It’s been a mixed week for US-China relations, as Chinese leader Xi Jinping’s attempt to woo Chinese investors was undercut by a tense phone call with US president Joe Biden. After a shaky year, the country’s manufacturing stats were a cause for celebration, outshining many of their Asian counterparts, and a new report takes a look at China’s economic relationship with the African continent.
‘Candid’ chat
Yesterday (2 April), Biden and Xi had what the White House described as a “candid and constructive discussion” – the first time the two have spoken since their San Francisco meeting in November.
In a 105-minute phone call which covered issues including the South China Sea, TikTok and AI, trade became a major theme.
Biden raised concerns about what the White House terms “unfair trade policies and non-market practices”. He also doubled down on the need for technological sanctions – export restrictions on cutting-edge US semiconductors – in order to protect US national security.
According to the FT, this was met with harsh words from Xi, who cited sanctions as some of the “negative factors” which are threatening the stability of the US-China relationship. He said the sanctions are designed to “suppress” Chinese advances in technology and that China would not “sit back and watch”.
Tensions linger
Yesterday’s discussion was foregrounded by a recent US report: ‘The U.S. National Trade Estimate Report on Foreign Trade Barriers’, which listed China as a country of “primary concern” and characterised is as a “state-led, non-market trade regime”. It stated:
“China continues to pursue a wide array of industrial plans and related policies that seek to limit market access for imported goods, foreign manufacturers and foreign services suppliers, while offering substantial government guidance, resources and regulatory support to Chinese companies”.
The report singled out Made in China 2025, a decade-long plan introduced in 2015, as an example of anti-competitive industrial policy. Targeting ten key industries, including new energy vehicles (NEVs), Information Technology and robotics, the plan aims to boost innovation and capacity.
The US report claims that the “overriding aim is to replace foreign technologies, products and services with Chinese technologies, products and services in the China market through any means possible”.
The report’s release coincides with complaints from many developed nations that China’s overcapacity in the production of many goods is challenging domestic suppliers by flooding the global market.
Chinese representatives responded by calling any non-market claims “arbitrary”, stating that no agriculture or data policies have been found to “violate WTO rules”.
Chinese charm offensive
Amid the tension, Xi Jinping has been trying to curry favour among US investors, hosting CEOs from leading American companies last week (29 March).
Representatives from companies including hedge fund Blackstone, mining company Barrick Gold, Bloomberg, FedEx and Invesco flew to Beijing to have discussions with China’s leader.
Attendees noted that the premier only spent 12 minutes of the visit on prepared remarks, allowing for a freer follow-up discussion, during which the premier addressed concerns about China’s recent economic slump, noting that China still contributes 30% of world GDP.
The FT spoke to Steve Orlins, one of the delegation’s organisers and the president of the National Committee on US-China Relations, who said that the premier was a warm host who also stood his ground on China’s recent economic record, insisting on its resilience despite the recent slump.
“He was encouraging people. He was selling to the audience and, in my view, it was very persuasive.”
The investment drive comes as China’s foreign direct investment (FDI) figures reached a thirty year low in February, despite previously overtaking the US as the world’s top investment destination in 2021.
Fraying relations with the US and EU, were seen as partially responsible, along with China’s deflationary economy, with experts suggesting many firms were looking for higher returns in developed countries currently offering higher rates.
PMI on the up
Away from geopolitics, China could celebrate a strong month of factory output, posting a Purchasing Managers’ Index of 50.8 – anything above 50 represents growth.
The figure is the highest since March last year and beat the projection of 50.1 given by economics in a Bloomberg survey.
By contrast, Reuters reports that other Asian economies saw their manufacturing output fall, with both Japan and South Korea posting figures suggesting a contraction. Japan’s March manufacturing PMI was 47.2, while South Korea also slipped into the negative with 49.8.
South Korea’s drop reflects slowing domestic demand. The country’s lucrative semiconductor industry helped exports climb 3.1% – the sixth straight month of increases.
Other East Asian countries also saw a contraction. Vietnam, which has been a beneficiary of the ‘China plus one’ policy adopted by many Western firms in the wake of the pandemic, shrank to 49.9, and Malaysia fell to 48.4.
Speaking to Reuters, the Dai-ichi Life Research Institute’s chief emerging market economist Toru Nishihama said that, without a clear global growth driver, “it's hard to paint a rosy outlook for Asia”.
“China's exports are picking up a bit but that's because their goods are cheap. That means other Asian countries must compete with China for demand that's not growing.”
Chinese-African relations
Another recent report has sought to examine China-Africa economic relations over the 21st century.
Boston University’s Global Development Policy Center recently released the 2024 China-Africa Economic Bulletin, which found a deepening of trade relations and increased overseas development finance (ODF) and FDI.
The latter two feed heavily into China’s Belt and Road Initiative (BRI), its foreign policy strategy to build economic relationships while developing countries through infrastructure projects. BRI has met with much criticism over the past decade amid concerns several countries cannot afford the projects.
The report quantified the exchange of loans between China and African countries, noting that between 2000 and 2022, US$170.08bn in loans were granted to sovereign borrowers, making China Africa’s largest bilateral creditor.
The majority of the loans ($134.01bn) came from China’s two development finance institutions, Export-Import Bank of China (CHEXIM) and the China Development Bank (CDB) and funded projects in the energy sector – making up one third of the funding – mostly in oil, gas and liquified natural gas.
Over the same period, $112.34bn was directed towards greenfield projects, mostly in mining. The report concluded that this has maintained a trade dynamic whereby African nations export raw materials in exchange for finished goods from China.
It also suggested that, in order to meet key development objectives such as expanding energy access and meeting renewable energy targets, trade would need to pivot towards green industries and concessional loans, and equity finance would need to be considered.
