Will China become the center of the world economy?
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The Chinese economy is developing at an extraordinary speed.
In Europe and the United States, moods have been changing sharply and rapidly.
China is so big that it contains different realities at the same time.
The global economy itself is beginning to be somewhat fragmented.
Over the past 40 years, the Chinese economy has developed at an alarming rate in many areas. The scale of its domestic market, the technological strength of leading companies, and even the feat of space exploration and growing military power may shock other parts of the world. But Martin, the key question now is will China become the center of the global economy?
There is no doubt that China’s current growth and its continued growth mean that it will always become a major player in the global economy. But we have reason to doubt whether it will become the center of the global economy, a unique center, partly because the rest of the world is unwilling to let it appear, and partly because the global economy itself is beginning to somehow split into a more regional rather than Global economy.
Nearly 40 years ago, I went to China as a student. This is a completely different place from the high-tech economic superpowers we see today. Grain, cotton and several other basic commodities are rationed. The train from Hong Kong to Beijing took more than four days to arrive. The same journey today takes about nine hours.
I think the best statistic to bring this extraordinary change into the background is average GDP growth. From 1979 to the end of 2018, China’s GDP grew at an average annual rate of 9.5%. Martin, as far as you know, is this unique in history?
I think it is unique in the following sense. There are other countries that have achieved higher growth rates over a period of time. But you have never seen such a big thing.
Back in 2000, everyone was equally poor. Center of gravity, the center of gravity of the global economy basically follows the size of the population. Then with the Renaissance and the Industrial Revolution, you saw Europe and later North America move forward.
In the past 40 years, it has been moving to Asia, Asia and China. But in a sense, it really just returned to the normal state of the past. It’s still a bit unusual that they did it so fast, even if I call it back to normal. But James, how did they do it?
First of all, in the late 1970s, they began a market reform plan to truly completely reform the entire communist command economy. By the early to mid-1990s, they began to really pay attention to attracting foreign direct investment. But I think that the real key change in China reappeared, probably in the mid-1990s, when China began to allow the children of farmers to migrate from the countryside to these large industrial towns.
What I want to say is that the Chinese Communist Party has proven that capitalism is effective, capitalism and a movement to liberate labor. But let me add one point, that is how high-income Western countries pursued globalization at the time, because in the 1980s and 1990s, you saw a strong push for more liberalized global trade. Therefore, globalization is carried out at the request of high-income countries. But China can participate directly.
A large part of the answers to the questions we asked is whether China will become the center of the global economy and whether this development model will continue to work, because what impresses me is that despite all these successes, China is still one Relatively poor country. Isn’t it?
Absolutely. In fact, China is currently ranked 61st in per capita income and 61st in the world. In general, China is still a developing country. But it is also a very unusual country because it has all these high-tech capabilities. It has this amazing infrastructure. I think this is an economic beast that is very different from the type of developed countries that we can see in other parts of the world.
Let’s take a look at China’s average income compared with the world leader, the United States. We can see that although it was very poor before the entire economic revolution, it was still not rich.
China is so big that it contains different realities at the same time. Today, the number of middle class in China is about 400 million. Obviously, this is more than the entire population of the United States. But there are also about 1 billion Chinese who are far worse off.
Economists call it a middle-income trap. You reach a certain point and grow rapidly. Then you stagnate before pulling everyone into the middle class. I mean, one reason people think this happens is that the process from poverty to middle income is very different from the process from middle income to high income.
Chinese consumers spent about 730 million U.S. dollars last year. By the way, this is larger than the entire GDP of the Japanese economy. But now I think we are entering a very different stage. The characteristic of this is the rise of China as a technological power.
I think this is important, James, because one thing that economics and economic history have shown is that if there is a way to get out of the middle-income trap, it is to shift from a growth model based on accumulated labor and capital to a growth model dominated by technological development. And technological progress.
China is very likely and indeed is already a middle-income country, leading the world in many technological fields. Let me put some meat on those bones. Let us count in which areas China is leading the world or at least close to the forefront, wind energy and solar energy, online payment systems, digital currency, artificial intelligence, such as facial recognition, quantum computing, satellite and space exploration, 5G telecommunications, drones , Ultra-high voltage power transmission. China is indeed at the forefront of many important technologies in the world.
So maybe I can ask you, James, do you agree that there is a very conscious strategy among Chinese policymakers to make the world more China-centric?
China is promoting its standard-setting process all over the world, as you describe, trying to ensure that the latest technology around the world at least partly or mostly depends on Chinese technology.
In my opinion, its intention is to become a unique global center. However, the biggest question is whether the rest of the world will play and let it happen. The globalization that we have seen in the past few decades is not often fully understood, but it is still quite regional.
In this chart, it looks at different economies, weights in the global trading system, and major trade relations. What we really see are three hubs, one with Germany as the center, one with China as the center, and one with The United States is the center. If we look at a more complex trade relationship, that is, a global value chain that crosses national borders many times, it looks more regional. So I think this is actually the direction we are going to take. We may see closer trade relations at the regional level, but there will not necessarily be deeper trade or trade deepening between the three major groups, the European Union, the United States and China. .
China really attaches great importance to expanding trade and investment relations with Southeast Asia. I think it increasingly regards Southeast Asia as a backyard market. Moreover, China is reluctant to abandon its American or European markets in any way. I mean, these are huge driving forces for China’s export growth.
So we will look at what choices China will make about this, because it is clear that sentiments have been changing sharply and rapidly in Europe and the United States. And I think that global trade itself is shifting to more and more complex value chains and more service trade and digital trade, which will also strengthen the political aversion to integration with China. So this is why I think that, although as I said, China will always be an important part of the global economy, but we may focus more on regional dominance rather than being a unique center of a single global economy.
I think that the scenario of the world splitting into three or more regional trading blocs is definitely not conventional wisdom at present. If the world were to move in that direction, it would suffer tremendous damage. There will be protectionism, supply chain decoupling, and other reversals. However, sitting here in Hong Kong, I can see that the pressure that may lead to this result is increasing. So I think the key now is that unless the EU, the United States and China can resolve their differences, we can see the regionalization of global trade become a reality within a few years.