There is the economy and then there is the rest. China’s economy is doing well. The rest – well, there are issues. In the past week, we have seen a strengthening of the RMB, the Shanghai stock market hitting highs not seen for years, and a major speech by Mr Xi to mark the 40th anniversary of the establishment of Shenzhen. China has emerged less scathed from the virus crisis than any other major economy, which provides many domestic advantages for Those in Command.
But the external context is not getting any easier. In terms of US relations, while Trump continues to mouth the word China at his reckless rallies, the state of the election and of the US economy has pushed the China issue off to the side. The numbers are still showing him losing in just two weeks and a bit, and while the Senate is going to be a closer call, around the world, and for sure in Beijing, people are increasingly wondering about how a Biden presidency would change things. And also what craziness could occur between Nov 3 and Jan 20 (we remain most concerned about the second half of November, in terms of possible adventurist actions, while the US is distracted with what could be a contested election).
But let us assume that Biden wins, that the Dems have a majority in the Senate, and that the US by end-Jan is starting to put the divisiveness of the Trump era behind it. First, much has been lost in terms of America’s standing in the world over the past four years, and it is going to be impossible to go back to where it was. The perception of America has been deeply hurt. But there is also much that Biden can do to restore its power and influence. America can still be the leader of a consensus.
How would it play out in China terms? The issues broadly divide into national security and trade/economics. On national security, our sense is that Biden’s policy is going to be little different from that of the Trump administration. On trade, however, it is likely to be another story. Biden can be expected to put the US back into the TPP – the Trans-Pacific Partnership – which Trump stupidly scuttled in his first days in office. The tariffs strategy, which has been ineffective, counter-productive and has undercut the US position in the WTO, will also be nixed or at least changed. Biden would be looking for a consensus amongst trading partners on how to address the wider question of China’s relationship with the international economy, and our guess is he will find willing listeners to whatever proposals he makes. We don’t yet know who will be on Biden’s China team, but hopefully they will not be a bunch of retreads from the Obama years. Much hangs on that being the case.
Winter is coming. Have a warm weekend.