SHANGHAI: Widespread lockdowns and border closures aimed at combating the COVID-19 pandemic have interrupted global supply chains and largely paralysed the global economy.
Yet, the real weakness of todays global economy is not the vulnerability of its globalised production networks, but rather souring attitudes toward globalisation – and toward China in particular.
Fear of Chinas growing economic clout drives many countries foreign-trade and investment decisions these days, and not only in the United States. Concerns about the dependence of global manufacturing on China have prompted calls to reshore production and cut the country out of global supply chains.
The US is even threatening to stifle the Chinese economy through technological decoupling.
THE GREAT CHINESE ECONOMIC SHIFT
But Chinas critics are mistaken in assuming that the countrys continued economic growth depends almost entirely on the maintenance of the global free-trade system and access to Western technology.
Although China is undoubtedly an important global manufacturer, the real drivers of its economic performance over the last decade or so have been rapid growth in its huge purchasing power and fixed-asset investments – including in the countrys thriving technology sector.
The world has not yet fully appreciated the significance of the countrys inward shift of economic gravity away from “external circulation.” Many economists have instead been busy criticising Chinas investment expansion and highlighting the potential debt risks arising from it.
READ: Commentary: Why are Chinese officials acting like Internet trolls and entertaining online fights with the US?
As a result, politicians in America and many other countries still think that the most effective way to contain China is to target its position in global trade and supply chains.
To be sure, China has so far been the largest beneficiary of economic globalisation over the past decades, mainly because of its integration into the global free-trade system before and after joining the World Trade Organization in 2001.
Indeed, by the late 1980s, Chinese policymakers were advocating that the country use global supply chains and international markets to help it industrialise and accumulate capital.
China thus took advantage of its abundant cheap labor and adopted a “both ends out” approach, importing parts and components in order to assemble finished products for export.
CHINA UNDERSTANDS GROWTH DRIVEN BY GLOBAL TRADE UNSUSTAINABLE
Chinese policymakers have long since understood that this growth model could not turn China into a fully developed, high-income economy. In particular, the severe impact of the 2008 global financial crisis on Western economies forced China to accelerate its “change of focus” by developing a more closely integrated huge domestic market and promoting growth driven by “internal circulation.”
Such efforts have gained further momentum in recent years as a result of escalating trade frictions with America, and a recognition that Chinas continued economic expansion requires overcoming structural imbalances.
China has taken several steps to correct these imbalances and boost domestic demand. For starters, it allowed the renminbi to appreciate against the US dollar for at least a decade after 2005, and began to open up its protected market to foreign firms in line with its WTO entry commitments.
The government not only liberalised imports, especially of intermediate and capital goods, but also started allowing foreign penetration in financial markets and other non-tradable sectors.
By establishing an increasing number of free-trade zones, China has honored its commitments regarding foreign-portfolio investment and facilitation of cross-border capital flows.
BOOSTING INFRASTRUCTURE AND LOCAL INVESTMENTS
Second, China has increased physical infrastructure and logistics investments at a rate of over 20 annually over the last 15 years, resulting in new and improved domestic highways, railways, airports, and harbour facilities.
During the last decade, for example, the country has built a high-speed railway network of more than 35,000km.
Third, since the beginning of this century, the Chinese authorities have consistently supported the construction of large-scale information and communication infrastructure networks, and encouraged private enterprises to innovate in cutting-edge sectors such as mobile payments, e-commerce, the Internet of Things, and smart manufacturing.
This has helped to foster the emergence of many locally based international technology firms, including Alibaba, Tencent and JD.com. And at the beginning of 2020, the government decided to launch a new round of large-scale investment in 5G base stations.