As Western nations question the benefits of globalization, China has become the world’s leading globalizer
NEW
YORK – China’s exports to the largest economies of the Global South
have nearly doubled from pre-Covid levels to a seasonally-adjusted US$70
billion in June 2022 from $38 billion in June 2019.
Several
factors have impelled the surge in Chinese exports, but the most
important impulse comes from China’s strategic investment in digital and
physical infrastructure, ranging from broadband networks in Indonesia
and Brazil to power plants in Turkey and railways in Southeast Asia.
As Western nations question the benefits of globalization, China has become the world’s leading globalizer.
What
I called “China’s plan to Sino-form the world” in a 2020 book has
advanced so far that it is beyond the capacity of the United States and
its allies to impede. Half a billion people in neighboring countries now
depend on Chinese technology for communications, data processing and
logistics, providing China with a nearly limitless source of young
workers for its industries and an ever-expanding export market.
For
China, economic outreach to the Global South is key to breaking through
American efforts to contain China’s drive for economic predominance.
China, wrote the influential “Observer” columnist Chen Feng on July 28,
“has to solve the problem of generating its own independent growth
momentum, after breaking through the critical point of the ‘Matthew
Effect,’” the economic maxim that rich countries get richer and poor
countries get poorer.
“America’s comprehensive and unlimited
anti-China campaign can slow down China’s development, at the cost of a
greater deceleration of the United States. But China is not only putting
in place a dual cycle,” that is, promoting domestic consumption as well
as exports,” Chen added. “China also divides the external [export]
cycle into two sub-cycles: Europe and the United States on one hand, and
the Belt and Road/Asia, Africa and Latin America on the other.”
China’s
multi-trillion dollar Belt and Road Initiative (BRI) has gestated with
limited apparent returns for nearly a decade. What we observe in the
trade data suggests that China’s investments are paying off in most of
the developing world.
Western policymakers have been looking in
the wrong direction. China’s trade with the Global South plus South
Korea and Taiwan is now as large as its combined exports to the United
States and Europe.
This is by far the most important event in the
world economy since the rise of China itself. The populations of the
developing world are dwindling at a faster rate in high-income Asia than
elsewhere. The scarcest resource in the world is young workers who have
enough education to enter the world economy.
When Deng Xiaoping
began his reforms in 1979, China’s per capita GDP was less than $200 and
just 3% of adults had tertiary education. China’s message to the
countries of the Global South is: You can grow like we did, if you let
us build your infrastructure, install your digital economy, construct
your factories, hire your workers and sell you our products.
In
Vietnam, Indonesia, Mexico, Turkey, Brazil and a dozen other developing
countries, political leaders have taken China’s offer.
The
Carnegie Endowment wrote in a July 11 report on China’s success in
Indonesia: “Many argue that China exports its developmental model and
imposes it on other countries. But Chinese players also extend their
influence by working through local actors and institutions while
adapting and assimilating local and traditional forms, norms, and
practices.”
In the case of Indonesia, the Carnegie report adds:
On
average, Indonesians distrust China and many Chinese firms. Yet [top
telecom infrastructure provider] Huawei and to a lesser extent [China’s
second-largest telecom equipment maker] ZTE have successfully positioned
themselves as trusted cybersecurity providers to the Indonesian
government and the Indonesian nation. This has been no easy feat given
long-held Indonesian animosity toward China. Many Chinese companies have
faced protests over concerns they were taking local jobs. Huawei and
ZTE have suffered no such fate. Nor has there been a broad coalition of
Indonesian voices against using Chinese technology in critical
telecommunications infrastructure. In short, Indonesians care a lot more
about Chinese cement plants than they do about Huawei involvement in 5G
networks.
Huawei, Carnegie reports, is training 10,000
Indonesian officials in cybersecurity. China in effect is delivering a
turnkey digital economy to Indonesia with everything included from
broadband base stations to training.
On July 25, Indonesian
president Joko Widodo visited Beijing, the first head of state to visit
the country since last February’s Winter Olympics. The Chinese website
Observer commented, “On July 22, high-level officials from China and
Indonesia held a video conference and agreed on advance plans for the
joint construction of the Belt and Road Initiative and the Global
Maritime Fulcrum, and make all-out efforts to ensure that the
Jakarta-Bandung high-speed rail is completed and opened to traffic as
scheduled and continuously deepen cooperation in the regional
comprehensive economic corridor.”
