CHINA PATHFINDER: Q1 2023 UPDATE
China Pathfinder: Q1 2023 Update Written by Nargiza Salidjanova and Rachel Lietzow
MAY 2023 China Pathfinder is a multiyear initiative from the Atlantic Council’s GeoEconomics Center and Rhodium Group to measure China’s economic system relative to advanced market economies in six areas: financial system development, market competition, modern innovation system, trade openness, direct investment openness, and portfolio investment openness. To explore our data visualization and read our 2022 annual report, please visit https://chinapathfinder.org/.
C
hina reopened its borders in the first quarter of 2023 and rolled out the rhetorical welcome mat for foreign investors. This included pledges to promote foreign investment and imports, restoration of suspended long-term visas, and high-level visits by Chinese leaders abroad and foreign leaders in China. But an aggressive public campaign to allay concerns about the direction of China’s economy has not been underpinned by a convincing shift in policy. The restructuring plan that emerged from the “Two Sessions” meetings in March did not reassure the private sector, nor did it suggest that Beijing is poised to tackle the root causes of its macroeconomic malaise. Meanwhile, pressure on foreign consultancies, due diligence providers, and others (including Bain & Company, Mintz Group, and Deloitte) further dampens business confidence. Heightened geopolitical tensions with the US also cloud the picture. Turning a cold shoulder to perceived American hostility, Beijing sought to warm relations with Europe: it had success with French President Macron, but faced setbacks at the European Commission, including a universally condemned comment by China’s ambassador to France that some European nations aren’t sovereign.
Quarterly Assessment and Outlook The Bottom Line: In the first quarter of 2023, Chinese authorities were active in three of the six economic clusters that make up the China Pathfinder analytical framework: financial system development, competition policy, and portfolio investment. There were fewer developments in the innovation, trade, and direct investment clusters. In assessing whether China’s economic system moved toward or away from market economy norms in Q1, our analysis shows a negative picture.
FIGURE 1 Q1 2023 Policy Heatmap: Did China Move Closer to or Farther from Market Economy Norms?
FARTHER
Financial System Development
NO CHANGE
Trade Openness
FARTHER
Market Competition
NO CHANGE
Direct Investment Openness
CLOSER
Portfolio Investment Openness
NO CHANGE
Modern Innovation System
Source: China Pathfinder. A “mixed” evaluation means the cluster has seen significant policies that indicate movement closer to and farther from market economy norms. A “no change” evaluation means the cluster has not seen any policies that significantly impact China’s overall movement with respect to market economy norms. For a closer breakdown of each cluster, visit https://chinapathfinder.org/.
FIGURE 1 reflects the direction of China’s policy activity in the domestic financial system, market competition, and innovation system, as well as policies that impact trade, direct investment, and portfolio investment openness. This heatmap is derived from in-house policy tracking that weighs and evaluates the impact of Chinese policies in Q1. Actions are evaluated based on their systemic importance to China’s development path toward or away from market economy norms. The assessment of a policy’s importance incorporates top-level political signaling with regard to the government’s priorities, the authority of the issuing and implementing bodies in the Chinese government hierarchy, and the impact of the policy on China’s economy. 1