Globalization enabled by China
Daryl Guppy


Editor's note: Daryl Guppy is an international financial technical analysis expert. He has provided a weekly Shanghai Index analysis for media for the Chinese mainland for more than a decade. Guppy appears regularly on CNBC Asia and is known as "The Chart Man." He is a national board member of the Australia China Business Council. The article reflects the author's opinions and not necessarily those of CGTN.

The idea that "globalization has ended" is growing in popularity with some economic analysts. Parallel to this is the idea that "China is no longer a player in globalization" as near-shoring replaces off-shoring of supply chains.

Certainly, the United States with its increasing protectionism seems to be removing itself from globalization. Their policies accelerate the deconstruction of globalization, replacing it with protectionist sovereign economics. This is ultimately a self-defeating approach because it deprives the economy of the benefits of globalization that provide a variety of product and service choices at competitive prices.

The full return of China to a global market will counter the inflationary pressures currently bedeviling many Western economies. In many ways, China's greatest export prior to COVID-19 was economic deflation. Most obviously, Western economies depended on Walmart-style stores to keep inflation down. This deflationary impact was felt in every product and service from computers to household goods and the equipment that underpinned economic growth.

The forecast end of globalization is at best an example of Western market hubris. In reality, globalization has been with us in one form or another for hundreds of years. The original Silk Road was one of the first aspects of globalization, bringing silks and tea to Europe. It was followed by the European age of exploration which put spices from the East Indies on the tables of Europe and introduced chilies from South America to China, and in particular to Sichuan Province.

Writing in 1817, the British economist David Ricardo formalized the philosophical foundations of globalization. At the turn of the 19th century, the London Times carried an article boasting of the benefits of globalization, with meat from Australia, fruit from South America, sugar from Africa and tobacco from the United States.

No one pretended that globalization was anywhere near ending and despite repeated attempts at protectionism, globalization continued to develop and entrench itself in the economies of the world. It will take more than COVID-19 and Biden's CHIPS act to halt globalization.

Although self-evident, this has not prevented some from suggesting that China's future economic growth has somehow been permanently damaged as a result of COVID-19 restrictions. It's a fallacy that suits a hegemonic narrative, but it ignores economic reality.

A train arrives at Nairobi station of the China-built Mombasa-Nairobi Standard Gauge Railway in Nairobi, Kenya, November 17, 2021. /Xinhua
A train arrives at Nairobi station of the China-built Mombasa-Nairobi Standard Gauge Railway in Nairobi, Kenya, November 17, 2021. /Xinhua

A train arrives at Nairobi station of the China-built Mombasa-Nairobi Standard Gauge Railway in Nairobi, Kenya, November 17, 2021. /Xinhua

Global fund managers are quick to recognize this fallacy and are gearing up for greater involvement in the Chinese economy and capital markets. While some of the world's largest economies face recession this year, China's countercyclical rebound has brought forward investment opportunities, particularly in the resources sector.

This is not a repeat of the 2008 China-led global recovery as it will offer a wider range of development opportunities beyond physical infrastructure in areas including the green economy, artificial intelligence applications and 6G. Smart business is already preparing for the resumption of China-led global growth and the continuation of globalization as a force for economic development. 

The COVID-19 hibernation has led to an adjustment in the way globalization proceeds. The two most important features are, first, the Global Development Initiative (GDI) and the renewed focus on the Global South with a non-exploitative economic relationship. China has shown a commitment to multilateral solutions by working with the United Nations and this will define the nature of post-COVID-19 globalization.

The second important feature is the growth of the digital economy and parallel to this, the growth of a non-dollar denominated digital currency that enables cross-border trade.

Globally COVID-19 prevention and control accelerated the digital economy but it was from a low starting base in many Western countries.  In the U.S., the almost obsolete chip-and-PIN (personal identification number) card system is not yet used by all stores but China had already moved beyond this with WePay and other systems. Under the influence of COVID-19, technology development enabled much more sophisticated advances in the digital economy, including an expansion of China's digital currency. Just as importantly these advances enabled banking-style services to be extended to sectors of the population that were previously "unbanked."

The advances in the digital economy not only impact at a macro level on the development of international trade, but they also form the foundation enabler of the GDI. The creation of alternatives to the SWIFT international money transfer system enhances international trade efficiency and reduces vulnerability.

Globalization is a more powerful force than protectionism, ideologically driven sanctions and tariff barriers. The locus of economic development is changing and the forces of globalization will shift accordingly. China is the first major economy to recognize that change and it will drive the new iteration of globalization.

Globalization is more than just logistics chains. Globalization is driven by the competitive advantage unique to each country. Usually, these change slowly over time but the COVID-19 disruption created the conditions for a seismic shift. Globalization post COVID-19 will be different from globalization pre-COVID-19 but it will not disappear.

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