How China matters globally

By Pedro Jordão

After millennia in relative self-isolation from the rest of the world, China launched its current reforms 4 decades ago, gradually integrating the global community. Subsequently, a nation populated by over one fifth of mankind began extensively interacting with peoples, markets and ideas across the planet. Inevitably, the global impact of this process is immense, structurally changing the world and changing China itself. 

For a foreigner, namely a European, China’s scale is massive. Its population is double the combined population of the Euro Area and the United States. Shandong, one of its 23 provinces whose name few Westerners ever heard, has a population larger than any European country. Xinjiang’s area is bigger than the joint areas of Germany, France, United Kingdom and Italy. After 4 decades of high economic growth, the economy of the city of Shanghai now exceeds Switzerland’s. The Chinese economy (measured as GDP in purchasing power parity terms), was the 9th in the world 3 decades ago but now it already surpassed the US, becoming world number one in 2014 (still number 2 nominally). Since the “global financial crisis” (from the end of 2008 to the end of 2017), in cumulative terms the economy grew in the Euro Area only 6%, it expanded in the US by 15% and increased in China by an impressive 101%. In 2015 this country became the biggest oil importer in the world, overtaking the US. When one claims that its economy is dangerously slowing it should not be missed that, although decelerating, the Chinese economy grew, in 2017, at a comfortable rate of 6,8%, almost 3 times faster than in the Euro Area.  In a planet with around 200 countries, last year China alone represented 35% of the total growth in the world economy.

A man looks at an unmanned aerial vehicle at the fourth China Beijing International Fair for Trade in Services in Beijing, capital of China, May 30, 2016.[Photo：Xinhua]

Although suffering from growth pains, structural problems and a rising domestic debt, changes since widespread poverty a few decades ago are impressive. China is presently the world’s top producer in a vast range of high-tech products. It now produces more cars than Europe. In the past China needed foreign capital. Now the world also needs Chinese capital and consumers. Three decades of wealth creation in the country led to vast pools of liquidity and financial power, which this nation projects across the globe. China hit a record 35 billion dollars of investment in Europe in 2016.  Over the next 5 years China is expected to invest 1 trillion dollars abroad. Chinese hold 1.2 trillion Dollars of United States Treasury securities and 3 trillion dollars of foreign reserves, which is not a totally positive factor.

Growing Middle Class

In a country where just decades ago almost everybody was poor, a new middle class has been formed. This middle class represents still a minority of the population, but it already exceeds the total population of the United States or the Euro Area. China became the country with the largest middle class in the world.

This translates into a new, and exploding, massive consumption market with a strong appetite for everything from commodities to high-tech gadgets or luxury goods. In 2000 only 10 million Chinese travelled abroad, but around 135 million are expected to have done so in 2017, more than the number of American or German international tourists.

Green Efforts

Growing prosperity, development and an increasing base of affluent citizens, who consume ever more, create new complex problems. Pollution plagues the atmosphere of most cities. However, China is learning with its errors and in 2013 it became the world leader in clean energy investment.  China is the world’s largest emitter of greenhouse gases, but partly because its population is huge. If we calculate those emissions on a per capita basis, we realize that, in average terms, each Chinese emits less than a German, a Dutch or a Dane, half of a Norwegian and roughly a third of an American.

Innovation Drive

The West tends to retain an image of China as a mere manufacturer of low-quality, labor-intensive, low-tech products. That image was correct in the past but it now is outdated. The West would be unwise to not understand this evolution. China is now the world’s largest exporter of information technologies and climbs to the top world levels in other fundamental sectors of the 21st century, such as genomics, renewable energies, nanotechnology or biotechnology. Wages increase, labor-intensive industries lost central stage and high-tech is the new strategy. Chinese startups will disrupt business models and markets across the world in the coming years.

This country passed the point of simply copying technologies and now it creates them. Between 2005 and 2012 China doubled the number of its patents and in 2011 it registered the highest number of patents in the world, a global leading position that in the previous 100 years had been occupied only by the US, Japan and Germany.

Over 740 million Chinese are already internet users, more than double the population of the Euro Area. There are nearly 1.4 billion mobile phone subscriptions.

Urbanization & Modernization

Asymmetries between rural and urban areas and better prospects and wages in the cities led over 240 million rural citizens to migrate into them. Regional income disparities are deep. Guangdong province’s GDP per capita is much higher than in the adjacent provinces of Hunan, Guangxi and Jiangxi. Despite remaining backward pockets, China managed to take out of poverty 700 million citizens in a few decades, the biggest success of poverty eradication in the history of mankind.

China’s urbanization is reshaping the country, but also the world itself. In 1982 only 18.3% of Chinese lived in cities but since 2011 more than 50% do. At this moment, 1 in every 10 human beings in the world lives in a Chinese city. In this country, which was rural until years ago, the current urban population is equivalent to the combined urban population of the United States, Germany, France, Brazil, Russia, Canada and the UK. By 2025 China’s urban population may be over 1 billion.

Continuous meteoric economic growth over 3 decades improved prosperity, standards of living and financial power in China, both for the state and the citizens. Financial strength pays for the impressive modernization of the country. While economic weakness in Europe downgrades the financial ability to support strong military forces, Chinese military budgets grow steadily and the nation is gradually turning into a world-scale military power although still far from the level of American power.

For centuries China was a prominent center of culture, science, technology and administrative sophistication. In the 19th and 20th centuries it was repeatedly defeated and humiliated by foreign powers. Chinese generations lived under a traumatic shame and a weakened national identity. Now, the new realities in China represent not only huge material empowerment, but also what most Westerners don’t understand – pride, again. After past humiliations, the Chinese now feel that their nation regained a world status that induces influence and power. Nations try to maximize their global influence. The US does that. The European Union is obsessed about showing it. Within reasonable and constructive limits, it is understandable.

Risk Prevention

A growing Chinese middle class demands more political openness. Governmental fight against corruption is now strong. Reforms are taking place and more will be implemented. To a Westerner they seem slow. But the Chinese always feared chaos, disorder. Now the Chinese see their lives transform brightly beyond all dreams. Most of them are not interested in risking potential instability while testing new political models in a hurry, which might lead to a loss of the advancements that have made them richer, safer and prouder. They want reforms, but at a prudent pace. The Chinese look at the horrendous consequences of war, chaos, suffering, misery and terror arising from the Arab “reformist” revolutions. In fact, China is delivering predominantly good results to its citizens. According to a study, while 87% of Chinese citizens approve the evolution of their country, 65% of European families consider that the generation of their children will be poorer than themselves.

Conclusion

China must understand the world’s doubts and evolve peacefully without fear. But the world also needs to understand China’s sensibilities, with good sense. Humility from both would be a demonstration of intelligence and strategic wisdom. Defusing reciprocal mistrust may be fundamental to the future of us all. China has become a vital world partner to overcome the big global challenges of our common future.

(Pedro Jordão is an expert on international business and economics based in Portugal)