How China's decisions today shape the world of tomorrow

Some countries, for instance, want to review China’s terms of accession to the WTO.

Also, Sino-Russian ties were cemented recently in Beijing. Yet, in economic terms China would be keen to see such ties as not threatening its increased ties elsewhere, after all its global trade importance has continued to rise.

Looking at the world economy now, China is at a different stage of the economic cycle than other major economies.

It did not suffer a recession during the pandemic, growing 2.2 per cent in 2020 and 8.1 per cent in 2021, although it slowed throughout last year. 

Monetary policy was prudent, and although fiscal policy was accommodative it was far from loose.

Thus, China has policy room for manoeuvres to respond to any current setbacks including economic contagion from the war.

Also, its zero-Covid policy could hinder growth this year as new variants emerge.

The official target of 5.5 per cent growth for this year is challenging, although the aim to keep inflation below 3 per cent appears achievable. 

Importantly, by next year China could reach the World Bank’s threshold for a country to achieve 'high income status', thus escaping the middle income trap.

While the trend for the economy is still up, China needs to be braced for greater future volatility. 

This will be viewed as a major achievement in Beijing, as only a decade ago economists were concerned that China might not escape this trap – where countries find it easier to move from low to middle income and then hard to progress from there. 

Present global worries are – in some respects – a vindication of China’s shift in economic policy undertaken in recent years to a 'dual circulation' policy, referencing its domestic and global approach.

This was driven by its reaction to former US president Donald Trump’s trade dispute. In a more uncertain world, China saw benefits from self-sufficiency in the areas of food, technology and energy where it felt it was too dependent on the west.

At the same time, it sought to move up the value curve and see consumption become more important in achieving growth.

Mirroring this, there was a renewed focus on the Greater Bay Area – connecting 11 cities including Hong Kong, Macau and nine on the mainland, into probably the most dynamic economic region. 

The role of markets

The biggest challenge, in my view, is this: while the trend for the economy is still up, China needs to be braced for greater future volatility. 

In part this is because its economy is more integrated to the global system and is thus more exposed to external shocks.