China and the world economy

Changing economic patterns

The world is experiencing profound changes unseen in a century. The fundamental one is the evolution of global economic patterns. After all, the economy is the basis of politics, diplomacy, and military activities.

A significant characteristic of the profound changes unseen in a century reflected in the economy is a reversing tendency of economic globalization that has been constantly deepened during the past seven decades.

The prominent manifestation is that the United States, the leader of economic globalization after World War II, has begun to turn to trade protectionism. Former President Donald J. Trump provoked trade conflicts after taking office, frequently withdrew from multilateral trade agreements, and obstructed the normal practice of the World Trade Organization (WTO) dispute settlement mechanism.

In Joseph R. Biden’s administration, though it has been trying to rebuild the US global leadership, it has basically continued to follow the Trump-era’s “America First” economic policy, emphasizing the enhancement of domestic industrial competitiveness and safeguarding supply chains’ security.

In sharp contrast to the US, China has become a firm supporter of economic globalization. Chinese President and General Secretary of the CPC Central Committee Xi Jinping has reiterated China’s firm stance of upholding economic globalization on many significant international occasions such as the World Economic Forum and the G20 Summit.

Through a series of practical actions such as the Belt and Road Initiative (BRI), taking the initiative to lower tariffs and foreign investment access thresholds, holding the China International Import Expo, and joining the Regional Comprehensive Economic Partnership (RCEP), China has fulfilled its commitments, actively expanded opening up, and led the creation of many new international organizations, including the Asian Infrastructure Investment Bank (AIIB), and the New Development Bank (NDB).

Contributing to global economy

This raises a question: what role will China play in the context of the profound changes unseen in a century and the reversal of economic globalization? So, let’s do a simple analysis.

First, it should be recognized that China’s economic development is a miracle in human economic history.

In the past decade or so, my team and I have reviewed historical documents and calculated the economic aggregate of the Northern Song (960–1127), Ming (1368–1644), and Qing (1644–1912) dynasties based on original data, and found that China’s economy, starting with the Northern Song Dynasty, gradually increased its share in the global economy, peaking at 34.6% of global GDP at the end of the Ming Dynasty in 1600, and gradually declining thereafter. When the second Industrial Revolution in Western countries was in full swing, China’s share of global economic aggregate suffered a cliff-like drop.

By the time of the reform and opening up, it accounted for 4.9% of the global economic aggregate in purchasing power parity (PPP) terms; after the reform and opening up, China caught the economic globalization express train, and through domestic reform and opening up, China’s GDP growth far exceeded the global average rate, and its share of global GDP has now risen to about 20%. Thus, the economic rise of China that we are witnessing today is the first time in the past 400 years.

Comparing the 40 years of rapid economic growth in the history of the UK, the US, Germany, Japan, and other countries, the rise in the share of the world economy has revealed that during the more than four decades of reform and opening up, China has contributed the largest-scale economic growth in human history, and this growth is still continuing today.

Second, a review of the history of economic globalization reveals the existence of several basic laws. The Academic Center for Chinese Economic Practice and Thinking at Tsinghua University has conducted a study on this topic. We found that globalization is essentially the process of a leap from closed equilibrium to open equilibrium in the world economy, which is neither spontaneously generated nor driven by a single hegemonic power, but is the result of an interactive gaming among many participating entities.

In order to direct the world economy from closed equilibrium to open equilibrium, a country with global leadership is needed to promote this process. The globalization leader itself must have three conditions, namely: a technological advantage, a market advantage, and a redistribution institutional advantage. The technological advantage refers to the leader’s technological leadership in advanced industries around the world, so that it can obtain excessive monopoly gains through economic globalization, which is a prerequisite for the leader’s willingness to take the initiative to lead economic globalization. The market advantage refers to the leader’s market size being large enough to attract other countries to follow through active opening up. The redistribution institutional advantage refers to the government’s ability to effectively balance the distribution of domestic interests brought by globalization, thus forming the political support for the process of economic globalization in the country as a whole and ensuring that the leader can continue to lead economic globalization.

