Davos 2018: China’s economic shift and implications for Myanmar


Liu He takes to the stage to outline how China plans to shape the world economy. Photo: EPA


Myanmar will capture Chinese investment as Beijing prioritises poverty alleviation and development in Yunnan

AS the fight against poverty takes centre stage in Beijing’s economic policy, Yunnan and Myanmar will remain a priority for Chinese investment, while China's fast-growing middle-income population, especially those in the southwest, presents a crucial market for Myanmar's growth-oriented businesses as well as its export strategy.

The annual World Economic Forum (WEF) in Davos, Switzerland, where deputy finance minister U Set Aung took part in a panel discussion, has ended. Apart from the tech and social media challenge, another issue highly relevant to Myanmar is China’s economic transition.

Among the most anticipated speeches was the one delivered by Liu He, key adviser to Chinese President Xi Jinping, outlining Beijing’s economic policy over the next few years.


Who is Liu He? What is his key message?

As President Xi’s right-hand man, Mr Liu is China's representative to Davos this year. The Harvard-educated technocrat, a member of China's top political body since last year, is widely seen as being on track to become Mr Xi's key lieutenant on the country’s economy and financial system. This makes his speech about the economic priorities and how the regime plans to shape the world economy particularly significant for the global audience. His message is a continuation from last year, when Xi Jinping caused a stir by espousing globalisation in the era of Donald Trump’s “America First” agenda.

Mr Liu said that China’s economic policy centers around “a key necessity, a main task, and three critical battles”.

Firstly, the necessity is to transition the national economy from quantity growth to quality growth.

Secondly, the main task is to raise the game of supply-side structural reform to keep pace with the evolving demand.

Thirdly, the three key battles are preventing major financial risks, tackling poverty and reducing pollution.

Fourthly, China has endeavoured to liberalise its financial markets over the past year, and to facilitate globalisation through its Belt and Road Initiative.


“Is it good enough?”

China’s economy has been transitioning from a phase of rapid growth to one of high-quality development, according to Mr Liu, and it is in this broader context that the country shapes its macroeconomic and structural reforms to complement economic development.

“China’s per capita income is moving up from the current level of US$8,000-plus to $10,000 and even higher. At such a stage of development, China needs to put more emphasis on structural improvement rather than quantity expansion,” he noted. Hence, China’s focus needs to change from “Is there enough?” to “Is it good enough?”.  

This transition and the accompanying liberalisation will create huge opportunities for new industries, such as higher-quality manufacturing and service industries, energy-efficient buildings, smart transport technology and low-carbon industries. This will result in a knock-on effect on other industries as the national economy modernises.


“After decades of development, a large middle-income population has emerged in China, the biggest in the world, giving rise to a vast domestic market. This open market with a fast-growing middle-income population of 400 million will contribute significantly to global development.”

- Liu He, Xi Jinping’s top economic aide


Upgrading supply reforms

The key contradiction in China’s economic growth is that the supply side fails to catch up with the demand, according to the Harvard-educated technocrat, resulting in “a structural mismatch that urgently needs to be fixed”. The focus, again, is turning to quality improvement.

“The priority at the moment is to cut excess capacity where necessary, reduce inventory in the housing sector, bring down the overall leverage ratio, lower cost across the board, and strengthen the weak links in the economy ranging from public services to infrastructure and institutions. With these measures, we hope to make the supply side more adaptable and more innovative,” he explained.


Financial risks and pollution

Financial risks, poverty and pollution are three prioritised targetted by Beijing.

The government plans to prevent and resolve major risks in China’s economy, including the risks posed by shadow banking and hidden debt for local governments. Mr Liu noted that huge potential remains to be capitalised in urbanisation, innovation and overhaul of traditional industries, while the financial system is benefitted by a high savings rate. Additionally, since the fourth quarter of 2017, the country has had a marginally slower overall leverage ratio growth, which is a positive sign.

Additionally, China will raise its game in the battle against pollution by prioritising green and low-carbon development. The economist said that Beijing in the next three years will intensify pollution control to substantially cut the total emissions of major pollutants and lower the intensity of resource consumption.

This echoes the commitment from French President Emmanuel Macron, who promised that France will shut down all coal-fired power stations by 2021. Mr Macron wanted to “make France a model in the fight against climate change,” as one of five pillars in his plans to reform the economy.

“That is a huge advantage in terms of attractiveness and competitiveness. Talent will come where it is good to live. We can create a lot of jobs with such a strategy,” he said.

