The Shanghai market was closed most of the week for the May Day holidays, so it is a good time to step back and consider the larger picture that embraces policy and economic development.
It is this picture that helps set the investment and business proposals that are a priority in Government settings. These are the ‘darling’ areas of economic development and investment opportunity.
China takes a different view on economic development and the way it is used to alleviate poverty. The country’s philosophical position on economic development places poverty alleviation as a core purpose and Chinese policy decisions are framed by this context. President Xi Jinping’s support for the UN Global Development Initiative (GDI) is part of this process.
These comments and commitments are more effectively understood when they are placed within a broader philosophical framework and this requires a change in the way we think about the relationship between the deployment of capital and the desirable outcomes of development.
The key difference is China’s emphasis on improving people’s livelihoods as a primary outcome of development and this includes what the West calls Environmental, Social and Governance (ESG) considerations.
The Western approach has poverty alleviation as a by-product of development. The Chinese approach puts poverty alleviation at the core of development.
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ESG concepts are central to Xi’s idea of development where social goals become an equal partner in the central objectives and outcomes delivered by the GDI.
The structure of trade relationships are central to addressing north-south imbalances and reaffirming people-centred outcomes as a core concept. The Belt and Road Initiative (BRI) and digital currency developments can play an important role in this process.
These ESG foundations mean China’s approach to GDI is based on providing economic opportunity which enables the poor to find work and contribute to economic growth. These foundations mean the ESG objectives of development sit alongside and are ranked equal to the commercial objectives of economic development.
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Where necessary, it is appropriate that corporate social responsibility is driven by specific State policy rather than uncoordinated ESG concerns driven by shareholders. We saw this in the reining-in of the power of Big Tech.
In principle, this State-based approach is similar to the progressive taxation structure used by most Western countries which aims to redistribute income from the rich to fund the provision of services to the poor.
Xi also spoke of the need for more balanced global development as a component of the GDI. This concept of balance requires moving beyond the exploitative trade structure that takes cheap commodities and delivers more highly priced consumables that often reinforce the cycle of poverty within the trade cycle. The BRI model provides a compatible framework for the GDI because it seeks to address the inequalities in trade and infrastructure access that hinder development. The BRI serves as a model for accelerating sustainable development through a re-affirmation of global cooperation.
China’s Digital Silk Road (DSR) concept — launched in 2015 as a component of Beijing’s vast vision for global connectivity — is an integral part of the BRI and provides a compatible template for global development cooperation where poverty alleviation is a central outcome. It is part of the soft infrastructure that brings added benefits to the hard infrastructure so often associated with the BRI.
Cross border business
A significant benefit is the potential use of China’s Digital Currency Electronic Payment (DCEP) sovereign digital currency to enable frictionless cross border financial transaction processes. This reduces the cost of doing business and opens cross border business to new participants which in turn leads to expansion of export markets. It is an important contributor to the remobilisation of global development because it reduces the stranglehold of Western trade settlement systems. The Digital Renminbi is a Central Bank Digital Currency (CBDC) and it is not intended to dethrone the US dollar which dominates the global financial markets including stocks, bonds and other financial instruments. However, it is clear that it will displace the US dollar in some transactions and this will reduce the dominant role currently played by the US dollar.
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The Digital Renminbi is an efficient alternative to the dollar-based settlement system. This will enable savings on transaction fees because no thirdparty banking system is involved. It also negates the threat of third party interference in transactions and thus accelerates the remobilisation of global development cooperation.
The 2021 United Nations Climate Change Conference, more commonly referred to as COP26, confirmed China’s commitment to carbon reduction and to other efforts to develop green economies. It is this commitment that will drive statebacked innovation in these areas. Investors can reasonably expect substantial growth in this area as state funds are diverted and polluting industries forced to either close down, or to accelerate their move towards a green economy.
State-backed initiatives attract capital and talent in a way that is not matched in Western markets. However, the demand for decarbonisation and green technology can also be met from outside sources. This is technology and services imported into China. Companies that can satisfy this demand are also added to the pool of investment opportunities. Those making investment decisions need to move behind the facile headlines and reports about China’s approach to COP26.
China’s response to the GDI is based on the country’s historical development and philosophical understanding of the causes of poverty, the need to create employment opportunities and the centrality of ESG obligations on industry and development. Its GDI response is also framed within the context of trade relationships that rest on complementarity rather than exploitation. The country’s emphasis on improving people's livelihoods as a primary outcome of development sets the frame for prioritised and successful investment and business proposals.
Daryl Guppy is an international financial technical analysis expert and special consultant to Axicorp. He has provided weekly Shanghai Index analysis for mainland Chinese media for two decades. Guppy appears regularly on CNBC Asia and is known as “The Chart Man”. He is a national board member of the Australia China Business Council. The writer owns China stock and index ETFs
