How China’s Global Trade Will Fair In 2020
Like with most highly politicized and reported-on events, markets overreact. For China, this has been the true manifestation of the US-China trade war — knee jerk reaction that has dampened their FDI and global trading surplus, not the trade war itself.
It is certain that trade wars seldom benefit either party. Being stuck in a game-theoretic loop where co-operation cannot be restored is difficult to break. Its effects on China has been much more benign than you would expect, though, given the constant media attention it receives.
So, what is the actual reality of China’s global trading outlook in 2020? There is some good, and some bad.
2020 is an election year for America, which spells bad news for the trade war. Whilst exiting the trade war would presumably be preferable for both political parties once they’re in power, the trade war will be fuel for politicians to gain popularity and votes during the campaign. This spells uncertainty for US-China trade.
Regardless, there are actual negotiations going on surrounding a bilateral investment treaty. If negotiations are successful, there would be more protection for transnational companies and China’s market access would open up.
This is perhaps the most difficult part to predict regarding China’s future trading going into 2020.
As Brussels is focusing on Brexit negotiations and possible outcomes, negotiations with China are on the slow side. China-EU rail freight is one example of this trade relationship doing exceedingly well, however. According to China Rail, the full rail containers for outbound trips had a ratio of 98%, which is an improvement from early 2019. As the prices are falling, goods trading via this rail is increasing. China’s new Foreign Investment Law, as explained below, will likely open up new possibilities in their trade relationship with the EU.
Foreign Investment Law
Since the start of the new year, the new Foreign Investment Law has come into effect. This law is deemed as extremely accommodating by outsiders, in which the law aims to increase FDI in China by offering more intellectual property protection among other things. Essentially, this is a new, more positive framework of governing foreign businesses and investment in China.
This change in the law is expected to really stabilize the outlook on China’s otherwise-uncertain global trade going into 2020.
Association Of Southeast Asian Nations (ASEAN)
11 countries make up ASEAN, and they’re all China’s immediate neighbors. In 2019, ASEAN became China’s second-biggest trading partner. With China’s growing middle class and their demand for lifestyle products, along with a slowdown in US-trade, trade with ASEAN is up 10.5%.
ASEAN and China updated their free trade agreement in 2018, making it even more mutually beneficial and creating the largest free trade zone between developing countries. This makes it easier for companies from both areas to gain market access. This is important given their close proximity. As ASEAN economies grow, so will their trade with China.
Belt and Road Initiative
The Belt and Road Initiative (BRI) was a strategy that the Chinese government adopted in 2013. It essentially involves (predominantly) infrastructure development among 152 countries worldwide. Going into 2020, the BRI is gaining momentum and is progressing naturally.
Whilst most of the projects so far have been from Chinese State-Owned Enterprises, participation among other countries is also growing. One of the most important routes of the BRI is the route from China to the EU, that passes through Kazakhstan, Azerbaijan, Georgia, and Turkey.
There are many incentives embedded in the BRI, such as double tax treaties to reduce the taxation burden between the trade of respective parties. Given the length of this route and the magnitude of the initiative as a whole, it will be important for China to secure as many free trade agreements as possible in 2020 to really make use of these routes.