About the author:
Ding Yifan, Senior Fellow of Taihe Institute; Founding Director
Hawkish political elites in the United States have reached a bipartisan consensus that China is the biggest threat to their national security, and are determined to decouple from China. However, after the COVID-19 pandemic, the US trade deficit with China has continued to increase, demonstrating that the United States' unilateral tariffs on Chinese goods have had little effect, indicating that various decoupling measures have failed. Realizing this, the US shifted its rhetoric, replacing the word "decoupling" with "de-risking."
Rhetoric Shifts Demonstrate China's Importance to the Global Economy
The change from decoupling to de-risking illustrates China's role in the global supply chain. To counter China, the term de-risking was repurposed from niche financial sector language into a politically charged statement, aiming to dishonestly quantify China-US relations. Ironically, the reimagination of this word and its context serve only to illustrate the importance of modern China on the world stage.
As the United States and Europe advocate decoupling from China, the geopolitical game has made Western companies that invested in China feel uneasy. A few companies have decided to move components of their production lines to South and Southeast Asian countries, but this simply resulted in new difficulties. On the one hand, private enterprises do not want to leave China completely, as the Chinese market is the largest (and still growing) single market in the world. On the other hand, companies still seek to build new supply chains outside China as a hedge bet. This double investment has increased production costs and decreased efficiency.
The risk of the world economy falling into long-term stagflation is rapidly increasing. Neither side of the war in Ukraine feels able to make concessions, leading to a grisly stalemate. Geopolitical games have exacerbated an economic recession, with energy crises and debt crises likely to follow. The Federal Reserve and European Central Bank face a dilemma; if they focus on curbing inflation, the debt problem will hamper the economic recovery; but if they reverse interest rate hikes, inflation may return, dragging the economic recovery into stagflation.
Though the United States and Europe have replaced "decoupling" with "de-risking," this rhetoric is simply a clumsy PR-centric euphemism for distancing themselves from China's supply chain. Given China's importance in the global supply chain, widening the distance from China will only increase the inflationary pressure on Western countries and increase the odds that the world will enter a period of long-term stagflation.
The Rise of the Global South
Even though the world economy faces the looming threat of long-term stagflation, bright spots remain. Of note, the Middle East has become a rising hotspot for global development and investment. For many years, nations in the Middle East invested substantial capital in security, but with few definitive results. Embracing a paradigm shift, rival nations in the Middle East discovered that when development is prioritized, regional conflicts are not unsolvable. Under the coordination of China, Saudi Arabia and Iran reconciled, resolving a long-standing problem in the Middle East in favor of mutual interests. In this way, for the first time, the Middle East has seen a situation where development is prioritized over security.
China launched the Belt and Road Initiative (BRI) a decade ago to strengthen infrastructure investment in many developing countries, promoting the rise of many developing countries around the world. The stability of the Middle East has laid a foundation for the promotion of the BRI in the region. Nations in the Middle East now have an opportunity to use the BRI to develop and improve local infrastructure and connectivity, which will in turn provide more opportunities for Chinese companies to invest in these ventures, a win-win scenario.
Apart from the Middle East, the world economic situation is undergoing a sea change. The global ratio of growth between emerging economies and developed economies is reversing. When Western countries created the G7 in the 1970s, their economies accounted for nearly 70% of the global economy, but today this group represents only around 44% of it.1 In contrast, emerging economies represented by the BRICS Plus have rapidly developed and become the main driving force of the world's economic growth. BRICS Plus nations now account for 31.5% of the world economy, more than the combined G7.2 Measured by the purchasing power parity (PPP), the list of top ten economies is now evenly split between developing and developed nations. Apart from South Africa, all BRICS countries are in the top ten list, along with other up-and-coming developing nations, including Indonesia. Italy and Canada have already fallen out of the top ten list.3
Though the G7 still holds occasional summits, apart from some political hype, the group has made no recent decisions that tangibly affected the world economy. In contrast, cooperation amongst emerging economies far exceeds that amongst developed countries. Tangible examples include the admission of five new members to create BRICS Plus, establishment of the New Development Bank, and a bevy of Middle East nations with huge foreign exchange reserves and aspirations to join the New Development Bank. It is prudent to expect emerging economies to develop quicker, and for more emerging economies to join the top ten economies list, which developing countries perceive. An indicator of this are recent rebuttals to Western economic ultimatums from African leaders, whose countries tangibly benefit from cooperation with China, in sharp contrast to a troubled history of Western imperialism and colonialism on the continent.
BRI Sets the Tempo for Global Growth
In recent years, under the guidance of the BRI, there have been many cooperative achievements between China and developing countries. The rise of the Global South has increased the confidence of developing countries, and many have relinquished adherence to the Western model of development.
The new globalization advocated by China is demonstrated by the BRI. It will create a community with a shared future for mankind built on earnest partnerships rather than "alliances," and will lead to a new multipolar world order. Some Western countries are attempting a technological blockade strategy to delay the arrival of this new international order, but in a game between market and technology, the market will always win.
Although Western countries seem to be gearing up for increased competition with China, they forget that technological innovation cannot be sustained without market support. Semiconductors, of which China is the largest consumer, are a prime example. Banning the sale of chips and export of semiconductor manufacturing equipment to China will only harm manufacturers, leading to overcapacity, depreciating prices, and falling share valuations. With the rapid rise of China's independent semiconductor industry, competition with Western companies will intensify, and the West may eventually lose the lead in the semiconductor sector.
Meanwhile, China also relies on the BRI to connect with new markets and build industrial production capacity. Chinese enterprises can find untapped resources in new markets and provide new financial resources for technological innovation, which cannot be interrupted.
The West seeks to use the Ukraine crisis to isolate Russia and China, but it has not properly calculated the consequences of Sino-Russian cooperation. China is the world's largest industrial manufacturer, while Russia is the world's largest resources holder. The impact the cooperation between these two major economies will have on the world economy has been ignored by Western strategists. During the Cold War, the United States made a win-win choice to ease relations with China, creating a competitive advantage with China and the United States against the Soviet Union. Eventually, the Soviet Union collapsed. The "new Cold War" initiated by the United States has aligned China and Russia, this time, against the US.
1. "What Does the G7 Do," Council on Foreign Relations, June 28, 2023, https://www.cfr.org/backgrounder/what-does-g7-do.
2. Weili Heng, "BRICS' GDP, Potential Currency a Challenge to US Dollar Dominance," China Daily, April 14, 2023, https://www.chinadaily.com.cn/a/202304/14/WS6438c78ba31057c47ebba230.html.
3. "Economies by GDP Size," World Economics, accessed January 24, 2024, https://www.worldeconomics.com/Rankings/Economies-By-Size.aspx.
Please note: The above contents only represent the views of the author, and do not necessarily represent the views or positions of Taihe Institute.
This article is from the January issue of TI Observer (TIO), which examines the dynamics of the BRICS expansion in a global context. If you are interested in knowing more about the January issue, please click here:
http://www.taiheinstitute.org/Content/2024/01-31/1604465221.html
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