The future of China after Trump
There are countries that welcome the departure of Trump and countries that would have preferred a different outcome. Canada, Mexico, France, Iran, Japan, and South Korea would have preferred Biden. They either had a fight with Trump or they came to terms with Trump’s policy between two fires. Brazil, Russia, Saudi Arabia, Turkey, and the Emirates would rather not see Trump go. For China, the change of leadership in the United States is a sum of pluses and minuses. There will no longer be a bilateral trade conflict, but there will be a permanent battle with the United States for the latest technology and more attention to human rights. China will therefore increasingly have to take its own course.
Since the Great Financial Crisis, China has become less dependent on the United States and the US dollar. The Chinese were shocked by the major influence of American banks on the financial system. China would do things differently and the burgeoning fintech industry seemed an excellent alternative. China quickly started to pay digitally. By scanning a QR code, digital even became the norm. Partly as a result of this, companies such as Tencent and Alibaba were able to grow. China wanted to limit the risks in the financial system. An additional advantage of all these digital transactions is that they are much easier to monitor than cash transactions. Beijing was also proud of national champions such as Alibaba and Tencent. That has changed in recent weeks. This was prompted by a presentation by Jack Ma at the Bund Summit in Shanghai, in which he flatly insulted prominent leaders in the politburo. As a result, Beijing imposed higher supervisory requirements on Ant Group, after which the Shanghai Stock Exchange decided that the IPO could not go ahead. After that, Beijing also came up with new rules for Alibaba and Tencent. Probably partly in response to Jack Ma’s earlier comments, but also in order to gain more control over these fast-growing internet giants. In the past, Tencent was supervised by means of computer game regulations (the previous big helmsman thought playing on the computer was just an undesirable pastime). Nevertheless, on balance, the listed companies in China are left untouched, certainly compared to the jungle of regulation in the Western world. What is new is that Beijing now also wants to take action against these monopolies. After all, they are just ahead of the Americans who have similar plans with companies such as Amazon, Google, Facebook and Apple. Ultimately, both China and the United States will leave the big tech companies largely intact, precisely because the battle between the United States and China is mainly in the field of technology.
In the new five-year plan, China is steering more towards independence, less towards dependence on the rest of the world. This is, of course, reinforced by Trump’s actions over the last four years and the effects of the Corona crisis on the world economy. On balance, China has emerged stronger from this struggle. The Chinese economy has grown rapidly in four years and is likely to overtake the American economy this decade. This is not the first time that China has emerged stronger from the crisis. That was in 1997 after the Asia crisis, in 2001 after the dot-com crisis, and also in 2009 after the Great Financial Crisis. This desire for greater independence is speeding up the rebalancing of the Chinese economy. For many years, the country steered the typical Asian growth model, in which consumption was squeezed in favour of investment and where exports were completely controlled. Meanwhile, the share of consumer spending in the Chinese economy is growing, making economic growth more stable and predictable. Moreover, China no longer steers solely for economic growth but has various programmes that include a better environment, automation, robotisation, more emphasis on research and development, but also more influence in the region. Thanks to the Belt & Road initiative, all roads in the region lead to Beijing, fitting the new world power. Investors benefit from this, as long as they invest in parallel with Beijing’s long-term strategy.
In the pursuit of greater independence from the world economy, China wants to position the renminbi as an alternative to the US dollar. At present, China still controls capital flows with the rest of the world, something that is not desirable for a reserve currency. The digital renminbi introduced this year does, however, make it possible to open up borders in the field of capital too. After all, every transaction in the digital currency will soon be visible in Beijing. This digitalisation will not be possible without Ant Group, Tencent, and Alibaba. It is, therefore, possible that investors will be just as frightened in the short term; in the long term, the interests of Beijing will be at stake here and it will be in their best interests.