China: the rise of a commercial titan
China is perhaps one of the most unprecedented economic development stories in recent history. Over the past 25 years, the country’s economy has grown rapidly, lifting more people out of poverty than anywhere else in the world.
But all of this would not have been possible without another exceptional story: China’s emergence from the periphery of world trade to become a titan of world trade.
Genesis of a commercial transformation
As China’s rise as an export power became evident at the turn of this century, the story began earlier. In the late 1970s, China embarked on a series of reforms to modernize its economy and open up to the world. At that time, its share in world trade was less than 1%.
In 1986, to improve and secure access to foreign markets for its growing exports, China applied to join the General Agreement on Tariffs and Trade (GATT).
However, the accession process was derailed and 15 years passed before China could officially join the multilateral trading system. During these years, its share in world trade has gradually increased, but China’s participation in the world economy has remained well below its potential.
At the turn of the century, two closely related events set China on the path to becoming the manufacturing powerhouse of today: the emergence of Global Value Chains (GVCs) and China’s accession to the World Organization. trade (WTO).
In the mid-1990s, advances in transport logistics and information and communication technologies allowed the fragmentation of production across the world. Soon after, GVCs scoured the world in search of reliable, low-cost partners to enable them to scale up their operations, but with mixed consequences for working conditions and carbon dioxide emissions.
At the same time, the newly created WTO – founded in 1995 – provided a more structured regulatory environment for international trade, an international dispute settlement mechanism, as well as lower cross-border transaction costs resulting from lower tariffs. and restrictions on the use of certain non-tariff barriers.
China’s accession to the WTO in 2001 enabled GVCs to reliably harness the country’s potential as a manufacturing power, allowing it to considerably expand its exports to the rest of the world. From then on, history was written quickly. In 2010, China was already the undisputed champion of exports to the world.
The meteoric rise both admired and questioned
The rise of this commercial titan has been both admired and questioned. Concerns over the use of state subsidies, quotas, export measures, intellectual property rights and the management of its exchange rate have been a bone of contention.
In fact, many of these concerns constitute the bulk of complaints filed with the WTO and are at the root of the continuing trade disagreements between the United States and China.
Nevertheless, Chinese exports have proven to be resilient not only to this constant flow of complaints, but also to trade tensions with the United States and the deterioration of relations with the European Union – in March 2021, the EU issued its first sanctions against China since 1989.
Indeed, the importance of China world production in most sectors, from precision instruments and industrial machines to computers and smartphones, has grown steadily over the past two decades.
The COVID-19 pandemic has further demonstrated the key role China plays in the global economy. In early 2020, as COVID-19 infections accelerated across the country, production processes across the world stalled or slowed due to disruptions faced by Chinese suppliers.
In addition, high levels of export resilience not only allowed China to recover quickly from the pandemic, but also allowed for further gains in various export sectors, even when those sectors experienced an overall decline. As a result, China’s share in world trade increased further in 2020, reaching nearly 15%.
In 2021, China’s trade recovery from the crisis has been impressive. In the first quarter of this year, its exports jumped nearly 50% year over year, to about $ 710 billion.
While such an increase is in part due to last year’s weak base, the first quarter result is still 27% higher (around $ 150 billion) than the first quarter of 2019, before COVID- 19 hit China and then the world economy. .
What’s next for China as a global export power?
Overall, China will likely remain the world’s largest exporter for the foreseeable future. However, its export dominance in the global economy may be approaching its peak. There are a number of reasons for this.
First, the Chinese economy is maturing to be more dependent on domestic demand than on foreign demand, the importance of exports in the Chinese economy is declining rapidly during the last years. For world trade, this implies that Chinese imports will likely grow faster than exports, thus eroding the share of Chinese exports in the world economy.
Second, rising labor costs in China are eroding its global competitiveness, especially in labor-intensive production processes. This will ultimately lead to the relocation of global production to low-cost countries. Highly competitive economies like Viet Nam are likely to reduce China’s trade.
In addition, advancements in labor-saving technologies, such as automation and robotics, as well as tax incentives such as business incentives and local employment tax credits , improve the financial attractiveness of the relocation of certain manufacturing processes closer to consumers in developed countries.
Finally, the headwinds hitting the globalized economy are strengthening. Current geopolitical tensions and changes in national policy, which increasingly take into account the social and environmental aspects of development, can reverse the process of hyperglobalization of these more than 20 years.
Further escalation of tensions and a lack of global action to address social and environmental concerns could lead to a process of de-globalization that will likely have stronger-than-average implications for major exporters such as China.