Index > Briefing
Monday, August 10, 2020
China Should Strive for 'Independent and Fully Open'
Chan Kung

It is not entirely surprising that the geopolitical landscape today has changed so dramatically. Research articles and policy analyses over the past decade have clearly shown that the trajectory of the trend is consistent with reality. The question going forward is, we all know that the geopolitical landscape has changed a lot, but how exactly has it changed? This requires sorting out some major issues and defining them appropriately.

First of all, globalization is the issue that has been most affected by the changes in the geopolitical landscape. Now we are in the anti-globalization stage of globalization, so we are facing a great situation of contraction, correction, and adjustment of the world market. It is clear that sustained growth is gone, and that is a big change. Many scholars and officials have talked about globalization for decades, and their planned global industrial chain is based on the globalization. Therefore, anti-globalization has disrupted their position to some extent. However, it may not be too late to change the position now. In short, the global external market is in dispute, and it is difficult to get involved in and profit from it.

Second, China will experience a prolonged period of financial constraints. The COVID-19 pandemic and flood crisis in China have reached the critical stage where there are less monetary resources available for relief. More troubling, China is transforming from a production-based society to one that is a consumption-oriented. With such transformation, there will be a lot of excess capacities and debts that will inevitably drag down its finances and strain it in the long run. Therefore, it is crucial for China now to strengthen its market construction and not to rely on the government. Only when markets and capital markets are booming, then the strained fiscal and debt pressure can be relieved. Of course, the future of market construction depends on the determination of the central government. Such is the bigger picture of the situation, and that means China would not achieve anything if no proper action is taken.

Third, the industrial layout in China must be adjusted. The economic take-off of China's southeastern coast has relied on the world market, and later relied on real estate. Now, changes in geopolitics and real estate policies will inevitably lead to structural adjustments in the economy. The external market has been shaken, and the real estate market is nearing its peak, even if it still can develop. Therefore, in the future, more attention should be paid to promoting the transfer of industries to the central and western regions and seeking to expand China's internal market, as the global geopolitical situation now poses far greater threats to the provinces and cities along China's southeastern coast than the central and western regions. The central and western regions are a matter of development and expansion, while the southeastern coast is a matter of resisting risks and reducing losses. When the southeast coaster and the central-western regions achieve integrated development, then China's economy, especially its industries, can be stabilized.

Fourth, stability has become a competition. The current world situation and the Chinese economy are competing to see who can maintain stability. The stability here refers to structural stability and the overall stability, which can no longer be taken to extremes, and the policy must be aimed at seeking equilibrium. Under certain risk conditions, those who go fast will also fail fast, which is the meaning of stability. Japan was very impulsive throughout the 20th century, going through several ups and downs that eventually cost it dearly. To sum up Japan's experience in the 20th century, what it gets is a "pacifist constitution". Thus, stability is still the best policy.

Fifth, to pursue overall development, China must think about the bottom-line. The situation is now so fluid that everything that used to be impossible to believe has happened. There are much to learn here, but the most important thing is to have the bottom-line thinking, to figure out what's the worst that could happen, and it is very dangerous to ignore the worst-case scenario. Therefore, given the current situation and the pandemic situation, the current 14thFive-Year Plan of China is overly optimistic, and it is likely that there will be unachievable areas in this Five-Year Plan.

Of course, there's a lot more to the situation than that. Now everything is a fait accompli, and conceived development can only be considered based on fait accompli.

At a meeting of the Standing Committee of the Political Bureau of the CPC Central Committee on May 14, 2020, it was first proposed to give full play to China's advantage in its super-large market and the potential of domestic demand, and build a new pattern of development in which both domestic and international cycles reinforce each other. During the NPC and CPPCC sessions in May this year, President Xi Jinping called for "a new pattern of development in which the major domestic cycles play a dominant role and both domestic and international cycles reinforce each other". This is a clear strategic response in the general direction.

The question for the future is how to proceed on the premise of a clear direction. This can be summed-up as being "independent and fully open".

Independence refers to the "inner circulation" or "internal cycle" of China's economy; it means to do well in its "domestic affairs", and this should be done independently. Those systemically important industrial sectors, financial sectors, economic regions, urban economies, as well as key resource combinations that are crucial to China's economy, should rely more on their strength to grow bigger, become more stable, stronger, and better. As long as this is achieved, at least economic independence can be achieved. China's market space then can be expanded, and its consumption can become the pillar role and value in economic growth. On the other hand, if the country is highly dependent on foreign markets and foreign capital, it will be greatly affected. If there is even a slight disturbance, it will be greatly affected and cause fluctuations, not to mention drastic changes in the world market. In this regard, the experience and lessons of Latin American countries should be paid special attention to. Whether China will fall into the "Latin American trap" depends on this. The difficulty of achieving even basic food security and energy security also demonstrates the seriousness of the problem.

Full opening needs to be maintained in China to cope with the overall situation of the world. In fact, although the trend of global situation is obvious, the world is certainly not a monolithic whole; there are obvious contradictions among countries all over the world. Europe and the United States do not agree on many issues, so do Japan and the United States. Even Australia, which seems to be following the United States closely, has obvious problems of interest division and coordination with the United States. This requires China to keep an eye on the overall situation of the world and further expand its opening-up. What's more, such an opening is a "balanced opening" rather than an opening that focuses on bilateral relations. In that case, even if there is a deal between China and the U.S., Europe will come to the door and demand the same terms and interests. China's interests have been squeezed and receded step by step under the entanglement of other countries. It is better to maintain a level playing field and open the market to the end. China should welcome world capital to share development opportunities in the Chinese market. As long as the world capital believes that China is indeed doing so, China will be considered as a safe haven and such capital would want to seek a share of the Chinese market. If manufacturing capital goes away, financial capital will come, so China still has the opportunity to integrate with the world market.

Therefore, the dual "internal cycle" and the "external cycle" can indeed be integrated and developed in parallel. The key again, is "independent and fully open". As for comprehensive reform, there is, of course, no way to avoid it. Without reform, all-round opening-up would be impossible to achieve. As long as "independence and fully open" is achieved, the world situation will be eased, at least creating better conditions for the easing of the situation.

As for the development of the overall situation, there are only two most important initiatives: one is the Yangtze River Economic Belt and the Yangtze River golden waterway; the other is the construction of a "hydrogen society". The construction of the Yangtze River Economic Belt and the Yangtze River golden waterway is not only a problem of industrial transfer, but also the construction of the consumer market and cities in the central and western regions along the Yangtze River. China still needs to build infrastructure, but where to focus is a macro-strategic issue. Given the shortage of financial resources, I think it is of great practical significance to revive the construction of the Yangtze River Economic Belt and the Golden Waterway. As for the construction of the "hydrogen society", the fundamental purpose is to solve the problem of China's energy security, and it should not be regarded as a minor problem of electric vehicles. In fact, from the perspective of existing technological conditions, the goal of building a "hydrogen society" is the only realistic solution, which is of great significance to the stability and development of China.

The author believes that China's 14thFive-Year Plan should focus on these two points. Developments in technology and telecommunications, while important, are not immediate events, and there may even be a case for greater reliance on external markets rather than independence. Instead, China should focus its future development on "independent and fully open".

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