Has China’s Rise Topped Out?

Has China’s Rise Topped Out? By Michael Schuman.

Most people around the world still seem to believe China’s ascent is relentless and inevitable. …

Ultracritical coal reactor turbines in China

Statistics tell a different story. The common perception is that China is swamping the world with exports of everything from mobile phones to steel to sneakers. In fact, the entire Chinese export machine is sputtering. Between 2006 and 2011, China’s total merchandise exports nearly doubled, powering the country through the Great Recession. Since then, they’ve increased less than 11 percent, according to World Trade Organization data.

The same trend holds for China’s currency. In late 2014, the renminbi broke into the top five most-used currencies for global payments, reaching an almost 2.2 percent share. China seemed well on the way to achieving its long-stated goal of turning the yuan into a true rival to the dollar. But that progress has reversed. In June, the renminbi chalked up only a 2 percent share, according to Swift, slipping behind the Canadian dollar. …

In part, China is simply running into the difficult transition every country faces when losing its low-cost advantage. Facing stiff competition from countries like India and Vietnam, where wages are lower, China is losing ground in apparel and textile exports to the United States. Meanwhile, the Chinese economy isn’t replacing these traditional exports with new, high-value ones quickly enough. For example, in 2016, China exported 708,000 passenger and commercial vehicles, a sharp deterioration from the more than 910,000 shipped abroad in 2014.

Too much government is holding China back:

Rather than boosting China’s global expansion, government policy is holding it back. The renminbi remains a sideshow in currency markets because the state can’t stop fussing with its value. …

The root cause of China’s global stall is this continued inability to let markets be markets. Meddling in the allocation of finance has ensured that much-needed capital gets gobbled up by the politically connected, not the competitive. Then the government tries to rectify the damage with more government. In an effort to rejuvenate exports, China has unleashed a subsidy-rich industrial program to upgrade its manufacturing called “Made in China 2025.” To help companies expand around the region, the government has cooked up the Belt and Road Initiative, an infrastructure-building scheme that looks to many like a boondoggle.