Making Capital of Chinese Economy Post the Pandemic

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Research Fellow and Centre Coordinator East Asia Centre The Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi Dr. Jagannath Panda

 
The COVID-19 pandemic saw the world being crippled, both in terms of its healthcare capacities, and ability to keep its economy afloat. China, however, has been hitting strides in its growing domestic economy, and keeping its partners and allies engaged.
 
While one of its motivations may have been to showcase the United States how quickly the country can recover from a setback, it is realistically optimistic to say that Beijing has achieved its goal, and more. Exhibiting strategic resilience during a crisis has been the hallmark of China's foreign policy. The pandemic has given China the opportunity to take up the mantle of a net public good provider initially through masks, surgical gowns and testing kits1; and later by supporting developing nations through international aid and vaccines, when its global counterpart was struggling in managing the crisis.
 
As the world's second-largest economy, China's posturing in the Indo-Pacific has geo-economic implications for the region. With a positive growth rate, the Chinese economy surpassed US$15.42 trillion (100 trillion yuan) in 2020, making it the only major economy to report such an impressive post-pandemic growth2. Most recently, China reported its GDP growth by a record 18.3% in the Q1 of 2021, the highest annual growth rate recorded since 19933.
 
Such numbers display China's significance and growingly important position in the global world order, especially when a fast economic recovery post-pandemic is the primary goal of leaders worldwide. What have been China's key economic strategies post-pandemic? How will they shape China's economic engagement with the world?
 
While China has reported an incredible growth despite the challenges of the pandemic, viewing it with a critical lens is imperative, and holds to question its veracity, until independently verified. This is not, however, the first time that China shone over other nations at the face of an adversity. The Chinese economy was the best-performing even during the 2008-09 global financial crisis (GFC), with Beijing becoming a rescue channel for the world4.
 
China's resilience during the GFC had been accompanied by double-digit economic growth, which has continued to persist over the past two decades, establishing its position in the global arena of competition, in demonstrating its economic prowess5. Such growth and resilience can be attributed to the Chinese Communist Party's (CCP) decade old reform approach on “a little at a time”.
 
Beijing has adhered to its traditional principles of state policy: from hardcore authoritarianism to military modernization and civil-military stability. If anything, Beijing's sustained incremental, shrewd and secured adjustments in the economic sector has played an instrumental role in crafting China's economic success story.
 
The success of China's economic trajectory can be best explained by the politics of privatization, an approach that the CCP adopted in 1997, after the state owned enterprises sector generated a fiscal loss despite efforts at restructuring it6.
 
To its merit, China's privatization strategy, in combination with its socialist (communist) political structure, has allowed it to bolster the country's mammoth economy, and is effective to the point of it being one of CCP's most successful weapons. Although several economists and strategists posit that privatization weakens a nation-state, it has significantly shaped China's rise and resilience without breaking or hampering its socialist discourse7.
 
In fact, President Xi Jinping's success in ensuring the continued domestic economic rise and international influence, through the ambitious Belt and Road Initiative (BRI) is heavily dependent on the privatization process.
 
CCP's watchful eye on the privatization process within China – so as to sustain the enshrined ‘Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era – has remained steady, expanding into evolving domains including digitization, investments and innovation8.
 
At present, the CCP's 14th Five-Year Plan seeks to achieve ‘modern socialism' for China by 2035; this includes an ambitious outlook to double its current GDP of 100 trillion yuan, which will demand real GDP growth of 3.5 percent annually9.
 
Here, an increasing focus on bringing the flourishing technology sector in China under state-control has emerged as a major focus of the CCP – especially since Beijing's widely documented the Jack Ma crackdown10. Most recently, several bitcoin mines in the Sichuan province were closed, after the Government initiated an intensified crackdown against cryptocurrency mining, in an effort to curb speculative trading and cushion financial risks11.
 
