in/world/story/pakistan-owe-china-gwadar-port-usd-10-billion-debt-1479562-2019-03-16">more than $10 billion</a>.</p>
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<a href="https://images.theconversation.com/files/297236/original/file-20191015-98657-ufmel1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/297236/original/file-20191015-98657-ufmel1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/297236/original/file-20191015-98657-ufmel1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=415&fit=crop&dpr=1 600w, https://images.theconversation.com/files/297236/original/file-20191015-98657-ufmel1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=415&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/297236/original/file-20191015-98657-ufmel1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=415&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/297236/original/file-20191015-98657-ufmel1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=522&fit=crop&dpr=1 754w, https://images.theconversation.com/files/297236/original/file-20191015-98657-ufmel1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=522&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/297236/original/file-20191015-98657-ufmel1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=522&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">A diverse group of world leaders attended China’s Belt and Road Forum in Beijing in April 2019.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/China-Belt-and-Road-Forum/03f056411c2a488ba17eca9fcf71032c/129/0">Jason Lee/Pool Photo via AP</a></span>
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<h2>Political payoffs</h2>
<p>As these countries get more closely tied to the Chinese economy, they also shift into the range of its <a href="https://www.scmp.com/news/china/diplomacy/article/2166159/chinas-new-world-order-unrealistic-if-built-belt-and-road-alone">political efforts</a>, sparking several concerns about the country’s motivations. Navy analysts have called China’s growing control of ports in Asia – including Hambantota, Sri Lanka; and Gwadar, Pakistan – an effort to assemble a “<a href="https://www.china-briefing.com/news/china%E2%80%99s-string-of-pearls-strategy/">string of pearls</a>” with which it can dominate much of Asia.</p>
<p>Malaysian Prime Minister Mahathir Mohamad warned that China may be <a href="https://www.bloomberg.com/news/articles/2018-08-20/mahathir-warns-against-new-colonialism-during-visit-to-china">turning into a new colonial power</a>. </p>
<p>The U.S. sees Chinese expansion as a <a href="https://www.hurstpublishers.com/book/belt-and-road/">security concern</a> and has urged India to serve as a strong example that a Western-style democracy and society can succeed in Asia. In addition, the U.S. has proposed <a href="https://www.japantimes.co.jp/news/2018/02/19/business/australia-u-s-india-japan-talks-establish-alternative-chinas-belt-road-initiative-report">working with Australia, India and Japan on a massive development effort</a> to rival China’s power. </p>
<p>The European Union is also unsure about China’s political intentions. Some of its members have joined individually, but others have expressed concerns that Chinese plans often <a href="https://www.hurstpublishers.com/book/belt-and-road/">overlook environmental and social sustainability</a> – and that its bidding process is not sufficiently open to the public. There is some general European concern that <a href="https://theconversation.com/drafts/117651/edit">China is seeking to divide Europe politically</a>.</p>
<p>Recent reports suggest that Chinese investment in the Belt and Road Initiative – and international interest in Chinese funding – <a href="https://www.scmp.com/economy/global-economy/article/3032375/china-slimming-down-belt-and-road-initiative-new-project">is slowing</a>. In part that may be because, predictions and analysis aside, nobody knows for certain what China is aiming for – except to boost its own side in its <a href="https://www.nytimes.com/interactive/2018/03/09/world/asia/china-us-asia-rivalry.html">rivalry with the U.S.</a></p>
<p>[ <em><a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=expertise">Expertise in your inbox. Sign up for The Conversation’s newsletter and get a digest of academic takes on today’s news, every day.</a></em> ]</p><img src="https://counter.theconversation.com/content/125190/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amitrajeet A. Batabyal does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>China is betting that a massive set of investments around the world will bring it economic prosperity and international political power.Amitrajeet A. Batabyal, Arthur J. Gosnell Professor of Economics, Rochester Institute of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1251412019-10-15T18:58:55Z2019-10-15T18:58:55ZChina has form as a sports bully, but its full-court press on the NBA may backfire<p>It’s unlikely Daryl Morey, general manager of the Houston Rockets basketball team, realised he’d be sparking an international diplomatic incident when, on October 4, he tweeted the following <a href="https://twitter.com/NormanHermant/status/1181035449973800960">Stand with Hong Kong</a> logo. </p>
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<img alt="" src="https://images.theconversation.com/files/296807/original/file-20191014-135483-1ydxrax.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/296807/original/file-20191014-135483-1ydxrax.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=269&fit=crop&dpr=1 600w, https://images.theconversation.com/files/296807/original/file-20191014-135483-1ydxrax.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=269&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/296807/original/file-20191014-135483-1ydxrax.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=269&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/296807/original/file-20191014-135483-1ydxrax.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=338&fit=crop&dpr=1 754w, https://images.theconversation.com/files/296807/original/file-20191014-135483-1ydxrax.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=338&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/296807/original/file-20191014-135483-1ydxrax.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=338&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
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<p>The aftermath has seen retaliation from multiple layers of China’s political and corporate power structure. The furious response has sent a multibillion-dollar sports empire into crisis mode, with NBA officials running scared about losing revenue from the league’s most important foreign market.</p>
<p>The Chinese reaction tells a lot about China’s sensitivities. It’s also a lesson in the “realpolitik” the regime has learnt from its successful track record in bullying global sporting organisations to see things its way.</p>
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Read more:
<a href="https://theconversation.com/we-fear-hong-kong-will-become-just-another-chinese-city-an-interview-with-martin-lee-grandfather-of-democracy-124635">'We fear Hong Kong will become just another Chinese city': an interview with Martin Lee, grandfather of democracy</a>
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<p>But it might also yet prove to be a lesson in overreach for an emerging superpower still coming to terms with its new economic muscle and the extent to which it can throw its weight around – particular in an arena that is still America’s game.</p>
<h2>Chinese backlash</h2>
