In a long interview with Radio24, Italian economist Michele Geraci explained why China is not the loser in the trade war.
Asked whether China is ready to change its export-based development model, due to the U.S. hostilities, Geraci answered: “Absolutely. The rebalancing of the economy to no longer be dependent on exports has already occurred and we [the West] have not noticed it. Ten years ago the export to GDP ratio was like Italy, about a third of the economy. Now in China, the export to GDP ratio is at about 18%, almost halved. So this process has already happened while we in Italy, unfortunately, are left with 30% of GDP dependent on external demand, suffering external shocks that we cannot control. China is aware of the problem and began the process of detaching from exports in 2010 and now consumption is growing faster than GDP. This is another important factor because domestic demand needs a transfer of income from the corporate sector to the private citizen sector to be stimulated. So GDP grows by nominal 6-7% but per capita income by 8-9% for both urban citizens and rural citizens, keeping income inequalities at constant levels and lowering social tensions.
“So China can look at international tensions over tariffs with a smile, because it knows very well that it is we, Europe, the United States that depend on exports.”
Geraci also explained that the Chinese leadership is reluctantly involved in international affairs. “China is going through a somewhat difficult period, and this in my opinion is because China is reluctantly interacting in international contexts because it is more concerned with solving internal problems: relieving the remaining 20 million people from poverty, bringing a change, more sustainable economy, less based on the use of coal that has led to pollution, disparities; China knows all of this and is repositioning itself internally to bring more sustainability and well-being to its people. So China is a bit annoyed with having to do with Europe, with the United States, beyond what is a normal trade just like other countries do.
“With a per capita GDP of around $10,000, they consider themselves, and I think rightly, a developing country. And so they say: When you were a developing country, you, too, took care of raising the welfare of your population. I know almost for sure that President Xi Jinping in the morning, when he gets up to work, his first concern is not only the United States in spite of himself, but how to manage 1.4 billion people who must develop; the issues of technology; of the virus of course; digital, where they are making great strides; pensions; disparities. And try to continue the process of reforming justice, workers’ rights, the rights of peasants who previously did not even have possession of land, had only usufruct, and now they are slowly being granted the opportunity to buy and sell.
“So the problem with China is that it finds a country that is fundamentally poor, in the 80th place in per-capita income, having to reluctantly interact with the rest of the world. They are new at that, and when you don’t really know, there are sometimes misunderstandings, frictions.”
