Slowing Economy a Key Driver Behind China’s Foreign Policy Ambitions: Andy Xie


Morgan Stanley’s former chief Asia-Pacific economist says that slowing growth is a key factor behind China’s ambitious foreign policy agenda.

The latest round of Chinese economic data for July points to easing growth in the world’s second largest economy, with figures for retail sales, industrial output and urban fixed asset investment growth all falling well below consensus expectations.

Andy Xie said to CNBC that a secular trend of easing growth is behind Beijing’s push for greater expansion abroad, in order to help sustain the economy as well as shore up popular support.

“In recent years the, government wants to show the country is becoming stronger and stronger, so to make people feel better about country,” said Xie.

“That’s the main driving force of the shift to a foreign policy agenda like South China Sea and One Belt, One Road…it has a lot to do with the domestic economy.”

The Chinese economy is currently in the middle of a fraught transitional phase, as it strives to shift from a manufacturing-based economy to one centred around services and domestic consumption.

Regulators are also striving to implement a deleveraging campaign to slash the mountains of debt amassed since the Great Financial Crisis, especially in China’s vast and often inefficient state-owned enterprise sector.

In tandem with these pivotal shifts, Beijing is heavily promoting its “One Belt, One Road” initiative, which seeks to weld together the economies situated along the historic Silk Road in order to expand investment and trade opportunities for participating nations.

Nadege Rolland, senior project director of political and security affairs at the National Bureau of Asian Research, said at a recent forum that China needs to find new markets in order to provide succour to its huge SOE’s, many of which are impeded by heavy debt burdens and severe overcapacity.

Some observers, such as Allianz Global Investors emerging market portfolio manager Kunal Ghosh, say that foreign policy initiatives such as One Belt One Road will abet China’s precarious economic transition by helping to keep SOE’s afloat.

Ghosh said to CNBC that One Belt One Road is a ‘fantastic way of getting someone to pay for your debt and use your surplus capacity.”