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07 November 2018

China at a crossroads of international openness

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China is hosting the world’s first international import expo. Jonathan Bell examines the development in what could be the start of a new era of trade focus for the world’s second largest economy.

There is saying in English – and most likely in many other languages – ‘where there is a will, there is a way’. And for China it certainly doesn’t do things by halves. So, it was particularly interesting to see that this week China is holding the inaugural China International Import Exposition (CIIE) in Shanghai. How many other countries have held an international import exposition? Personally, I can’t think of any that have solely concentrated on imports, and this one is over a whole week.

Obviously, this tells us a lot about China. Now, some will say that China is only hosting this event because it has been pushed into it by US President Trump’s trade wars. He might even claim that himself! But any such claim would be utter tosh! While China clearly wants to be seen to be opening up as an import destination, there is a long road ahead before it gets to this crossroad.

Like the Belt and Road Initiative (BRI), the CIIE is needed as China’s economy evolves, looks to its changing demographic with its middle-class purchasing power and how the country wants and needs to interact/cooperate with the rest of the world by opening up. And of course, Beijing recognises this as policy. But in a planned way, not pushed.

The intention of the week-long CIIE is to promote China to the world as a major buyer of goods. Over 3,600 companies from different countries have signed up for the exposition and 172 countries and regions will participate, according to the event organisers. Apparently, some 400,000 Chinese buyers will also be represented over the CIIE week

In opening the CIIE, China’s President Xi called the event: “a trail-blazing" move in the history of international trade development”. He added that the CIIE is "a major policy for China to push for a new round of high-level opening-up and a major measure for China to take the initiative to open its market to the world".

Xi also announced that China's imported goods and services were estimated to exceed $30 trillion and $10 trillion respectively in the next 15 years. And he pointed out that China has been the world's second largest merchandise importer for nine consecutive years.

Xi also took a heavy swipe at Trump, without actually naming him, by stating: "As globalisation deepens, the practices of 'law of the jungle' and 'winner-take-all' are a narrowing road that leads to a dead end. Inclusion and reciprocity, win-win and mutual benefits is the widening and correct path."

As I write this, unfortunately for Trump, the trade war that he has created with China is just one of the reasons he has been damaged politically, as news emerges this morning that his party has lost control of the House of Representatives (Congress) in the US mid-term elections.

Xi added: "The economic and social well-being of countries in the world is increasingly interconnected. The reform of the global governance system and the international order is picking up speed. On the other hand, the world economy is going through profound adjustment and protectionism and unilateralism are resurging. Economic globalisation faces headwinds, and multilateralism and the system of free trade are under threat. China will not close its door to the world and will only become more and more open."

However, on the downside, for foreign companies wanting to operate in China there are numerous hurdles to overcome, not least of which is China’s protectionist attitude to foreign competition. Forced technology transfer and theft of intellectual property are also two of the major concerns for foreign companies wishing to do business in China with Chinese counterparts.

Reforms are taking place, but critics see these as being far too slow if China wants to champion itself in terms of international openness and cooperation. The cattle prod by Trump of increased tariffs across a swathe of goods, while doing immense damage to US companies (see below), farmers and the US consumer, as well as global trade growth, is perhaps a wake-up call on some of the issues of a more balanced and open trade picture.

In opening the CIIE, giving another particularly hopeful message, Xi also stated: “China will unswervingly follow a win-win strategy of opening-up, adopt high-quality policies to advance trade and investment liberalisation and facilitation, and move toward nationwide opening-up that coordinates the coastal and inland areas and connects the eastern and western regions.” Many foreign companies will hope that this is more than just rhetoric.

Following Xi’s opening speech, Stuart Tait, regional head of commercial banking, Asia-Pacific at HSBC, said: “Asian businesses are at a crossroads – buoyed by macroeconomics but concerned about geopolitics. Asian businesses are staying positive, but they’re also signalling that protectionism is a significant concern. Coming at this time, the CIIE has highlighted that China’s economy will become more open, which is a positive message for businesses everywhere. China’s growing middle class and their growing consumption power are fuelling confidence among international business.”

China named 12 countries as ‘guests of honour’ for the CIIE expo, and these include: Brazil, Canada, Egypt, Germany, Hungary, Indonesia, Mexico, Pakistan, Russia, South Africa, the UK and Vietnam. The organisers also said that180 US companies had signed up to attend the event. These include big companies such as Apple, Boeing, Cargill, Caterpillar, Facebook, General Motors, Google, Honeywell International, Microsoft, Procter & Gamble, Qualcomm, Tesla and Walmart.

China’s Xinhua reported Robert Aspell, president of Asia-Pacific for the US agribusiness company Cargill, as saying: "We are encouraged to hear from President Xi the reaffirmation of China's support of global trade, and China's plan to further open itself to the world."

As already noted, US companies have suffered heavily as a result of increased tariffs – both through their imports from China and through reciprocal tariffs which have impacted their exports to China. The US coalition Tariffs Hurt the Heartland has estimated that US companies shelled out $4.4 billion in tariffs in September, a surge of more than 50% from the same month a year ago. That increase was largely driven by $1.4 billion in Trump administration tariffs on Chinese imports. Shipments of US products to China subject to retaliatory tariffs declined by 26% from the previous year.

On specific measures to broaden its opening-up, Xi said that China will step up efforts in the following five aspects: stimulate the potential for increased imports, continue to broaden market access, foster a world-class business environment, explore new horizons of opening-up, promote international cooperation at multilateral and bilateral levels.

