The world must learn to live with an awakened China

Economist MARTIN WOLF published an opinion piece titled "The World Must Learn to Live with an Awakened China" in the Financial Times on November 12. This article has made some analysis on the impact of China's economic development on the world, and has certain insights. The translation is as follows for reference.

Not long ago, the world had not taken Napoleon's prediction seriously that "a rising China will shock the world", and now China has begun to amaze the world. The US is the first continental capitalist economy, the EU is gradually becoming the second, and China has the potential to surpass them. China is a huge and controversial economy that has taken its place on the world economic stage. China's influence on the world will inexorably continue to increase. How to deal with this great change in China, what is the most correct response and what to do is a challenge for other countries.

China's performance on trade has been surprising. From 1980 to 2002, China's share of the world's import and export trade volume increased from 1.1% and 1.2% to 4.2% and 5.2% respectively. From 1993 to 2002, the average annual growth rate of China's exports was 17.3%. If At this rate, China's exports will surpass the United States in 2010 to become the world's largest. According to the statistics from May 2002 to May 2003, China's export volume ranks fourth in the world, after the United States, Japan and Germany, and its import volume ranks sixth in the world, but it is believed that it will soon surpass Japan, the United Kingdom, and France. third in the world.

China's economic growth rate reminds people of Japan in the 1960s and 1970s, but China is different from Japan in at least the following two aspects: First, China's economy is more open than Japan's. 44% of GDP, while Japan's is only 18%; second, China's exports are more dependent on foreign direct investment. According to the 2000 United Nations "World Investment Report", about 50% of China's exports are realized by foreign-funded enterprises. China's position in the world economy will surpass that of Japan, not only because China has greater potential than Japan, but also because China can integrate into the world economy better than Japan.

Assessing China's impact on the world begins with a study of its comparative advantages and trade policies. The former is mainly due to China's endless supply of high-quality cheap labor, while the latter is increasingly liberalized. In 1992, the average statutory import tariff for industrial products in China was 46.5%. After joining the WTO, the tariff rate will be gradually reduced to 6.9%, and that of primary products will be reduced from 22.3% to 3.6%. The average level of non-tariff barriers in China has also dropped significantly, from 32.5% in 1996 to 21.6% in 2001. The above-mentioned trade liberalization measures have also strongly boosted China's exports, because import tariffs are also export tariffs in a sense.

Between 1971 and 2001, the price ratio between China's exports and imports fell by 30 percent. As China's exports increase and average prices fall, countries that compete with third countries face lower profit margins, lower market shares and hurt interests. But countries that import Chinese products while exporting to China have benefited. In general, countries that mainly export raw materials, high-end products or services have benefited more from China's development, while countries that mainly export labor-intensive products have less or even suffered losses.

In an analysis of the impact of China's rise on Latin America, Goldman Sachs sees Mexico as the loser, while primary product exporters such as Brazil, Argentina and Chile are the beneficiaries. In 2002, China replaced Mexico as the main exporter of manufactured goods to the United States. China has an absolute advantage in labor costs. Although China's wage level has increased to a certain extent in recent years, it was still only a quarter of Mexico's in 2002. The increase in labor productivity in Mexico has not offset China's advantage in this regard. In the competition with China, Mexico is losing not only markets but also foreign investment, which partly explains why Mexico's foreign direct investment was only US$14 billion in 2002, compared to 25 billion in 2001. Combining various factors, Goldman Sachs believes that China's negative impact on Mexico's balance of payments accounts for about 4% of its GDP, and this impact will further increase.

China's development is a boon for those primary product exporters. Currently, Brazil, Argentina and Chile in Latin America are enjoying their growing trade surpluses with China. Goldman Sachs estimates that the positive impact of trade with China on the GDP of Brazil and Argentina in 2003 will be as high as 0.75%. Other primary commodity exporters, such as Australia, New Zealand and oil exporters, are not only lucrative now, but also have a large, stable market for decades to come.

Other countries whose interests appear to be more vulnerable to direct Chinese competition have actually benefited a lot, largely because of the vertical integration of Chinese industries. In 1998, about 1/4 of China's exports were directly or indirectly related to imports. This processing trade has a lot to do with other countries, especially its neighbors. Another World Bank report pointed out that from 1985 to 2001, exports to China from other emerging East Asian countries rose from $5.9 billion per year to $83.5 billion per year. In 2001, about 15% of East Asian countries' exports to China were office machinery and electronic components, which will be re-exported to other countries after being processed and assembled in China.

In the face of China's overall rise, how should other countries respond? Calmness and peace are the best solutions. There are many reasons for this, one of which is economic. The countries that are most negatively affected are largely helpless against China's rise, and those that respond positively are generally the ones that benefit the most. Take Mexico as an example, unless Mexico can persuade its trading partners to adopt discriminatory trade protection measures against China, it has no way to remedy the negative impact of China's economic and trade development on it. But this is almost impossible, because countries importing Chinese products are vested interests, and adopting trade protectionism against China will lead to the loss of their own interests.