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How to Protect your Wealth by Investing in AI Tech Stocks

Amid Uncertainty, China’s Quest for Bold Development 

Economics / China Economy Mar 09, 2021 - 02:03 PM GMT

By: Dan_Steinbock

Economics

At a historical moment of hope and uncertainty, China pledges bold economic development, despite global tensions.

China’s annual “Two Sessions” meeting has approved national priorities for 2021. Delivered by Premier Li Keqiang, the Government Work Report set a growth target of over 6 percent for Chinese economy for 2021, releasing a numeric goal after it was skipped in 2020, due to the COVID-19 pandemic.

China plans to create more than 11 million new jobs in 2021, while keeping inflation rate (CPI) at 3 percent and cutting the deficit-to-GDP ratio to 3.2 percent. The goal is to increase annual R&D spending by more than 7 percent in the next five years, including foreign-funded R&D centers in China.


Amid the COVID-19 pandemic and the severe global contraction, China’s 2020 real GDP growth climbed to 2.3 percent, making it the only major economy to grow. In 2021, international observers project China’s growth to rise up to 8 percent, due to a low base in 2020 and the ongoing recovery momentum.

In addition to fiscal and monetary policies, government’s focus is increasingly on job creation and consumer prices that have a direct impact on per capita incomes. This is vital in light of the modernization goals of China’s 14th Five-Year Plan (2021-35).

Doubling GDP, per capita incomes by 2035                 

Some two decades ago, Goldman Sachs’s Jim O’Neil coined the idea of BRIC economies, predicting China’s gross domestic product (GDP) would catch up with that of the United States by the early 2040s.

During our conversation in 2009, I projected the inflection point to result a decade earlier, around late 2020s, while O’Neill said Goldman Sachs was also revising its catch-up prediction. Despite the failed global recovery in the 2010s and US tariff wars, these projections remain in schedule and may be accelerating.

As the difference between the US and Chinese growth rates increased from less than 4 to almost 6 percent in 2019-20, rapid recovery brought Chinese economy closer to the US economic output, which it could surpass by the end of the 2020s.

Last November, President Xi Jinping said that “it is entirely possible for China to meet the current high-income countries’ standards by the end of the 14th Five-Year Plan (2021-25) and to double the economic aggregate or per capita income by 2035.” That would require a growth rate of 4.7 to 5 percent in the next 15 years.

It is a bold objective, but - assuming continued reforms - within China's economic potential.

Progress in trade, investment, finance, and technology  

China’s recent trade progress supports the realization of that potential. Despite US tariff wars, China ended 2020 with a record trade surplus with strong exports. Last November, China signed the Regional Comprehensive Economic Partnership (RCEP) pact with 10 ASEAN members, plus Japan, South Korea, Australia and New Zealand.

A month later, the RCEP was followed by the China-EU Comprehensive Agreement on Investment (CAI). Recently, President Xi and French President Macron called for its prompt ratification.

Offsetting external uncertainties, trade pacts support domestic demand, technology self-sufficiency, upgraded supply chains and further opening up in domestic markets.

Moreover, China’s potential is supported by investment and finance. Inbound foreign direct investment in China hit a record high of $144 billion in 2020, thanks in part to the new foreign investment law. Meanwhile, financial integration between China and global economy has intensified significantly.

The big question mark involves external efforts to undermine China's potential, particularly the rise of Chinese multinational concerns in advanced technology.

US China vision needs a reset, not more deterioration              

Recently, Anne O. Krueger, World Bank’s former chief economist, noted that “President Trump’s modus operandi was to bully China on trade, foreign investment, cyberspace, e-commerce, intellectual property, the South China Sea, Taiwan, and other issues.”

Characterizing Trump’s trade war as “a failure that harmed both China and the US,” Krueger called for “resetting US-China trade relations.” That’s been the ardent hope of many progressive Democrats and global-minded Republicans.

Yet, US Secretary of State Antony Blinken’s foreign policy speech, parts of which left Democratic progressives furious, suggests that his China vision builds on former secretary Mike Pompeo’s blunders. It claims to be competitive when it seeks supremacy, collaborative which it precludes, and adversarial when that’s not warranted. A potential technology war is a case in point.

Reportedly, the Biden administration may go ahead with a Trump administration-proposed rule to secure the technology supply chain, by allowing the Commerce Department to prohibit transactions involving “foreign adversaries,” including China.

Former Google top executive Eric Schmidt, who has headed Pentagon technology commissions, has urged Biden and Congress to exploit targeted export controls on high-end semiconductors, “to protect existing technical advantages and slow the advancement of China’s semiconductor industry.”

And since AI requires fifth-generation (5G) platforms that Chinese technology giants have pioneered in commercial markets, the objective is to undermine those giants, including China’s nascent semiconductor industry.

National security serves as a ruse to offset the competitive erosion of US technology giants relative to new European, Korean, Chinese and other rivals.

Peaceful development or geopolitical tensions               

By promoting new rearmament drives, geopolitical friction and forever wars, such priorities would further deepen America’s severe income polarization. As the bipartisan Congressional Budget Office has just warned, US debt as a percentage of its GDP will soar in a matter of years.

Most importantly, such misguided agendas would derail the dreams of industrialization and modernization in many emerging and developing economies that cooperate with China and greatly benefit from its peaceful development.

Instead of more harm to global economic prospects, what is needed is multilateral cooperation between and among both advanced and developing major economies, across all political differences.

Dr. Dan Steinbock is the founder of Difference Group and has served at the India, China and America Institute (US), Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see http://www.differencegroup.net/  

© 2020 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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