China initiating an intricate economic paradigm

Muhammad Zamir | Published: April 06, 2015 00:00:00 | Updated: November 30, 2026 06:01:00

There have been many analytical observations from several western economists and analysts over the past eight months that China's strides in the world economic horizon have not only slowed down but that this slide is unlikely to reverse in the short-term.  They were pessimistic about the outlook for exports and blamed the weak imports on falling commodity prices with stringent bank financing for traders also being a factor. To support their views they pointed out that China, a key driver of global growth, had seen its economy grow by only 7.4 per cent in 2014, the weakest for almost a quarter of a century.
The second week of March has, however, seen some new and revealing data. It was announced by Beijing on March 08 that China's monthly trade surplus hit $ 60.6 billion in February, a new record for the world's second largest economy. Exports had leapt 48.3 per cent year on year to $169.2 billion while imports fell 20.5 per cent to $ 108.6 billion. These figures indicated that the country's surplus, long a source of tension with its trading partners, had risen to a new high above the previous all-time monthly high of $60.0 billion recorded a month earlier in January. It would be worthwhile to mention here that the combined figure for these two months last year had stood at $6.9 billion.
These new statistics appear to be gradually influencing many countries who had earlier expressed caution about efforts undertaken by China to establish the $50 billion Asian Infrastructure Investment Bank (AIIB). France, Germany and Italy have now decided to join the cavalcade and add their names to the growing list of countries who have already signed on to be part of this new Institution. This bank is expected to end up being a worthy rival to the Washington-based World Bank. Australia, a key US ally in the Asia-Pacific region which had come under pressure from Washington to stay out of the new bank, has also indicated that it is re-thinking its position. In addition, there have been reports that South Korea, Switzerland and Luxembourg are also pondering whether they should join the new international initiative. Japan, which had initially expressed caution about the AIIB, also appears to be adjusting its views and their Finance Minister Aso is reported to have observed that Tokyo is carefully considering the ramifications and the regulatory aspects related to the functioning of this Institution. This is being seen as a hopeful sign by those who have already signed on as part of the bank.
It is understood that Britain has decided to sign up to the fledging Chinese-led bank. This move by George Osborne, Britain's Chancellor of the Exchequer was warmly received in Beijing and appreciated in particular after Britain's restraint with regard to China's handling of the recent Hong Kong demonstrations.
The European decisions, according to George Parker, Anne Chassany and Geoff Dyer of the Financial Times, "represent a significant setback for the Obama Administration, which has argued that western countries could have more influence over the workings of the new bank if they stayed together on the outside and pushed for higher lending standards". To remove any misapprehension and to mollify US opposition, the Chinese Deputy Finance Minister Shi Yaobin has recently commented in the German media that China welcomes US participation and that the "new bank will mainly play a supporting role for other international institutions".
It may be recalled that the AIIB was formally launched last year by Chinese President Xi Jinping as part of a broader Chinese push to create new financial and economic institutions that will increase its international influence. Twenty-one countries were represented at the time the announcement of the bank was made on October 22 last year. The countries included Bangladesh, Brunei, Cambodia, China, India, Kazakhstan, Kuwait, Laos, Malaysia, Mongolia, Myanmar, Nepal, Oman, Pakistan, the Philippines, Qatar, Singapore, Sri Lanka, Thailand, Uzbekistan and Vietnam. Indonesia has reportedly expressed the desire to join this new institution. The AIIB today is gradually emerging as a central issue in the growing contest between China and the USA over who will define the economic and trade rules in Asia over the coming decades.
A feather in China's cap has been the recent comment made by Jim Yong Kim, the President of the World Bank. On March 13, he not only welcomed the setting up of the  bank and the Chinese initiative but also pointed out that with US interests likely to rise later this year, capital flow to emerging markets and low-income countries will face greater challenges over time. He added that "from the perspective simply of the need for more spending on infrastructure, there is no doubt that from our (the World Bank's) perspective, we welcome the entry of the AIIB".
