Commentary RESEARCH

Looking ahead

Aria

2024-05-06 12:00

ZHANG YANSHENG
China Daily

China's strategic choice in promoting further opening-up can help overcome the flaws in globalization

Globalization has manifested differently at various stages of societal development.

During the eras of colonial expansion and the formation of the world market, Western powers supplied industrial products to the world and sourced raw materials from their colonies, establishing a "center-periphery" industrial division of labor.

After World War II, international organizations facilitated the liberalization and convenience of global trade and investment. The import substitution industrialization strategy became a common choice for emerging developing countries.

By the 1980s, free trade and market-oriented reforms were widely adopted by countries, ushering in an era of "hyper-globalization".

In the 1990s, hyper-globalization coupled with the information technology revolution led to a tripartite international division of labor where the United States and Europe provided markets and technology, East Asia supplied industrial manufactured goods, and resource-rich countries provided energy and mineral resources.

However, during this period of global openness, after reaping the benefits of the tech and financial bubbles, the US fell into the subprime mortgage crisis of 2007 and the subsequent financial crisis of 2008. In a speech on the New Washington Consensus, US National Security Advisor Jake Sullivan conducted a thorough reassessment of US policies since the 1980s, which focused on tax reductions, deregulation, privatization over public action, and trade liberalization as objectives, which eventually led to the hollowing out of US industries.

Why does globalization, based on Western rules, constantly change but never make significant progress?

Globalization has three deep-seated flaws that are difficult to overcome. First, globalization has created an open and interdependent global village but failed to establish a workable global economic governance mechanism or multilateral adjustment mechanism to handle global economic imbalances.

Second, while globalization has created an economy that maximizes welfare based on market mechanisms, it has failed to fairly distribute the profits gained by the cross-border flow of capital and technology nor has it established a global safety net and multilateral compensation mechanisms.

Third, despite fostering a golden age of global economic and trade growth, globalization has not resolved the contradictions of geopolitical conflicts triggered by shifts in the relative power of major nations, nor has it established a multilateral political and economic coordination mechanism.

Therefore, the Western-driven new globalization is characterized by geopoliticalization and de-sinicization. Even though China repeatedly stresses that it does not seek hegemony, the US is intent on preventing any transfer of power to China in the process of globalization. It is therefore trying to prevent China from taking the lead in technologies such as artificial intelligence, quantum information and microelectronics, which could potentially spark a new technological revolution.

It also seeks to prevent China, through its governance, ethos and self-cultivation, from winning the hearts of the global population, and to prevent the modernization of Chinese culture from becoming influential soft power.

In this context, the push by the US toward decoupling and trade protectionism has become a stark reality. Since 2010, China has faced a completely new international policy environment, with countries such as the US and Japan revising their trade policies or shifting toward a new form of capitalism.

Recently, developed Western countries that have developed close trade ties with China have started to adopt new industrial policies to guide or intervene in industrial development. Studies by Oxford and Harvard universities have found that the number of observed industrial policies globally was only 34 in 2010, but it has surged to 1,594 by 2021, among which protective policies have increased from 8 percent to 48 percent.

The global cross-border investments that benefited China in the past have been widely disrupted by geopolitical conflicts and investment protectionism. A study by the Peterson Institute for International Economics noted that while Chinese mergers and acquisitions only accounted for 4 percent of their sample, 15 percent of them were subjected to scrutiny.

Another study by the International Monetary Fund found that in 2021, foreign direct investment flows between geopolitically close countries accounted for 52 percent of total flows, significantly higher than those between geographically close countries.

Western countries that used to have close exchanges and cooperation with China have been influenced by the US' strategies of reshoring, nearshoring and friendshoring, and emulated the US in decoupling their trade, technology and industries with China.

Japanese companies' overseas investments will primarily focus on Western "nearshoring" sectors, accounting for 55 percent to 75 percent of the country's investment expansion this year. "Friend-shoring" sectors will make up 44 percent to 55 percent of the expansion; while expansions below 43 percent will mainly include Thailand, Singapore and the Chinese mainland (27 percent).

In the new international environment, the influence and destructive power of economic security have significantly increased. Following the financial crisis, globalization has stalled and global supply chains are being restructured, necessitating strategic, structural and cost adjustments for security, while intensified global geopolitical conflicts have exacerbated the decoupling trend, undermining global economic stability.

Since the launch of the reform and opening-up policy, China has achieved significant economic growth. From 1990 to 2021, the ratio of Japan, Germany and China's GDPs relative to that of the US shifted dramatically: Japan's share fell by 31 percentage points, Germany's by 11 percentage points, while China's increased by 71 percentage points.

What exactly did China get right with its reforms and opening-up?

First, China seized the major strategic opportunities to participate in the global economic cycle, integrate into the international division of labor, engage with globalization, and integrate into the global community. Second, it aligned its institutional mechanisms with international norms. Third, it enhanced its overall national power and international industrial competitiveness.

The underlying logic has been to focus on economic development as the central task, adhering firmly to the idea that development is the absolute principle; to follow the pragmatic approach of seeking truth from facts; and to open up and introduce foreign competitors to stimulate the catfish effect in the domestic market.

For its next steps, China should primarily focus on its transition into the new development stage by following the new development philosophy, fostering a new development paradigm, and pursuing the development of new quality productive forces that can achieve major breakthrough in the country's efforts to go global.

The author is a chief researcher of the China Center for International Economic Exchanges. The author contributed this article to China Watch, a think tank powered by China Daily.

 


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