<p>Following Morey’s tweet, the Chinese Consulate in Houston lodged <a href="http://houston.china-consulate.org/eng/nv/t1706284.htm">an official complaint</a>. The Chinese Basketball Association <a href="https://www.scmp.com/news/china/politics/article/3031771/chinese-basketball-association-wont-work-houston-rockets-after">suspended dealings</a> with the Rockets. China’s state broadcaster, China Central Television, and digital network Tencent (which has the digital streaming rights for NBA in China) suspended broadcasting <a href="https://www.cnbc.com/2019/10/08/china-state-tv-suspends-nba-broadcasts-after-morey-hong-kong-tweet.html">NBA pre-season games</a>. All of the NBA’s official Chinese partners have <a href="https://edition.cnn.com/2019/10/09/business/nba-china-partners/index.html">suspended ties with the league</a>.</p>
<p>All this despite statements <a href="https://twitter.com/TilmanJFertitta/status/1180330287957495809?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1180330287957495809&ref_url=https%3A%2F%2Fwww.businessinsider.com%2Fnba-china-feud-timeline-daryl-morey-tweet-hong-kong-protests-2019-10">from the Rockets’ owner</a> and the NBA distancing themselves from Morey’s tweet (NBA commissioner Adam Silver called the tweet “<a href="https://twitter.com/globaltimesnews/status/1181027042596249601">regrettable</a>”), with Morey himself also deleting the tweet and issuing <a href="https://twitter.com/dmorey/status/1181000809363857409?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1181000809363857409&ref_url=https%3A%2F%2Fwww.news.com.au%2Fsport%2Fbasketball%2Fnbas-4-billion-nightmare-how-one-tweet-sparked-a-controversy-spanning-two-global-superpowers%2Fnews-story%2F445933917f59540ef861819d0e8ac3d9">a grovelling apology</a>.</p>
<p>The Chinese government’s power over the NBA also explains its desire to send a message that no one repeat Morey’s “erroneous comments”. </p>
<p>Basketball, and the NBA in particular, are hugely popular in China – with the Houston Rockets one of <a href="https://www.cbssports.com/nba/news/nba-china-issue-latest-news-resulting-from-daryl-moreys-hong-kong-tweet-what-it-means-for-the-league/">the most popular teams</a> in the country. The head of the Chinese Basketball Association, basketball legend Yao Ming, is a former Rockets player. In recognition of the team’s Chinese supporter base, the Rockets occasionally play in <a href="https://www.nba.com/rockets/rockets-wear-specially-designed-chinese-new-year-uniform">Chinese-inspired uniforms</a>. </p>
<p>China is the NBA’s major growth market. The broadcast deal with Tencent alone is worth a reported <a href="https://www.cnbc.com/2019/10/08/china-state-tv-suspends-nba-broadcasts-after-morey-hong-kong-tweet.html">US$1.5 billion (about A$2.2 billion) a year</a>. NBA teams are now reportedly planning for the possibility that lost revenues from China will see the NBA reduce team salary caps by <a href="https://www.theguardian.com/sport/2019/oct/12/how-the-nbas-rift-with-china-laid-bare-the-cost-of-free-speech">10% to 15%</a> – or up to about US$17 million a team.</p>
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Read more:
<a href="https://theconversation.com/chinas-financial-muscle-makes-its-mark-on-the-global-sport-industry-36750">China's financial muscle makes its mark on the global sport industry</a>
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<h2>A sports-conscious regime</h2>
<p>The Chinese reaction is part of the Chinese Communist Party’s long history of seeing sports in political terms. This goes back to Mao Zedong, who as early as 1917, even before he turned towards Marxism, wanted Chinese youth to become “sports-conscious” to rectify the nation’s fortunes, and to correct the humiliation inflicted on China by Western powers during the 19th century.</p>
<p>Since its foundation, the People’s Republic of China in 1949 has used sports to push political objectives. Its efforts to stop Taiwan competing as the “Republic of China” in international sporting events include boycotting the 1956 Melbourne Olympic Games.</p>
<p>To appease China, Taiwan must now compete as Chinese Taipei in all international events, under the fiction it is a provisional or provincial body rather than an independent <a href="https://en.wikipedia.org/wiki/Chinese_Taipei_at_the_Olympics">nation</a>. Last year Taiwan accused China of bullying the East Asian Olympic Committee to revoke Taiwan’s permission to <a href="https://www.scmp.com/news/china/policies-politics/article/2156703/taipei-accuses-beijing-dragging-sport-politics-after">host the East Asian Youth Games</a>.</p>
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Read more:
<a href="https://theconversation.com/inside-chinas-vast-influence-network-how-it-works-and-the-extent-of-its-reach-in-australia-119174">Inside China's vast influence network – how it works, and the extent of its reach in Australia</a>
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<h2>Playing an American game</h2>
<p>On one score, China has flexed its muscle to get what it wants in this case. The reaction of the NBA and associated companies such as Nike, which <a href="https://www.reuters.com/article/us-china-basketball-nba-nike/houston-rockets-nike-merchandise-disappears-from-china-stores-idUSKBN1WP109">pulled Rockets gear from its Chinese stores</a>, shows American companies will kowtow to preserve access to the Chinese market. </p>
<p>But Beijing may have misjudged its heavy-handed approach to soft power this time. Arguably it has simply focused attention on the Hong Kong protest movement. </p>
<p>In the US, fans are turning up to NBA games with clothing and signs <a href="https://nypost.com/2019/10/10/nba-fans-holding-pro-hong-kong-signs-are-kicked-out-of-washington-wizards-game/">supporting the Hong Kong protests</a>. Efforts by the NBA to discourage this by <a href="https://www.msn.com/en-us/money/video/nba-fans-kicked-out-of-game-after-expressing-support-for-hong-kong-protesters/vi-AAIB6yq">kicking them out</a> has drawn more media attention. Politicians across the ideological spectrum, from conservative Republican <a href="https://twitter.com/tedcruz/status/1181030464661999616">Ted Cruz</a> to Democratic presidential hopeful Elizabeth Warren, have criticised the NBA.</p>
<p>The US knows how to play this game. During the long Cold War between the US and the Soviet Union, hockey rinks, swimming pools, running tracks and <a href="https://en.wikipedia.org/wiki/1972_Olympic_Men%27s_Basketball_Final">basketball courts</a> became theatres of proxy confrontation between the two superpowers – between capitalism and communism, freedom and tyranny, democracy and dictatorship.</p>
<p>In the face of rising tensions with the United States and China, sports stadiums might become the same. American companies may ideally wish to keep everybody onside, but if it comes to the crunch they’ll go with their biggest market over their second-biggest. </p>
<p>China might be part of the NBA’s future, but America is its heartland.</p><img src="https://counter.theconversation.com/content/125141/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Keith Rathbone does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>China’s attempts to bully the NBA over political expression might prove to be a lesson in how much the new superpower can throw its weight around.Keith Rathbone, Lecturer, Modern European History and Sports History, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1214052019-08-05T12:57:51Z2019-08-05T12:57:51ZWill Trump’s trade war with China ever end?<p>President Donald Trump recently escalated his trade war with China, threatening to impose a 10% tariff on the <a href="https://www.bbc.com/news/business-49199559">remaining US$300 billion</a> of untaxed Chinese imports.</p>
<p>If the new tariff goes into effect in September as promised, <a href="https://www.bloomberg.com/news/articles/2019-08-01/trump-ratchets-up-trade-war-with-new-tariffs-on-chinese-imports?srnd=premium">virtually all Chinese exports</a> to the U.S. would be subject to levies ranging from 10% to 25%. <a href="https://www.bloomberg.com/news/articles/2019-08-05/china-hits-back-at-trump-with-weaker-yuan-halt-on-crop-imports">China retaliated</a> by letting the value of its currency fall to the lowest level in more than a decade and halting all crop imports. </p>
<p>Many Americans like me are now wondering: Is there any end in sight?</p>
