“A more open China heralds a more beautiful spring,” declared the Chinese ambassador to the UK, Liu Xiaoming, last week at a lecture in the new Bloomberg offices in London.
What was most fascinating about his talk was what he did not mention, rather than what he did. The elephant in the room, and the name that dare not be mentioned: US president Donald Trump.
In the topsy-turvy world in which we now live, China is opening its economy to free trade and globalisation, while the US has shifted to a narrower ‘America First’ policy, defined by a simplistic, mercantilist view of international trade.
“A single flower does not make a spring,” Liu said. “It requires different flowers blooming together. The beauty of the world requires different countries blooming together.”
That China is willing to publicly affirm that belief shows the confidence of a nation that knows its future is going to be better than its past, and that its rising prosperity can also be an enabler for increasing the prosperity of its trading partners. Wealth creation in the world is not a zero-sum game, as America’s mercantilists may believe.
For China, 2018 represents the 40th anniversary of the start of its reform process and the opening up of the Chinese economy. In 1997, its GDP represented 2% of the global economy. In 2017, at $12trn (€10trn), it represents 15% of the global economy and is already the second largest economy on the planet. It is on course to become the largest within the next generation by a factor of two or three.
China may be run by a Communist leadership but, as anyone who has been to China can vouch, its economy has embraced free markets with gusto. The Chinese call it “a path of socialism with Chinese characteristics”. Four decades of reform allows a certain perspective to be had on that process.
The ambassador listed three lessons to be learned. Firstly, to advance the reform process, China had to follow the trends of the times. There was no clear textbook on what should be done; they had to “cross the river by feeling the stones”. The high-speed growth of the first few decades was being abandoned in favour of high-quality growth.
The low hanging fruits have all been plucked, and it is the more difficult issues of what to do with state owned assets, environmental pollution and similar issues that require more resources.
Secondly, to develop further reforms, Liu argued that China needed to find out what had gone wrong in the past, and adopt a solution-led reform process.
Thirdly, the success of the reform process should be judged by its impact on the population, in terms of metrics such as poverty alleviation, urbanisation and the environment, he said.
At the last Party Congress it was made clear that China intended to continue its policy of opening up its economy. The ambassador said this would be done through increasing market access in financial and manufacturing sectors. China would then create a more favourable environment for investment, with more protection for intellectual capital and the break-up of monopolies.
Lastly, it would focus on increasing imports, Liu said. This is clearly an area of great sensitivity for the rest of the world, particularly in the US. China will be cutting tariffs on cars and other products, but it also wants to see a relaxation of rules on technology exports – again a sensitive area for both the US and the EU.
While critics complain that China has not been effectively adhering to World Trade Organisation rules, Trump’s rhetoric has put pressure on China and what we are seeing could be interpreted as a response to such criticisms.
For the UK, China represents its most important trading partner in a post-Brexit world. Germany leads the EU in terms of trade with China, particularly in manufactured goods, and it is hard to see that changing any time soon.
The UK does not have anything to bring out of its cupboard that is going to supplant the demand for BMWs and Mercedes. What the UK does have is a vocal and high-profile consensus with China on upholding globalisation and a multi-lateral global trading system. The US is now adopting a narrow populist and anti-China stance – with Britain at least, China can see the ability to have a very stable long-term partner, and the UK government is anxious to exploit this.
Last week, the UK’s minister for trade and export promotion Rona Fairhead opened the UK’s national pavilion at the Silk Road International Expo (SRIE) in Xi’an. The UK’s largest ever trade delegation to north-west China was in attendance, promoting key sectors where the UK has strengths, particularly advanced manufacturing.
China has encouraged investment in its trade routes, such as the ‘One Belt and One Road’ initiative – this event was an opportunity for UK companies to showcase their prospects for cooperation.
The ambassador made reference to the “golden era” of China-UK relations that opened up after president Xi Jinping’s visit to the UK in 2015. He also suggested that Britain pay attention to China taking a number of major steps to further open up its financial sector this year.
The UK cannot compete with Germany in selling cars to China, but the ambassador did proclaim that Britain had always been at the cutting edge in finance.
For Britain, can it take the lead in the new opportunities that China’s reforms will bring? Post-Brexit, developing more trade with China will be a necessity, not just a daydream.