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Of all the spin coming from a flailing and desperate Donald Trump administration, the idea China wants Joe Biden to win the White House is the silliest.
Xi Jinping’s China is benefiting from four years of Trumpian chaos as much as – or more than – any other world power.
Sure, Vladimir Putin’s Russia and Kim Jong Un’s North Korea are plenty happy about their own wins. But Trump’s presidency awarded Xi the ultimate prize: the future of the global economy.
This week, Xi’s Communist Party is reminding global investors why. Whereas Trump’s strategy since 2017 has been tackling China, Xi’s team has not lost its focus, and has kept building new economic muscle and limbering up for “Made in China 2025” and beyond.
The next five-year plan, China’s 14th, focuses on increasing self-reliance, growing the middle class, catalyzing technological innovation and improving Beijing’s environmental record.
Yet this moment also provides a tantalizing split screen of a post-pandemic China consolidating economic gains and a US surrendering to Covid-19. This at a moment when International Monetary Fund (IMF) data points to China contributing 27.7% of world gross domestic product (GDP) by 2025 to America’s 10.4%.
This trajectory was afoot pre-Trump. But posterity will view his policies since 2017 as an accelerator.
Trade war disaster
Trump’s trade war, attempts to strangle Huawei Technologies, TikTok and Tencent’s WeChat, all combined with his Twitter trolling are certainly a drag.
The void Trump left by taking America out of the global leadership game, though, puts Xi’s party a few years ahead of schedule in its quest for economic hegemony.
Four more Trumpian years won’t be fun while they’re happening, but they’d likely add, rather than subtract, momentum to Xi’s “Made in China 2025” moonshot.
And that is a serious shot, despite Xi’s own, at times, ham-handed actions. Beijing’s “wolf warrior” diplomacy, its clampdown on Hong Kong and its heavy-handed behavior toward Taiwan undermine efforts to enhance China’s soft power.
Even so, Trump’s bellicosity, retrograde trade policies and disastrously incompetent Covid-19 response are helping Beijing win friends by both default and attrition. A recent Pew Research poll, for example, found many people around the globe trust China’s leader more than America’s.
Yet let’s leave it to one of the globe’s best-known hedge fund managers to explain why the Trump era has been such a boon for China. “The world order is changing, yet many are missing this because of anti-China bias,” argues Ray Dalio of Bridgewater Associates.
If you are thinking “duh!” reading this quote, you’re missing Dalio’s broader point. Everyone knows that xenophobia is baked into the Trump presidency. But Trump’s own bias blinds him to the version of China he’s confronting.
Trump’s version of China, as Dalio explains in recent interviews and op-eds, is about 20 years behind the one gearing up for 2025.
In Trump’s view, China is a communist system that can’t create anything without stealing the technology. It is populated by nearly 1.4 billion people who hate capitalism. This blinkered view overlooks efficiencies and successes that Trump’s America cannot replicate.
How can Trump explain how China has defeated the coronavirus as the pandemic wrecks his odds of reelection on November 3? How does he downplay the estimate that China is likely to grow 2% this year while America craters?
And how does he explain how China is achieving all this without massively monetizing debt the way Jerome Powell’s Federal Reserve appears to be?
More? Trump is having an equally hard time explaining why the globe’s sexiest initial public offerings are all in China and Hong Kong, including history’s biggest IPO by Ant Group. Or why Tencent’s shares are going gangbusters, up 55% this year, even after Trump targeted WeChat.
Or why Huawei continues to beat the Trumpian odds. Pre-orders for its new Mate 40 phones sold out faster than Apple’s iPhone 12. Or that tech darling Tesla is placing bigger bets on China than on Japan.
Yet more? China’s balance of payments is way healthier thanks to producing more than it is consuming. In August, the trade deficit Trump railed against since his election in 2016 widened to more than $67 billion, the biggest gap in 14 years.
The deficit with China is still about $26 billion, a sum akin to the giant bailouts Trump tossed at farmers devastated by his trade war.
Bottom line, says William Reinsch at the Center for Strategic and International Studies, a US-based think tank, the levies generated more “collateral damage” domestically for Trump than the “intended objectives.”
Trump has no answer for these questions. Nor can his excuses cover the ways in which China used his tenure to great effect. And not just China.
Global tech hub
Look no further than South Korea recording its biggest jump in exports since 1986, the very era Trump seems to think the US is still in. The 16% surge in Korean exports in the three months to September coincided with a 1.9% annualized growth rate.
Korea has not hit plain sailing yet, of course. As economist Robert Carnell of Dutch bank ING points out: “Almost half of the hit to GDP from the Covid-19 pandemic has yet to be recovered.” Yet after China, Korea is now the second major economy to prove that only by beating Covid-19 can growth return.
What’s more, Korea’s rebound bears not America’s footprints, but China’s. Shipments of semiconductors and electronics to China are powering Korean growth. That, in turn, is fueling investment in transportation and machine equipment required for increased manufacturing.