<h2>How to win an economic war</h2>
<p>As a <a href="https://shared.cas.gsu.edu/profile/charles-hankla-2-2/">scholar of trade policy</a>, I’ve repeatedly <a href="https://theconversation.com/economic-history-shows-why-trumps-america-first-tariff-policy-is-so-dangerous-92715">made the point</a> that free exchange is a <a href="https://www.thenewbarcelonapost.com/en/200-years-david-ricardo-principles-trade-and-distribution/">positive sum game</a> – meaning every participating country can benefit – rather than zero sum — as <a href="https://www.cnbc.com/video/2018/03/12/trump-thinks-trade-is-a-zero-sum-game-says-expert.html">Trump seems to believe</a>. This is why commercial disputes are certain to harm all participants. </p>
<p><a href="https://theconversation.com/trumps-go-it-alone-approach-to-china-trade-ignores-wtos-better-way-to-win-93918">I believe</a> that the United States could have avoided its current predicament by using the World Trade Organization’s existing <a href="https://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm">dispute resolution process</a> to address its justifiable concerns with Chinese behavior.</p>
<p>Still, from the perspective of a single country, starting a trade war could potentially be justified if the end result ultimately shifts the terms of trade in its favor. </p>
<p>Such a victory can only be achieved when the country has more <a href="https://www.hup.harvard.edu/catalog.php?isbn=9780674840317&content=reviews">bargaining leverage</a> than its opponent – in other words, when it can impose more pain on its adversary than it experiences itself. </p>
<p>And the longer the trade war continues, the more concessions that country will have to win in order to compensate for the damage caused.</p>
<p>So, after nearly 18 months of escalating disputes between the U.S. and China, where are we? Is either side winning, and can any concessions justify the <a href="https://thehill.com/opinion/finance/443255-us-china-trade-war-major-pain-little-gain">economic harm</a> that both sides have already experienced?</p>
<h2>China’s pain</h2>
<p>First and foremost, it has become increasingly clear that the trade war is hurting the economies <a href="https://www.bloomberg.com/opinion/articles/2019-08-01/trump-s-trade-war-has-hurt-both-the-u-s-and-china">of both countries</a>. Neither will emerge from this conflict unscathed. </p>
<p>Unfortunately, however, the last 18 months have done little to clarify who is winning – that is, who is hurting less and can credibly hold out for longer.</p>
<p>Take China. Before the trade war, it was already facing a number of significant challenges, first among them how to effect a transition from its current reliance on cheap manufacturing <a href="https://www.washingtonpost.com/news/monkey-cage/wp/2018/05/03/what-is-made-in-china-2025-and-why-is-it-a-threat-to-trumps-trade-goals/?noredirect=on&utm_term=.ee3e3095db09">to the production of higher value-added goods</a>. China’s political stability is also somewhat precarious, as evidenced by recent events in <a href="https://www.cnn.com/asia/live-news/hong-kong-protest-mong-kok-intl-hnk/index.html">Hong Kong</a> and <a href="https://www.nytimes.com/2019/07/10/world/asia/china-xinjiang-rights.html">Xianjing</a>, as well as Chinese leader Xi Jinping’s <a href="https://www.nytimes.com/2018/03/07/world/asia/china-xi-jinping-party-term-limit.html">authoritarian crackdown</a>.</p>
<p>Moreover, China’s economic growth has slowed to a <a href="https://www.cnn.com/2019/07/15/economy/china-gdp-growth/index.html">27-year</a> low of 6.2%. And perhaps more ominously for the country, there are growing signs that foreign companies from America and elsewhere are <a href="https://www.forbes.com/sites/kenrapoza/2019/07/16/europe-joins-us-companies-moving-out-of-china/#24b2deb615bf">looking outside China</a> as they expand their sourcing, production and distribution activities.</p>
<p>Of course, China’s growth rate still makes it among the fastest-expanding economies in the world, so the recent slowdown can hardly be termed a crisis. And the shift away from China, limited as it is, began before the trade war, spurred on by <a href="https://www.economist.com/business/2011/06/09/the-end-of-cheap-goods">rising prices</a>, <a href="https://www.marketwatch.com/story/why-is-the-us-accusing-china-of-stealing-intellectual-property-2018-04-05">intellectual property theft</a> and other issues.</p>
<h2>Not necessarily America’s gain</h2>
<p>The problem for the U.S. is that Americans are also increasingly feeling the pinch.<br>
Perhaps most notably, farmers – many of whom continue to <a href="https://www.cnbc.com/2019/05/19/farmers-are-hurting-but-they-still-support-trump-and-his-trade-war-for-now.html">support Trump</a> – are <a href="https://www.msn.com/en-us/money/markets/farmers-are-losing-patience-with-trumps-trade-war/ar-AABv8iG">beginning to tire</a> of the sacrifices they are making for his uncompromising positions. With the Chinese government <a href="https://www.bloomberg.com/news/articles/2019-08-02/china-s-trump-retaliation-options-range-from-soybeans-to-boeing">threatening to retaliate</a> if Trump follows through on the new tariffs, their willingness to go along may be even more sorely tested.</p>
<p>To keep agriculture on its side, the Trump administration has channeled <a href="https://www.washingtonpost.com/politics/2019/08/01/nine-in-counties-that-voted-trump-have-received-subsidies-fight-trade-war/?utm_term=.f8e22f004d13">billions of dollars in subsidies</a> to those hurt by his trade policies. But this approach also has its political costs, with more fiscally conservative backers of the president <a href="https://time.com/5347827/republicans-fume-at-president-trumps-12-billion-plan-to-aid-farmers/">balking at the price tag</a>.</p>
<p>From a broader perspective, recent studies have undercut <a href="https://www.whitehouse.gov/briefings-statements/remarks-president-trump-marine-one-departure-56/">Trump’s claim</a> that Chinese companies are bearing the brunt of the tariff payments, showing that the <a href="https://www.nber.org/papers/w25672.pdf">bulk of costs</a> are passed to U.S. companies and consumers. And the stock market is <a href="https://www.nytimes.com/2019/08/02/business/economy/china-us-trade-threats.html">reacting negatively</a> to the latest Trump threats.</p>
<p>It is true that the overall American economy remains strong, with <a href="https://www.wsj.com/articles/u-s-july-nonfarm-payrolls-grew-by-164-000-11564749103">expanding employment</a> and a fast, though slowing, <a href="https://www.npr.org/2019/07/26/745547982/the-u-s-economy-is-slowing-as-trade-war-takes-a-toll">growth rate</a> of 2.1% in the most recent period. But China has one more strategic advantage that could make a substantial difference: It can wait out Trump’s presidency. </p>
<p>If the Trump administration’s approach to trade represented a <a href="https://www.politico.com/magazine/story/2017/01/yes-a-bipartisan-foreign-policy-is-possibleeven-now-214617">bipartisan consensus</a>, the U.S. could keep up the pressure over the long term. Containment policy during the Cold War, in which the United States committed itself to curbing Soviet influence, represents the <a href="https://www.hoover.org/research/orienting-principle-foreign-policy">classic example of a consensus</a> that was credibly maintained, in one form or another, across several administrations.</p>
<p>But because the tariffs are so associated with Trump’s personality, the Chinese government can <a href="https://www.cnbc.com/2019/08/02/china-has-can-hold-out-longer-than-the-us-in-the-trade-war-expert.html">afford to wait</a> for a new president. If a Democrat wins in 2020, he or she will <a href="https://www.vox.com/policy-and-politics/2019/2/18/18215442/2020-democratic-presidential-candidates-policies-trade">likely maintain</a> a harder line on China than we saw before Trump, but will <a href="https://www.bloomberg.com/news/articles/2019-07-31/democratic-candidates-target-bungled-trump-trade-war-in-debate">probably repudiate</a> the current president’s penchant for punitive and precipitous tariffs. </p>
