Is China Ready to Lead?

Although China’s economy holds great promise for investors, it remains to be seen whether it can lead on trade, human rights and climate change issues.

Featured Experts from the Natixis Investment Managers Summit:

  • Tanvi Madan, Fellow & Director, The India Project, The Brookings Institution
  • Minxin Pei, Professor, Claremont McKenna College
  • Andrew Y. Yan, Managing Partner, SAIF Partners
  • Moderator: Philippe Le Corre, Senior Fellow, Harvard Kennedy School
As China flexes its muscles and pushes for a leadership role on the global stage, escalating tensions could lead to a new cold war, with dramatic consequences for the world economy, said Minxin Pei, PhD and professor at Claremont McKenna College. “The world is changing in front of our eyes – 26 or 27 years after the Cold War, a new cold war is about to begin,” he said. “If this trend continues, it will definitely affect the global markets, the supply chains, and of course, globalization. We are living in very interesting, but also very troubled times.”

Will China’s rise be peaceful?
In recent years, China has moved from a low-profile, free-riding foreign policy strategy to a more aggressive stance, and many nations are beginning to push back, explained the Brookings Institution’s Tanvi Madan, PhD. She said that regional players want to continue to benefit from China’s rise, but “there is a question about whether that rise will be peaceful.”

The question for many regional countries is not whether China will lead, but how. These countries already see China as a leader, Madan said, but “they don’t want China to be the only leader – they want other options.” They seek consensus and a more collaborative approach, and they are wary that unilateral initiatives may serve China’s interests rather than the regions. China’s One Belt, One Road initiative, for example, addresses a real need for infrastructure development in the region, but it has stoked concerns about rising debt, corruption and security issues in the countries involved.

China depends on the US for technology
Andrew Y. Yan, Managing Partner at SAIF Partners, played down the threat of a cold war and China’s global leadership ambitions. “I am not sure I agree that China has a rational strategy to be THE leader in the world,” Yan said. “Quite the contrary. I think the Chinese leadership is very much aware that they are not able to compete face to face with the US.”

Yan believes China knows its economy depends on the United States, especially for technology. “China is arguably the largest mobile phone manufacturer in the world, but all the semiconductor chips are imported from the US,” he said. “Every year, China imports about $200 billion of semiconductor chips from the US, and it is keenly aware that China will not be able to produce this in the next 20 years.”1

Yan also said that the business elites in China tend to view President Donald Trump positively, despite escalating trade tensions. “They believe all the reform impetus from inside China has been lost under Xi’s leadership, and that Trump or the US will be the only way to force China to change,” he said, adding that unlike the Soviet Union during the Cold War, China has no bloc of allies.

Philippe Le Corre, a senior fellow at Harvard Kennedy School, said that China’s position could be seen as a glass half full or a glass half empty scenario. “The half full glass says that China is spreading its influence and gathering a community of friendly countries across Africa, Asia and all that,” he said, “and the half empty one says that China has no friends.”

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1 US semiconductor makers dwarf Chinese peers in market valuation as China’s chip dream remains distant. South China Morning Post. Accessed December 28, 2018.

The Belt and Road Initiative (BRI), also known as the One Belt One Road (OBOR) or the Silk Road Economic Belt and the 21st century Maritime Silk Road, is a development strategy adopted by the government of China involving infrastructure development and investments in countries in Europe, Asia, and Africa. "Belt" refers to the overland routes, or the Silk Road Economic Belt, whereas "road" refers to the sea routes, or the 21st century Maritime Silk Road. Until 2016, the initiative was officially known in English as the One Belt and One Road initiative, but the official name was changed as the Chinese government considered the emphasis on the word "one" prone to misinterpretation.

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The Natixis Investment Managers Summit was hosted by Natixis Investment Managers. Natixis Investment Managers includes all of the investment management and distribution entities affiliated with Natixis Distribution, L.P. and Natixis Investment Managers S.A.