The most recent International Monetary Fund (IMF) report has a startling piece of information. While it was expected that the global economy would contract, with -4.4 per cent being within the range of the estimate, and that next year the growth would increase to around 5.2 per cent, what is monumental is that around 60 per cent of that global growth will take place in one country: China. The IMF says that China will grow at 1.9 per cent this year, above the 0.9 per cent growth rate forecast in the IMF’s June report. Next year China’s economy will grow 8.2 per cent, says the IMF. This is far higher than the 3.1 per cent that is estimated as the growth in the United States next year. The IMF notes: “While the recovery in China has been faster than expected, the global economy’s long ascent back to pre-pandemic levels of activity remains prone to setbacks.” The road back to normal, the IMF suggests, “will likely be long, uneven, and uncertain”. In fact, with a second wave of infections and lockdowns in Europe and with a never-ending rising curve of infections and deaths in the U.S., there is no way to forecast the levels of economic activity for the remainder of this year, let alone next year.
The difficulty in putting together a vaccine for COVID-19 means that there is no real prospect of a return to significant growth in Europe, Japan or North America. In Europe, by late October, talk of any package for recovery had stalled and the uncertainty around Brexit had created chaos in commercial and financial markets. More stimulus and further bond-buying from the European Central Bank, a near certainty, will certainly keep the boats afloat, but it will not allow them to sail confidently. The Bank of Japan, meanwhile, is not optimistic about the rest of the year or next year. The government of Prime Minister Yoshihide Suga is not keen on an additional stimulus package although this might be necessary at this time. Meanwhile, the U.S. struggles because of a 9 per cent contraction between April and June with little hope of a massive bounce back. The presidential election of 2020 provides uncertainty and hope, but there is every expectation that the modest improvement in the situation is premised upon an impossible control of the pandemic.
Chip industry
Meanwhile, the monumental news is that life has returned to normal in China with internal tourism up and with business activity at normal levels. The U.S. trade war, which had made some gains against China in the early months, seems now an impediment to U.S. business interests. The World Trade Organisation struck down some provisions in the trade war. The U.S. government has tried to break its reliance on the supply chain that includes China and to break the back of Chinese high-tech firms. One instrument used was to prevent U.S. chip manufacturers—such as Intel—from selling computer chips to Chinese firms such as Huawei. Pressure from Washington has now prevented U.S. companies from supplying the Chinese company Semiconductor Manufacturing International Corporation (SMIC) with the machines to make chips. Beijing has tried to jump-start a chip-manufacturing industry for the past three decades; in the recent period, because of U.S. President Donald Trump’s restrictions, the Chinese government has put a lot of effort into building chip-manufacturing firms such as HiSilicon. The more these restrictions bite against China, the harder the Chinese state and business community work to create indigenous manufacturing capacity. This is what will lift China’s growth rate and see the further decline of the U.S. economy.
Over the past two decades, the Chinese government has spent about $50 billion to subsidise its chip-manufacturing industry. Companies such as Tsinghua Unigroup and SMIC have received large disbursements from the government to create a Chinese chip sector. So far, only 27 per cent of the chips used in firms in China are sourced from China; the gap to be made up is significant if U.S. firms are fully unwilling to sell their chips to Chinese firms. The National Development and Reform Commission in China has said that firms should not incur waste but should focus on the development of new technologies. Given the history of Chinese industry, particularly its experience in becoming the world’s leader in solar power, it is likely that China will soon be nearly self-sufficient in chip manufacturing. This will deeply cut into the U.S.’ near monopoly of chip production. The growth of the chip sector will only enhance China’s economic fortunes. Few people in China accept that their future is not going to be brighter than that elsewhere.
Going green
In September, China’s President Xi Jinping pledged that his country would be carbon-neutral by 2060. Xi told the United Nations General Assembly: “We aim to have CO2 emissions peak before 2030 and achieve carbon neutrality before 2060.” If China is able to do this, it will wrench the near moribund 2015 Paris Agreement on climate change back to life. Professor Zhang Xiliang of Tsinghua University in Beijing says that the country will need to double its electricity production by 2060 but now through non-fossil-based energy sources, which include solar, wind, nuclear and hydroelectricity. The government has pledged to spend large amounts of money for the transition, particularly to pivot away from coal-fired plants.
For Xi, the green agenda is not a new avocation. When he was Secretary of the Zhejiang Provincial Committee of the Communist Party of China, Xi said that “lucid waters and lush mountains are invaluable assets”. This was a clarion call for the protection of the environment. China’s CO2 emissions per unit of gross domestic product (GDP) have dropped by half compared with 2005; it is likely that there will be a further drop in the decade ahead. Already observers say that if China is able to be carbon-neutral by 2060, then the various pledges to hold the line on greenhouse gases might well be met. Both in terms of its contribution to global growth and its pledge to reduce its greenhouse gas emissions, China becomes something of a saviour of the world’s problems at this time.
In late October, the Communist Party of China met for the 5th plenary session of the 19th Central Committee. The agenda was how to expand on the 14th Five-Year Plan (2021-25), notably to develop long-term goals for economic development. The 13th Five-Year Plan (2016-20) met its expectations, such as increasing total GDP to 100 trillion yuan ($15 trillion) in 2019 and increasing per capita GDP to $10,000. In this period, GDP growth relied upon the emergence of Chinese high-tech sectors such as its 5G network, its BeiDou Navigation Satellite System, its chip manufacturing and its passenger aircraft industry (which rolled out the C919 plane). All of this bodes well for China. The problem is how the U.S., which is experiencing a major economic contraction, will deal with China’s high growth rate and its technological advances. China’s government has said that it will continue to invest in new high tech, including green technology. This government expenditure will ensure that China will develop new technologies, including in robotics and in high-speed rail. A combination of this government funding with the U.S. trade war barriers will allow China to focus on its own design and manufacturing, including in communications and green technology.
Part of the planning process has been to discuss the investments in technology but also to promote the Chinese approach to world affairs. China has pledged to support the people’s vaccine and to avoid vaccine nationalism (practised by the West), and it has pledged to provide low- to no-interest development funds to assist highly indebted nations. From the standpoint of Western embassies, this looks like pandering to the Western population, but if it is seen from the standpoint of Xi’s Cabinet, it looks like money spent to improve the well-being of the population of China. It is this attitude—to protect the ideas of socialist development—that has led to the fact that next year China will save the world. If China forgives the debts owed to it, produces transportation networks across Asia and into Europe, and puts funds into the creation of infrastructure around Asia, then, without a doubt, China will have saved the world.
The U.S., on the other hand, seems hell-bent on prosecuting some kind of war against China. But a war of any kind will not be popular even in the U.S., particularly if China has to fire one of its Dong Feng missiles at a U.S. warship straying into its waters. It would be better if the U.S. focussed on what China is doing right and effected a rapprochement between the countries to ensure that the fruits of economic activity give ordinary people the right to determine their own lives rather than have them merely toiling to enhance the lives of the very rich.