<p>In a sense, America’s negotiating credibility has become yet another casualty of its polarized politics. </p>
<h2>In other words: No end in sight</h2>
<p>In the final analysis, China may have the most to lose from the ongoing dispute. But the U.S. bargaining position is more politically vulnerable. </p>
<p>And the Chinese can credibly claim that buckling under American pressure would be <a href="https://www.nytimes.com/2019/05/14/world/asia/china-propaganda-trade.html">unacceptable to their domestic audience</a>. </p>
<p><a href="https://www.jstor.org/stable/3687811?seq=1#page_scan_tab_contents">Studies of shooting wars</a> indicate that they tend to continue until events on the ground reveal which side is likely to win. The same is surely true for trade wars. </p>
<p>Since neither side is clearly winning or losing, we have probably not seen the end of this conflict.</p>
<p>[ <em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/121405/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Charles Hankla does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Trump’s endgame for the US-China trade war still seems elusive as the conflict continues to escalate.Charles Hankla, Associate Professor of Political Science, Georgia State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1194552019-06-30T11:58:58Z2019-06-30T11:58:58ZBuckle up. 2019-20 survey finds the economy weak and heading down, and that’s ahead of surprises<figure><img src="https://images.theconversation.com/files/281502/original/file-20190627-76701-1cldpad.png?ixlib=rb-1.1.0&rect=377%2C0%2C2868%2C2000&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">As uncertain as 2019-20 is, The Conversation's team of 20 leading economists are in broad agreement that the outlook isn't good. Scott Morrison and Treasurer Josh Frydenberg will also have to deal with the unexpected.</span> <span class="attribution"><span class="source">Wes Mountain/The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>During the election we were promised jobs and growth. But in 2019-20 The Conversation’s forecasting panel is predicting an economic growth rate as weak as any since the financial crisis, as well as dismal consumer spending, no improvement in unemployment or wage growth, and an increased chance of recession.</p>
<p>As in <a href="https://theconversation.com/no-surplus-no-share-market-growth-no-lift-in-wage-growth-economic-survey-points-to-bleaker-times-post-election-110315">January</a>, The Conversation has assembled a forecasting panel of 20 leading economists from 12 universities across six states. Among them are macroeconomists, economic modellers, former Treasury, IMF, OECD and Reserve Bank officials, a former government minister and a former member of the Reserve Bank board.</p>
<p>Whereas in January only <a href="https://theconversation.com/no-surplus-no-share-market-growth-no-lift-in-wage-growth-economic-survey-points-to-bleaker-times-post-election-110315">three</a> members of the 20-person panel expected the Reserve Bank to cut interest rates, and most expected an economic growth rate approaching 3% (which is the Treasury’s estimate of the <a href="http://treasury.gov.au/speech/the-macroeconomic-context">best that can be achieved</a> on a sustained basis), this time all but two expect the bank to cut again, and most expect a growth rate closer to 2% – one of the most anaemic since the financial crisis.</p>
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Read more:
<a href="https://theconversation.com/no-surplus-no-share-market-growth-no-lift-in-wage-growth-economic-survey-points-to-bleaker-times-post-election-110315">No surplus, no share market growth, no lift in wage growth. Economic survey points to bleaker times post-election</a>
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<p>On the upside, the panel expects iron ore prices to stay higher for longer than did the budget, it expects home prices to stabilise, and it is predicting the lowest government bond rate on record, making it cheaper than ever before for the government to borrow and spend its way out of trouble.</p>
<p>The panel predicts a surplus in name only in 2019-20, and overwhelmingly believes the government should be prepared to abandon it if it has to in order to keep the economy growing.</p>
<h2>Economic growth</h2>
<p>The panel’s average forecast for year-on-year growth is 2.1%. Year-on-year growth is the measure used in the budget. It compares economic activity throughout all of one financial year with activity throughout all of the previous financial year. The budget forecast for 2019-20 is 2.75%. </p>
<p>Respected forecasters including former Reserve Bank board member Warwick McKibbin and former OECD director Adrian Blundell-Wignall expect much lower growth than 2.1%. McKibbin expects 1.8%; Blundell-Wignall expects 1.5%. Only three of the panel’s 20 forecasts are close to Treasury’s. The rest are lower.</p>
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<p>Some panellists submitted forecasts for Chinese economic growth under sufferance. They made it clear they were forecasting “official” growth, not actual growth which they think is much lower. Even so, most expect official growth to slow as the trade war between the United States and China intensifies. Nigel Stapledon says unless it is reined in (and he thinks it will be) it could bring on recessions. </p>
<p>Other panellists including Rebecca Cassells say the impact of US tariffs on Chinese goods has so far been positive for Australia. China has responded by investing in infrastructure projects that need Australian iron ore and coal. This, together with reduced competition from other suppliers of iron ore after the collapse of a tailings dam and mine closures in Brazil, has lifted the price and volume of Australian exports to levels not seen for some time.</p>
<p>The panel expects robust United States growth of 2.6% in 2019, although many members are concerned about the year that will follow. The only panellist to forecast low US growth in this year (1%) is Blundell-Wignall, who until last year analysed world economies in his role as special advisor to the OECD secretary general.</p>
<h2>Living standards</h2>
<p>Jobs growth will disappoint both the Treasury, which has forecast unemployment of <a href="https://budget.gov.au/2019-20/content/overview.htm#our-plan">5%</a> by the end of the financial year, and Reserve Bank Governor Philip Lowe, who has adopted a target of “<a href="https://www.rba.gov.au/speeches/2019/sp-gov-2019-06-04.html">4 point something</a>”.</p>
<p>All but three of the 20-person panel expect the rate to stay above 5%. The average forecast is 5.3%, which is close to the present 5.2%.</p>
<p>Stapledon says Australia’s recent strong employment growth has been “out of kilter” with slower GDP growth and the winding down of housing construction, meaning jobs growth is set to slow down, pushing up unemployment.</p>
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<p>Brendan Coates says underemployment is also climbing as more people work fewer hours than they would like, making it harder for them to push for wage rises. Rebecca Cassells points out that full-time employment has grown almost twice as fast among women than men, which, given the low rates of pay in the industries that traditionally employ women, is likely to further depress average wages.</p>
<p>The headline measure of living standards, GDP per capita, has been falling, but a better measure, real net disposable income per capita, which takes better account of buying power, has been continuing to climb. The panel expected to climb a further 1% over the year to June 2020, after climbing 1.3% in the year to March. </p>
<p>Nominal GDP, which takes full account of mining revenue and drives company profits and the budget revenue, has grown 5% over the past year and is expected to grow 3% in the year ahead.</p>
<h2>The risk of recession</h2>
