Business

Something big just changed in China

Beijing-based economist Rodney Jones argues New Zealand should have a robust debate about its relations with China under President-for-life Xi Jinping, and should be less afraid of any reaction in China to that debate.

The decision of the Chinese Communist Party to abolish term limits for the Chinese President – enabling Xi Jinping to be President indefinitely – has caused much concern and introspection in Western countries, and reportedly in China itself.

In the days that followed the announcement there was increased censorship in Chinese social media, including the censorship of innocuous words such as ‘No’ or ‘disagree’ that could be used to express disagreement with the decision.

Yet in New Zealand any expression of surprise or disappointment was notably absent. While the front page of the Economist magazine carried a picture of Xi Jinping with the headline ‘How the West got China wrong’, there was barely a murmur of concern in New Zealand about what this decision meant for New Zealand and its relations with China.

The lack of apprehension of what Xi’s indefinite rule means for New Zealand is disconcerting. New Zealand has been rightfully proud of our relationship with China since the 1970s, and achievements such as the ‘four firsts’ represent the real success of New Zealand’s independent foreign policy. But abolishing term limits is a confirmation of a change in direction from China, one that carries real significance. It is important that New Zealand recognize the shift in the Chinese political system towards increasing authoritarian rule and a cult of personality.

While some may attribute New Zealand’s lack of comment and concern to our economic dependence on China, a closer look at the regional trade data would suggest that by regional standards New Zealand’s exposure to China is moderate. At around 25 percent of total exports, this is close to the average for the Asia-Pacific region, but below the export exposure seen in economies such as Australia, Korea, Singapore – and even Chile.

Exports to China as percentage of exports – 2017

Taiwan 41 percent

Australia 37 percent

Singapore 27 percent

Chile 27 percent

Philippines 25 percent

New Zealand 25 percent

Japan 24 percent

Malaysia 19 percent

Thailand 18 percent

Indonesia 15 percent

New Zealand does have significant exports of services with education and tourism, but this is also the case for economies such as Australia, Japan and Thailand. There is nothing in New Zealand’s economic relationship with China that suggests that we have to tread on eggshells on issues related to China. Moreover, New Zealand’s exposure falls short of countries such as Korea, Japan, and Singapore; all which have had moments of serious political tension with China in recent years and have been unafraid to express themselves on occasion.

Increasingly in recent years there are signs that New Zealand is not benefiting from the relationship with China to the extent it once was. New Zealand’s growth in exports to China has been similar to other commodity exporters such as Australia, Brazil, Mexico and Chile. It’s true that the FTA in 2008 provided a remarkable boost to New Zealand’s exports to China, but that boost is now fading.

In the years around the FTA in 2008, New Zealand recorded the fastest export growth of any significant exporter to China. But in the last three years, it has slipped to 9th place, with exports growing at just a one percent annualised rate in the last three years.

NZ’s ranking amongst exporters to China in terms of growth

2000 – 2017 4th

2007 – 2012 1st

2012 – 2017 2nd

2014 – 2017 9th

The opening up is now over

New Zealand was a key beneficiary of the era of ‘Reform and Opening up’, but as Xi Jinping himself says, that era is now over. This is now a ‘New Era of Chinese Socialism’, which has shifted the balance of power within China to the Party, the State, and Xi Jinping himself. The abolition of term limits was but the last step along this path. We have for some time been headed in the direction of Xi as the absolute ruler; the only surprise was that he decided to do it so early in his second term.

Rather than looking through the rear view mirror and basing our approach to China on what we achieved through the era of reform and opening up, we need to look forward and devise a strategy for Xi’s China.

Xi’s decision to abolish term limits increases the risk for countries such as New Zealand. While an authoritarian regime can appear strong during a prolonged expansion, we know from experience that over time a highly personalised leadership is not as resilient or responsive to economic shocks.

Deng Xiaoping recognised this, and introduced term limits and planned leadership transitions as a means of establishing more resilience and adaptability into the socialist system; in a way he was mirroring the strengths of democratic systems. Xi Jinping is now undoing this.

NZ shouldn't assume stability

In the long-run a strongman-led, authoritarian state will leave China more exposed to shocks, either through a financial crises or a crisis around political transition. This may not happen soon, but it is something we need to build into our frameworks. We cannot continue to assume that that China will be the source of stability as in the last few decades. It may, in fact, be a source of instability.

This new reality means that we also need to reassess the nature of the relationship New Zealand has with China. Martin Wolf, the brilliant Financial Times columnist, wrote last week that with the changes unfolding in Xi’s China, democracies would have to now see China as a transactional partner rather than a friend with common values.

This is a good starting place, and fits with the distinction the Prime Minister has made between values and interests. You share values with friends and interests with partners. We have a lot of shared interests with China, and need to work constructively with them. But our values tell us that it is a mistake to centralise power and weaken institutions in the way Xi Jinping is currently doing. This is not something we would expect our friends to do.

In practical terms, we do not need to change much. It is in our interest that trade with China grows. Joining the AIIB was a clever pursuit of our own interests, while joining the Belt and Road...not so much.

What has to change is the way we view China. China is an opportunity, and a risk, and from here the risks will not be so easily managed. In order to manage these risks going forward, we need a much more robust domestic debate, one that is unafraid of China or the reaction of the Chinese Communist Party.