This suggests the semiconductor outlook for 2021 is brightening. It also raises hopes that a Biden White House might reverse – or reduce – many of Trump’s tariffs and other curbs.
Any tweaks come January could be a huge boon for Samsung Electronics. Ditto Taiwan Semiconductor Manufacturing Company. Ditto a whos-who of Asian tech giants as well as supply chains.
Since 2017, Trumponomics has been about tripping up China Inc and cutting taxes. It has done a big fat zero to build economic muscles at home.
Nothing on stimulating innovation or upgrading education and training. Even less on addressing America’s crumbling infrastructure. Really, Xi could not have asked for a better US counterpart as he raises China’s economic game.
Though Covid-19 originated in Wuhan, China has proven its institutions are far more up to the challenge of dealing with the crisis than those of the US.
“The widening gap in economic and public health performance between China and other major economies,” says analyst Dan Wang of Gavekal Research, “is particularly visible in trade: China’s exports are surging as its manufacturers fill the gaps in supply created by the Covid disruptions in other economies.”
Wang continues that “despite the initial shock from China’s strict lockdown, the pandemic has ended up showcasing its operational strengths in manufacturing. There are both political and economic reasons to diversify global supply chains away from China, but most companies are not going to rush to divest from such an important hub.”
The contrast with the US is striking in terms of how Xi’s government is taking advantage of the crisis to make long-delayed systemic tweaks. For example: Looking out for provinces around the nation as Trump ignores economic pain in America’s hinterlands.
“Beijing is aware that local governments need more support, and earlier this year it created a new transfer mechanism for pandemic-related fiscal relief that bypasses provincial authorities,” notes analyst Allison Sherlockof Eurasia Group.
She adds that “this sort of mismanagement had been a target of fiscal reform long before the pandemic, but as seen in other instances, the pandemic has given the central government an opportunity to further centralize control over local policy.”
One can debate whether such maneuvers represent a step backward for Chinese reform. Amid a pandemic, though, the arrangement is helping Xi’s team to get financial support where it’s most needed.
Posterity, meantime, is likely to show tariffs and other Trumpian policies were mere speedbumps on the road to 2025 and beyond.
Biden’s Beijing challenge
Xi has 300 billion reasons to hope Biden doesn’t win on November 3.
That’s how much, in US dollar terms, the former vice president plans to spend to keep the US on the global tech playing field. And likely far more than that as a Biden White House repairs the wreckage Trump leaves behind.
Along with the Covid-19 epidemic, that will include taking the White House’s foot off the neck of a renewable energy industry for which Trump has little use.
Trump is of course free to mock Biden for planning to “transition” the US away from fossil fuels. But that process is no joke in China, which is investing hundreds of billions of dollars in owning the future of batteries, electric vehicles, solar, wind – you name it.
By listening to economists who still think it’s the 1980s — like Larry Kudlow and Peter Navarro — Trump has tied one of America’s limbs behind its back. Biden, by contrast, would seek to generate growth more organically than Trump’s Fed-driven stimulus moves.
Matthew Fitzsimmons, vice president at Rystad Energy, notes that Biden’s pivot to alternative energy holds the promise of creating more jobs than Trump’s efforts to re-shore oil and gas production. With this change in focus, Fitzsimmons says, Biden could generate “some pretty quick returns.”
Biden also is a passionate multilateralist. That means he would probably seek to rejoin the Trans-Pacific Partnership trade pact that Trump exited and the Paris climate accord. It also means Biden would be working not just with Asian powers, but those across the Atlantic.
“America and the EU will be able to deal with the challenges that China poses better if they work together not least because scale matters a lot in today’s technology race,” says Diana Choyleva, chief economist at Enodo Economics.
But no matter what a President Biden does policy-wise, he’ll have a spend a lot of time clearing up the wreckage Trump has wrought.
This includes a Covid-19 caseload approaching 9 million; an economy in tatters; a falling ranking on global corruption tables; a Fed-fueled stock market that may soon plummet to earth; a national debt already topping $27 trillion; a shaky dollar at a moment when the yuan is making gains.
Of course, things could go wrong for China in 2021. Risks include a surge in debt defaults, a second Covid-19 wave and Trump finagling four more years to execute America’s messy “decoupling” divorce from China.
Yet “Buy China” remains sound advice. One investor lays out the big picture.
“As a global macro investor, I think a lot about how much I should invest where, looking at fundamentals and how others are positioned,” said Dalio of Bridgewater. “China’s fundamentals are strong, its assets relatively attractively priced, and the world is underweight Chinese stocks and bonds.”
Dalio notes that these currently account for 3% or less of foreign portfolio holdings. “A neutral weighting,” he advises, “would be closer to 15%.”
Such views put into stark relief how differently 2020 is turning out than Trump planned. Not just for an election that polls show he’s about to lose, but a trade war that’s left China more resilient – and ahead of schedule as hinge year 2025 beckons.