Wang Wen: Emerging markets are set to lead globalisation


Your Present Location :Home > LATEST INSIGHTS

Wang Wen: Emerging markets are set to lead globalisation


By Wang Wen    Source: Financial Times    Published: 2017-4-10


We should embrace the next wave, rather than fomenting a backlash.



There has been a rising wave of opposition to globalisation across the globe. From widespread trade protectionism to slow trade growth and tightened immigration policies, it would seem that the world is facing a backlash against globalisation.

However, data and theoretical deduction tell a different story: economic globalisation is still the norm. In fact, the engine of globalisation has shifted from developed to emerging economies. Therefore, the latter should continue to open up their markets and seize the opportunities the next round of globalisation will bring.

Global trade, investment


For decades, anti-globalisation movements have emerged intermittently, impacting global progress. Western economists have already provided an interpretation of the coexisting globalisation and anti-globalisation phenomenon.

In this light, the current anti-globalisation wave is more like a regional and cyclical relapse at this particular phase among western countries. Though the West has great influence on the world, rising powers seem to perceive globalisation quite differently.

In addition, from a mid and long-term point of view, data indicate that the influence of the West might be impaired. Trade, as a percentage of GDP, in the world remained steady from 2011 to 2015.

Though there has been a modest slowdown in global trade of goods denominated in dollars, a large part of this decline could be proven to be a “statistical illusion” given the impact of dollar strength and overlapping factors, such as decreasing US dependence on foreign energy and the long-term low price of commodities.

Moreover, in the seven years after the 2008 financial crisis, the global service trade grew faster than GDP, and the contribution of service trade to GDP climbed from 12.5 per cent in 2008 to 13 per cent in 2015, serving as an important force for boosting global economic growth and increasing employment.

In capital flows, global foreign direct investment is also recovering robustly. Though it dropped to $1.2tn in 2014, it quickly bounced back to $1.76tn in 2015 — the highest level seen since the crisis.

Global transnational mergers and acquisitions amounted to $4.9tn in 2015, surpassing the 2007 level of $4.6tn and providing hard evidence of the expansion of multinational corporations in the context of globalisation.

It is evident that there have been doubts about and opposition to globalisation in the face of global economic difficulties and risks; security issues, such as refugee and regional conflicts, as well as social problems, such as widening income disparities and unemployment. However, the trend of globalisation has not been reversed. It is indeed exaggerated by the “losing end” of globalisation via the internet in the public opinion game.

Concerns in the West


The anti-globalisation sentiments in the West can be seen on the surface in policy. Western countries pursue self-protection as their competitive edge diminishes in today’s world, and the underlying reasons could be threefold.

For one, the sentiments are the result of the overlapping effect of intensified internal contradictions and the negative influence of globalisation. Globalisation is a “double-edged sword”, which means that in the competitive logic of relative gains, it will inevitably produce winners and losers.

Labour distribution and production outsourcing in the global industrial chain coupled with technological progress has led to the relocation of the manufacturing industry, which forms the core of the real economy, to the developing countries. The middle and lower classes in developed countries have lost jobs or seen reductions in pay, so they are the “losers” in globalisation.

At the same time, the internet is a magnifier of negative public opinion, so anxiety and anger, like infectious diseases, spread rapidly, and the situation has been exacerbated by the refugee crisis in Europe and the threat of terrorism. All these factors have conspired to create a large audience for politicians willing to exploit public discontent.

Next, rising powers, including China, are making the West nervous. While the emerging economies show more interest and capacity to participate in global governance, the West, worn down by the crisis, is declining and withdrawing from the world stage.

Against this backdrop, western commentators have argued that traditional globalisation has come to an end, and a new trade system should be in place, such as a regional trade mechanism, that serves their interest and keeps them on top of the game.

The anti-globalisation narratives are in the end looking for ways to maximise national interest in the process of globalisation. Globalisation, as a scholar in the West put it, should continue out of “each nation’s free will”.

New round of globalisation


The progress of social productivity and technology means the trend of globalisation is irreversible. However, due to the differences in national resources and policy orientations, globalisation has created some negative outcomes. Therefore, the old system of globalisation, which has been dominated by developed western countries, cannot meet the current demand. Therefore an upgrade in global governance and a transformation of globalisation as well as a new round of globalisation is imminent.

Chinese President Xi Jinping’s speech at Davos in January attracted global attention. To an extent, his main ideas chart the path of new globalisation: develop a dynamic, innovation-driven growth model; pursue a well-co-ordinated and inter-connected approach to develop a model of open, mutually beneficial co-operation; develop a balanced, equitable and inclusive development model.

Certainly, the undertaking will not be easy and there are at least two major issues to be tackled.

The first task is to challenge backward global governance concepts. The bankruptcy of neoliberalism and the Washington Consensus requires new ideas to solve the internal problems in developed countries as well as the shortage of global public goods and the dislocation between common interests and national interests.

Non-traditional threats have a spillover effect due to the generalisation of global governance issues, rampant terrorism, energy and food security crises and the spread of infectious diseases. However, the present multilateral system and bilateral coping mechanism are incompatible and fragmented, breeding a variety of risks and crises. On this basis, this is a call for grand ideas in this era.

Second, existing global security, trade and financial mechanisms, such as the UN, the WTO and the IMF, are struggling to respond to the ongoing crisis around the world. The need to reform the original mechanism and reshape global governance rules, in accordance with the latest international structure, is increasing. Developing countries need to be better included in the decision-making process in order to ultimately safeguard the implementation and authority of the global mechanism.

‘B & R’ initiative


China benefits from the development of globalisation and open economy that facilitates trade and investment. Against this backdrop, we have seen something unprecedented in recent years. From the G20 Hangzhou summit and the Apec Lima summit to the coming “Belt and Road” summit this May, Chinese leaders, government officials, businessmen and scholars have been seen at every occasion trying to convince their western counterparts to be confident in globalisation.

The new round of globalisation China has proposed emphasises that all countries have equal opportunities to participate, regardless of their size and strength, and share the positive results of globalisation through trade exchanges and investment co-operation.

Global governance should reasonably reflect the demands of all parties in terms of rules and concepts, and though major powers provide global public goods, all countries are bound to share the fruits and benefits fairly.

It is foreseeable that the West will continue be cautious towards the process of globalisation, but the development of a new model of globalisation needs its participation to push forward from a global community of common interests to a community of common destiny.

In the absence of global economic and financial public goods, the “Belt and Road” initiative has become the largest public product provided by a rising China, which embodies its main idea of promoting economic openness in the new era.

To conclude, in response to rising anti-globalisation sentiments, we should really embrace a new era of globalisation.

The author is a professor and executive dean of Chongyang Institute for Financial Studies at Renmin University of China.