About two years ago, I gave a speech about China and globalization. My main point was that China, after Xi Jinping's speech at Davos in January 2017, seemed to be turning into the global champion of free trade, just as the U.S. and Europe were turning their backs on the idea. My views were met with a great deal of skepticism by some. “China isn't serious about globalization” was a common reaction. And yet as I write this today, a headline pops up on TV quoting U.S. President Donald Trump: “EU just as bad as China.” In the global war on trade, the U.S. opens up front after front: Mexico, China, the European Union, Canada, etc.
I can't help feeling a little vindicated.
Let me restate my case. First, I am not arguing that China will become a global policeman. I do not see China as a bastion of Manchester Liberalism, unfettered free markets and small government. But in the year I was born, China was a country of just under 800 million people, almost all of whom lived in extreme poverty. Today, it has 1.4 billion people, almost none of whom live in extreme poverty. It is a country where a middle class lifestyle is increasingly the norm. China achieved this by saving, investing and reforming its economic and political systems. It embraced market pricing and saw the state step back from hands-on management of the economy. It opened up to foreign investment and foreign trade. For much of the 1970s and 1980s, China was happy to run a trade and current account deficit as it sucked in capital and goods to build a new economy.
Back then, the vast majority of the population lived in households earning US$1.90 a day or less; today that percentage is less than 10%.1
This has been a tremendous achievement, regardless of what you think about the Chinese government's politics. The authorities owe their status and power to their ability in the past to deliver this growth, this incredible revolution in living standards, to the ordinary Chinese citizen. So, when they embrace globalization, capitalism, private enterprise and all it entails—bond markets, stock markets, foreign investment and the freedom for businessmen to make capital allocation decisions—they really embrace it. No, it is not a 100% free market. Where does that exist? No, it won't look exactly like the U.S. Yes, sentiment toward untrammeled economic freedom waxes and wanes in China, as it does in the U.S. (Who can say the current U.S. administration is an unabashed supporter of free trade?) But the Chinese state has major incentives to maintain its pro-trade stance.