Probably the most significant stuff from the past week was the growing sense of focus on the status of state-owned enterprises and the role of the state in China’s economy, and then how that plays into the discussions between China and the rest of the world. The US-China trade talks are in abeyance, with both sides now referring to the situation as a trade war, and the issues that caused the Chinese side to shy away from a deal apparently relate to the fundamentals of the system.
“At the negotiating table, the US government made many outrageous demands of China, including restricting the operation and development of state-owned enterprises,” said Xinhua News Agency a few days ago. “Obviously, this goes beyond the scope of trade negotiations and touches on China’s basic economic system.”
Or not, depending on your point of view. China’s basic economic system today is founded on the state. That is the defining feature of it. The key sectors of the economy, including finance, energy and transport, are dominated by the state in a way that is clearly different from the way things work in the systems developed over the past century in the West. Is there a fundamental incompatibility between the two systems? Is there a way to allow them to work together? Those are the questions at the heart of the trade talks, and many other conversations. China of course has the right to choose its own economic system. But what about how that interfaces with other systems? There’s the rub.
Guo Shuqing, People’s Bank of China (PBOC) Party Secretary, meanwhile made the case that actually the economy is not so overwhelmingly controlled by the state at all. He was also quoted this week as saying that “There is no longer blind panic” with regard to the prospects for China as a result of the trade standoff, which was illuminating, but China’s economy is so difficult to get a handle on. Exports and manufacturing are obviously in a tough spot, but figures released this week showed robust performance from transportation and consumer spending.
The biggest domestic news was the takeover by the government of a bank which was in trouble, the first time for such a move in two decades. Baoshang bank, based in Inner Mongolia, may or may not be representative of wider problems in the local banking sector, but it made people pause for thought, and led the PBOC to declare that it was fully capable of managing the risks for all small and medium-sized banks.
And so on to next week. Have a good weekend.