Is nationalism crimping China's growth? No, it's nationalizing it

An analyst floats the possibility that China's economic slowdown is a deliberate effect of rising nationalism under Xi Jinping. How credible is this fear?

Nationalism has certainly increased under Xi Jinping, and China is no longer hiding its strength or biding its time, as before the financial crisis, which Beijing still views as being a fundamental shift in the balance of power between East and West.

And there's also little doubt that between party state stability and rapid growth, Mr. Xi's powerfully centralized administration will sacrifice the latter for the former.

But there's little incentive for China to shut itself off from the rest of the world at a time when it can increasingly set the terms of its own engagement with it. Is China really throwing in its lot with supposed economic pariahs like Russia and Hungary? (It's arguable how much these are outcasts, anyway; Russia, for instance, had better stock performance in 2015 than China.) Hardly. It has enormously greater leverage with the G-7, as it continues to be the low-cost manufacturer for their multinationals, and has every intention of continuing to use that leverage to dictate favorable terms of economic engagement - a luxury that militaristic Russia, which is essentially another superfluous commodity supplier, does not enjoy.

What does seem undeniable, however, is that the world at large is more adversely impacted by China's transition from investment and trade to services and consumption than is the domestic Chinese economy: while the Chinese spender logs high single-digit to low double-digit growth from a low base, the global economy must deal with persistent double-digit declines in Chinese imports from a high base. Unless you buy the Gordon Chang standard explanation that the growth in services GDP is essentially fabricated, this is quite a proof of Chinese power: Beijing makes its own people richer while leaving the world at its mercy.

This interview with Bank of America/Merrill Lynch chief European economist supports the view that China's intended transition is working, after all: government stimulus is in fact shoring up consumption even as manufacturing and manufacturing-feeding imports continue their declines.

So nationalism isn't actually crimping China's growth as it is nationalizing it - transferring it from external trade towards internal living standard boosting. Not exactly the narrative many Westerners are getting.