The French president also said that the Belt and Road Initiative, in which Myanmar is a core player, needs to be environmentally friendly. “The new Silk Road has to be a green road. We cannot have a coal-based route,” Mr Macron remarked, conceding that the world is losing the battle on climate change.


Fight against poverty

However, the economic shift with the most immediate impact on Myanmar is China’s battle against poverty.

Liu He argued that in the last five years, the number of rural residents living in poverty dropped from nearly 100 million to around 30 million.

“We have set a target to basically eliminate absolute poverty in three years, which means no single rural resident will be living below the current poverty line. This year alone, China will lift 10 million people from absolute poverty, including 2.8 million who will be relocated from areas suffering from harsh conditions.”

These poverty alleviation efforts have a major impact on the distribution of national income, which, in turn, will affect Myanmar in two ways.


Yunnan tops the agenda

China’s fight against poverty will shift its developmental focus to poorer regions, including Yunnan, one of the least developed Chinese provinces, which shares a long border with Shan State and dominates Myanmar's border trade.

Jonathan Woetzel, senior partner of McKinsey & Company and director of the McKinsey Global Institute (MGI), told The Myanmar Times that Chinese investment will continue to look to Myanmar in an effort to develop the region’s population.

“China sees the development of the southwestern part as strategic to its fight against poverty. Myanmar and the broader Southeast Asian region will continue to be a priority for Chinese investment to support economic development. However, reducing financial risks and ensuring macro stability must always come first for Chinese policy-makers so there may be some volatility in the pace of overseas investment. The war against pollution will also translate into a renewed emphasis on green growth both in China and in its investments abroad,” he stated.

Meanwhile, Myanmar has to intensify its efforts to develop the economy, otherwise the already-glaring economic asymmetry will worsen further. Right now, Yunnan’s economy is already four times bigger than Myanmar’s national economy. If the province jumps ahead, the imbalance could have wide-ranging implications in the region.


“China sees the development of the southwestern part as strategic to its fight against poverty. Myanmar... will continue to be a priority for Chinese investment to support economic development.”

- Jonathan Woetzel, McKinsey & Company

An enormous market for Myanmar

Liu He’s Davos message is a crucial and timely reminder for Myanmar’s domestic businesses that China is as much about the market as it is about the investment.

Much of the discussion taking place in Myanmar, concerning the Belt and Road Initiative as well as China, is about Chinese investments flowing into the country, filling the infrastructure gap, financing roads and bankrolling ports. The development of the proposed deep-sea port in Kyaukphyu, Rakhine, for example, is led by China’s state-owned bank CITIC and a consortium of mainly Chinese conglomerates.

But the Chinese market is equally important for Myanmar’s businesses, many of whom seek to grow and scale up after the country has suffered from decades of isolation.

“After decades of development, a large middle-income population has emerged in China, the biggest in the world, giving rise to a vast domestic market.

“This open market with a fast-growing middle-income population of 400 million will contribute significantly to global development,” Mr Liu said, bringing home to the audience the scale of the market demand.

At the same time, as southwestern China receives more support to develop, the regional population will be an increasingly important market for Myanmar, bolstered by the geographical proximity. This will be a crucial market into which Nay Pyi Taw taps, as the National League of Democracy-led government throws their weight behind export prioritisation.

The good news for China’s neighbours is that investment will continue while the market will grow.

Mr Woetzel does not anticipate any slowdown in Chinese overseas investment.“China’s overseas investment pace reflects its growing economy and the capacity of its companies to globalise. We do not see any slowdown at this point, though some volatility is normal along the way. Chinese corporations are motivated to globalise largely by economic grounds. Our most recent research indicates that over 80pc of Chinese enterprises in Africa are private. As long as growth prospects in Belt and Road countries are attractive, Chinese companies will continue to invest,” he analysed.

Scott Kennedy, director of the project on Chinese business and political economy at the Centre for Strategic and International Studies (CSIS) in Washington, told the South China Morning Post that Liu He's "safe" speech, in conrast with President Xi's "bold speech" last year, "entirely avoided the deep tensions between China’s rhetoric in support of free trade and globalisation, and its highly interventionist industrial policy system and policies that he has played a central part in managing over the past five years.” 

Globalism with Chinese characteristics, according to the CSIS director, is in fact a illiberal system which encourages trade and investment coupled with deep government intervention to serve industrial policy goals, ensure domestic stability and greater international influence.

Mats Harborn, president of the European Union Chamber of Commerce in China, said the speech was void of commitment. “There is a frustrating gap between promises and action. A clear implementation timeline is now required,” the Post quoted him saying.



Source From: Myanmar Times