There is too much in his speech to go into full detail here, but on the first aspect of stimulating increased imports he said: “We will take further steps to lower tariffs, facilitate customs clearance, reduce institutional costs in import, and step up cross-border e-commerce and other new forms and models of business. China has a big market of over 1.3 billion people, and it is our sincere commitment to open the Chinese market.”     

Helen Wong, HSBC’s chief executive for Greater China, commented: “China’s consumers are the rising stars of the global economy. With $40 trillion of imports [goods and services] forecast in the next 15 years, the CIIE sends a powerful signal that China’s economy holds great promise for international businesses.”

Made for China

In an interesting initiative at the CIIE, HSBC launched the Navigator: Made for China report at a client event on Navigating the Future of Trade. Made for China explores the views of more than 1,200 international companies on selling to China’s increasingly affluent consumers.

HSBC’s Stuart Tait commented: “To succeed in the future, international businesses must be ‘Made for China.’ China is no longer just the world’s factory; its fast-growing consumer market is prompting international businesses to re-evaluate how and what they sell to China.”

In September, the survey canvassed the views of 1,205 small and large companies in 11 key global economies that already export to China or are considering doing so. From companies currently selling in China, 37% identified being able to provide distinctive or superior products and services as the top factor that would drive their sales growth there.

European respondents were particularly confident about the appeal of their products, with 45% choosing this as their top driver. Another 30% of current exporters to China highlighted the rising affluence and increasing disposable income of Chinese consumers as the key catalyst for their companies’ sales growth.

“China’s opening up has accelerated over the last three to four years. International businesses need to come and see it for themselves. China’s consumers are becoming a new and vital pillar of consumption to support the global economy,” said HSBC’s Helen Wong.

According to government estimates, China is going to import $8 trillion worth of goods in the five years from 2018 to 2022. That is equivalent to an average of $1.6 trillion a year, which is about the same as the gross domestic product of Canada or South Korea in 2017.

Natalie Blyth, global head of trade and receivables finance at HSBC, added: “Trade liberalisation and market openness will continue to march ahead. Our Navigator survey shows more than half of companies expect free trade agreements that apply to their country and industry will benefit them over the next three years. Now is the time for international companies to capitalise on the opportunities created by China’s opening-up and commitment to global trade.”

In his concluding remarks at the CIIE, Xi said: “We have a market of more than 1.3 billion consumers who live on the land of over 9.6 million square kilometres. To use a metaphor, the Chinese economy is not a pond, but an ocean. The ocean may have its calm days, but big winds and storms are only to be expected. Without them, the ocean wouldn’t be what it is. Big winds and storms may upset a pond, but never an ocean. Having experienced numerous winds and storms, the ocean will still be there! It is the same for China.”

Since the Chinese Revolution in 1949 the country has made immense strides. And the last two decades have propelled China forward as the world’s leading exporter. Now China is the world’s second largest economy. At the current crossroads, the stage is now set for further engagement in trade through increased imports and more of a focus on Chinese consumers. We will be watching!

Lest we forget

This coming Sunday marks the 100th anniversary of the end of the First World War (WW1) at 11am on 11/11/1918. At the time, it was said that WW1 would ‘be the war to end all wars’. How wrong that phrase has proven to be. Since then there have been far too many who have been more concerned with aggression, pulling the trigger or pushing the button. Man continues to make the same mistakes instead of learning from history.

In the UK, like in many other places, we always have a remembrance service on the Sunday closest to 11/11 to remember the fallen in all wars. We do this so we remember, and in the continued hope that there will be no more wars. In my little town in middle England, this Sunday townspeople will gather at the war memorial for 11am, as we always do. We will pay homage to those who lost their lives and pray in our own ways that one day there will be peace in all those places where conflicts continue. To the fallen, we will remember them.

Man turns into marine mammal!

Finally, huge congratulations to Ross Edgley, a 33-year old British guy who on Sunday completed a swim around the entire coastline of Great Britain! What? Yes, that’s right, he swam 1,780 miles (2,865 kilometres), which took him 157 days!!!

He started the swim on 1 June, so that is a full 5 months at sea. He didn’t go on land in that entire period. He swam an average 12 hours a day, doing six hours swimming, then six hours on the support boat for sleep/eating, then six hours swimming followed by six hours sleep. Naturally, he consumed huge volumes of calories.

When he had swam 74 days he had already beaten the world record for the longest staged swim. His 157 days of swimming is something else, and it is very difficult to see that ever being beaten. He was swimming just over 11 miles each day (18 km), but sometimes he was pushed back by tides and currents to not actually get very far at all – the British coastline can be very harsh place! Other times, with the help of tides again, he managed to swim at speeds approaching 9 knots – which is the cruising speed of a dolphin!

In many places he was battered by autumnal storms, but one of his biggest concerns was the large amount of giant jellyfish he encountered on the journey. He actually let his beard grow fairly long to help prevent stings to his facial skin. And at one stage his tongue partially disintegrated due to salt water exposure! Strewth!

He arrived back at his starting point of Margate on the south east English coast on Sunday 4 November. On his last mile of swimming he was joined by 300 local swimmers to swim the last bit with him. Naturally, he came in to a total hero’s welcome. He had not set foot on land since 1 June. When he was asked what his next challenge would be, he responded: “Learn to walk again!”

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