China’s dream to reconcile market economy

 

George Magnus and economist questions whether China can continue to keep all its balls in the air as it tries to reconcile the needs of a market economy with the criticisms of a one-party state.

His book Red Flag looks at the four traps that the party is trying to avoid –currency ( renminbi), debt, demographics and being caught as a middle-income economy with no foreseeable path to a richer future.

China by running trade surpluses and restricting capital outflows, in the name of maintaining stability, Beijing has opted out of a contest with the US altogether. “Far from threatening the role of the US dollar in the global system, China is a willing party to the status quo.”

Magnus advocates the growth hiatus to draw down debt to sustainable levels, and by continuing to pursue speedy growth and simultaneously reducing the risk of financial instability.

Under President Xi Jinping, with his authoritarian and repressive philosophy, China has become a large and confident power both at home and abroad, as the country faces serious new challenges. China’s relationship with Trump, and the country’s attempt to win influence and control in Eurasia through the Belt and road initiative.

The trade war could take more dangerous form if China applies more red tape or discrimination aimed at the operational management products and supply chains of US companies in China.  It has already blocked the proposed $44bn (£33bn) takeover of a Dutch semiconductor maker by Qualcomm and intensified customs checks and licensing delays on some companies. China could offset US tariffs by sanctioning a large devaluation of the yuan, which could probably trigger instability in global financial markets. The US insists that China’s state and party-driven industrial and technological policies do not conform to the rules, practices and laws to which everyone else subscribes. China’s stock market has fallen more than 20 per cent this year to a four-year low, the yuan is under pressure, household debt is booming, and the growth of investment has slowed to the lowest level since 1998.

 

China’s Dream: China is in Jeopardy by George Magnus, Yale £20, 220 pages.