<p>The panel regards a recession as more likely <a href="https://theconversation.com/no-surplus-no-share-market-growth-no-lift-in-wage-growth-economic-survey-points-to-bleaker-times-post-election-110315">than it did in January</a>, assigning a 29% probability to a conventionally defined recession in the next two years, up from 25%.</p>
<p>Economic modeller Janine Dixon says the bulk of Australia’s recent economic growth has come from higher commodity prices via exports.</p>
<p>She says without them, Australia would be reliant on weak wage and consumption growth, although she believes high population growth will be enough to ensure economic activity doesn’t shrink for two consecutive quarters which would be the conventional definition of a recession.</p>
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<p>Former Treasury and ANZ Bank economist Warren Hogan says with consumers tightening their belts, an external shock could easily knock Australia into a recession. </p>
<p>Julie Toth, an economist at the Australian Industry Group who has also worked for the Productivity Commission, says with growth already low, it won’t take much to turn it negative.</p>
<p>Debt theorist Steve Keen, who assigns a 95% probability a recession (as he did in January) says Australia escaped that fate during the global financial crisis in part by boosting grants to first home buyers, which made Australian households among the most indebted in the world and “put off the day of reckoning” when those debts would be unwound.</p>
<p>Through a mix of good luck and good management, Australia has avoided a recession during three global downturns since the early 1990s: the 1997 Asian economic crisis, the early 2000s dotcom collapse, and the 2007-09 global financial crisis. If it succeeds again it will enter its fourth decade recession-free in this term of government in mid-2021. </p>
<h2>Wages and prices</h2>
<p>The panel expects continued historically wage growth of only 2.2% in 2019-20, slightly weaker than the latest reading of 2.3% and well short of the budget forecast of 2.75%. If that average forecast is right, it will be the seventh consecutive year in which wage growth has <a href="https://theconversation.com/its-the-budget-cash-splash-that-reaches-back-in-time-114188">fallen short of the budget forecast</a>. </p>
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<p>The good news (for wage earners) is that even that unusually low rate of wage growth would be well above the rate of inflation, which is expected to be only 1.5%, or 1.4% on the so-called “underlying” basis watched closely by the Reserve Bank.</p>
<p>The bad news for the Reserve Bank is that it will put inflation well outside the bank’s target band of 2-3% for the fifth consecutive year, raising questions about whether there is <a href="https://theconversation.com/vital-signs-the-rbas-marching-orders-are-no-longer-realistic-theyll-have-to-change-118693">any point to the band</a>.</p>
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<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/279442/original/file-20190613-32335-10rbga9.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/279442/original/file-20190613-32335-10rbga9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/279442/original/file-20190613-32335-10rbga9.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=221&fit=crop&dpr=1 600w, https://images.theconversation.com/files/279442/original/file-20190613-32335-10rbga9.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=221&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/279442/original/file-20190613-32335-10rbga9.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=221&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/279442/original/file-20190613-32335-10rbga9.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=278&fit=crop&dpr=1 754w, https://images.theconversation.com/files/279442/original/file-20190613-32335-10rbga9.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=278&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/279442/original/file-20190613-32335-10rbga9.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=278&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">For years now, inflation has mostly been below the band.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/mf/6401.0">ABS 6401.0</a></span>
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<p>Mark Crosby, Warren Hogan and Adrian Blundell-Wignall suggest broadening the target band to 1-3%. Tony Makin and Nigel Stapledon suggest cutting it to 1-2%. </p>
<p>Richard Holden and Warwick McKibbin suggest ditching it altogether and replacing it with a target for nominal GDP growth. McKibbin suggests a nominal GDP target of 6%, which given the present forecast for weaker nominal GDP growth would mean interest rate cuts. In better times it would mean rate rises.</p>
<p>Chris Edmond and Craig Emerson defend the 2-3% inflation target saying that what is really concerning is the bank’s preparedness to stay beneath the target band for extended periods.</p>
<h2>Home prices</h2>
<p>The panel expects only modest falls in Sydney and Melbourne house prices of 2-3% in each city after falls of 10% over the past year. It is more optimistic on home building than is the Treasury, expecting housing investment to fall by 4.9% rather than the budget forecast of 7%.</p>
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<h2>Business</h2>
<p>None of the panellists expects household spending to grow by the 2.75% forecast in the budget. On average, the panel expects spending growth of just 1.9% in 2019-20, which is little better than the present 1.8% and only few points above population growth.</p>
<p>Janine Dixon blames continuing weak growth in wages and incomes. Nigel Stapledon says much of it flows from the weaker housing market. Household furnishings drive household spending growth. Household spending drives GDP growth, accounting for more than half of it.</p>
<p>In better news, the panel expects mining investment to rebound after sliding for most of the last five years. Its forecasts of growth in mining investment of 4.4%, and growth in non-mining investment of 4%, are in line with budget forecasts.</p>
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<h2>Interest rates and the budget</h2>
<p>Perhaps surprisingly given its forecasts for weak employment growth, weak economic growth and weak inflation, the panel’s average forecast for interest rates is for just one more cut, perhaps as soon as July 2, but some time in the second half of the year. </p>
<p>Only five panellists expect a followup cut in the first half of next year, but among them are Craig Emerson, Richard Holden and Steve Keen, who were the only three to <a href="https://theconversation.com/no-surplus-no-share-market-growth-no-lift-in-wage-growth-economic-survey-points-to-bleaker-times-post-election-110315">correctly</a>) forecast in January that there would be a rate cut at all this year.</p>
<p>Holden expects two further rate cuts in the second half of this year, taking the Reserve Bank cash rate to 0.75%, and then a further two in the first half of next year, taking it to just 0.25%. Keen expects one further cut on the second half of this year and another two in the first half of next year, taking it to 0.5%.</p>
<p>Warwick McKibbin is the only panellist expecting the Reserve Bank to change course, expecting one further cut this year and then a series of increases as ballooning debt makes the Reserve Bank and other central banks realise they cut too far, pushing the cash rate back up to 1.5%.</p>
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<p>The panel expects a government 10-year borrowing rate of just 1.5%, which is about the lowest it has ever been. A year ago the 10-year bond rate was 2.7%. The ultra low rate will both make it easier for the government to borrow and cut the cost of servicing its existing debt as loans are rolled over.</p>
