China Economic Review

Rough times

This should have been a good week for Those in Command in Beijing. Washington was in turmoil and the African summit in the Chinese capital was an opportunity to solidify China’s position as the dominant power in terms of what used to be called the “Third World.” But it has been instead, on balance, another confluence of negative vibes.

The Africa message was clear – China intends to continue to allocate vast sums to infrastructure projects there (the masses here are not unaware of the contradiction of spending so much over there when there are a few schools and hospitals over here that could do with upgrades). But there were a few interesting signs of pushback over the terms of China aid and the implications for fiscal stability. Namibia’s president publicly castigated the Chinese ambassador for trying to direct what he would say in Beijing, Kenya pointedly rounded up a gaggle of Chinese citizens suspected of being in the country illegally and Djibouti warned of the danger of getting into too much debt to the power in the East.

Then in another part of the Third World – the Pacific – things got surprisingly rocky, with pushback again on what was viewed as China’s entitlement-filled “big country” approach. There were several comments from the Chinese and African sides about how China’s approach is not in any way colonialist like the Europeans in the 19th century. Which in the topsy-turvy world of diplo-speak means something. But it’s not clear to what extent China’s leaders are going to be able to re-adjust their approach.

The China-US dispute steamrollers on towards serious tariff impact, certainly in terms of China and selectively in terms of the US economy. China pundit Min-xin Pei published a fascinating and persuasive assessment stating bluntly that we’re heading towards a new Cold War, and one that China cannot win. That leads to the next question that Pei did not address, which is: what should China’s strategy be if that is true?

Domestically, the banks are being encouraged to take up local government debt – that doesn’t sound like a great idea for the banks, unless there is an absolute bail-out guarantee from Beijing – and to also provide more loans to SMEs. Caixin, almost alone domestically in providing a Chinese alternative view – how does she do it? – reported that the banks are unwilling to answer the call, again for fear of the dire consequences on non-performing loans.

And finally, the Shanghai stock market continued to reflect unreality, seesaw-ing in a bizarre fashion around the 2,700 line, a marker that Those in Command appear to have decided to defend vigorously. Someone at least is doing what they’re told.

Have a good weekend.