The China Factor in Globalisation

Pulling Agent: Demands from China Boosting Global Growth

In 2010, China and Japan each accounted for about 9% of the global economy. At the same time, the 27 countries under the European Union accounted for over one quarter, and the US alone accounted for another quarter. This is the production pattern in the global economy. In the world today, the overall contribution of the US, European Union and Japan to the global economy is apparent, and China's growing contribution is irreplaceable. Hence the traditional “three pillars” have become less powerful as a positive pull in the global economy（See Figure 1.6）.

China has become an important force contributing to the steady growth of the global economy. In the modern world, there has not been any large economy that can maintain an annual growth rate of 7% for 40 years, except China. From 2003 to 2006, China maintained a doubledigit growth each year, with an average annual growth rate of 10.4%, more than double that of the world average of 4.9%.

Statistics from the World Bank indicates that in 2003, China's contribution to the newly increased global GDP growth was 4.6%. This figure increased to 14.5% in 2009, making China the top contributor to global GDP growth newly increased. From 2001 to 2010, China's GDP grew by US$4,600 billion, accounting for 14.7% of the global economic newly increased value over the same period.

Meanwhile, China's contribution to the absolute value of the GDP has also been on the constant increase. It has risen from 1.7% in 1980 to 4.4% in 2002,5.5% in 2006, and 9.3% in 2010（See Table 1.3）. According to Goldman Sachs'research data, China's accumulated contribution to the global economy from 2000 to 2009 has exceeded 20%, overtaking the US.

WTO data shows that from 2000 to 2009, China's import and export trade volumes increased at an annual rate of 17% and 15% respectively, far higher than the global trade volume of 3% over the same period. During the period of the 11th Five-year Plan（2006 to 2010）, China's import-export trade total volume increased at an average annual rate of 15.9%, higher than the growth in global trade over the same period.

In 2009, when the impact of the international financial crisis was at its worst, and against the background of a 12.9% decline in global trade, China's import volume still exceeded US$1,000 billion, becoming the world's second largest importing country, and the only country among the major economies to register growth. Hence China has made significant contribution to the global economic recovery.

Today, about 35% of the GDP of the various economies in the world are directly participating in exchanges at different levels in the global economy, and essential elements in manufacturing are extensively circulating around the world. To optimise the allocation of resources like capital, information, technology and manpower in the global context, it is essential that there is deepening dependency among various economies. In terms of dependence on foreign trade, it is about 30% for the US, Japan, India and Brazil, less than 50% for France, UK, Italy and Russia, and over 50% for China, Canada and Germany. China's own economic vitality will be transmitted to other economies in the world through a variety of channels and in a diversity of methods.

Having entered into WTO for more than a decade, Chinese commodities are moving out to the world, and commodities from other countries are starting to enter China through the increasingly mature trade channels. While the world's attention is focused mostly on China's exports, a lot of people are not aware that China is also a large importing country.

In 2000, China was the world's 7th largest exporting country and and 8th largest importing country. Now, China has grown into the world's largest exporting country and second largest importing country. Indeed, China's import has in the past decade been increasing at an annual average rate of 20%.

Among China's top 10 trade partners in 2010, apart from Taiwan of China and Brazil, China's import growth rates from these trade partners were all higher than the export growth rates. The demands for China's 1.34 billion people are profound, diversified, and sustained. At present, China has become the top export market for Japan, Australia, Brazil and South Africa, the second top export market for the European Union, and the third top export market for the US.

As the fastest growing economy globally, China has become the world's largest absorber of resources. At present, China is importing over 56% of its crude oil, natural gas and iron ore consumed. Meanwhile, the import of natural resources needed to maintain its fast growth is accounting for over 35% of its consumption. This remains an important source of export income for economies that thrive on their own natural resources.

