China's Trade Hinges On Better Policy Relations Around The World – Starting With Israel, Some Say

In a white paper it published this week, China was quick to advertise how it is ramping up its global infrastructure investments.

It has signed more than 200 “belt and road” initiatives with 152 countries and 32 multinational corporations this year, while China’s government has spent over $280 billion on global infrastructure projects connecting the world to the mainland economy, it said.  

Still, the fine print revealed a more curtailed international focus. The white paper also showed signs of waning investment in Africa, which has dropped to under $2 billion now.

During the latest Golden Week national holiday at the start of the month, the country’s government focused consumer attention away from foreign travel, according to a former member of the Hong Kong government.

Part of the reason for some of the hawkishness is there are calls internally within China for the government to focus spending on its beleaguered consumer and property sector.

“True Friends”

Despite the increased attention on domestic affairs the Chinese government is pursuing, some analysts are warning that trade growth could suffer if China’s international policy stance doesn’t align with that of its major trading partners more closely.

In particular for many, the country’s government and media has been noticeably insensitive in its reaction to the horrors of the Hamas attacks in Israel. Most of Chinese policymakers’ rhetoric has blankly called for a two-state solution and showed a reluctance to condemn Hamas.

Senator Chuck Schumer’s visit to China early this week was billed by Chinese state media as a rousing success. But the Chinese government had to be asked twice to amend its statements on the Israeli-Palestinian situation.  

In a South China Morning Post article published Wednesday, the paper took the unusual position of criticizing China’s reaction to the Hamas attacks on Israel. The report said that analysts have largely disappointed US and Israeli policymakers and could affect China’s long-term trade ties with the former.

Some suggest that China is attempting to derail closer ties between Israel and Saudi Arabia, the latter of which is also a significant investor in Chinese infrastructure. That’s not good for business globally.

At its least calculated, messages in the Chinese language media have bordered on downright hostile towards Israel.

On Monday, Caixin, China's largest business daily, published a front-page article labelling Israeli Prime Minister Benjamin Netanyahu “the bulldozer” and saying that Netanyahu “will eventually have to face a crisis”.

The paper attributed the attacks on Israel to domestic Israeli policy as opposed to militant terrorist activity.

“Israel's political arena becomes increasingly fragmented and its ideology shifts to the right,” the paper commented critically.

All this potentially affects China’s global status as a major trading partner in the world, say analysts, since global growth comes at a price: that is, singing on the same hymn sheet as your trading partners.

China’s focus on bettering its international relations will be crucial at a time when its economic growth looks to be on the wane.

Wednesday, the International Monetary Fund (IMF) revised down again the country’s growth prospects for this year and next. The IMF now expects China’s growth, which accounts for a third of global growth, to come in at just 4.2%. That compares to over 6% growth for India, which has a more US-aligned foreign policy message.

The evidence is increasingly that China’s international trade forms a more critical component of its growth than the government may be giving credit for.

Despite the country’s property rout over the past year, exporter stocks such as PetroChina Company Limited PCCYF, Li Auto Inc. LI, BYD Company Limited BYDDY and XPeng Inc. XPEV have offered investors a silver lining as the Chinese government has poured billions into developing its energy and innovation sectors.

The argument is that China’s overseas policy messages need to be more aligned with its partners since firms as large and diverse as Tencent Holdings Limited TCEHY, Alibaba Group Holding Limited BABA, Xiaomi Corporation XIACY, NIO Inc. NIO and Bank of China Limited BACHY have to be perceived to be in synch with their trading partners as they build out on foreign turf.

As if to make the case in point of how sensitive Chinese stocks are to global events, XPeng’s shares dived 11% Tuesday after news of a freshly-delivered shipment of its EVs arrived in Israel, which had just announced it was at war with Hamas terrorists.

“While the US provided Israel with verbal and practical support and is currently sending an aircraft carrier to the region to prevent Iran and Hezbollah from escalating the situation, China has not even expressed sympathy. This is very unfortunate,” Galia Lavi, a specialist in China’s belt-and-road initiative, in particular with its emphasis on Israeli and Middle Eastern ties, told a Hong Kong newspaper Wednesday.

“At times of need, true friends are revealed.”