The Dark Side of China's Economic Rise
| DOI | http://doi.org/10.1111/1758-5899.12439 |
| Published date | 01 June 2017 |
| Date | 01 June 2017 |
The Dark Side of China’s Economic Rise
J€
org Wuttke
European Union Chamber of Commerce in China
Abstract
Since China acceded to the World Trade Organisation (WTO) in 2001, the country’s importance to and impact on the global
economy has expanded rapidly. This has been particularly notable since the global financial crisis in 2008. While this has cre-
ated new opportunities and benefits for Europe, it has also brought with it important new challenges. One such challenge is
the impact of industrial overcapacity in industries like steel that have resulted from the allocation of capital on non-commer-
cial terms. Going forward the China Manufacturing 2025 (CM2025) initiative that was announced in 2015 is another. The latter
represents an attempt by the Chinese authorities to maintain a position as ‘masters’of China’s economy instead of allowing
the market to drive innovation and industrial upgrading. Since CM2025 also allocates capital on non-commercial terms, includ-
ing through subsidies and government-backed investment funds, there is a risk that it will lead to overcapacity in advanced
industries of importance to China’s economy. This concern is further exacerbated by the fact that as Chinese investment
rapidly expands in Europe, the authorities continue to deny European business reciprocity in the Chinese market.
Policy Implications
•Strengthen the role of the market in allocating resources and driving innovation; reduce and ultimately end the allocation
of capital on non-commercial terms to industries favoured by government authorities.
•Move forward with the implementation of the market-driven reform agenda that was announced at the Third Plenum in
2013 with the Decision.
•Afford European business reciprocity in trade and investment relations, in part through a successfully completed and
ambitious EU-China Comprehensive Agreement on Investment (CAI).
•Play a leadership role in developing new international guidelines on investment which ensure that the legitimate interests
of all countries are given due consideration.
Beijing Consensus challenges the neo-liberal
global order
History might record that China’s re-emergence after its
World Trade Organisation (WTO) accession in 2001 marked
the highpoint of globalisation; it was also one of the biggest
economic events so far in the 21st century. While China has
benefited from the global trade system, the ineluctable rise
of this economic superpower has also brought great
changes to the global trade regime. Beijing shows scant
enthusiasm for multilateralism, as it generally sees the estab-
lished order as an instrument of Western hegemony. As
China now challenges Europe and America’s century-old sta-
tus as the world’s most dominant trading and rule-setting
nations, it seems keen to remould the global trade system
into one with Chinese characteristics.
At least up until now, China has managed to square the
circle. While maintaining a Leninist political system, it
unleashed Manchester-style capitalism to drive its economy
by about 10 per cent annual GDP growth for 30 years. As it
looks toward the next stage of economic development, the
country wants to hold on to its large 20 per cent share of
global manufacturing and to try to break out of the middle
of the ‘smile curve’that Stan Shih has outlined. In this
model, highly profitable product R&D, branding and design
at the beginning of the process as well as distribution, mar-
keting and sales/after service at the other end represent the
high points of the curve. In contrast, the far less profitable
stage of actual manufacturing and assembly, the segment
where China’s economy is still primarily focused, represents
the low point in between.
A stronger and more effective focus on innovation is
subsequently necessary due to the fact that China’s labour
force has also begun to shrink as its society ages. From
2014 to 2015, the working-age population between the
ages of 16 and 59 fell by 4.9 million, the fourth year in a
row that it dropped. While China still possesses an extre-
mely large labour force, and the trend may help to keep
the unemployment rate down, it places upward pressure
on wages, corroding the country’s advantage in terms of
low-cost labour vis-
a-vis some less developed countries
with cheaper labour.
At the same time, advanced economies, such as the Uni-
ted States, Germany and Japan, have all formulated policies
supporting further development of their own manufacturing
industries. Emerging economies like India and Brazil are also
catching up with their own advantages. The Chinese gov-
ernment therefore holds upgrading the country’s industrial
©2017 University of Durham and John Wiley & Sons, Ltd. Global Policy (2017) 8:Suppl.4 doi: 10.1111/1758-5899.12439
Global Policy Volume 8 . Supplement 4 . June 2017
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