By Liu Yuanchun Source: Global Times Published: 2019-7-4
China's macroeconomy is at a critical stage as internal economic problems have emerged in the last two years. When we attempted to define the "new normal" of China's economy and chose the path to structural reform on the supply side, we failed to consider world economy changes.
We didn't expect the China-US trade conflict would move rapidly and that its impact on the global economy could be this profound. Even if Huawei had begun preparing for it 10 years ago, its founder Ren Zhengfei would have acknowledged that he didn't expect the impact to be so swift and drastic.
Everyone seems to be filled with anxiety worldwide after global economic indicators for June were unveiled. Would such an anxiety point to a recession on the horizon or a collapse? The two words are different, and much talked about in developed markets. They can be interpreted as one question: Is the world facing a new round of slowdown or a crisis?
The first source of anxiety revolves around technology. When technological and industrial revolution are mentioned, it often means a new round of advances is forthcoming.
However, the impact of technological breaks and changes in economic growth is barely visible. The contributions of technological advancement to the world economy have been in decline. The scenario is reminiscent of the productivity paradox, a downward trend in US growth during the 1970s and 80s regardless of increased investment in information technology during the same period.
Everyone is talking with complete confidence about IT, 3D printing, the internet and artificial intelligence, but few can see the effects of technological advancements in economic development. New technologies have yet to translate into economic growth and have instead created more profound conflicts.
For one thing, technological competition between great powers would evolve into an all-out, white-hot political clash. The China-US trade conflict, a face-off between two models and two economies, is essentially a technological conflict.
A point of focus is our control of 5G technology and standards. Consequently, being overly concerned with technological advancements has resulted in geopolitical changes and an evolving landscape with great power competition that goes well beyond traditional ideas.
The most profound change since the advent of the information technology revolution up until now is global imbalance and inequality. The global Gini coefficient has reached a new high, meaning there is greater inequality worldwide. Despite this, many people hope new technologies, which ironically enlarge the inequality gap, will address this problem.
Their wishes and the eventual result are largely worlds apart. It's impossible to expect new technologies to transform the problems we face. There have been breakthroughs in some technological fields and steady progress is expected over the next 30 years.
Those who don't have a mind for technology will suffer as 2035 will be a significant point in time during the next tech revolution. The economy we have been researching might be confronted with a big problem.
When 3D printers can produce human organs, genomes can be replaced, and humans can be coded, their resultant changes to mankind's control of power, resources, and human self-control suggest the gap between rich and poor and will widen. New technological resources will only be attained by a few powerful and wealthy people. As such, technology comes across as accelerating, rather than decelerating, the impact it would have on the economy.
In the past, it was always hoped that every crisis would be followed by a new technological revolution which could lead to a way out of a recession and return to the prosperous path of economic growth. This is unrealistic.
The second source of anxiety has lingered since 2008, as we've been left with little leeway to handle the recession and global stagnation. Measures aimed at coping with the recession have resulted in a global debt pileup and central bank asset expansion.
The European Central Bank, the US Federal Reserve, and China's central bank have almost run out of both conventional and unconventional fine-tuning tools. More importantly, if we reactivate such tools, the debts and bubbles that have built up over the past decade might burst. History has proven that anti-globalization could continue for years. It's been 11 years since 2008, and it remains to be seen whether a shrinking trade landscape will overcome its adversaries. We could be looking at the beginning of a new downturn.
Looking ahead, the resilience of the Chinese economy needs to be taken into account, and continued efforts are required when conducting research into the changing world economy and economic future.
The author is vice president of Renmin University of China and executive director of Chongyang Institute for Financial Studies.