Strong foundation: DARYL GUPPY
20 Mar 2023


Policies will build on the development achievements of the past five years


China's two sessions set the policy environment for future development by building on the assessment of previous policy progress.


The Government Work Report highlighted China's achievements in deepening reform, expanding opening-up policies, and encouraging foreign investment over the past five years. Achievements also included initiating mutually beneficial international economic and trade cooperation by participation in a number of multilateral trade agreements, including the Regional Comprehensive Economic Partnership. This agreement is particularly important because it provides a multilateral platform for China's engagement with regional trade partners. This will become a bulwark against efforts by some to contain and encroach on China's economic growth and trade relationships. One of the RCEP functions is to stabilize the foundations of the emerging digital economy.


These have been significant areas of advancement and achievement. The Chinese economy, capital markets, and economic structure have matured and become more sophisticated. These changes provide an attractive foundation for the new development of foreign investment in capital markets as well as a foundation for stable growth.


China's growth is not a pale imitation of the West. The economic structure and drivers have a different emphasis, with less value being assigned to greed. This is a foundational philosophical difference that underpins socialism with Chinese characteristics. The objective is for new economic development to contribute to common prosperity and to reduce and avoid the extreme concentration of wealth seen in other economies.


These developments have also created a platform for rapid advancement into a digital economic framework which further enhances international trade cooperation. Progress accelerated before and during the COVID-19 pandemic has resulted in a fundamental change to economic efficiency by eliminating transactional barriers in trade and settlement.


Already comprehensively integrated into daily life in China, it is easy to miss the significance of these achievements that leave Western digital economic activity behind. The advances in the digital economy help alleviate poverty by providing bank-like access for those who were previously unbanked and left at the mercy of money lenders.


At the same time, the achievements are so significant that they have triggered an unfavorable response from the United States under the Joe Biden administration. Instead of viewing this as a competitive environment, the administration sees it as a threat to the US' supremacy. Rather than try to emulate these advances in the digital economy, the administration has chosen to impede and sabotage this progress with the CHIPS and Science Act and other barriers.


China's expansion of the number of free trade zones is also important as an enabler for the physical economy. The reduction in items on the negative list further enhances trade activity. However, it is the application of the digital economy in these zones that is truly groundbreaking.


The use of China's digital currency and blockchain certification ensures authenticity and reduces counterparty risk. Trade settlement is accelerated, removing the time and carried risks associated with cross-border trade settlement by using the old Society for Worldwide Interbank Financial Telecommunication system.


Although not directly mentioned in the Government Work Report, investors cannot ignore the potential for the US to use its power to hinder and sabotage China's digital economic development because it sees China's growth as a threat to its own supremacy. The actions by the US impose a new level of risk that foreign investors must consider. This risk is countered as the world is showing growing reluctance to fund the US' ever expanding debt. This will put increasing pressure on the way capital investment flows globally. Recent discussions with the United Arab Emirates are an early indication of the role that China's digital currency may play.


China's continued support for multilateral trade solutions aims at win-win results. These include high-quality joint construction projects under the Belt and Road Initiative. Although often dismissed by ill-informed Western commentators, the initiative continues to expand its record of success. It provides an avenue for genuine cooperative trade and enables new trade relationships. The import and export volume of goods to countries involved in the Belt and Road Initiative has increased by an annual average rate of 13.4 percent.


Six new free trade agreements were signed or upgraded over the past five years, and the proportion of import and export of goods with free trade partners increased from 26 percent to about 35 percent. These agreements are evidence that China is acting as a major, responsible country that supports the work of the United Nations and the concept of multilateral polarity.


The Global South has a champion in China when it comes to adjusting the unfair balance that currently exists in world trade relationships and with rules that are designed to protect some participants but not others. China's commitment to open trade brings benefits to the Global South and stands in contrast to the previous exploitative approaches.


The author is an international financial technical analyst and a former national board member of the Australia China Business Council. The author contributed this article to China Watch, a think tank powered by China Daily.


Source: China Daily Global