With the West turning in on itself the question isn’t so much whether globalization has run its course as where China wants to take it
No major economy on earth has benefited more from free flows of trade and investment than China. And the rise of populism in the West may present an opportunity to the world’s second-largest economy. Photo: Getty
SHANGHAI—As the West retreats from globalization—the Brexit vote was just the latest and the most startling manifestation of a populist trend—expect a new force to fill the gap.
China has been rehearsing for this moment for years. In a global economy starved of growth and investment, it has both momentum and deep pockets. Its leaders are energized by the kind of international ambition that possessed the U.S. when it reshaped postwar Europe with the Marshall Plan. President Xi Jinpinghas tossed aside decades of foreign-policy diffidence and come up with a new activist motto: “Strive for achievement.”
Today, with the West turning in on itself, partly in response to what many see as out-of-control immigration on top of the terror threat, the question isn’t so much whether globalization has run its course as where China wants to take it.
"What kind of a world order does China want?” asks Jean-Pierre Cabestan,a veteran China-watcher at Hong Kong Baptist University, writing in the publication China Perspectives.
If the West won’t seize the initiative, China will. It was once the poster child for globalization. With remarkable timing, Chinese leaders threw open their economy in the late 1970s just as the latest great wave of globalization gathered pace.
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Chinese President Xi Jinping and Polish President Andrzej Duda after signing a declaration on strategic Polish-Chinese partnership in Warsaw last month.Photo: Jacek Turczyk/European Pressphoto Agency
Freer flows of capital, goods and technology proved to be transformative. Hundreds of millions of Chinese escaped poverty, many joining a global workforce that assembled toys and sneakers and, later, higher-value products such as mobile phones and laptops.
The backlash against globalization in America and Europe represents a severe challenge to the Chinese economy, but it won’t be fatal. Again, China’s timing has been shrewd: Since the 2008 financial crisis, when global trade collapsed, it has been weaning itself off exports. Domestic consumption is now the main growth driver.
Once China gets over the financial shock waves from Brexit it will find a Europe more desperate than ever for Chinese money, its countries less inclined to work together to counter Chinese trading practices they find unfair and too distracted to push back when China challenges global rules it doesn’t care for.
Theresa Fallon,a senior associate with the European Institute for Asian Studies, believes the first test will come on July 12, when a United Nations-backed tribunal in The Hague is likely to rule against China’s sweeping maritime claims in the South China Sea. China has vowed to ignore the ruling.
‘China often plays one EU member state against the other to influence EU policy,’
—Theresa Fallon, European Institute for Asian Studies
Will the European Union publicly back the U.S. and its Asian allies on a vital question of international law? Or will it hesitate to avoid offending China?
“China often plays one EU member state against the other to influence EU policy,” Ms. Fallon writes in a paper for the Asan Forum.
Europe’s economy is in long-term decline; China’s is rising. Europe is shedding jobs; China is adding them—at a faster pace now that it is focused on labor-intensive services. Chinese companies, armed with almost limitless credit, are marching overseas. The Rhodium Group calculates that between 2000 and 2014 they invested more than $50 billion in Europe, part of a surge in outbound investment. It forecasts China’s global assets will reach almost $20 trillion by 2020, a tripling in just five years.
And while Europe is consumed by its internal agenda—staving off political fragmentation is the new priority—and fumbles for solutions, Chinese leaders are thinking globally and executing on a strategic plan.
Mr. Xi has thrown his energies into trying to create a new axis of prosperity along ancient trade routes between China and Europe.
Countries along the way in Central Asia, the Middle East and Africa are competing for Chinese-funded port facilities, nuclear-power stations and high-speed rail lines. Beijing has earmarked some $3 trillion for the “One Belt, One Road” initiative. That compares with the Marshall Plan’s approximately $120 billion, in current dollars.
Much can go wrong. Unstable countries like Pakistan may prove to be a black hole for investment funds. China’s enterprises have taken on far too much debt. Chinese leaders may lose their nerve and fail to implement the painful economic overhauls needed to support a consumption-driven growth model.
There is a risk, too, that protectionism in the West could deliver a new jolt to the global economy. China doesn’t help its own cause by pushing a nationalist economic agenda that is squeezing out foreign technology suppliers and crushing media players. Donald Trumpblames U.S. economic problems on a “leadership class that worships globalism over Americanism.” He’s threatened trade cases against China.
Yet China has powerful leverage. Those who expected that globalization would lead to the triumph of free markets and liberal values everywhere will have to reconcile those hopes with Chinese state capitalism and a heavy dose of political authoritarianism.
Increasingly, an illiberal China will set the rules. That is the price the West will pay for its shaky finances and shrinking global vision.
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