<p>In further good news for the budget, the panel expects a substantially higher spot iron ore price than does the government, of US$95 a tonne by mid next year instead of the fall to US$55 assumed by the Treasury.</p>
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<p>The forecast is somewhat above the Department of Industry’s <a href="https://www.industry.gov.au/">new July forecast</a> of US$95 a tonne by the end of this year trending down to US$61 by the end of 2020, but are way in excess what was forecast in the budget. A <a href="https://budget.gov.au/2019-20/content/bp1/download/bp1_bs7.pdf">sensitivity analysis</a> included in the budget said that for every US$10 that the iron ore price was higher than budgeted, the government’s tax take would be A$1.1 billion higher in 2019-20 and A$3.7 billion higher in 2020-21.</p>
<p>The panel expects the Australian dollar to remain broadly where it is at just below 70 US cents as the upward push from strong commodity prices offsets the downward push from domestic economic weakness.</p>
<p>Yet despite the iron ore price and lower borrowing costs the panel expects a much weaker budget outcome than the A$7.1 billion surplus forecast in April.</p>
<p>Its average forecast is for a surplus of only $1.7 billion, which is a mere sliver of GDP (0.1%), practically indistinguishable from a deficit of the same amount.</p>
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<p>The forecasts come after <a href="https://www.finance.gov.au/publications/commonwealth-monthly-financial-statements/2019/mfs-may/">Finance Department figures</a> for May released on Friday raised the possibility of an early return to surplus in 2018-19. They suggest that surplus is at risk in 2019-20 and beyond, both because of economic weakness and an because of an increasingly urgent need to respond to that weakness through spending or further tax cuts.</p>
<p>Asked whether should the government strive to continue to deliver its promise of a surplus if economic growth remains weak or weakens further, former OECD director Adrian Blundell-Wignall replied bluntly, “of course not”.</p>
<p>The only panellists prepared to defend the continued pursuit of a surplus in the economy remained weak or weakened were Ross Guest, who said it was a worthwhile aim given the steady rise in government debt to GDP ratio, and Tony Makin, who qualified his reply by saying the surplus should be achieved by pruning unproductive expenditure such as industry assistance rather than deferring tax cuts. </p>
<p>Former government minister Craig Emerson regretfully forecast that the government would deliver a surplus whatever the economic circumstances, for political reasons.</p>
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<h2>The Conversation 2019-20 Forecasting Panel</h2>
<p><em>Click on economist to see full profile. Forecasts as of June 24, 2019.</em></p>
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<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Conversation’s distinguished panel predicts unusually weak growth, dismal spending, no improvement in either unemployment or wage growth, and an increased chance of recession.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1161022019-05-14T10:45:12Z2019-05-14T10:45:12ZThe electric vehicle revolution will come from China, not the US<figure><img src="https://images.theconversation.com/files/273876/original/file-20190510-183112-1itzvrn.jpg?ixlib=rb-1.1.0&rect=205%2C195%2C3071%2C2208&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A Chinese hybrid-electric SUV made by BYD.</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:BYD_Tang_EV_001.jpg">Jengtingchen/Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>The electric vehicle revolution is coming, but it won’t be driven by the U.S. Instead, China will be at the forefront.</p>
<p>My research on EVs, dating back a decade, convinces me that this global transformation in mobility, from petroleum-fueled vehicles to electric ones, will come sooner than later. The shift is already happening in China, which is the world’s largest automobile market, with <a href="http://carsalesbase.com/china-car-sales-analysis-2018-brands">23 million cars sold in 2018</a>. As Western countries approach peak car ownership, there are still hundreds of millions of Chinese families that <a href="https://www.csis.org/analysis/chinas-risky-drive-new-energy-vehicles">don’t own a car at all</a> – much less two or more.</p>
<p>Many of them are buying electric cars. By 2015, electric vehicle sales in China had <a href="http://www.ev-volumes.com/country/total-world-plug-in-vehicle-volumes">surpassed U.S. levels</a>. In 2018, <a href="http://www.ev-volumes.com/country/total-world-plug-in-vehicle-volumes/">Chinese sales topped 1.1 million cars</a>, more than 55% of all electric vehicles sold in the world, and more than <a href="http://www.ev-volumes.com/news/global-plug-in-vehicle-sales-for-2017-final-results/">three times as many</a> as Chinese customers had bought two years earlier. U.S. electric vehicle sales that year were just 358,000.</p>
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<p>A key element of an electric vehicle’s price is the cost of its batteries – and China already <a href="https://www.bloomberg.com/news/articles/2017-06-28/china-is-about-to-bury-elon-musk-in-batteries">makes more than half</a> of the world’s electric vehicle batteries. Battery prices continue to fall; industry analysts now suggest that <a href="https://www.theicct.org/publications/update-US-2030-electric-vehicle-cost">within five years it will be cheaper</a> to buy an electric car than a gas- or diesel-powered one.</p>
<p>Forecasts predict the Chinese producing <a href="https://about.bnef.com/blog/breakneck-rise-chinas-colossus-electric-car-batteries/">as much as 70% of the world’s electric vehicle batteries</a> by 2021, even as the demand for electric car batteries grows.</p>
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<h2>Huge government backing</h2>
<p>China has a <a href="https://www.bloomberg.com/news/articles/2019-04-14/the-18-billion-electric-car-bubble-at-risk-of-bursting-in-china">fledgling, but ambitious</a>, automobile industry. It has never been able to <a href="https://www.csis.org/analysis/chinas-risky-drive-new-energy-vehicles">match the efficiency and quality</a> of established automakers at making gas-powered vehicles, but electric vehicles are <a href="https://www.csis.org/analysis/chinas-risky-drive-new-energy-vehicles">easier to build</a>, giving Chinese firms a new opportunity to compete.</p>
<p>The Chinese government, therefore, has chosen to highlight electric vehicles as one of 10 commercial sectors central to its “<a href="https://www.cfr.org/backgrounder/made-china-2025-threat-global-trade">Made in China</a>” effort to boost advanced industrial technology. Government efforts include using <a href="https://www.cfr.org/backgrounder/made-china-2025-threat-global-trade">billions of dollars to subsidize</a> manufacturing of electric vehicles and batteries, and encouraging businesses and consumers to buy them.</p>
<p>The government is also aware that electric vehicles could help solve some of <a href="https://doi.org/10.3390/su11061711">China’s most pressing energy and environmental concerns</a>: Massive air pollution chokes its major cities, national security officials are worried about how much oil the country imports and China is now the nation contributing most to global climate change emissions.</p>
<h2>New companies</h2>
<p><a href="https://www.bloomberg.com/news/articles/2019-04-14/the-18-billion-electric-car-bubble-at-risk-of-bursting-in-china">Scores of Chinese auto-making companies</a> have formed to profit from these subsidies. A major player is BYD, which stands for “Build Your Dreams,” headquartered in Shenzhen. More than a decade ago, billionaire investor Warren Buffett bought about <a href="http://fortune.com/2018/09/26/warren-buffett-berkshire-hathaway-byd-china-electric-cars/">a quarter of the company for US$232 million</a> – a share that is now worth more than $1.5 billion.</p>