Take the iron and steel industry as an example. China's economy has experienced a process of rapid growth, and the huge amount of infrastructure and real estates developments have provided China's iron and steel industry with valuable development opportunities. Accompanying the development of the iron and steel industry, the trading of iron ore has entered its phase of rapid growth. 10 years ago, China imported only 92.3 million tons of iron ore. The volume increased to 100 million tons in 2002,200 million tons in 2004, and 400 million tons in 2008. In 2011, the import volume reached 600 million tons. As the world's largest iron and steel manufacturing country, China also became the world's largest importer of iron ore.

The increase in China's import volume has pulled up the price of -i ron ore. Not only had its price risen to US$200 per ton, iron ore had once become a “rare and valuable” commodity. Now when Chinese businessmen go to countries like Australia and Canada for business negotiations, the people there are very friendly, because they are able to feel that China's demand is crucial to the development of their own national economy. This was particularly true in 2008, when prices of iron ore plunged drastically under the impact of the world economic crisis. And due to the launch of China's policies to stimulate economic growth, China's iron and steel industry became the first industry to recover. This in turn boosted the economic recovery of ore producing countries like Australia, Canada and Brazil.

China's demand was to a large extent influenced the supply-demand relationship and commodity pricing in the international market. Such was the case with iron ore, and such was the case with many other com modities. This kind of demand originates from the rapid development of the China economy, and it also stimulates the economic growth of commodity exporting countries. For many imported raw materials, after being processed in China, they become commodities for export to other markets around the world. Indeed, the Chinese economy and the global economy are mutually dependent and mutually beneficial in the flow and circulation of commodities.

Accompanying the increase in income for Chinese citizens, the import of consumer products into China is clearly on the rise. In Chinese towns, cars, electronic products and travel and leisure packages have become an important pulling factor for economic growth. Private planes and private boats have become consumer goods in China too. In less than 20 years, luxury goods have been imported into China in large volumes—their high prices have not scared away people who have no idea what the brands mean, but they have lured these people into a buying spree. According to a report released by the World Association for Luxury Goods Consumption in January 2012, at the end of December 2011, China's market for luxury goods has grown to an annual size of US$12.6 billion（not including private planes, leisure boats and luxury cars）, accounting for 28% of the global volume. China has become the world's largest consuming nation for luxury goods.

At the same time, more and more Chinese are travelling and spending overseas. Up to the end of 2011, China has approved 140 countries or regions as tourism destinations for their citizens, with 111 of them actually being implemented. During the period of 11th Five-year Plan, the markets of domestic tourism, inbound travel and outbound travel all prospered, making China the world's third largest host country for inbound travellers and source of outbound travellers. Indeed, the tourism industry has entered a new phase of popular style and industrialisation.

Prior to the London 2012 Olympics, the British Government launched excessive publicity and exaggerated the boosting power of the Olympics on Britain's tourism industry. This signal made some businesses increase their prices or increase their supply, resulting in a tragic over-supply. However, the Chinese tourists and consumers be came the highlight of Britain's Olympics tourism market. In the first week, the average expenditure of Chinese tourists topped the list of consumers all over the world. The average spending for each Chinese traveller was as high as 203 pounds, nearly 10% higher than the second, the United Arab Emirates. Indeed, the spending of Chinese tourists was in line with the number of medals that the Chinese athletes amassed. The Mayor of London, Boris Johnson, should indeed present a “champion spender” medal to the Chinese tourists.

Although the spending power of the post-1980 and post-1990 born migrant labors in China cannot be compared with the big spenders in cities and towns, yet they will become the main powerhouse in China's social and economic development. At present, the new generation of migrant workers number approximately 100 million, about 60% of China's migrant working population. In contrast with the older generation of migrant workers, the new generation live a more urban life, with newer concepts of consumption. This has boosted the growing demand for online electronic consumer goods. With their progressively growing income, they are a group of consumers not to be neglected—whether they eventually choose to merge with the wave of urbanisation, or to purchase property back in their home town.

