The Chinese locomotive will not slow down, it will move to the backyard

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For the past 40 years, the Chinese locomotive has operated almost uninterrupted and China has been the main beneficiary of accelerated globalization. But now, more and more countries are feeling threatened, and trying to reduce its influence. The closure of the Chinese consulate in Houston, a move that China has responded to in the same currency (see box), as well as India’s blocking of the Chinese app Tiktok and the one emerging in the US, illustrate a growing need for China to change the growth model that raised it to greatness.

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Beyond the tensions with the United States, in recent months there has been a growing hostility towards Beijing from Australia, India and Japan, some of its leading trade partners, which is hurting international Chinese companies. The military conflict in the Himalayas, India has blocked the use of all Chinese apps that have taken the subcontinent by storm, and the blow is particularly painful for Tiktok, the world’s most popular Chinese app.

JD.com skimmer. Continue economic activity while maintaining social distance Photo: Bloomberg

1 The Turkish economy is back

At the end of May, China’s most important annual political debate ended. One of the decisions made there is to focus on the domestic market at the expense of the export-oriented economy on which a model is based.
Growth in recent decades. The move reflects a strategic change in Beijing and preparation for the worst, against the backdrop of the consequences of the trade war with the United States, the corona plague and accelerating geopolitical conflicts.

The US tariffs on Chinese goods, as well as the effects of the corona, will accelerate the transfer of simple production from China to other countries. However, although it is a natural move designed to maximize profits, many companies find it more complex than expected. , Such as security, logistics and raw materials.It will be especially difficult to copy the Chinese diligence, the one that will fuel the economic miracle in the first place.

In the old days, China was an almost autarkic economy. The West, for its part, stared at silk, its fine porcelain and tea. It was eventually opened out of necessity, under the auspices of the cannons of the British navy.

As then, today, exports from China are significantly larger than imports, which enabled its rapid enrichment. In June 2014, its foreign exchange reserves peaked at $ 3.84 trillion, and have since fallen to about $ 3 trillion. Currency balances have allowed China to subsidize industry and research, distribute loans on tempting terms, and gain global political influence. “For the future, we must focus first and foremost on the local economy,” Chinese President Xi Jinping said at the conference. “Our goal is to accelerate the construction of a thriving local market, and at the same time, continue to promote research and investment in science, technology and innovation.” China’s economy, the most important force in global economic globalization, is trying to change direction.

2 The American consumer has moved away

Over the years, the local market has flourished as well, and the country that served as the global factory is not as dependent on exports as it used to be. Moreover, the American consumer, in the not-too-distant past of all appearances, has lost its luster in favor of the rising middle class in emerging economies. In the fast-growing countries of Southeast Asia, China’s backyard is home to some 700 million people, and the Chinese middle class alone surpasses the entire U.S. population.

Alibaba founder Jack Ma delivered a speech in this vein to Chinese businessmen in 2019. According to him, Chinese companies operate under the same regulation in a local market that has over a billion potential customers. These are customers who for the most part speak the same language and share the same culture, a phenomenon that has no parallel in the world. India, the only market with a similar number of people, is much more heterogeneous, and most importantly, it is decades behind China in terms of infrastructure and technology. “Given a solution to the trade war, we will do business with the outside world,” Ma concluded. “If the talks fail, we will make the necessary adjustments and continue to do business with 1.4 billion people. The Chinese market is enough for us.”

3 The SARS initiated a revolution

Under the auspices of the Corona, the digital revolution has also accelerated. After China overtook large parts of the Western world, including Israel, in the development and mass use of digital solutions, the epidemic forced it to implement even more advanced solutions, minimizing human contact.

The most notable example is JD.com, the e-commerce giant that began to flourish in 2003 at the height of the SARS epidemic. After the closure of physical stores pushed it into e-commerce, the corona led it to the next stage in evolution. Among other things, it completely eliminates the human touch in its huge automated factories that handle 1.5 million packages a day. In besieged Wuhan, the company sent packages using robots and skimmers, and this year it plans to open 1,000 non-waiter restaurants across China.

The use of artificial intelligence, automation and robotics saves costs and streamlines processes, but also eliminates working hands. However, the benefits seem to be increasing, allowing for continued economic activity while maintaining social distance. It now remains to be seen whether the accelerated processes in China will serve as an example to the rest of the world.

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The markets were pressured by the closure of the consulates

China’s announcement of the closure of the US consulate in Chengdu on Friday dragged down global markets, amid analysts’ warnings that tensions between the two major economies in the world have escalated dramatically following the spread of the corona, trade disputes and China’s moves to suppress Hong Kong autonomy.

China’s decision was made in response to a U.S. order last week to close the Chinese Consulate in Houston. 0.62%.

“Unfortunately, the markets are now digesting that this is just the beginning and not a one-time operation,” Andy Maynard, a trader at China Renaissance Investment Bank, told the Financial Times. He added that investors were quick to get rid of stocks to avoid further declines in value that could occur in the event of an announcement of further measures over the weekend.

“The U.S. administration has in fact declared a new cold war,” Xi Yinhong, a Chinese cabinet adviser, said of the U.S. decision to close the consulate in Houston.

“In diplomatic retaliation, there is a need to respond,” explained Cheng Xiao, a senior at the Center for International Strategic Studies at Renmin University in China. “This reaction is about in the middle. If China had chosen to close the empty consulate in Wuhan, it would have looked weak. But if it had chosen Hong Kong, Guangzhou or Shanghai, it would have been too severe.” He said relations between the two countries had completely deteriorated, and what began as a trade war had expanded into a diplomatic battle and a technological conflict.

Calcalist service



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