Far from dying, a new globalisation is emerging – driven by China and the digital economyFeb 12, 2023
An important feature of the new globalisation is China’s Global Development Initiative and a renewed, non-exploitative focus on the Global South. The other is the growth of the digital economy and non-dollar-denominated digital currencies that enable cross-border trade.
The idea that globalisation has ended is growing in popularity with some economic analysts. Parallel to this is the idea that China is no longer a player in globalisation as near-shoring replaces the offshoring of supply chains.
Certainly, the United States with its increasing protectionism seems to be removing itself from globalisation. Its policies accelerate the deconstruction of globalisation, replacing it with protectionist sovereign economics. This is ultimately a self-defeating approach because it deprives the economy of the benefits of globalisation, which provide a variety of product and service choices at competitive prices.
The return of China to a global market will counter the inflationary pressures bedevilling many Western economies. In many ways, China’s greatest export before Covid-19 was economic deflation.
Most obviously, Western economies depended on more cheaply produced Chinese goods and services to keep inflation down. This deflationary impact was felt from computers to household goods and the equipment that underpinned economic growth.
The forecast end of globalisation is at best an example of Western market hubris. In reality, globalisation has been with us in some form for hundreds of years.
The Silk Road was one of the first aspects of globalisation, bringing silks and tea to Europe. It was followed by the European age of exploration which put spices from the East Indies on the tables of Europe and introduced chillies from South America to China, and in particular Sichuan province.
Writing in 1817, the British economist David Ricardo formalised the philosophical foundations of globalisation. At the turn of the 19th century, the London Times carried an article boasting the benefits of globalisation, with meat from Australia, fruit from South America, sugar from Africa and tobacco from the US.
No one pretended that globalisation was anywhere near ending and despite repeated attempts at protectionism, globalisation continued to develop and entrench itself in the economies of the world. It will take more than Covid-19 and Joe Biden’s Chips and Science Act to halt globalisation.
But this has not prevented some from suggesting that China’s economic growth has somehow been permanently damaged as a result of Covid-19 restrictions. It’s a fallacy that suits a hegemonic narrative, but it ignores economic reality.
Global fund managers are quick to recognise this fallacy and are gearing up for greater involvement in the Chinese economy and capital markets. While some of the world’s largest economies face recession this year, China’s countercyclical rebound has brought investment opportunities, particularly in the resources sector.
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This is not a repeat of the 2008 China-led global recovery as it will offer a wider range of development opportunities beyond physical infrastructure, in areas including the green economy, artificial intelligence applications and 6G. Smart business is already preparing for the resumption of China-led global growth and the continuation of globalisation as a force for economic development.
The Covid-19 hibernation has led to an adjustment of the way globalisation proceeds. The two most important features are, first, China’s Global Development Initiative and the renewed focus on the Global South with a non-exploitative economic relationship. China has shown a commitment to multilateral solutions working with the United Nations and this will define the nature of post-Covid globalisation.
The second important feature is the growth of the digital economy and parallel to this, the growth of non-dollar-denominated digital currencies that enable cross-border trade.
Globally, Covid-19 accelerated the digital economy but it was from a low starting base in many Western countries. In the US, the almost obsolete chip-and-PIN card system is not yet used by all shops but China had already moved beyond this with WePay and other similar systems.
Covid-19 enabled much more sophisticated advances in the digital economy, including an expansion of China’s digital currency. Just as importantly, these advances enabled banking-style services to be extended to sectors of the population which were previously “unbanked”. This is of particular interest to the Global South.
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The advances in the digital economy not only affect at a macro level the development of international trade, but also form the foundation enabler of the Global Development Initiative. The creation of alternatives to the Swift international money transfer system enhances international trade efficiency and reduces vulnerability.
Globalisation is a more powerful force than protectionism, ideologically driven sanctions and tariff barriers. The locus of economic development is changing and the forces of globalisation will shift accordingly. China is the first major economy to recognise that change and it will drive the new iteration of globalisation.
Globalisation is more than just logistics chains. Globalisation is driven by the competitive advantage unique to each country. Usually, these change slowly but the Covid-19 disruption created the conditions for a seismic shift.
Globalisation post-Covid will be different from globalisation pre-Covid, but it will not disappear.
First published in the South China Morning Post February 5, 2023