China promises economic liberalization, but talk is cheap

The recently concluded gathering at the World Economic Forum in Davos, Switzerland serves as a sounding board for world leaders and policymakers to express their views on the global economy and the inherent challenges that various nations face.

Absent from this year’s event was China President Xi Jinping. Standing in President Xi’s place was Liu He, economic advisor to President Xi and member of China’s Politburo. 

{mosads}In his speech, Liu described China’s desire to demonstrate its responsibilities as a leading participant in the global system of trade.

Liu’s sentiments speak of an awareness of the growing tide of economic nationalism that is spreading throughout the world and an uneasy feeling among some that globalization also has its discontents. Those discontents are most certainly also being heralded by the trade-skeptical President Donald Trump. 

China’s rise as an economic power is tied to its prowess as an export powerhouse. According to statistical evidence, 19.6 percent of China’s GDP is attributed to exports. The United States on the other hand, is far less reliant on exports, with an average of 11.9 percent of its GDP composed of exports. 

Furthermore, the United States has been the top destination for Chinese exports, with over 18 percent of all of its shipments going to the United States alone. So what does this mean? China is far more reliant on the United States than the United States on China.

President Xi and his policy advisors are not tone deaf to growing anti-trade sentiment rising around the world and can hear loud and clear the noise emanating from the White House of possible trade restrictions and imposition of trade barriers.

Most recently, executive orders were signed slapping higher tariffs on China-made solar panels. Next in the crosshairs of the Oval Office will be Chinese steel and aluminum.

To help calm the waters, Minister Liu spoke of China’s bold moves toward the opening of its domestic economy and relaxation of entry barriers to broad swaths of the Chinese marketplace, both in the goods sector as well as the services sector.

Liu encouraged foreign companies and leaders to enter China and stated that the financial, manufacturing and consumer goods sectors were all open to foreign participation.

@KennedyCSIS: “Unlike Xi Jinping’s bold speech from a year ago, Liu gave a safe speech, safe for his domestic and international audiences” #Davos2018 @wef https://t.co/kY4BIKbLAl

— CSIS China Chair (@CSISFreeman) January 29, 2018

Furthermore, Liu provided a glimpse of the policy initiatives that are planned for the coming year, including a host of policy initiatives aimed at reducing the regulatory and legal barriers to gaining access to China’s market.

He closed by describing the rebalancing of the Chinese economy from one dependent on exports to one that will shift toward harnessing the spending power of over one billion people.

Some in the audience received Liu He’s pronouncements with a bit of skepticism. There was a bit of, “We’ve heard this tune before.” There’s a sense that China often makes bold pronouncements on the opening of its economy but rarely fully delivers.

If all else fails, China will dangle a bright and shiny object to seduce interested foreigners by way of its one-billion-plus consumer economy. Informed and experienced China-hands know that not all that glitters is gold. The China consumer base is indeed large, but it is also very complex and not one where easy money is going to be made.

The pronouncements aired at the Davos Forum by Liu are both encouraging and a step in the right direction. But, as the saying goes, “Actions speak louder than words.”

It will be up to President Xi and China to show the world whether its declaration to open its market further is a piece of carefully crafted public relations or a sincere step toward creating tangible changes in liberalizing its domestic economy.

Arthur Dong is a professor at Georgetown University’s McDonough School of Business. He specializes in legal and business engagements between China and the United States.