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It is a certain tragicomic irony that the annual global getaway of the world's movers and shakers has chosen Xi Jinping as the herald of global capitalism. "Help me, Xi Jinping, you're my only hope."
On Tuesday, the leader of the -- reminder -- Communist Party of China addressed the World Economic Forum in Davos, Switzerland. It is the first time a Chinese president ever attended the forum. The forum leaders have seemingly made him the poster boy for globalization, based on the number of headlines regarding his historic attendance. Here is a leader they can, oddly, get behind. He touts globalization on one hand, has the world's largest closed economy on the other. Up is now down. On is now off. At Davos, China is getting all of the sympathy, one attendee told me this morning. The U.S. is not. Consensus is that Donald Trump is an idiot to stand in China's way and Xi Jinping will test him. Picking Xi as the 2017 Davos Man of the Year has to be a symptom of Trump Derangement Syndrome.
China should love globalization. It has treated China well. Gone are the days of the Happy Meal toy making, dollar-a-day economy. China, if you look mainly at Shanghai, Beijing and Guangzhou, is rich! They're keeping London and New York real estate afloat. And the country is home to more new billionaires than anywhere else.
That Davos Man has given Xi poster boy status of world trade is no mistake. The Anglo-American capitalists have gone nutty, if you take a Financial Times point of view on the matter. The Brits are leaving the European Union. The Americans elected a loud mouthed, wild man who is ready to slap tariffs on global corporations that threaten to take full-time, middle income earning jobs out of the U.S. America First is a call to arms. The les miserables have stormed the Bastille. Who to tout the err of their ways...but the Chinese.
Even better of course for Davos establishment crowd is the fact that Xi Jinping is the embodiment of the anti-Trump. China as globalization's biggest, national benefactor is also the anti-Brexit, insofar as many of the U.K.'s working class have grown wary of the free movement of Europeans, especially well-educated ones, who have often replaced the locals in the job market. Free movement of people didn't work so great for them. If anti-Brexit is anti-establishment, anti-internationalist, then China represents the internationalist view. It has been the world's manufacturer for decades thanks to cheap labor and lackluster environmental laws.
Holding up Xi as the toast of the town this week in the Swiss Alps is the best way to take a swipe at the political and economic disruption coming from ballot boxes in the U.K. and the U.S. For Davos' elite, Democracy only really works when you win.
The Chinese president delivered an upbeat address, noting that China is "open for business" and Western protectionism is anti-business. He emphasized China’s contribution to global economic growth and China’s commitment to global trade and its ongoing policy liberalization. All true.
Jiang Jianguo, head of the State Council Information Office, told a symposium hosted by the World Trade Organization in Geneva recently that Xi wanted China to deliver a message on global cooperation in order to build "a human community with shared destiny." China's view on that community is probably quite different from the money centers view. We've all heard this type of rhetoric from Davos before. This line became especially true once Davos Man was finally spotted by the masses, sauntering out of his castle in the mountains wrapped in a $1,800 Yuki Expedition snorkel. They then changed their tune once the leftist counter-Davos organization, the World Social Forum, labelled them a conspiracy of global elitists carving up the world for themselves. The World Social Forum, as marginal as it was, traveled from Porto Alegre, Brazil to Mumbai, India convincing political leaders in the global south, and Latin American academics and labor groups that Davos wasn't about capitalism anymore; it was about fiefs and serfs. And at that, the World Economic Forum paid more attention to the environment, income disparity and social mobility.
"With the rise of populism, protectionism, and nativism, the world has come to a historic crossroad where one road leads to war, poverty, confrontation and domination while the other road leads to peace, development, cooperation and win-win solutions," Jiang was reported saying by Reuters on Wednesday.
It is ironic that China, where protectionism and a practically state sanctioned full employment policy, is the one discussing the problems of populism. Isn't job protection and closed borders the very definition of nationalist economics? Nationalism and populism are not exactly the same thing, though that's an argument for professors to debate. Nicholas Maduro in Venezuela is a populist. More money for the welfare state. Bigger role for government. This is not where the U.S. is heading. It didn't go that way under Obama, who took over a disaster zone of an economy. It's not going that way under Trump. Protection of national economic interests, on the other hand, is supposedly on its way starting Friday. Average Americans probably won't get too upset about it.
It is also ironic that the World Economic Forum is touting a man who boasts about creating the "Chinese Dream". The Chinese dream...hmmmm, is that for the Vietnamese?
