Globalization and the China effect

The term ‘globalization’ is widely used to describe processes of global integration, particularly but not exclusively in the economic sphere. But behind this slightly abstract word are the forces unleashed by an evolving interaction between government policies in specific nations, at times in isolation and also in cooperation with each other, and economics. When referring to globalization, many commentators only pay attention to apparently inexorable economic forces, and act as cheerleaders for politicians and their policies which should, it is claimed, move in only one direction. But many of the processes and outcomes of globalization in recent decades can be put down to developments in what is now the second largest economy in the world: China. I shall call this the China effect.

For what has grown to become a large economy, China is remarkably open to international trade. Much of this is in manufacturing and much of that involves imports of components due to be assembled into finished goods which are then exported across the world. The Chinese government, as part of its industrial policy, has actively promoted special trading zones containing manufacturing firms producing for export. This has stimulated the expansion of trade across the East Asian region, as different countries specialize in different stages of the production process. A steady growth in global trading volumes can be attributed to this.

Also important has been China’s huge demand for commodities imports, driven by its huge investment in infrastructure and manufacturing industry, which as already mentioned have been part of the government’s industrial policy. Until recently, this boosted the prices of traded commodities on international markets and the exports of economies with abundant natural resources. From the Middle East and Latin America to Australia and Africa, commodities exporters have benefited hugely from China’s insatiable growth in demand. As growth slows in China, those economies who have failed to diversify their industrial base away from commodities are suffering. The commodities boom over a number of years has stimulated global trade and the economies of many countries, but that boom has undoubtedly come to an end as the Chinese economy goes through a difficult period of structural change. The pattern of growth will inevitably become less resource-intensive as investment rates fall and the proportion of service sector output rises.

The long boom in China, lasting for much of the past 30 years, has therefore created a number of the economic developments that have given rise to the term globalization. The interaction between government policy and the economic forces set in motion there are key to this process. With the current slowdown such processes are no longer continuing at their former rapid pace and new problems for many governments, including China’s, of how to continue to promote rapid development have thereby emerged.

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