China's posture in global politics rose, while its significance in the global economy fell in 2021.
The economist Ruchir Sharma predicts that China's role as the global engine of growth may have peaked last year. The country currently contributes a quarter of global GDP expansion, compared to one third before Covid-19.
While the US helped hasten global growth between 2018 and 2019, it was a drag on the global economy at the onset of the pandemic in 2020. In contrast, China's global economic contribution has consistently been a net positive for the past four decades. This may change in the year ahead.
Adjusting its economic course in 2021, China inflicted pain onto its most prized and once-vibrant technology and real estate giants. The cost has been steep. While the future remains uncertain, it may still be too early to call the China party over.
With that said, there is much to expect for China in 2022, and here are a few predictions.
China, treading the path of most industrialised economies, has gradually transitioned from investment to consumption as the main driver of its economic growth.
But facing a lacklustre consumption recovery coming out of the pandemic, China will revert to the familiar: a strong level of infrastructure stimulus in 2022. Except this time, the infrastructure will serve as the motherboard of China's green and digital future.
Different from building roads, rails and bridges, the new-era infrastructure will centre on digitalisation and renewables. China's carbon-neutrality pledge alone is forecast to unleash $15 trillion green energy infrastructure by 2050, according to the state planner.
The future US-China strategic competition will be won not by the party that is the bigger consumer, but the one that is the superior producer. A strong, service-based economy heavily reliant on global supply chains, nestled on a hollowed out domestic manufacturing base, can be a fatal weakness in today's global competition.
This is a valuable lesson China has learned from the US. The remnants from the American rust belt region evoke a bygone manufacturing era.
China's industrialisation will fight against a double-edged sword as well. China has indeed lost its labour premium in manufacturing and it must strangle fossil-fuel power supplies and steel production in exchange for a renewable future.
But China will surely continue to be self-reliant in steel, aluminium and other high-end industrial manufacturing, whatever the costs. The alternative of relying on global imports brews self-defeat.
As for the Chinese stock market, the best analogy might be that of a giant newborn. The market is large, but the system is still in its infancy.
Since the Shanghai and Shenzhen exchanges debuted back in 1990, the public markets have long been a destination for retail investors and infested with market speculation.
Meanwhile, the red-hot Chinese real estate market has also dried up nearly all serious capital from hard-working Chinese savers in recent years. And China's stock markets have long been plagued by opaque listing rules and loopholed corporate governance.
Despite all this, Chinese stock markets' capitalisation – combining Hong Kong, Shenzhen, Shanghai and Beijing – is today the world's second-largest, and poised for a regulatory overhaul.
China's securities regulator aims to fully adopt a registration-based IPO system in 2022. Contrary to the previous, approval-based IPO system, the government's "visible hand" in determining the fate of IPOs will be fully removed. Both listings and delistings will be determined by the market.
China is also increasingly opening the markets to Wall Street houses - Blackrock and JP Morgan included - to participate in institutionalising China's capital market. Improving the institutional architecture, the state reaps the reward of massive capital drawn into the stock market to finance China's drive for technology breakthroughs and industrialisation.
And as far as trade is concerned, New Year's Day saw the death of one trade landscape for China and the birth of another. Following the unsatisfactory closure of the US-China Phase One Trade Deal, the historic Regional Comprehensive Economic Partnership (RCEP), a free trade agreement among Asia-Pacific nations, was enacted.
China is still in a de facto trade freeze with Australia, except for iron ore. And it has suspended all trade with Lithuania, an EU member country. Its Bilateral Investment Treaty with the EU is on indefinite hold, tussled between Brussels and Berlin.
US President Joe Biden's Xinjiang Human Rights Bill further bans all imports that involve supply chains from Xinjiang. All US manufacturers in China are compelled to weigh that law against their profits.
While trade relations with developed nations sits on ice, China's trade with emerging markets continues to boom. Forty-nine per cent of trade in 2021 was with the developing world, spanning South-East Asia, Africa and Latin America.
Thanks to RCEP, 57 per cent of Chinese products will trade tariff-free with Japan, a feat in both trade and in geopolitics. China's trade with the Asean trade bloc, already its largest trading partner, grew 30 per cent in 2021. China thrives in the upper-middle end of the industrial supply chain. When manufacturers trade tariff-free across the RCEP region, China is destined to capture more foreign direct investments and regional value chains.
Less mighty as the global economic growth engine, China's relevance and centrality will continue to heighten in the developing world. China's rise was once the outcome of serving as the downstream producer for the developed world. Its rise, in itself, is the rise of the developing world, and increasingly, for the developing world.
China's future economic growth will likely settle in the 5 per cent range. A 4.8 per cent GDP growth in the next 15 years implies China will double its economy by 2035, a substantial global game-changer.
The country's strength is ultimately embedded in its fragility. Its system is far from perfect, and yet, its ability to continuously reform and self-correct is far from decay.
