China benefited most from globalization, Xi wants it to continue unabated

It was the first time a Chinese regime leader attended the élite gathering at the World Economic Forum (WEF), usually reserved for die-hard capitalists, not the leaders of a formally communist country.

And previously, it wasn’t really necessary to come either. Everything was going China’s way. Since its admission to the free-trade club at the World Trade Organization (WTO) in 2001 China has gamed the system in every possible way to benefit from free trade and globalization. It was China’s golden goose.

China has shunned environmental and workers safety rules so companies would come invest and produce in China. For the better part of the two decades leading right until 2014, it had manipulated its currency downward to make its product more competitive. It has showered state-run industries like steel and solar with subsidies and artificially cheap capital so they could sell their loss making products in Europe and the United States, bankrupting its competition in the process. It has also engaged in blatant theft of intellectual property at home and abroad.

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So free trade and globalization have been working for China, mostly because it never played by the rules. Millions of jobs, billions in capital, and invaluable knowledge went from the West to the mainland. No wonder Xi Jinping wants the gift to keep on giving.

“We must remain committed to developing global free trade and investment, promote trade and investment liberalization and facilitation through opening-up and say no to protectionism,” he said at the WEF in Davos, Switzerland on Jan. 17.

China still does not allow the free movement of capital, micromanages its currency, and arbitrarily prosecutes foreign companies in China for “monopolistic behavior.”

Playing by the Rules
Xi presents a China playing by the rules, which historically hasn’t been the case. And he wants to make sure the United States under Donald Trump and the populist leaders in Europe understand that China would like the current arrangement to continue.

“No one will emerge as a winner in a trade war,” Xi said adding, “we hope that other countries will also keep their door open to Chinese investors and keep the playing field level for us.”

Xi continued to advance the old and wrong argument that China imports a lot and therefore has contributed much to global growth. The truth is that China exports more than it imports and therefore takes growth away from the rest of the world.  

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Because of this discrepancy between theory and reality, Donald Trump is now putting pressure on China to start playing fair. And although Xi may be right in his assessment that everybody would lose in a trade war, historical analyses show the country with the trade surplus usually loses most.

If we take Xi’s address at face value, however, he will have nothing to worry about by way of President Trump. But he would have to deliver on the promised economic reforms and make China as open as the United States or Europe. No capital controls, no managed currency, protection of intellectual property rights, and the same environmental and safety standards

Xi promises to “expand market access for foreign investors, build high-standard pilot free trade zones, strengthen protection of property rights, and level the playing field to make China’s market more transparent and better regulated.”

If Xi delivers, he will have truly contributed to fee trade and globalization—and he will have killed China’s golden goose.