The Economist - UK (2022-05-28)

TheEconomistMay28th 2022 BriefingChina’splaceintheworldeconomy 19

atGavekalDragonomics,a researchfirm,
suggeststhatChina’sleadinsolartechnol­
ogyislikelytobeirreversible.Thesameis
trueofbatteriesfortheboomingelectric­
vehicle industry. Wind energy is going
gangbusterstoo.China added moreoff­
shore­windcapacityin 2021 alonethanthe
restoftheworldmanagedinthepriorfive
yearsputtogether.
Infact,Chinahascometo dominate
manybusinessesinthisway.TheEcono-
mistlookedatexportdatafor120­oddglo­
balmanufacturingindustries.Weestimate
thatin 2005 Chinawasascendant(defined
asa shareofglobalexportsofmorethana
quarter)in42%ofthem.In 2019 thathit
67%,a record.Theshareofexportmarkets
thatChinadominated—whichwedefine
asa marketshareofmorethanhalf—tri­
pledoverthesameperiod,toa third.
YetinmanyimportantrespectsChina’s
drivefor self­reliance hasdisappointed.
EvenasMrXihasreducedChina’soverall
importbill,relativetogdp, hehasstrug­
gledtoreduceitsdependenceonforeign
components used to make high­tech
goods.Chinaspent2.7%ofgdponimport­
ed componentsforelectronics whenhe
cametopowerin2012,and2.6%in2020.
Itsoverallbillforimportsrequiringlarge
amountsofresearchanddevelopmenthas
droppedonlyslightly.
Whatismore,Chinareliesheavilyon
geopolitical rivals for supplies of such
goods,includingTaiwan(seeAsiasection)
andWesterndemocracies.Inaviationand
spacecraft—theobjectofMrXi’scallsfor
self­reliance earlier this month—the
democraticworldstillsupplies98%ofChi­
na’simportedcomponents.
Chinais alsoincreasinglydependent
onforeignexpertise.Thevastmajorityof
Chinesepatent filings are home­grown,
buttheshareinvolvingforeignershasris­
enfrom4.8%to5.9%since2012.Scientists
basedintheeu, Japan andAmericaare
increasinglycommonpartnerswithChi­
neseinventors,evenasWesterncompa­

niesanduniversitiestalkofdisengaging

fromChinatotrytostopindustrialespio­

nage.In 2020 Chinawasresponsible for

8.4%oftotalglobalcross­borderpayments

fortheuseofintellectualproperty,anall­

timehigh.

MrXi’ssecondbigobjective—finding

bettertradingandinvestmentpartners—is

anothermixedbag.Taketrade.Chinahas

eagerlybefriendedRussia,whichhasbeen

shunnedbytheWest.Ithasalsoembraced

the Regional Comprehensive Economic

Partnership, a fairly shallow but broad

tradedealinvolving 15 Asiancountriesthat

accountforalmosta thirdofglobalgdp. It

hasappliedtojointherumpoftheTrans­

Pacific Partnership, an ambitious trade

pactconceivedbyAmericabutthenaban­

donedbyit.

Ina surveyofpolicymakers,business

leaders andothergrandees fromSouth­

EastAsiapublishedearlierthisyear,77%of

respondentsnamedChinaasthemostin­

fluentialeconomicpowerintheregion.“I

seeEastandSouth­EastAsiaincreasingly

beingpulledwithinthesphereofthegrav­

itational force of theChinese economy.

Thatisinevitable,”saysHenryGaoofSin­

gaporeManagementUniversity.

Overlappingspheres

YetbigWesterneconomiescontinuetoex­

erta pullonChina.TheEconomistgathered

dataonstocksofforeigndirectinvestment

(fdi—takeoversofcompaniesandthecon­

struction of factories), portfolio invest­

ment(purchasesofstocks,bondsandthe

like)andinternationaltradefornearly 120

countries.Foreachindicatorwerankedev­

erycountrybasedonthestrengthofitsbi­

lateralrelationshipwithChina,thencom­

binedtherankings.

ThecountrieswithwhichChinahasthe

closesteconomicrelationshipsareallstill

Western or Western­leaning: America,

SouthKorea,Singapore,GermanyandJa­

pan.AndduringMrXi’srulemostWestern

economieshavebecomemoreintertwined

withChina’s.ThestockofGermanfdiin

Chinahasmorethandoubled,forinstance.

Chineselong­terminvestorshavedoubled

theirgrossexposuretoAustralia,evenas

politiciansinbothcountrieshurledinvec­

tiveateachother.MeanwhileChina’sties

withcountriesthatmightbeexpectedto

fallwithinitssphereofinfluence,suchas

IndonesiaandRussia,haveweakened.

China’sexportindustriesalsoremain

highlydependentonWesterndemandfor

theirwares. Inthedecade beforeMrXi

cametopowertheshareofChinesegoods

exportsthatweredestinedfortheeu, Ja­

panandAmericahadfallenfrom50%to

39%(seechart3).Butsincethennofurther

progresshasbeenmade.Countrieswith

whichChinawouldliketodevelopcloser

tradingrelationshipsaresimplytoosmall

toreplacethehugemarketsofAmerica,

EuropeandJapan.Itisdifficultsimulta­

neouslytoproducemorehigh­techgoods

andservices andto expecttheshare of

themsoldtopoorercountriesratherthan

richonestoincrease.Despiteallthewarm

handshakesMrXi shares withVladimir

Putin,Russia’spresident,Russiabuysjust

2%ofChina’sexports.

InrecentyearsChinahasbeentryingto

developcloser financialties withcoun­

triesit believestobesympathetictoitsob­

jectives.Thisincludesanattempttopro­

motetheuseofitscurrencyinternational­

ly.The ideaistoreduce China’sdepen­

denceonthedollar,andthustobecome

less vulnerable to American financial

sanctions.To thisendChinahasslowly

openeditsbondmarkettoforeigninves­

tors.Intheearly2010sthecentralbankbe­

gansigningagreementsonyuan­denomi­

natedswaps(ie,emergencylinesofcredit)

withothercentralbanks.Ithasalsobeen

workinghard todevelopadigital yuan,

whichisintendedtomaketradeusingthe

currencyfasterandeasiertomonitor.Chi­

nesefirmshavebeenpayingforimportsof

Russian commoditiesinyuanthis year,

whichhelpsRussiabydiminishingtheim­

Less exposed...

China

Sources:CEIC;GoldmanSachsGlobalInvestmentResearch;OECD;WorldBank

200

150

100

50

0

191715131109072005

Domesticproduction

%ofdomesticdemand

1

30

20

10

0

201020009080701960

Importsofgoodsandservices

%ofGDP

2

60

40

20

0

2000 05 10 15 20

Goods exports to EU, Japan and US

% of total goods exports

Instruments

and meters

IT

Electrical machinery

Aircraft, rail, ships

Total manufacturing