GEAB August 2023

To be fair, political anticipation requires us to look back at past forecasts. This is what the LEAP team does every August by delving into the GEAB archives. This year, we went back to 2017 to rediscover our anticipations on China’s global power.

While China’s position on the world stage is complex in relation to the situation in Ukraine, its economic position is more assertive and it is now able to offer an alternative to the fragile institutions that emerged from the Bretton Woods agreements. To achieve its ambitions, China has had to work on reinventing its political and economic model, a reinvention which occurred internally with a projection onto the international stage.

These topics may seem very disparate, but it is only by combining these different study levels that we can understand the path China has taken in half a decade, and then anticipate the path it will take to perpetuate its status as a global power.

At a time when the forthcoming BRICS summit (to be held in Johannesburg, South Africa, from 22 to 24 August) promises to be historic, as it will see the launch of their new international currency, we consider it necessary to take a look in the rear-view mirror before embarking on the new path mapped out by the main proponents of the new multipolar world.

You be the judge!

ECONOMY

Our anticipation first led us to understand that China considered it impossible to reform existing institutions, so it was forced to create something new, which required the reinvention of its own model. We identified this reinvention on the political and economic fronts as early as 2017, with China’s decision to adopt what we called the “middle path”.

End of the International System as we know it and the “Middle Path”

(excerpt from the GEAB No 111, January 2017)

China is now ready; in a similar way to Russia which, in 2013, was ready to make its official entry on the international scene and relied on its Olympic Games to mark this recognition. But…

In this context, our team anticipates that the country would take a middle path; with SOE (State Owned Enetreprises) reform being the first illustration of it. The new generation of Chinese economists would have to invent a new model serving a “China first” strategy, a China open to the world (or to a part of the world, at least). According to our team, the guiding principles of the Chinese economic model will combine the following characteristics:

. Coordination of economic policies: the government will not abandon its economy to the law of the market but, rather than a centralising model, it will evolve towards a strong coordinating system;

. Consumer credit policy: to continue to bring out the middle class of consumers despite the slowdown in growth;

. Mixed economy with a separation between modernised and streamlined state-owned enterprises for large public services, flagships of the private economy under political control, and a SME-SMI fabric to nurture and anchor deep growth;

. Porosity of economic relations: neither protectionism nor gaping free-trade, the principles of “China first” will focus on a controlled opening based on a recognition of interests of the various parties concerned and their harmonisation;

. National and transnational Keynesianism, via very large transnational investment projects designed to provide the globalised (or regionalised) trade with the infrastructure tools they need in order to thrive;

. A more or less visible exit from international fora: a symbolic exit from the WTO is not to be excluded in 2017; this could be, according to our team, the strong signal sent by China about its exit from the Western game of “conditions” (needless to say that the already moribund WTO will not survive such a storm, giving an idea of ​​the future of the rest of global governance if China, mirroring US rejection, takes its own path);

. Creation of new tools for measuring and controlling the Chinese and Sino-centric economy, mainly outside any Western influence;

. In the medium term, a strong Yuan policy to attract capital without losing control of the axes and conditions of foreign investments…

At the outset of these strategies, one realises that China has already got many elements of a genuine economic model. The real revelation in 2017 will be that China is not heading to adopt the Western model but to implement a separate model which will send a powerful signal of the end of the single-track economic thinking; this will most probably open a very large window of opportunities for other models to emerge (America first, Europe first, China first, India first, Africa first…) with a great potential for liberating both energies for modernisation and ideological conflicts.

It is true that China is still a member of the WTO, but since the beginning of the decade there has been a debate about the sustainability of this membership. For the rest, during these years, China has distanced itself from the Western model and sought to create a political and economic system with its own characteristics. This strategic choice has enabled it to compete with the United States on the world market, as illustrated, for example, by oil contracts denominated in yuan.