The 145-kilometer rail link is a prestige project, but it symbolizes China’s rising profile in Southeast Asia’s largest country.
China’s
burgeoning role in the Indonesian economy does not fit the profile of
what American critics call “debt trap diplomacy.” On the contrary,
higher raw materials prices allow Indonesia to pay cash for Chinese
imports. The country has run a current account surplus for the past two
years.
Chinese exports to Mexico now comprise 16% of the
country’s total, and have grown as fast as China’s exports to Southeast
Asia. Telecommunications is a big contributor. Mexico in 2020 had 77
broadband accounts per 100 people, versus just 23 in 2012, as I wrote in
February 2021 (“Sino-Forming South of the Border”). In between Huawei
built a mobile broadband network, and the cost of service dropped by
about three-quarters.
As a banker for a Hong Kong boutique, I
brought Huawei officials to Mexico and Mexico’s ambassador to Huawei
headquarters in Shenzhen. Huawei explained to the Mexicans that they had
a big economy but woefully inadequate broadband. Let us build you a
broadband network and the eco-system of e-commerce, e-finance and
digital technologies that go with it, and you can become rich like
China, the Huawei officials said. In fact, Huawei had a published plan
for the digital transformation of every country in the world. Many of
them are in an advanced stage of implementation.
China’s
investments in Mexico have risen rapidly in the past two years. $5.8
billion of China’s total $20 billion commitment to the country was
disbursed in the past two years, in part because Chinese companies are
moving facilities out of the United States to its southern neighbor.
China’s
investments in Brazil – now the world’s largest producer of soybeans –
are considerably larger. “As of 2020, Brazil has received more than half
of all Chinese investment in Latin America—around USD 66 billion with
three-fourths of that investment dedicated to the energy sector and the
rest going to agriculture, infrastructure and other areas,” report Luiz
Augusto de Castro Neves and Tulio Cariello in a 2022 book.
Turkey’s
imports from China have tripled since 2018. China also is the country’s
largest export market. The first train to Istanbul from the Chinese
city of Xi’an arrived in 2019 on a line built under the BRI. China’s
largest transport company, COSCO Shipping, bought a billion-dollar
controlling stake in Turkey’s third-largest container port. China
financed Istanbul’s new airport with a $6.2 billion loan.
Turkey’s
swap line with China allows it to pay for imports in yuan rather than
dollars. As the Turkish lira crashed last year and Turkey’s dollar
reserves fell, the local-currency swap line became a critical source of
trade financing.
China’s trade with the Global South could shift
into national currency in short order. By 2019 China had established
$500 billion in local currency swap lines with other countries. Swap
lines among Asian central banks are estimated at $470 billion, according
to the International Monetary fund.
Financial technology is now
available to conduct retail transactions directly between Asian
countries. In 2021, Singapore and Thailand linked their real-time
payment systems, PayNow and Promptpay, enabling “customers of
participating banks in Singapore and Thailand [to] transfer funds of up
to S$1,000 or 25,000 baht daily across the two countries, using just a
mobile number,” according to the Monetary Authority of Singapore and the
Bank of Thailand.
The Sino-forming of the world has far-reaching
strategic implications. China’s influence in Southeast Asia is growing
almost as fast as its trade profile. Indonesia, a country with a long
history of hostility toward China, has embraced China’s vision of
economic development driven by digital infrastructure and managed by
Chinese providers.
The Philippines elected Ferdinand “Bong Bong”
Marcos by an unprecedented two-thirds majority, partly on a platform of
greater economic cooperation with China. Turkey, the close ethnic
relation of China’s Uighur minority, is now an economic dependency of
China, which has sustained its imports despite the collapse of the
Turkish lira and rampant inflation.
One can only speculate what
the future might bring. Diplomatic relations between India and China
remain hostile, and Chinese investment in India has ground to a halt,
but India’s consumption of Chinese goods has doubled in two years. Trade
with China’s longtime ally Pakistan, meanwhile, has stagnated.
Diplomatically,
China remains at odds with Israel, maintaining its traditional sympathy
toward the Palestinian Arabs and its close relationship with Iran,
Israel’s most dangerous adversary. But China’s exports to Iran have
collapsed during the past five years while exports to Israel have
surged.
Diplomacy doesn’t necessarily follow trade, but the facts
on the ground are changing. The world may look very different in a very
few years.
Follow David P. Goldman on Twitter at @davidpgoldman