A YEAR ON, CHINA IS SHAKING UP THE WORLD

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A YEAR ON, CHINA IS SHAKING UP THE WORLD

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• Wuhan's plague, Jan 2020: The world believed that the massive new 'plague' in China would stop the giant economy in its tracks for sure. But by Jan 2021, things are different, and China's the only large economy growing at a positive rate. In December 2020, huge Chinese exports to West saw container chartering costs rise to record levels.
• Numbers for 2021: China is the only large economy that will post 2% positive growth in 2020, and perhaps upto 8% in 2021. 

1. India has been making tall claims about replacing China as the "manufacturing hub of the world", but that's not happening. 
2. In Nov 2020, China's exports rose by 21%, and India's dipped by 9%. The present traction of Chinese supply chains makes any shift nearly impossible. 
3. The 2020 trade surplus for China would exceed $500 b, more than entire merchandise exports for India. 
4. China has beaten US in the trade war, if the $75 b bilateral trade surplus of Nov 2020 is any indication!

• Chindia is dead: Many Indian tycoons were wishfully talking of a synergy - "Chindia" - which is now dead, as China has raced ahead, and is geopolitically becoming more muscular. India must seriously, steadily build its own industrial and military capabilities. A starting point would be to boldly join the RCEP. Remember that President Biden may remodel the Trans Pacific trade grouping. India cannot afford to be left out.
• Shameless and successful so far: In 2020, China went hyper-aggressive at various levels with Taiwan, India, Hong Kong and others, and was not punished for it! In fact, it solidified gains, minimised democracy, and broke earlier promises. Any nation resisting China's behaviour is being meted out rough trade treatment (e.g. Australian imports into China). Breaking RCEP rules, China hiked duties on Australian imports!
• Taking the US head on: China took the challenge thrown at it by Trump in response to the "Made in China 2025" strategy, and launched the "dual circulation" strategy. That basically was about reducing its dependence on the world, and insulate itself. 
• The Taiwan question: President Tsai Ing-wen won in Jan 2020, and reminded China directly to not interfere at all in its democratic way of life. China responded through 2020 by regularly breaching the air buffer zone, which Taiwan documented for proof. It became a grey zone warfare, like what Russians do in the Baltic.
• China's vulnerabilities: While China look unbeatable, its massive debt pile and over-dependence of domestic economy on property sector may create exposure to external shocks. While all nations have seen rising debt levels in 2020 (due to stimulus), but China's debt-to-GDP touched 365%. That's too high for a middle income country.
• China's discipline czars: The financial authorities Guo Shuqing and Liu He are imposing discipline on PSUs, private sector, and local governments. Perhaps that's why Jack Ma was tamed too (his IPO shelved, etc.). This new disciplining is leading to financial accidents also, like debt defaults.
• Longstanding problem: China's economy has not been rebalanced enough towards consumer demand, and is hinged on property markets and infra building alone. The PFCE levels in China are just 38%, much lower than in US or India. The per capita income in China has grown, but many remain just above poverty line (as per PM Li Keqiang himself).
• Year 2021: China has economic momentum in it, but US has lost it due to the dangerous drift of Trump administration, and the bitter Republican-Democrat struggle. The West is weakened. So while 2020 started with everyone imagining lesser dependence on China, 2021 is starting with a huge EU-China trade pact. The EU wanted it before Biden would push for an alliance against China!
• The future: In dollar terms, China may displace US as the largest economy by 2028. It will be opposed by an alliance of many democracies, none capable of taking on it alone. The year 2020 has, sadly, produced a unipolar world centred on China.

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