The Xi Jinping led Chinese government has taken an active note of policy gaps that contributed towards an economic slowdown, further amplified by the US-China trade war12. With countries like Japan leading an exodus of manufacturing from China, and the global narrative shifting its focus towards re-configuring the supply chains to make them less China-dependent, the CCP, too, is looking inward to support its economy13.
 
To this end, Xi implemented a “dual circulation strategy”, which aims to reduce its dependence on overseas markers for its long term development by relying on the domestic cycle of production, consumption and distribution. The strategy has two crucial components: “internal circulation” – referring to national economic overtures – and “external circulation” – focused on economic ties internationally14. Not only does this strategy focus on limiting China's reliance on international trade for growth, but it is also set to deftly maneuver through the pitfalls of an economic slowdown in the face of a health crisis. Such an approach allows Xi to retake control of the emerging international economic narrative that was looking to sideline China.
 
Furthermore, the dual circulation strategy's success adds to China's economic power, demonstrating that despite calls for a complete ‘economic decoupling' with China, such ambitions were not actually practical. Currently, China is firmly set to overtake the US's economy by 2028 – five years before its target and despite the pandemic15. With rising demand during the pandemic, China's foreign reserves reached a five-year high, and its exports surged to a record high. Further, its ‘Big Four' banks – the Industrial & Commercial Bank of China, China Construction Bank, Agricultural Bank of China, and Bank of China – have remained the largest in the world despite the yuan weakening, and the world facing a global economic slowdown.
 
Such financial strengths are supplemented by China's veritably booming digital payments infrastructure (with platforms like WeChat Pay and AliPay), supported by the country's widespread bank account and smartphone ownership. China's digital payments systems have played a critical role in stabilizing its macroeconomy amidst the pandemic's restrictions on physical transactions by enabling foreign banks to continuously engage with the country's digital payment services, to the extent that digital merchant payments accounts for 90% of the $17 trillion mobile payment market, and is home to the largest card payment network.
 
Additionally, with over 768 million Chinese citizens using digital payment services, foreign firms have had access to a vast market. China remains US-based tech giant Apple's third-largest market (after the US and Europe); Japan's companies like Toyota and Mitsubishi, and South Korean firms like Samsung and Kia, also have a major presence in China.
 
China has been an active player in international financial governance institutions - like the World Trade Organisation (WTO), International Monetary Fund (IMF), and World Bank. However, its engagement here is driven more by cooperation on economic policies rather than full integration. While Beijing has fulfilled its commitments as a member, it has been visibly unwilling to take on additional responsibility commensurate with its global economic heavyweight position.
 
For instance, Beijing has refused membership of the Government Procurement Arrangement under the WTO, Development Assistance Committee, and Paris Club of creditor states. Essentially, this partial integration has created a space for Beijing to operate outside the norms and standards set under these forums; for example, China is under no obligation to adhere to fair and liberal lending practices under the BRI. Simultaneously, in its “quest for great power identity”, China has sought to benefit from the existing Bretton Woods order while creating its own system with Chinese characteristics, such as creating the Asian Infrastructure Investment Bank (AIIB).
 
The change of international politics and the business climate is a trend that cannot be stopped. As a country that plays a significant role in the network of global trade, development and governance, the onus falls on China's government and corporations in adjusting themselves to the post pandemic era. In the near future, China's economic diplomacy is expected to draw further from the contours of its ‘mask diplomacy' and ‘vaccine diplomacy' under the Health Silk Road.
 
Xi's 2021 Davos speech highlighted Beijing's intentions to build its soft power by enhancing international economic trust in China. In the coming times, while self-reliance and bolstering its domestic economy will be a key focus under the dual circulation strategy, Beijing will likely seek to assume a leadership role in international economic organizations by capitalizing on its economic resilience while pushing to forge a broader continental connect under the BRI.
 
 
Dr. Jagannath Panda is a Research Fellow and Centre Coordinator for East Asia at the Manohar Parrikar Institute for Defence Studies and Analyses (MP-IDSA), New Delhi. He is the Series Editor for “Routledge Studies on Think Asia”. Dr. Panda tweets at: @jppjagannath1
 
 
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