China may have an opportunity to advance

China may have an opportunity to advance


China, the world’s second largest economy, is under threat as the pandemic wipes out jobs and slows productivity and growth.

But even with the economic setback, that’s not stopping Beijing from doubling down on its geopolitical agenda.

China expert Elizabeth Economy, the Council on Foreign Relations’ director of Asia studies, told CNBC’s “Trading Nation” she sees the country forging ahead with its national development goals long laid out before the virus.

“Even in the midst of this global pandemic, which began in China, for which China must ultimately claim a significant degree of responsibility, it has not deterred the Chinese leadership from pursuing additional objectives like the Belt and Road,” Economy said Tuesday.

China’s Belt and Road initiative was the brainchild of President Xi Jinping, announced in 2013 as a path to gain a cultural and economic foothold in the global economy. Its projects include investments in infrastructure and other developments in more than 60 countries. The plan has been heavily criticized by the U.S. and other countries as an attempt to extend Beijing’s reach and influence. The rollout of loans under the program has also raised eyebrows.

When Sri Lanka was unable to pay China back, the government was forced to hand over a key port to the Chinese in 2018.

China could be using diplomatic outreach, while skirting any responsibility for the crisis, as a way to move forward with its geopolitical plans, Economy said.

“It’s trying to use its masked diplomacy to frankly mask its original culpability at the outset of the crisis,” she said. “We’re seeing China do the right thing now in terms of reaching out to help others, as it was helped when it was sort of at the peak of its pandemic. But I think there’s an accounting that has yet to occur in terms of, where and why this started and how it’s spread and I think that that judgment day will come.”

With the economic losses mounting in the U.S., Economy is betting the Trump administration will have to ease tariffs on Chinese goods, if only as a reprieve. Companies like General Motors involved in ramping up production of ventilators have requested tariff relief from the administration on certain components that are made in China. 

“I think we will see the administration lift tariffs temporarily for this extraordinary set of circumstances. But I don’t anticipate that anything that happens now in terms of the trade relationship will affect the post COVID-19 trade relationship. I think the tariffs will be back in place. I think the Trump administration will be looking to China to buy American, to fulfill the promises that it made,” she said.

As to whether Xi will face internal pushback for not being transparent when the coronavirus outbreak started in Wuhan, Economy said it would take a rebuke from multiple fronts.

“What it would require for him to have to take a step back, maybe not to be ousted, but in fact to be pushed to a second line, I think would be for there to be significant concern within the upper echelon, the top seven people in the Standing Committee of the Politburo,” said Economy. “If they decide that this was the case that Xi is ultimately responsible, I think then, we could see him really in significant political trouble.”

In the meantime, the People’s Republic of China has rolled out significant measures to offset the economic impact of the pandemic. Everbright Securities says key measures include two targeted reserve requirement ratio cuts for banks and special lending programs for small and medium sized Chinese businesses. 

Chinese stocks have rebounded off their lows, up 7% since March 19.

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