China is telling the world that the Maoist madness is over

It will act as a counter-cyclical buffer for the world as Europe and America grapple with recessionary forces. “China’s post-COVID reopening is the most positive catalyst for global markets this year,” he said.

“Abandoning the Cold War Mentality”

Vice Premier Liu’s conciliatory stance is also a signal that China will return to its long-standing position as representing the interests of the established world order at Davos, rather than as a revisionist power determined to overthrow it.

“We must maintain an effective international economic order. We need to abandon the Cold War mentality,” he said, promising a push toward “economic re-globalization.” There was no trace of criticism of the USA or the West. No top Chinese politician has given such a speech in years.

It goes well beyond the first signs of a tentative thaw at a US-China summit late last year and suggests that China’s 20th National Congress marked a turning point in China’s strategic thinking. Whether authentic or tactical remains to be seen.

In a sense, the new policy is an acknowledgment by the Communist Party that democracies are not as weak as they looked a year or two ago. The West still controls the machinery of global finance, technology transfer and maritime trade. The war in Ukraine has shown that it can be remarkably united and have a backbone of steel when seriously provoked.

Xi’s declaration of friendship “without borders” for Vladimir Putin is certainly an embarrassment he would rather forget – although there are some advantages for Beijing in a dependent Russia that has nowhere else to turn. Russia’s military has been exposed as a paper tiger. His value as an ally is greatly diminished.

Chinese President Xi Jinping's declaration of friendship

Chinese President Xi Jinping’s declaration of friendship “without borders” for Vladimir Putin is certainly an embarrassment that he would rather forget.Credit:AP

Most notably, Xi discovered that the US controls the world’s supply of advanced semiconductor chips, the main fuel of the 21st century technological economy. Without that you are nothing. China’s repeated attempts to bridge the chip gap have all stalled, and the last one has just been abandoned due to prohibitive cost.

Ursula von der Leyen, President of the European Commission, struck a more skeptical tone in Davos. Immediately before Liu, she accused China of actively trying to poach European green-tech companies with subsidies, labor dumping and regulatory arbitrage, while at the same time systematically impeding foreign access to its domestic market.

“Competition to net zero must be based on a level playing field. We will not hesitate to launch investigations when markets are distorted by such subsidies,” she said.

The White House remains wary of the softer Chinese tone. Violation of the 1984 Hong Kong Accords is now an irreversible fact. Military islands are still being developed in the territorial waters of other countries in the South China Sea. It will take more than words to repair this diplomatic damage.

Happy Talk difficult to sell

Deng Xiaoping has long followed a policy of “bid your time and hide your strength”. As Xi broke that reluctance and suddenly shifted into an attitude of impatient threat, he revealed what China might look like as a global hegemon.

This reached its apotheosis in pandemic triumphalism. It wasn’t an attractive spectacle. Switching even more suddenly to global happy talk will be hard to sell.

Liu said China’s housing bust has brought the economy close to a systemic crisis, requiring a “blood transfusion” and a massive government bailout of the mortgage system to restore confidence. The worst is now over and the economy should return to pre-pandemic trend growth of 5 percent or more this year.

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Officially, growth last year was 3 percent. Capital Economic’s proxy measure suggested things were far worse as production shrank nearly 7 percent (yoy) in November before Beijing threw in the towel to zero-COVID. By this measure, GDP is barely higher than before the pandemic. A V-shaped economic recovery is now in sight. China’s property restrictions – the “three red lines” – have largely been lifted. All political levers are stimulating.

For the rest of the world, the impact is bittersweet. The risk is that rising Chinese demand for oil, gas and commodities could trigger another round of imported inflation before Europe and America fully recover. Buckle up for another tumultuous year.

The Daily Telegraph, London

https://www.smh.com.au/business/markets/china-tells-the-world-the-maoist-madness-is-over-20230118-p5cdbq.html?ref=rss&utm_medium=rss&utm_source=rss_business China is telling the world that the Maoist madness is over

Brian Lowry

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