For many years, the financial pundits and editorial writers from The Economist and the FT have scoffed at China all the while salivating over its market. They bemoaned China's capital controls. They complained about the tight trading band on the Chinese yuan. They complained about how foreign banks were not allowed on the mainland and were stuck in expensive and crowded Hong Kong. They complain about how their products (Google) were not allowed to compete with Chinese products (Baidu). They complain about state subsidies to solar panel manufacturers and automotive parts makers and steel companies. They incessantly talk about China's real estate bubble and its state banks on the cusp of failure. In fact, they have been warning about a Chinese hard landing as evidence that Beijing's anti-capitalist ways were doomed to fail, any day now, since 2008. None of their fears have come to pass. It's been almost 10 years now.
But...the enemy of my enemy is my friend.
The Forum's new poster boy of trade is no fan of Donald Trump. Xi, therefore, becomes a surrogate in their fight for full-on open markets. Trump has appointed a number of trade hawks—most notably Peter Navarro as the chief of the newly formed National Trade Council, private equity giant Wilbur Ross to head the Commerce Department, and Robert Lighthizer as U.S. Trade Representative. They all signal a far tougher line on China.
Everyone in Europe wants China to fight back. China will.
Bloomberg reported that Beijing is threatening to scrutinize the business dealings of American multinationals, looking especially for tax and anti-trust violations. FORBES China pundit, Gordon Chang, noted that the Shanghai Municipal Development and Reform Commission imposed a fine of 201 million yuan ($28.9 million) on General Motors last month. GM has a joint venture with Shanghai Automotive Industries Corp. They were fined for imposing minimum prices for dealer sales of Cadillacs, Chevrolets, and Buicks. Make China Great Again!
Bad analysis, and life in a bubble of one-percenters and 'yes men' have confused Davos Man. As great as China is, Xi Jinping is a strange leader of the free-market, isn't he?
The neo-liberal model has been called into question before. The dreaded Washington Consensus in Latin America was totally destroyed in the early 2000s when a wave of populist, left wing politicians from Hugo Chavez in Venezuela to Luiz Inacio Lula da Silva in Brazil took over economies. Take heart, Davos Man...those countries that shunned your economic wisdom are now a mess. You'll get poverty and destruction again in a few years time, this time perhaps in wealthy nations like the U.S. and U.K. South America is now selling assets at bargain basement prices.
An op-ed by Wolfgang Munchau in the FT this weekend noted that Trump and other nationalist leaders in Europe could succeed in the near-term simple by undoing the policies of the present day rulers. "They won't succeed in the long run, but they may succeed before they fail," he writes, adding that his "values" of free trade are under "serious assault". Globalization is in the gutter. It's not the first time.
The World Economic Forum has China as its best globalization story. It is definitely a good one. For the Chinese. And for countries that have been on the recent receiving end of Chinese corporate investment. Only, contrary to the Davos world view, China's success was founded on protectionism and a China-first economic model that turned dollar-a-day workers into working class and middle income members of what is now the world's No. 2 economy.
In the Swiss Alps, Trump is a Chump. So what? Investors attending Davos can hammer on about Brexit and loath the new President. But the best of them will make money under any economic circumstance. They will adjust. They will learn the new rules of the game, if and when they truly change, and they will place their bets accordingly. Democracy is not dead. Democracy got us here. Capitalism is not dead. Free enterprise is not dead. Entrepreneurship is not dead, including in China, where it is now thriving like never before. A strong China is good for the world.
At the end of the week, China will publish its latest GDP forecast showing their economy is growing at a slower pace, with consensus estimates putting it at 6.7%. The main downside risk for the global economy is a trade war between the U.S. and China. Most of the U.S. trade deficit is with China, rising by the tens of billions year over year since the Great Recession.
According to Bloomberg, in a worst-case scenario, a 45% tariff imposed by the U.S. on Made in China goods would reduce China’s exports to the U.S. by 60% and take real GDP growth down to 5.6% in 2017. China's GDP will eventually slow to the fives anyway. Investors have been making their adjustments to this for years. So has Beijing. And if China slows more than Xi Jinping permits, should anyone expect the Communist leadership to stop protecting its workers? If China's economy crashed, would Beijing allow the XYZ Widget Maker to move his factory to India? After nearly 25 years of rising incomes, China is still a low income country with serious poverty outside of its major hubs. Keeping them employed will become a mandate for China if Trump hiked trade tariffs, making China again the antithesis of everything Davos Man stands for.
