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On January 17 the World Economic Forum (WEF) took place in the Swiss Ski resort of Davos. For the first time ever, the Chinese President Xi Jinping attended this event.

 

The World Economic Forum, as the event is officially called, has focuses on “five key challenges " under the topic of “Responsive and Responsible Leadership”.

 

The first topic is about the “Fourth Industrial Revolution”, whose core assumption is the world is on the brink of a technological revolution that will hugely influence the way how people live, work and interact with one another. The Fourth Industrial Revolution is characterized by a fusion of new technologies derived from physics, computer science and biology.

 

The second topic is how global leaders can built a global governance system. Xi was expected to dominate the discussion on this topic, as China proclaims a more and more supportive stance on multi-polarity and win-win cooperation with other nations.

 

The third topic – also very important to China - is restoring world economic growth, which remains the main focus of China, as it provides the country with wealth and reduces poverty for many Chinese.

 

The fourth topic is about the importance of reforming market capitalism and to restore the compact between business and the people. The widening gap between the well-heeled and the lower classes has been recognized as a global problem. Additionally to the financial gap, there is also a widening mental gap between the working and the upper class. The Forum thus wants to encourage leaders to foster equality within their societies and to get rid of corruption and other harmful practices.

 

The fifth and final topic deals with the loss of identity. Globalization came with open borders, and the recent waves of migration are threatening and changing the identity of many people. The goal is to restore the faith of the people in their governments and leaders.

 

This year‘s Forum is still a little different to the ones in previous years. Originally, the WEF ran under the theme, that Globalization has the potential to benefit everyone. With Brexit and Trump becoming the new elected president of the United States, there is a clear tendency towards more protectionism with no hesitation to ruin the relationship to allies and important trade partners. The election and the rise of populism in many countries such as Germany or France show that more and more people question this idea. The Trump Election, as well as Brexit imply that a big amount of people haven’t felt the advantages of a border-free world.

 

In direct contrast to that is the vision of Xi Jinping. He sees China having a leading role in the global market. And China does a lot for it – they are making the biggest investment in renewable energy (around 100 billion – twice as much as the USA) and their oversea investments in green energy have increased by over 60 percent in 2016 .

 

The benefits of globalization are visible in many emerging markets such as India or China. Billions now live better lives because of globalization. This is the main reason, why Xi Jinping wants to sustain open borders and free trade- to provide China with a healthy economic growth. He sees globalization as a “double-edged sword " but thinks it is a mistake to retreat into isolationism and with this statement he gives a sideswipe to Trump’s “America’s first” policy. The statement also makes foreigners expect to see more favorable regulations and reforms in the near term.

 

In any aspect, Xi Jinping’s vision of the future is in contradiction to current trends in the West. The protectionism of China’s market especially for a few sectors - where no foreign company is allowed to invest in - makes it hard to believe in his statements. Many companies complain about unclear laws and unfair regulations. Quite concerning is also the imbalance between foreign investment in China and China’s investments overseas: Chinese companies invested around 161 billion Dollars in the foreign markets in 2016, while foreign investments in China were only worth around 107 billion Dollars.

 

In his speech at the WEF, the Chinese president announced that China aims to 600 billion USD in FDI in the next five years. He expressed his hope for reciprocal investments on both sides. With this comes, as Xi says, an opening of the doors for foreign companies and goods.

 

While many countries now prefer to protect their markets and close the borders, it would be beneficial for China to do the opposite. With losing USA as a market for exported goods and investment, it would definitely have consequences for the Chinese, as well as the German markets. They will lose one of their biggest trading partners.

 

Both China and Germany are export-dependent economies relying on good trade relations to other nations. Trump’s announcement to only focus on the domestic market and producers and to rise tariffs on foreign products should make China and Germany consider how to find new partners to keep the global market open and sustain economic growth.

 

However, the drawback of the US-market also hides new opportunities for China, if it is willing to cut red tape and open more up to foreign investors. Especially the ongoing integration between East Asian countries, such as Vietnam and Indonesia, and the Chinese economy as well as the ambitious plan to build a transport network across Eurasia open up many opportunities for new investment and growth in the region, which could form a counterweight to a more protectionist West.

 

The WEF just showed how rapidly things can change. No one would have ever imagined seeing the USA being in a protectionist role and in direct contrast – China, praising the global market with the proclamation of open borders.

 

China still has a strongly protectionist market with many restrictions for foreign companies. Nevertheless, it just recently announced the lifting of further restrictions (Please read our article “Chinese government announces new measures to encourage FDI ”). The remarkable and encouraging speech of Xi at the WEF are indeed promising signals.

 

In collaboration with Christiane Wagner  

 

Continue reading about similar topics such as Our Ecovis Beijing 2017 Outlook  or China's New Transfer Pricing Regulations.In Addition to that, we provide a free download  of our Doing Business in China brochure on our website.

You can also learn more about all relevant facts by heading over to our legal services info page.

 

 

 

 

 

Richard 1grau  
Richard Hoffmann
 
Richard Hoffmann is a partner at ECOVIS Beijing China. Richard obtained an honors degree in law and worked in Germany, the United States, and China for various prestigious law firms prior to joining ECOVIS. In addition to being a member of the board of ECOVIS International, he is Supervisor for the China business of a respected German company and shares his extensive knowledge to students by teaching commercial law in China at SRH Hochschule Heidelberg. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV stations. Contact: This email address is being protected from spambots. You need JavaScript enabled to view it.<;/span>
Ecovis Beijing is the trusted tax and legal advisor to several embassies and official institutions in China. It specializes in mid-sized international companies and is focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up to our Newsletter, give us a call +86 (10) 6561 6609 or contact us directly via This email address is being protected from spambots. You need JavaScript enabled to view it.&;nbsp;';document.getElementById('cloak30bbb0e2db8a3459d882c2cd65046231').innerHTML += ''+addy_text30bbb0e2db8a3459d882c2cd65046231+'<\/a>';
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