Editorial: Time to Brace For a Global Crisis?
Amid looming uncertainties over the future of globalization, China has reiterated its commitment to work toward global economic integration. At this year’s World Economic Forum in Davos, Switzerland, President Xi Jinping told the world’s political and business elites that “China will keep its door wide open and not close it. An open door allows both other countries to access the Chinese market and China itself to integrate with the world.”
The best way for China to tackle the rising tide of populism, nationalism and protectionism is to push ahead with its reform efforts and further open up its economy to the outside world.
The process of globalization is the inevitable result of development. It is driven by the need to efficiently allocate scarce global resources such as capital, goods, services and talent. After two decades of unfettered advancement, this process of economic integration started losing steam in recent years and suffered major setbacks in 2016. While anticipating a fallout from a more-protectionist, inward-looking Trump administration and a disruptive British exit from the European Union, the world’s largest trading nation has promised to defend the structures that have nurtured globalization and economic growth.
International trade has seen sluggish growth for five straight years, mainly due to a rise in protectionist sentiments. Putting up trade barriers often leads to retaliation and triggers trade wars that hurt the poor disproportionately. It also harms all countries involved. As Xi said at Davos: “Pursuing protectionism is like locking oneself in a dark room. While wind and rain may be kept outside, that dark room will also block light and air.”
Protectionist voices have grown louder as the world economy is stuck in a vicious cycle of low growth, low spending and high unemployment. But the trend of globalization is unstoppable and irreversible. Simply blaming economic globalization for the world’s current woes is misguided, and it will not help solve these problems. Globalization has brought about both good and bad results, but its advantages outweigh the negative effects. What needs to be done is to develop a balanced, equitable and inclusive growth model that ensures that everyone has access to equal opportunities and shares in the benefits of development. It should also have enough safeguards to cushion the adverse effects of rapid change. Also, instead of ignoring the anti-globalization voices, we should respond to their reasonable demands.
China’s own example shows how much a country can be transformed through globalization. Deng Xiaoping, the country’s reform architect, once said China had spent over three decades failing behind closed doors before it opened its economy, paving the way for its rapid rise. Within a decade since its accession to the World Trade Organization in 2001, China became the world’s largest trader. Its foreign trade value rose to 13.8% of the world’s total in 2015 from only 0.92% in 1980. This alone is a testimony to the power of global economic integration. Now the country has become a major international investor, with direct outbound investment reaching $200 billion last year. According to Xi, China plans to invest a total of $750 billion overseas over the next five years.
As the new Trump administration is likely to favor trade protectionism, the world is looking for a new torchbearer to champion the course of globalization. Many are expecting China to pick up the baton. If China wants to shoulder this responsibility, it has its work cut out for it. For example, the country should give outside investors more access to its industries, promote the international use of the yuan, push ahead with the “One Belt, One Road” initiative, and pick up the pace of negotiating free trade agreements with other countries. More importantly, China must deepen reforms and improve its governance capacity. It also needs to address the widening wealth gap at home and improve the scanty social security network to protect the most vulnerable groups from any adverse effects of globalization.
Despite these challenges, China will be steadfast in its commitment to openness. Last week, the State Council, the nation’s cabinet, issued a new directive offering foreign investors greater access to several key sectors, including services, manufacturing and mining. The government eased restrictions on overseas capital flowing into various types of financial institutions, and it further liberalized emerging sectors such as telecommunications, the internet, culture and education. This was a bold move, signaling continued efforts to build an open economic system in China. The latest round of opening-up, which involved a number of areas that were carefully protected in the early days when the country was accepted into the WTO, is in line with China's need to restructure its own economy. It will also help rebalance the books with its global trading partners. Opening wider to the outside world should not be seen as bowing down to external pressure. It is a prudent choice that will help China achieve its own growth targets because introducing more competition will improve business efficiency, benefiting consumers and other stakeholders.
The success of the opening-up strategy relies on effective implementation. The State Council has left local governments and different ministries in charge of fleshing out the implementation details related to these reforms. Whether those enforcing the policies can overcome resistance from groups with vested interests will be key to making progress.
China has spent decades learning how to integrate itself into the world economy, especially after its WTO accession. Although it has outperformed most other emerging nations even after the 2008 financial crisis, it is important for the country to be conscious of the fact that it was still a developing state and has plenty of room to learn from others. Policymakers should also ensure that trade issues such as the ambiguous stance on granting China market-economy status and other disputes do not get overly politicized. China should better use the WTO’s dispute-settlement mechanism to protect its rights and refrain from fueling negative public sentiment towards specific trading partners. Only with an open mind can China further embrace the outside world and fulfill its pledge to open up further.
Hu Shuli is the chief editor of Caixin Media.
Founder & Publisher, Caixin Media
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