Feature Address: 'Chinese New Economy and Globalisation - The Sequel'

The peripherals/developing countries are now challenging the status quo with China as the leader of the Global South is demanding for a new development bargain.

The initial globalization ‘grand plan’ has change. It started with the US-led Western economies which possessed the greatest tech and economic resources, in contrast against developing countries providing cheap labour, raw materials and the end demand market for consumer products.

The old ‘grand plan’ benefited US and China but is no longer sustainable. The West has been resisting change and limiting the economic and technological growth of the peripherals. However, China now wants to move out of “peripheral” status and emerge as the core of globalization.

To successfully graduate from peripheral status, China must address its broad structural challenges. Domestically, politics in China is turning left with power being totally centralized. This is made worse by the intensifying tech war with US and the decoupling of tech and supply chains.

The growth of China’s economy in the past two decades has been anchored by three pillars: (1) Real estate which accounts for 30% of the country’s GDP; (2) The rise of consumer internet platforms; and (3) The buildup of industrial capacity and global supply chain.

Today, the growth of real estate has run out of steam. Once the main growth engine of the Chinese economy, the domestic real estate sector has collapsed, dragged by aggressive cooling measures, highly leveraged property developers and demand destruction by consumers.

Monopoly and monopsony structure have dragged innovation in the past decade. These characteristics in the local market have a chain reaction, causing the underinvestment in tech, stagnation of technological innovation, rising inequality and environmental degradation.

Insufficient Total Factor Productivity. The Chinese economy appears to have hit a ceiling in productivity growth since 2010, growing in size without actual productivity improvement. This highlights the fact that China’s old growth engines are no longer valid.

The sequel to Chinese economic growth depends on tech-enabled industrial capacity, and the growth of new sectors (new energy, life sciences) alongside structural shifts in the broader market.

China’s best asset is possessing the largest industrial capacity in the world — larger than the US, Japan and Germany combined. A renewed focus on this sector by upgrading it with new technology presents 30-40% upside potential through various sub-sectors such as semiconductors, manufacturing tech, life sciences and synthetic biology.

China is already changing its economic model, proposing a wholesale structural change to one of the biggest economies in the world. This is driven through top-down initiatives to accelerate breakthroughs of chokepoints in strategic areas; hence, creating losers from the existing system while winners remain to be seen in the short-term.

The main challenge for China is in creating a ‘small yard, big world’, away from the West’s ‘small yard, high fence’. In the war between US and China, the concept of ‘small yard, high fence’ refers to keeping small yard for advanced technologies and building high fences to prevent Chinese access, but the big question moving forward is if China, as the biggest Global South country, is able to lead the way and drive a new wave of globalization outside the ‘fence’ created by the west.