Global Courant 2023-04-11 14:47:32
If you view the global economy as a giant chess game, China’s Xi Jinping now appears to be a few steps ahead of US President Joe Biden.
That is a plausible view of the Chinese leader who received French President Emmanuel Macron in Beijing in recent days. Tesla billionaire Elon Musk was in China to double the Xi era with plans to build a new factory to produce large-scale batteries in Shanghai — not Nevada, the site of Tesla’s original “gigafactory.”
On the other side of the chessboard, Malaysian Prime Minister Anwar Ibrahim made his first state visit to China. With $39 billion in investment pledges, Xi created real doubt about Malaysia’s position of being neutral in the burgeoning Cold War between Biden’s Washington and Xi’s Beijing. Advantage Beijing, it seems.
Meanwhile, Huawei Technologies Co, which has struggled in the Biden era, moved closer to making Riyadh its Middle East headquarters. It would be a major victory for Mohammed bin Salman’s ambitions to position Saudi Arabia as a major business center and destination for global investment – and a reminder that Washington and Riyadh are drifting further apart.
Put all these moves and pieces together and it’s clear that Biden has serious work to do in articulating and implementing a vision for the U.S. economy as the world’s preeminent investment destination at a critical geopolitical time.
Economists can debate whether these bets are driven by Biden’s policies or hedging bets in the event of a Donald Trump 2.0 administration post-election 2024. Suffice it to say, however, that what Biden is selling geopolitically, not necessarily land as the White House probably hoped.
Anwar’s visit here should not be downplayed. The US has long sought to rekindle ties with its resource-rich and moderate Muslim-majority nation after the events of the late 1990s. At the time, Prime Minister Mahathir Mohamed and President Bill Clinton clashed over economic policy during the Asian financial crisis of 1997-1998.
Ten years later, former US leader Barack Obama’s attempts to mend fences failed amid Prime Minister Najib Razak’s corruption scandal. Najib went to prison because of the billions of missing dollars from the state fund 1Malaysia Development Bhd (1MDB), part of which ended up in his personal bank accounts.
In Beijing, Anwar secured investment commitments in renewable energy, electric vehicle manufacturing, digitization and reviving long-delayed infrastructure projects from the Belt and Road Initiative in the Southeast Asian nation.
Malaysian Prime Minister Anwar Ibrahim meets with Chinese President Xi Jinping in Beijing on March 31, 2023. Photo: Malaysian Prime Minister’s Office
The irony here is that Anwar was Washington’s chosen one in Malaysia in the late 1990s. At the time, Mahathir angered the US Treasury and International Monetary Fund officials by imposing capital controls, pegging the ringgit and blaming Jews – George Soros in particular – for the global run on Malaysian assets.
Anwar, Mahathir’s deputy and finance minister at the time, was, for better or for worse, supportive of the policies of the US and the IMF. Now Anwar quite openly endorses Xi’s economic view.
Musk does the same, just as Li Qiang ascends to China’s premiership. It was under Li’s tutelage as party boss in Shanghai that he successfully lobbied Tesla to build an electric car factory in the city – Musk’s first overseas facility. That gave Beijing quite a bit of bragging rights at a time when Xi was investing heavily in his ‘Made in China 2025’ vision.
Li, of course, was also believed to be close to Alibaba founder Jack Ma in the 2010s, when the prime minister was governor of Zhejiang province, where the e-commerce giant is headquartered. As such, Li’s rise to the top of power in Beijing appears to be a positive sign for global investors who hope regulatory attacks on the high-tech sector are now a thing of the past.
This remains to be seen. But with Li taking on the role of financial reform czar — reportedly with buy-in from Xi — investors are hoping the private sector will have more political room to innovate, boost productivity, and get well-paid from the start. create jobs.
The good news for Li is that the People’s Bank of China is taking restrained measures to safeguard national growth without increasing “moral hazard” risks. In late March, PBOC Governor Yi Gang cut banks’ required reserve ratios by 25 basis points.
The message, notes analyst Pramod Shenoi of the consultancy CreditSights, is that “China, unlike elsewhere in the world, has adopted a dovish monetary policy stance to boost economic growth with multiple rounds of prime rate cuts. and RRR reductions.” But, Shenoi notes, no formal rate cuts that could encourage bad lending in real estate and other industries.
