Ever since China’s paramount leader Deng Xiao Ping began his relentless drive for economic development in late 1970s, Beijing has been offering a de-risking masterclass on trade and incoming foreign direct investments.

And the long march from sweatshops and smokestacks to productive agriculture, hi-tech manufacturing, modern infrastructure, “anti-access, area denial (A2AD)” defenses, moon shots and an expanding space station are testimonies to China’s successful management of its huge human and (physical) capital resources.

The outdated image of a copycat China has now given way to a leader in global supply chains.

Belatedly, the trans-Atlantic community responded to China’s advances by adding a more defined economic dimension to its “pivot to Asia” military and security project.

Taking a clue from China’s gradual and careful market opening and “negative investment lists,” the German-led European Union recently announced the policy of de-risking its trade and investment relations with the world’s second largest economy.

The U.S. continued to ignore its systematic and excessive trade deficits with China until President Trump denounced a great “rip-off” and followed through in 2018 with trade tariffs on three-quarters of China’s sales on U.S. markets.

Strategic competition kills trade

The current U.S. administration denies intentions of curtailing (aka decoupling) trade relations with China but remains vigilant about commerce in dual use (private/military) technologies and bans China’s access to advanced microchips and cloud quantum computing.

China appears to be taking all that in stride, continues to advocate “win-win cooperation,” pledges its market opening (note: de-risking) and keeps reminding that impediments to trade damage world economy.

At a more fundamental level, China is warning that Washington’s “wrong perception” of its intentions and the role it wants to play in the global community is a source of tensions. To dispel such lingering suspicions, Beijing is frequently publishing position papers to explain its views on a broad range of issues covering security, economic development and environmental policies.

But China has no illusions that those papers, or frequent high-level contacts, will change U.S. policies. Beijing is, therefore, actively building a wider audience, expanding its global markets and consolidating the Global South leadership.

Beijing’s adversaries mistakenly see that as an uphill battle in an increasingly hostile environment. They even call into question the viability of China’s continuing economic growth owing to adverse demographic trends, a crisis in real estate, and a high local government debt.

Those are real problems, but China’s strong economic fundamentals offer plenty of room for policies to support a steady and sustainable growth for the foreseeable future.

With an inflation rate of 0.7% last month, China’s central bank can safely stimulate the key components of domestic demand like household consumption, residential investments and business capital outlays. And that’s precisely what is happening now.

China’s noninflationary growth potential of 5%

Last January, for example, the central bank reduced by 0.5% the commercial banks’ required reserves – a very powerful instrument of monetary policy that immediately provided 1 trillion yuan ($140 billion) of fresh liquidity for lending to businesses and households.

And that stimulus came at a time when the economy was already forging ahead on its own steam, with industrial output growing 7% in January and February from the year before. Over the same period, retail sales and business investments advanced 5.2% and 4.2%, respectively.

The monetary policy will remain a key driver of economic activity because the budget deficit of 3.8% of GDP currently offers much less space for income tax cuts or higher government spending -- although that does not preclude adjustments of fees and other levies on business transactions.

Apart from that, one should also note that with a trade surplus of $290 billion China is a large capital exporter and a net creditor to the world. As a result of that, China has $3.2 trillion in currency reserves and a net international investment position of $3 trillion, growing last year at a quarterly rate of $80 billion.

There should be no doubt that China can comfortably remain on a 4.5% to 5.5% growth path in the years ahead based on the strength of its fundamentals, huge and expanding domestic markets and broadening trade patterns with ASEAN (ten Southeast Asian nations) and developing Global South countries.

As always, China will remain open for foreign trade and direct investments in line with its economic development programs. The focus will be on advanced manufacturing, high-end services, top technology, energy efficiency and environmental protection. Particular attention will also be paid to a balanced regional development by directing more resources to China’s central and western regions.

Trade frictions with G7 countries will most probably continue to escalate. Beijing will deal with that on the basis of strict reciprocity.