<p>The company’s initial plans to export vehicles to the U.S. proved premature and fizzled. BYD instead started to focus mainly on the Chinese auto market, as well as building <a href="https://www.wsj.com/articles/china-has-early-lead-on-electric-commercial-vehicles-1543755601">electric buses for the global market</a>, which it now dominates.</p>
<p>If BYD’s electric car plans falter, though, there are plenty of other Chinese firms ready to pick up the slack.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/273878/original/file-20190510-183089-1c2g03v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/273878/original/file-20190510-183089-1c2g03v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/273878/original/file-20190510-183089-1c2g03v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/273878/original/file-20190510-183089-1c2g03v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/273878/original/file-20190510-183089-1c2g03v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/273878/original/file-20190510-183089-1c2g03v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/273878/original/file-20190510-183089-1c2g03v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/273878/original/file-20190510-183089-1c2g03v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">BYD’s 2019 Yuan 360EV is an all-electric SUV available in China.</span>
<span class="attribution"><span class="source">BYD</span></span>
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</figure>
<h2>Further support</h2>
<p>In addition to the government subsidies to ensure BYD and its competitors have lots of customers, new government regulations are kicking in. The Chinese government now requires all automakers who sell in China, whether domestic or foreign firms, to make a certain percentage of their sales electric, through a complex crediting formula. The mandate will get stricter over time, perhaps requiring each company to make <a href="https://www.bloomberg.com/news/articles/2018-11-14/china-is-about-to-shake-up-the-world-of-electric-cars-quicktake">at least 7% of their sales electric by 2025</a>. </p>
<p>Major foreign car companies have <a href="https://www.csis.org/analysis/chinas-risky-drive-new-energy-vehicles">large investments in China</a> and can hardly afford to abandon the market. Volkswagen, for example, now <a href="https://www.dw.com/en/press-releases/china-is-most-important-battleground-for-carmakers/a-46988765">sells 40% of its output</a> in China, which is a main reason the company is <a href="https://www.volkswagen-newsroom.com/en/press-releases/china-plays-key-role-in-volkswagen-groups-e-mobility-strategy-4836">pushing hard to develop electric vehicles</a>.</p>
<p>China’s domestic automakers have largely not yet engaged in the export market. Electric vehicle industry analyst Jose Pontes says there are <a href="https://cleantechnica.com/2019/02/18/top-10-best-selling-fully-electric-vehicle-brands-in-2019/">three reasons for their reluctance</a>: First, the Chinese market is big enough to absorb their current production. Second, many car companies in China are utterly unknown in the West, so customers would be wary of buying from a strange brand. And third, their cars do not yet comply with strict safety regulations in the U.S. and Europe.</p>
<p>However, all of those obstacles can be overcome with time and money. It’s possible Chinese electric car companies could enter the low- to middle-income market in the West, as <a href="https://mentalfloss.com/article/68811/how-hitlers-volkswagen-beetle-conquered-america">Volkswagen did 60 years ago</a>.</p>
<p>If – or when – that happens, inexpensive, efficient electric cars may spread through the West from China, surpassing Tesla and other American and European electric vehicle efforts. Only Western government attempts to protect domestic automakers with tariffs and other trade barriers could derail this development.</p><img src="https://counter.theconversation.com/content/116102/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jack Barkenbus does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Chinese electric vehicle sales already amount to more than half of the world’s total – and car makers and battery manufacturers are working hard to grow even faster.Jack Barkenbus, Visiting Scholar, Vanderbilt Institute for Energy & Environment, Vanderbilt UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1121192019-02-27T11:41:47Z2019-02-27T11:41:47ZChina is catching up to the US on artificial intelligence research<figure><img src="https://images.theconversation.com/files/260051/original/file-20190220-148520-6uvc8t.jpg?ixlib=rb-1.1.0&rect=278%2C35%2C2465%2C1387&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The U.S. may be ahead for now, but not by much.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/illustration-little-robot-hold-china-flag-1163324068?src=atevuP_ymoILY2cQjccFbA-1-0">onime/Shutterstock.com</a></span></figcaption></figure><p>Researchers, companies and countries around the world are racing to explore – and exploit – the possibilities of artificial intelligence technology. China is working on an extremely aggressive <a href="https://www.nytimes.com/2017/07/20/business/china-artificial-intelligence.html">multi-billion-dollar plan</a> for government investment into AI research and applications. The U.S. government has been slower to act. </p>
<p>The Obama administration issued a <a href="https://obamawhitehouse.archives.gov/blog/2016/10/12/administrations-report-future-artificial-intelligence">report on AI</a> near the end of its term. Since then, little has happened – until a <a href="https://www.whitehouse.gov/presidential-actions/executive-order-maintaining-american-leadership-artificial-intelligence/">Feb. 11 executive order</a> from President Donald Trump encouraging the country to do more with AI.</p>
<p>The executive order has several parts, including directing federal agencies to invest in AI and train workers “in AI-relevant skills,” making federal data and computing resources available to AI researchers and telling the National Institute of Standards and Technology to create standards for AI systems that are reliable and work well together. These are all good ideas, but they lack funding and bureaucratic structure. So after <a href="https://scholar.google.com/citations?user=QUhNN6QAAAAJ&hl=en">researching how large organizations use AI</a> for the past five years, in my view the executive order alone is not likely to <a href="https://www.foxnews.com/opinion/trumps-artificial-intelligence-executive-order-will-ensure-america-doesnt-lose-the-ai-race-to-china">transform the American approach</a> to AI. </p>
<h2>Government spending</h2>
<p>China is doing far more than talking about AI. In 2017, the country’s <a href="http://www.gov.cn/zhengce/content/2017-07/20/content_5211996.htm">national government announced</a> it wanted to make the country and its industries <a href="https://www.nytimes.com/2017/07/20/business/china-artificial-intelligence.html">world leaders in AI technologies</a> by 2030. The government’s latest venture capital fund is expected to invest <a href="https://www.techinasia.com/report-chinas-government-establishes-30-billion-vc-fund">more than US$30 billion</a> in AI and related technologies within state-owned firms, and that fund joins even larger state-funded VC funds.</p>
<p><a href="https://www.nytimes.com/2018/02/12/technology/china-trump-artificial-intelligence.html">One Chinese state alone</a> has said it will devote $5 billion to developing AI technologies and businesses. The city of <a href="https://www.reuters.com/article/us-china-artificial-intelligence/beijing-to-build-2-billion-ai-research-park-xinhua-idUSKBN1ES0B8">Beijing</a> has committed $2 billion to developing an AI-focused industrial park. A major port, Tianjin, plans to <a href="https://www.reuters.com/article/us-china-ai-tianjin/chinas-city-of-tianjin-to-set-up-16-billion-artificial-intelligence-fund-idUSKCN1II0DD">invest $16 billion</a> in its local AI industry.</p>
