Of course this is not a recent phenomenon; the groundwork for China’s “going out” has been laid for years in the form of outbound investment both by state-owned and private companies, and in infrastructure building — now to be conducted on a grand scale through its USD900 billion “One Belt, One Road” scheme. It will continue to be a part of official policy as embodied in the 13th Five Year Plan (2016-20) but also increasingly a corporate imperative, as Chinese companies seek to build their global brands.
China’s evolution into becoming an exporter of capital, after many years of importing it, is entirely natural. But until now its attempts to wield greater power abroad came into oblique or direct conflict with the US’s historical role in the region and the Obama administration’s committed “pivot” to Asia. Trump’s “America First” strategy gives it much more room to manoeuvre.
Leaving aside the contentious geopolitical issues that could change the calculus, China-led globalisation will still look very different to the vision formerly led by US. And there are various sound reasons — the limited convertibility of the renminbi, for one — why it is unlikely for many years, if ever, to wield the same kind of preponderant economic power as America, regardless of the overall size of its economy. The fact that is in the midst of a generational domestic economic realignment is another.
Yet looking at the short-term outlook for 2017 this is another reason why Singaporean executives were right to be less pessimistic. In our view China’s economy has demonstrated its resilience in the face of shocks in recent years that would have derailed other economies. Real GDP growth of 6.7% in 2016 is far from slow; nor is the 6.5% target this year, although it does demonstrate the willingness of the government to downplay brute economic growth in favour of more nuanced measures of policy success.
To be sure, China faces numerous domestic challenges as it seeks to rebalance the economy away from its old model. Deleveraging is one. Yet we don’t believe a financial crisis is likely. Compare, for instance, credit to the non-financial sector as a share of deposits in China and in other countries that have experienced crises, most notably South Korea in 1997-98. China is nowhere near that level, although it does face a challenge in moving the economy away from credit and towards equity financing, an adjustment which will be long-drawn-out.