World: China is at a crossroads, Kevin Rudd tells London audience - PressFrom - Australia

WorldChina is at a crossroads, Kevin Rudd tells London audience

23:05  11 july  2019
23:05  11 july  2019 Source:

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China fears that trade and technology wars with the United States will spill over into the finance sector, former prime minister Kevin Rudd said, adding that the Asian nation is at a crossroads about whether to respond by retreating inwards or further liberalising its economy.

Delivering the opening address at a conference on China's economic future at Chatham House, a London think tank, Rudd predicted that the US and China would strike a politically acceptable trade deal before the end of the year.

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He said this was because both countries needed stability ahead of the US presidential election and the lead up in China to the party centenary in 2021, when President Xi Jinping would face internal pressure if the economy had not sustained economic growth above 6 per cent.

But Rudd said any agreement between the US and China on trade would not end the technology war, which has been crystallised by the Trump administration's response to Huawei. The US placed Huawei on its entities list, meaning US companies wishing to sell to the telecommunications manufacturer have to seek government licences and approval.

Rudd believed Huawei would remain listed and said China feared a spillover into the financial sector, where the US would use its institutional and currency might, beginning with the digital payments system China increasingly dominates through alipay, wepay and UnionPay.

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"China has observed closely what it sees as the weaponisation of the dollar and the international financial system more broadly against various strategic adversaries of the United States," Rudd said.

"Beijing anticipates the US may be considering to do the same to China."

He said this had already led Chinese and international companies engaged in sensitive industries to begin offshoring manufacturing facilities to hedge against the geo-political uncertainty and the risk of bans, tariffs and even long-term sanctions.

"Even if both the current trade and technology wars are resolved, it is unlikely that these decisions will be undone," he said.

Rudd, who heads New York think tank The Asia Society Policy Institute, was in China in May and June. He said private business owners were sitting on their hands and delaying investment, warning of a "collapse of business confidence" in the event the trade war was not resolved.

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With China's economic growth expected to slow to a 30-year low of 6.2 per cent this year, Rudd said China was engaged in a "formal process of deep strategic review internally" about changes in the external landscape and how it should respond.

He warned that Beijing's reliance on the "easy alternative" of stimulus to substantive economic reform "could prove lethal to China's long-term economic trajectory".

"China’s political economy therefore finds itself at a policy crossroads ... between the competing demands of sustainable economic reform and continuing recourse to stimulus," he said.

He said this could see China embark on further liberalisation and greater engagement, including potentially joining the revamped TPP and championing the World Trade Organisation, or turning inward for self-reliance and engaging in "mercantilist practices abroad".

But he said it was also possible China may proceed cautiously until the future of American strategy becomes clearer.

A report published this month by McKinsey Global Institute, China and the world, calculated $US22-33 trillion, equivalent to 16-26 per cent of GDP, could be at risk depending on whether China decided on greater engagement with the world.

It identified five areas where China could be more or less engaged, including growing imports, liberalising services, globalising financial markets, collaborating on global public goods and flows of technology and innovation.

The report said that, while major economies were legislating to subject strategically important investment deals to stricter review, disengagement between China and the rest of the world "is not inevitable".

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