By Long Guoqiang

Research Report Vol.21 No.2, 2019

After the 2008 global financial turmoil, under the combined action of various factors, economic globalization went to a phase of adjustment from rapid advancement, presenting many new characteristics. As the profound changes in economic globalization bring in new opportunities and challenges, nationalism, protectionism and unilateralism by some countries came on the rise. In consequence, these countries veered from their traditional trade and investment policies. In stark contrast, China has been opening its door wider and wider and voluntarily promoting trade facilitation and freedom in an effort to build up a new pattern of opening up on all fronts and pursue win-win cooperation with the international community.

I. Changing International Environment for China’s Development

1. Economic globalization shifting from high-speed advancement to adjustment .After the 2008 financial turmoil, economic globalization entered the stage of adjustment, presenting many new characteristics

First, economic globalization began to slow down. The advancement of economic globalization is reflected by rapidly growing cross-border trade and investment. From 1998 to 2007, global trade in goods and services grew at annual rate of 10.9 and 10.8 percent on average. The 2008 international financial turbulence is seen as a watershed, after which cross-border trade slowed down. From 2008 to 2017, the annual growth rates for trade in goods and services dropped to 1.0 percent and 3.2 percent respectively. The share of trade in goods in the world’s total GDP once hit 25.4 percent in 2008. After the peaking, it fell to 22 percent in 2017. Trade in service accounted for 6.32 percent of the world’s total GDP, and then flattened with slight volatility in the next 10 years. In 2017, the figure was 6.65 percent. Cross-border direct investment exploded from $690.7 billion to some $1.8938 trillion in 2007, registering an annual growth rate of 11.9 percent on average. But the annual rate plummeted to minus 0.42 percent during the 10 years from 2008 to 2017 when the figure stood at some $1.4298 trillion.

Second, the content and pattern of economic globalization have changed. In terms of its content, trade in service is on the rise. During the 10 years after the 2008 financial crisis, both the growth rates of trade in goods and service dropped, but the trade in goods fell at a faster pace. The trade in service climbed at an average rate 3.2 times faster than trade in service. With a rising share in global trade, the trade in service had the share climb from 19.9 percent in 2008 to 23.2 percent in 2017. In terms of the pattern of globalization, the position of developing countries is on the rise. This is the result of their promotion of trade facilitation and active involvement in the global value chain. Taking foreign direct investment (FDI) as an example, the inflow of FDI to some developing countries used to be much lower than that to developed countries, but now the developing countries are catching up, even outstripped developed countries in some year.

Third, the governance system of economic globalization is adjusting at a faster pace. The system is a complicated set of principles, rules and agencies to regulate economic globalization and provides institutional safeguard for it. The dominating principle of free trade is being challenged by that of fair trade. From the perspective of rules, new trade rules are extending from borders to the outside. As for the governance platform, multilateral trade negotiations came to a stop and the Doha round reached no consensus. In contrast, regional integration organizations sprung up like mushrooms, replacing multilateral platforms to be the new ones of making international trade rules. In consequence, the reform of the WTO was brought on agenda.

2. The profound and complicated reasons for changing economic globalization.The adjustment of economic globalization is an outcome of various interplaying factors

First, it is the aftermath of global financial crisis. In retrospect, the Great Depression from 1929 to 1933 interrupted the last round of economic globalization, which resumed after the Second World War. The 2008 financial turmoil brought similar damage to globalization. Many major financial institutions went bankrupt, and the majority of the world’s economies slowed down and even trapped in recession. In face of rising unemployment, sluggish demands, excessive production capacity, aggravating competition at home and abroad, and declining business profits, many countries rolled out trade remedy and protectionist measure, immediately affecting the growth of international trade and investment.

Second, it is the accumulative outcome of the side effects of economic globalization. Economic globalization is a double-edged sword. While boosting trade and investment, it also brings many adverse effects. The rapidly expanding globalization in the past leads to the accumulated side effects reaching the threshold. As a result, the pace should be adjusted. Widening income gap, de-industrialization, and cross-border financial risks faced by some countries are the results of many factors, but were wrongly attributed to economic globalization. Many countries overacted and see rising anti-globalization, divided public opinions and more doubts on economic globalization. Voters in some countries began to sway national policies with their votes. For example, Brexit as a result of referendum frustrates the process of European integration. To please voters at home, the U.S. Trump administration advocates “American first,” and will fully disregards multilateralism. It took many unilateral protectionist measures. For example, the U.S. imposed tariffs on exports from many countries like China, and tightened scrutiny on the FDIs in the excuse of national security.

Third, it is about the changes in international order and power games. The importance of developing countries in global trade landscape continues to increase. In recent years, emerging markets and developing countries have contributed as high as 80 percent of the global economic growth. Their aggregate economy accounted for close to 40 percent of the world’s total. Developing countries claim for corresponding increase of institutional voice in global governance system. However, the global governance system of economy failed to reflect the changes in international order. China’s rapid rise exerts profound influence on the global order. At the regional and multilateral levels, the U.S. pushed the introduction of international rules targeting China on account of its national interests and geopolitical gains in an attempt to isolate China. This will have an impact on the future of global governance system as well as economic globalization.

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