Beijing's Pain Points – 2 (Glance from mid-2020)

In China, the topics of pandemic and economic recovery gradually lose their importance and give place to another deterioration in U.S.–China relations due to pressure from the United States on Hong Kong, Xinjiang Uygur Autonomous region, and the insufficient, according to the American side, pace of implementation of China’s first phase of commercial transactions with the United States. Beijing takes Washington’s threats to deprive Hong Kong of the status of a special customs territory in trade and economic cooperation with the U.S. quite seriously. However, Chinese experts note that the implementation of these threats will not lead to the collapse of the Hong Kong economy, since the most-favored-nation regime applies to about 5% of Hong Kong’s exports to the United States. At the same time, Beijing is trying to find an alternative to Hong Kong as a financial center in the face of Macao. However, the main characteristics of the Macao economy do not yet allow us to seriously talk about a full-fledged replacement, since most of the GDP of this special administrative region is formed by the gaming, tourism and restaurant industries. To a certain extent, the “position” of Hong Kong is claimed by Shanghai, but the extent of its claims is limited by the Chinese legal system, which is less flexible and liberal than that of Hong Kong. In May 2020, the so-called “Two sessions” were held in Beijing: the national Committee of the People’s Political Consultative Council of China (CPPCC) and the National People’s Congress (NPC). The latter presented a report on the government’s work in 2019 and the first quarters of 2020. The report contains the main guidelines and targets for the country’s socio-economic development for the current year, as well as a list of measures to support the economy in the so-called “post-crisis” period. Most of the mechanisms for stimulating growth are of a fiscal nature: the authorities do not want to inflate the amount of debt owed by public and private companies too much, and they go, first of all, for tax breaks. At the same time, the Central budget deficit is expected to increase to 3.6% due to reduced tax revenues because of quarantine measures and increased government spending to support consumer demand. At the same time, Beijing announced a reduction in spending by the central and provincial governments on “unimportant” and “non-priority items”: construction of buildings, business trips, celebrations, etc. The report on the government’s work reflected the desire of the Chinese leadership to accelerate the ongoing work on “launching” a new economic model of China’s development, aimed not at achieving high growth rates, but at quality indicators. For the first time, the NPC session did not specify the expected GDP growth rate in 2020. However, the main characteristics of this model have not yet been fully clarified. In the first approximation, it is a bet on the production of high-tech products, the implementation of traditional infrastructure projects within China and the expansion of domestic consumption – while maintaining the strategy of going outside in the format of the “Belt and Road” (or the “Silk Road Economic Belt”). The so-called “separation” of China and the United States in the financial and economic spheres, which is widely discussed in the world press, has not yet taken place. D. Trump’s “return of American business to the United States” is not yet perceived by the American private business itself, which is interested in expanding its presence in Chinese financial and other markets. China, for its part, by opening previously closed sectors of its economy is trying to provide new business opportunities to American companies in a “compromise” way, in contrast to military and political issues, where Beijing acts extremely harshly. In Russian-Chinese relations, there is still a trend to deepen strategic partnership in the military-political sphere and, if possible, in the economy – taking into account the negative consequences of the pandemic and adjusting for the scale of the Russian economy.