Treasury Today Asia March/April 2017

Published: Mar 2017



Flying the flag for free trade

Thirty years ago, whilst deep in the grip of the Cold War, the United States became the head cheerleader for globalisation, a trend driven largely by capitalist enterprise and free trade. Meanwhile China, on the other hand, was busy staunchly adhering to the communist principles of central control. The country’s economy was still largely closed, with Deng Xiaoping’s ambitious financial reforms and economic overhaul just beginning.

Thirty years on, the picture looks very different, and the world has seemingly turned on its head, particularly during the last three months. Trump has begun putting walls up, ripping up free trade agreements and hammering home an ‘America First’ philosophy, in a direct attack on globalisation. At the same time, China, still governed by the Communist Party, is poised to potentially emerge as a beacon for globalisation and free trade.

This was implied by China’s President Xi Jinping’s impressive speech at Davos, the World Economic Forum’s annual winter jamboree. Although the speech contained no direct reference to then US-President-elect directly, it packed a heavily veiled message. “No one will emerge as a winner in a trade war,” Xi said. Whilst acknowledging that economic globalisation had become a “Pandora’s box” for many, he stressed that it is not the cause of the world’s problems.

Behind the rhetoric

Despite Xi’s words and obvious intent, the reality is that China still has some way to go before it can develop into a bastion of free trade and enterprise.

Indeed, a recent survey by the American Chamber of Commerce in China showed that a growing number of US companies operating in China say they plan to move their business out of the country. The reason for this being that they feel “less welcome” in China than they have previously. The report also found that foreign companies often feel like they are not competing on a level playing field.

Elsewhere in the report, businesses stated that labour costs, regulatory challenges and the threat of intellectual property theft were the main factors driving US businesses to pack up shop in China.

It is not just US companies that have left China. The Japanese electronics company Panasonic, for instance, stopped all its manufacturing of televisions in the country in 2015 after 37 years of operating in China. In November of last year, British high-street retailer Marks & Spencer announced it was closing all its China stores, amid continuing China losses.

Leading the way?

Whether China can assume the role of a world leader in globalisation over the next few years remains to be seen. The country, after all, is facing some fundamental challenges. It is also unclear how far Trump will act on his anti-globalisation rhetoric and what damage this may do to the US.

What is certain is that more instability is on the horizon. Businesses are becoming ever more focused on geopolitical risk. In a shifting world there will be opportunities. Being ready to seize them when they arise will be the challenge.

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