Union Bancaire Privée economist Carlos Casanova says the liquidity boost from the PBOC “may not be enough to offset tighter global liquidity due to banking sector stress in the United States and Europe. In addition, we continue to foresee pressure around Fed tightening.”
In short, adds Casanova, “we can expect more easing from (the) PBOC in the coming months. Governor Yi, who was recently reappointed, made remarks ahead of the National People’s Congress (NPC) in March, stating that real interest rates were at an “appropriate level” while lowering the RRR to provide long-term liquidity was still is always an effective policy instrument.’
China could be the engine of economic growth while the US slides into recession. Photo: Facebook
Casanova concludes that he expects an additional 50 basis points to 75 basis points of RRR cuts to “provide support through liquidity injections and lower interbank rates.”
Herein lies another way Xi could beat Biden: positioning China as a major growth engine at a time when the Fed is slamming the brakes in Washington.
While fears of a US recession have not subsided, concerns are growing that US Federal Reserve Chairman Jerome Powell is planning a recession to contain the worst inflation in 40 years.
It hardly helps that the US national debt is rising towards $ 32 trillion. That, coupled with Washington’s political dysfunction and hyper-aggressive Fed tightening, has left America’s largest holders of debt — including China and Japan — concerned about the safety of trillions of dollars in state assets.
The Fed’s current tightening cycle might have made sense in the 1970s, 1980s, and 1990s, when Paul Volcker and Alan Greenspan presided over the Fed. In the 2020s, however, monetary policy cannot address upward price pressures from the supply side. For example, the Fed can no more fix post-Covid-19 supply chain disruptions than recent moves by OPEC+ to cut oil production by 1.2 million barrels per day.
Such price pressures are better addressed by the Biden White House through diplomatic engagement with petroleum-exporting countries and policies to increase productivity and revive innovation.
Last year, Biden laid the groundwork for that latest effort, marking a sea change from the Donald Trump era. Trump blew up global trade flows and signed a massive $1.8 trillion tax cut. But he neglected to build domestic capacity. If lower taxes had stimulated innovation and productivity, US inflation might not be at its highest since the early 1980s.
Biden, on the other hand, signed the CHIPS Act, which committed another $300 billion to boost domestic research and development. Still, Biden’s White House probably needs to add a zero to keep up with Xi’s mega-investments in leading the future of semiconductors, biotechnology, aerospace, renewable energy, self-driving vehicles, artificial intelligence, green infrastructure and logistics .
Joe Biden’s CHIPS bill aims to bring more production to the US. Image: Twitter/Screengrab
Xi’s vision for 2025 is bolstered by efforts to create a kind of Silicon Valley East in southern China. This “Greater Bay Area” project connects Hong Kong, Macau, Shenzhen and eight other municipalities all destined to become their own powers: Guangzhou, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing.
It was no coincidence that Xi brought Macron to Guangzhou, an economic epicenter of southeastern China, to give the French leader and his delegation of business leaders a glimpse of China’s vision for 2025 and beyond.
Significantly, Xi managed to keep most discussions – and joint statements – tightly focused on trade, not tensions over China’s support for Russia’s invasion of Ukraine.
Economist Yanmei Xie of Gavekal Research notes that “a steady procession of European leaders has visited China in recent months.” Macron’s visit shows that “despite China’s support for Russia in the current war, most European countries still do not see China as a critical security threat,” Xie said.
One way Biden has tried to counter China’s rising dominance in Asia is to turn to like-minded democracies for investment. Last February, Japanese giant Toyota Motor doubled production in the US and agreed to produce electric vehicles in the state of Kentucky.
In May 2022, Hyundai Motor upped the ante against Korea Inc peers by pledging to invest $10 billion in the US by 2025. Biden certainly thinks there are more investment opportunities from Samsung, SK hynix and other Korean giants.
Still, the parade of key world leaders heading for Beijing at the start of Xi’s third term is noteworthy. It suggests that China checkmates the Biden White House better than meets the eye.
Follow William Pesek on Twitter at @William Pesek
Similar:
Loading…
