The author is the chief global strategist of Morgan Stanley Investment Management, and the author of “Ten Rules for Successful Countries”
China’s unexpectedly rapid slowdown has triggered the familiar warning that as China grows, so will the global economy. Only China may not be as important as it used to be.
Not long ago, most economies were growing in step with China. But in recent years, these links have weakened and then collapsed during the pandemic. Most notably, the correlation between China’s GDP growth and other emerging markets’ GDP growth has fallen from nearly perfect (over 0.9) to almost invisible (below 0.2) since 2015. In the second quarter of this year, China’s economic growth rate was significantly lower than that of other emerging markets for the first time in 30 years. This may be a precursor.
Beijing is closed Curb the pandemic And hit Key sectors of the economy As well as high corporate debt, its aggressiveness is unmatched by any other government. This largely explains why China is slowing so fast now, while the rest of the world has not. But about five years ago, the connection between China and the growth of other economies began to loosen, so this moment may reflect that deeper forces are at work.
One is the new commercial cold war. China has been turning internally, transforming a trade-driven growth model into a domestic consumer-driven growth model. The share of exports in China’s GDP has fallen from more than 35% before 2010 to less than 20% today. Launched in Beijing in 2015 Made in China 2025, To increase the self-sufficiency movement by buying more supplies and developing more technologies in the country.
Under the leadership of Donald Trump, the United States has worked hard to “decouple” from China. Since then, President Joe Biden and many of Trump’s critics in Europe have taken similar positions—and intensified these efforts during the pandemic. This means buying more supplies from Chinese commercial competitors such as Mexico, Vietnam and Thailand.
In the years leading up to the pandemic, China accounted for approximately 35% of global GDP growth, but this proportion dropped sharply in 2020 and is now approximately 25%. China’s growth rate is still twice the average growth rate of other emerging markets five years ago, but this gap has narrowed. Faced with a shrinking population and the drag of huge debts, China’s growth rate in the next few years may be slower than that of other emerging markets.
At the same time, other global growth drivers are gaining momentum, each of which is significantly improving a different set of countries.The digital revolution is on the rise Semiconductor demand And other high-tech products have promoted the export of advanced emerging markets such as Taiwan and South Korea. The rising data flow ignores the slowdown in global trade and China.
Mobile Internet technology is transforming the economies of larger and more backward markets, including Indonesia and India, where the share of digital revenue in GDP has more than tripled in the past four years. India is one of the countries where the share of trade with China in the economy has declined.
Most of this growth comes from online services, no matter what happens in China, online services are growing rapidly in all emerging markets. Globally, mobile technology accounts for approximately 10% of cumulative revenue growth, and these revenues are growing faster in emerging markets.
By restricting the supply of new raw materials and increasing demand forecasts for “green inflation”, efforts to curb global warming are leading to “green inflation” in commodity pricesGreen metal“For example, aluminum and copper. The price increase is a huge boost for green metal exporters mainly from emerging markets such as Peru and Chile.
The global decoupling from China may continue. The digital revolution, the fight against climate change, and the new cold war are likely to last longer than the effects of the pandemic and may herald a new era of growth in the emerging world. In the last golden age of emerging markets, that is, after the millennium, the prosperity of many countries mainly depends on the supply of parts or raw materials to China-and then the rise of “factories going to the world.” Now they have more choices.
To say that China is not important does not mean that it is okay. China remains a major trading partner for more countries and a major global commodity buyer. For example, if it reduces huge corporate debt, especially the debt activity of the real estate industry, it ends in a collapse, its impact will be global and inevitable. But smaller tremors may not be that important anymore. Perhaps, when China falls, the world will no longer fall with it.