<p>These government programs will support ambitious major projects, startups and academic research in AI. The national effort also includes using AI in China’s defense and intelligence industries; the country’s leaders are not reluctant to use AI for <a href="http://www.sciencemag.org/news/2018/02/china-s-massive-investment-artificial-intelligence-has-insidious-downside">social and political control</a>. For example, both AI-driven facial recognition, even to <a href="https://www.theverge.com/2018/11/22/18107885/china-facial-recognition-mistaken-jaywalker">catch jaywalkers</a>, and “<a href="https://www.wired.co.uk/article/china-social-credit-system-explained">social credit</a>” – an AI-driven credit score that factors in social behaviors – are already in use.</p>
<p><a href="https://media.defense.gov/2019/Feb/12/2002088963/-1/-1/1/SUMMARY-OF-DOD-AI-STRATEGY.PDF">U.S. investment plans</a>, mostly in the defense industry, are dwarfed by the Chinese effort. DARPA, the Defense Department’s research arm, has sponsored AI research and competitions for many years, and has a $2 billion fund called “<a href="https://www.darpa.mil/news-events/2018-11-16">AI Next</a>” to help develop the next wave of AI technologies in universities and companies. It’s not yet clear how much real progress its efforts have made. </p>
<h2>Private sector contributions</h2>
<p>The U.S. has a strong private sector effort in this technology. There are, for instance, <a href="https://www.linkedin.com/pulse/global-artificial-intelligence-landscape-including-3465-westerheide/">many more AI firms in the U.S.</a> than in China. </p>
<p>American investment appears strong, too. In 2015, for example, the combined research and development spending at the U.S.-headquartered companies Google, Apple, Facebook, IBM, Microsoft and Amazon was <a href="https://www.axios.com/how-ai-is-taking-over-the-global-economy-in-one-chart-1513303050-f4f4f807-5d32-4a2d-bf8c-8d639c41849d.html">$54 billion</a>. Much of that spending <a href="https://www.techworld.com/picture-gallery/data/tech-giants-investing-in-artificial-intelligence-3629737/">went toward AI research</a>, but some of the work <a href="http://fortune.com/2017/12/13/google-china-artificial-intelligence/">actually happened in China</a> and elsewhere outside the U.S. That work has been used to <a href="https://www.businessinsider.com/brands-are-using-artificial-intelligence-to-tailor-personalized-marketing-messages-2018-10">personalize ads</a>, <a href="https://blogs.cornell.edu/info2040/2015/10/18/using-artificial-intelligence-to-improve-search-engine-optimization/">improve search results</a>, <a href="https://www.zdnet.com/article/microsoft-heres-why-we-need-ai-facial-recognition-laws-right-now/">recognize and label faces</a> and generally <a href="https://www.adweek.com/digital/what-to-expect-as-amazon-delves-deeper-into-smart-homes-and-ai/">make products smarter</a>.</p>
<p>In China, the private sector is much more closely tied to government plans than in the U.S. The Chinese government has asked <a href="https://www.scmp.com/tech/china-tech/article/2120913/china-recruits-baidu-alibaba-and-tencent-ai-national-team">four large AI-oriented firms in China</a> – Baidu, Tencent, Alibaba and iFlytek – to develop AI hardware and software systems to handle autonomous driving and language processing, so other companies could build on those skills.</p>
<p>China may have also surpassed the American historic advantage in venture capital investments. In 2018, U.S. AI startups received $9.3 billion in venture funding – a record amount, but the number of deals was down from 2017. However, one report from China suggests that in the first half of 2018, Chinese venture investments – many of which involved AI – were <a href="https://www.ai-cio.com/news/chinese-vc-investments-tops-us-first-time/">higher than in the U.S.</a> Data from 2017 suggest that <a href="https://www.cnbc.com/2018/12/14/china-could-surpass-the-us-in-artificial-intelligence-tech-heres-how.html">Chinese AI firms received more venture funding</a> than U.S. companies, although the American funding went to many more firms.</p>
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<h2>Beyond investment money</h2>
<p>There are other factors than investment that determine a country’s long-term competitiveness on AI. Talent is an important one. The U.S. had an historical edge in this regard, with strong technical universities, many technology sector employers and relatively open immigration policies. </p>
<p>A recent <a href="https://technode.com/2017/08/24/is-china-really-that-far-ahead-in-ai-research-says-no/">analysis of LinkedIn data</a> suggests that the U.S. has far more AI engineers than China does. But China is closing the gap rapidly, with a variety of <a href="https://www.wired.co.uk/article/china-artificial-intelligence-education-superpower">education and training programs</a> beginning as early as elementary school. The Trump administration’s <a href="https://theconversation.com/is-there-a-crisis-at-the-us-mexico-border-6-essential-reads-109547">restrictions on immigration</a> are encouraging some of the world’s best AI researchers to stay home, rather than come to the U.S.</p>
<p>Another element in long-term AI success is how particular regions build mutually reinforcing communities of companies, university ecosystems and government agencies. <a href="https://theconversation.com/silicon-valley-from-hearts-delight-to-toxic-wasteland-86983">Silicon Valley</a> is the world leader in this regard, and China doesn’t have anything to match it yet. Both the U.S. and China could learn from efforts in Canada, such as the work by the Montreal Institute for Learning Algorithms, which has offered companies access to facilities, venture capital and university research partnerships to accelerate AI development in that city.</p>
<p>A final key element in AI progress is data: The more data a country’s companies have, the better able they are to develop capable AI systems. Chinese online firms have massive amounts of consumer data on which to train machine learning algorithms. Because of its very large number of inhabitants, the population’s heavy use of digital services and its <a href="https://www.wired.com/story/health-care-data-lax-rules-help-china-prosper-ai/">lax regulatory environment</a>, China clearly beats the U.S. on data.</p>
<p>I still think the U.S. has the edge over China in AI capabilities at the moment. However, as much as I would like the U.S. to win this race over the long run, if I were a betting man I would bet on China. As I describe in my new book “<a href="https://mitpress.mit.edu/books/ai-advantage">The AI Advantage</a>,” China is executing its strategy for AI, and the U.S. is still wrestling to create one. China is also reaping the benefits of having a determined government, an inexhaustible pot of money, a growing cadre of smart researchers and a large, digital-hungry population. </p>
<p>Perhaps if the leadership of the U.S. government devoted as much attention and investment to AI as it does to its other strong priorities, the U.S. could maintain its lead in the field. That seems unlikely over the next couple of years, however.</p>
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<header>Thomas H. Davenport is the author of:</header>
<p><a href="https://mitpress.mit.edu/books/ai-advantage">The AI Advantage: How to Put the Artificial Intelligence Revolution to Work</a></p>
<footer>MIT Press provides funding as a member of The Conversation US.</footer>
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</p><img src="https://counter.theconversation.com/content/112119/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>MIT Press provides funding as a member of The Conversation US.</span></em></p>A recent executive order from President Trump won’t do much to help the US stay ahead of Chinese innovation and investment in AI.Thomas H. Davenport, Professor of Information Technology and Management, Babson CollegeLicensed as Creative Commons – attribution, no derivatives.