A review of several rounds of globalization in history, including the economic globalization led by Britain in the mid-19th century and the economic globalization led by the US in the 20th century, confirms these three basic conditions. After the Industrial Revolution, Britain had technological advantages in key areas such as textiles and iron and steel; its colonies around the world formed a large unified market with market advantages; and it also established a relatively complete social security system with advantages in redistribution institutions. Our study found that for a long time after World War II, the US economy also had the technological, market, and redistributive advantages to become a leader in globalization. Today, however, the three basic conditions that supported the US as a leader in economic globalization are gradually being lost. Against the backdrop of the rise of emerging markets represented by China, the relative size of the large domestic market of the US is gradually shrinking; the technological advantage and relative competitiveness of many US industries, especially the real economy, are declining; and the redistributive capacity of the US socioeconomic system is declining as a result of political polarization and social fragmentation.

Third, China is becoming a forerunner in a new model of economic globalization. Since the 18th CPC National Congress in 2012, Chinese leaders have repeatedly stated on various international occasions China’s firm stance in defense of economic globalization, proposing to promote the building of a community with a shared future for mankind and to make global development more equitable, effective, and inclusive. China’s economy is gradually becoming equipped with the three basic conditions to become a forerunner in economic globalization.

Firstly, China’s unified national market is forming and improving. The production and consumption volumes of many Chinese products are ranked first globally.

Secondly, China is developing rapidly in high-tech areas, harvesting advantages of playing a leading role in big data, artificial intelligence, biological technologies, and green energies. Meanwhile, China’s education system has cultivated a group of engineers, which accumulates a certain level of technological advantages for playing a leading role in economic globalization.

Lastly, China possesses a strong domestic redistribution capacity. In the process of China’s partaking in the economic globalization, many regions and industries have borne strong hits. Through the common endeavors of the government, enterprises, and workers, China’s economy has successfully tackled many challenges brought by opening up, and the system of income and distribution has been constantly improved. China has initially equipped itself with the institutional advantages of redistribution as a forerunner of economic globalization. It should be acknowledged that as we enter the new era, China has initiated a series of world-renowned global development initiatives or concepts such as the BRI, the carbon goals, a community with a shared future for mankind, which are gradually accepted by the global community. There are reasons to believe that China is becoming the forerunner of a new model of economic globalization.

Going forward

In which areas should China constantly improve so that China can truly become the forerunner of the new model of economic globalization? To further release the huge potential of the new model of economic globalization, China should gradually learn and adapt to the role of the forerunner of economic globalization, with the premise of comprehensively deepened reform and a constantly consolidated basis. This can be demonstrated in the following perspectives.

Firstly, compared with major advanced countries, China’s independent innovation abilities are relatively weak. In industries with a relatively long innovation chain, and basic scientific areas, there are still technologies that are under containment. Therefore, the core role of sci-tech innovation in China’s modernization drive should be adhered to, R&D investment and talent cultivation in key areas should be strengthened. China’s independent innovation level should be constantly elevated through scientific and research system reform domestically and strengthened international communication and cooperation.

Secondly, China’s domestic market demand should be further released. Currently, barriers restricting the free flow of factors of production still exist, hindering the formation of a unified national market and the full release of domestic demand. Therefore, the fostering of the new development paradigm should be accelerated, the scale of middle-income groups constantly expanded, the potential of China’s domestic consumption market constantly unleashed.

Thirdly, China’s redistribution system still encompasses enormous reform dividends. It is crucial to accelerate the realization of the goal of common prosperity, comprehensively deepen the redistribution system, fully play the significant advantages of socialism with Chinese characteristics, allow all Chinese people to benefit from development, and foster a strong social common sense of supporting economic globalization.

Fourthly, the soft power of China’s internationalization should be enhanced. China’s participation in global governance is not long, the AIIB, NDB, and other emerging international organizations are still at their initial stage. Therefore, China still needs to constantly accumulate experience of partaking in global economic governance, explore methods and pathways of negotiations with other countries and cultivate a group of talent with international communication capabilities and working experience in international organizations.

Last but not least, in line with today’s theme, China’s social sciences research, especially those related to economics, requires further internationalization. Major issues in global economic development should be researched and responded to at a commanding height of the new model of economic globalization. The current major disciplinary system of economics has been formed in the last round of economic globalization, led and established by Western scholars. In this respect, the Chinese social science community must work hard, with a humble and open mind, to communicate and research jointly with international colleagues, so as to promote the process of the new model of economic globalization.