DELICATE TRANSITION: As indicated by Chinese Premier Li Keqiang during the closing ceremony of the recently-concluded annual session of China's legislature, the National People's Congress, the Chinese leadership appears to be aware of the delicate transition that is taking place within the Chinese economy as it moves away from decades of double-digit annual growth to a new slower model that authorities are describing as more sustainable. They are now interestingly describing it as the "new normal".
To the pleasant surprise of many western analysts, Li dismissed theories that China's boom has seen it overtake the USA to become the world's number one economy. Instead, Li described such purchasing power parity data and calculations as a "misleading exaggeration". He pointed out that "according to authoritative standards, China, still a developing country in every sense of the term, is still the second-largest economy in the world and remained behind about 80 countries in the world in terms of per capita GDP (gross domestic product)".  He remarked that "the progress we have made falls short of the expectations of our people". This was genuine humility and it endeared him more among the developing nations in Asia, Africa and Latin America.
MOSCOW-BEIJING COOPERATION: This multi-faceted effort to expand its economic power structure has also seen China moving ahead on the path of greater economic and diplomatic cooperation with Russia despite western sanctions against Moscow over the on-going conflict in Ukraine. This has been explained as being based on "mutual need". Beijing's Foreign Minister Wang Yi has remarked that the bilateral relations between these two countries seek "win-win results" and that it has enormous internal impetus and room for further expansion. Such feelings have been reiterated by China's National People's Congress which has underscored that Beijing and Moscow will 'continue to carry out strategic coordination and cooperation to maintain international peace and security'.
Within the economic paradigm, another interesting data has emerged during the month of March. According to a report published by the Stockholm International Peace Research Institute (SIPRI), China has eased ahead of Germany and France to become the world's number three arms exporter after the United States and Russia. United States is in the lead with 31 per cent of global exports of conventional weapons, with Russia in the second place with 27 per cent. After that comes China. The interesting thing is that three Asian countries accounted for more than two-thirds of the Chinese exports, with Pakistan buying 41 per cent of the total, followed by Bangladesh and Myanmar. Beijing, consistent with its close involvement in Africa, also sells arms to 18 countries in that continent.
UPGRADING INFRASTRUCTURE: Consistent with its plan to re-vitalise its economy, China has decided to invest more than US$ 260 billion in upgrading its infrastructure. This will include expanding its railway network and undertaking major water conservancy projects. To make such investment more productive and achievable in the shortest possible time, stress will be given on slashing red tape, facilitating public-private partnerships and streamlining foreign investment restrictions. The Chinese leadership believes that that this will reduce the scope of corruption and also bolster market activity.
The Chinese government intends to build an additional 7.4 million new urban apartments for low-income residents and renovate 3.66 million substandard rural houses. As explained by Wang Qishan, head of China's Central Commission for Discipline Inspection (CCDI), the national graft watchdog, these projects will be carefully monitored not only with regard to environmental protection but also in the way the authorities will be using the taxpayer's money. It has also been mentioned that budgets and final accounts of all levels of government will be made public. It is understood that Wang Qishan is expected to undertake soon a visit to the USA to discuss his efforts, codenamed 'Operation Fox Hunt', on how to track down and expedite corrupt Chinese officials who have sought refuge abroad. The Chinese anti-graft Tsar knows that his efforts will face many challenges as the USA and many other countries do not have extradition agreements with Beijing. Nevertheless, this effort will certainly add another dimension to the Chinese economic parameter. It is anticipated that the US authorities will pay special attention to his views given the fact that Chinese President Xi Jinping is expected to pay a state visit to the USA in September this year.
The Chinese emphasis on economic evolution will include facets like ecological transformation to end poverty, resolving the urban-rural divide, fair re-distribution of resources, strengthening freedom and equal access to justice for the rural community. These will be difficult tasks. However, they are achievable.  
 The writer, a former Ambassador, is an analyst specialised in foreign affairs, right to information and good governance.
mzamir@dhaka.net