MNI INTERVIEW: China To Pursue Tech Deals With Europe-Advisor

China will seek to enhance high-tech trade with the Europe as the U.S. looks set to keep up pressure on Chinese companies in the sector, a senior policy advisor told MNI.

Though the U.S. is trying to recruit allies in a drive which could threaten China's position in global tech supply chains, European countries would be taking a big economic risk if they were to shut out the world's largest single market, Justin Lin Yifu, deputy head of economic affairs of the Chinese People's Political Consultative Conference, the country's top advisory body, said in an interview.

The European Union is a key to U.S. plans to revive its alliances, but the bloc ruffled feathers in Washington when it agreed a bilateral investment treaty with China shortly after Joe Biden won the November presidential election.

"It makes no sense for the Europe, Japan or South Korea to scarify their own development interests to cater to U.S. dominance," said Lin, chief economist at the World Bank from 2008 to 2012, noting "China can still import from European countries."

GROWTH

China's swift recovery from the Covid pandemic could help its economy surpass that of the U.S. in size by 2028, two years earlier than previously expected, said Lin, adding that Chinese productivity growth was also outpacing that of the U.S. and the yuan will strengthen against the dollar in the long run.

The government's growth target for 2021 of over 6% should be easy to exceed, by as much as two percentage points, given the low base effect comparisons with pandemic-sapped 2020, Lin said, adding that this should leave plenty of policy room to address structural issues. The reforming priority for the next five years should be pledges to reduce Chinese carbon dioxide emissions per unit of GDP by at least 65% from 2005 levels by 2030.

"It is not an easy task," said Lin, "China should start to take into account the reduction of carbon emissions when pursuing growth every year."

Other structural challenges include making the financial sector more accessible to private and smaller companies, as well as to farmers, who contribute about 50% of tax revenue, he added.

DEFICIT

China is targeting a budget deficit of about 3.2% of GDP this year, down from over 3.6% in 2020, while trimming CNY100 billion in local government special bond quotas to CNY3.65 trillion. These efforts should be sufficient to ensure funding for ongoing infrastructure projects initiated to offset the impact of the pandemic and to support investment growth at similar levels to last year, Lin said. Companies will also require continued assistance following the pandemic, he added, noting that China's capacity for support is bolstered by its relatively low government debt levels."

Exports should be boosted by a recovery in foreign demand, he said. But the Chinese economy also faces significant uncertainties, including the potential of new strains of the Covid-19 virus to disrupt the world economy and dangers associated with excess liquidity generated by super-easy fiscal and monetary policies in major countries.