In the western and vast inner land parts of China are vast areas of poor and underdeveloped regions. The Western “Triangular region” formed by linking together the cities of Chongqing, Chengdu and Xi'an will become China's fourth economic zone, after the Yangtze River Delta, Pearl River Delta and the Beijing-Tianjin-Hebei Triangular region. The development and transformation of these areas will take considerable time for construction and investment, and require great potential room for sustainable development. For a long time, China's export for foreign trade had taken the form of “strong in the east and weak in the west”, and the 11 provinces in the east once accounted for over 90% of the total exports. Against the background of the eastern provinces slackening their export activities, a lot of regions in the west are actively developing their export economies. Coupled with the trend of processing trades moving towards the west, the western part of China can provide new dynamics to China's foreign imports and exports.

In July 2012, a lot of western provinces in China boasted eye-opening interim reports. The western areas'economic growth rate of over 10% may become a new engine of power for China to drive the global economic growth forward. In the first half of 2012, the income growth for urban and rural residents in the western provinces were in general higher or close to their GDP growth rate, and this is one of the attractions in the economic operations of western China.

A lot of multinational corporations do not take heed of the views of the pessimists, and are charging ahead in their investments in China's western provinces and cities—they believe in the huge market development potentials of western China.

Manufacturing Agent: Chinese Exports Provide Convenience to Global Markets

The rule of WTO is to encourage market competition. From “purchasing Chinese products” to “buying and selling global commodities”, a lot of overseas businessmen have noticed the positive effects of China's accession to WTO, and hope to achieve all-win situations through “buying and selling global commodities”. In the last decade or so, consumers all over the world have gradually come to realise that “Made in China” does not mean lowering prices to boost sales, but to produce on demand, and value for money.

In that year, Mr Mu Qizhong of the Nande Group successfully completed the largest single barter trade in the history of Chinese-Russian trade—using 800 truckloads of daily necessities and light products from over 300 factories to exchange for 4 Ty-154M aeroplanes. This legendary transaction is still being talked about today. A lot of countries like to buy small commodities made in China. For instance, light industries have always been a weak spot in Russia, and Chinese commodities are therefore in a very good position to support this “shorter leg”. Indeed, globalised economy puts this division of labour into practice.

If you take a casual stroll in one of the shopping centres or supermarkets in the US, you will notice that almost all the clothing, whether or not of international brand, is made in China. In the last decade, China-made products have been on the increase—like inflating a balloon. “Made in China” is like a shadow that appears in the daily life of any ordinary American—from the clothing one puts on in the morning, the briefcase for work or going on trip, the office equipment, the electronic products for leisure use, the cooking utensils for dinner, the toys for the kids, the shoes for taking a walk, to the desk lamp and the alarm clock—are all “Made in China”.

This is especially true as Christmas approaches—no matter it is the skating shoes that the kids want, or the Christmas tree for the family, and even the great variety of gift packs—are almost without exception “Made in China”. Most Americans are very practical—they take no heed of the place of manufacturing—all they care about is whether the goods meet their needs in life, and whether they are value for money and are aligned with their income level.

Facts prove that choosing “Made in China” products can save a lot of money for the Americans. As we mentioned earlier, data from the US Chinese Embassy show that in the past decade China-made products have saved as much as US$600 billion. The research stated that “Made in China” has given each US family US$1,000 a year as disposable income.

At present, the US manufacturing industry is facing the “hollowing out phenomenon”. Apart from some high-tech products, most of the commodities are being contracted out overseas for production, in order to save costs. As “Made in USA” products get fewer and fewer, some Americans are starting to get worried. CNBC once did a TV documentary—an elderly American lady tried her very best to support US products. She did not mind the cost—as long as a product is “Made in USA”, she would buy it. The result was that to complete one round of daily purchase she would have to visit many places by car to buy all the things she needed. In general, most of the Americans are more than happy to choose the economical “Made in China” goods. After all, not everyone can afford to buy US-made products that are two to three times more expensive. One Harvard professor once said that “Made in China” has promoted the growth of the US economy, and made a positive impact on keeping inflation under control.

“Made in China” has brought good news to consumers—not only in developed countries, but consumers in ASEAN countries have noticed the benefits as they trade with China. For instance, residents in Kuala Lumpur, Malaysia can now buy even cheaper TV sets. In Hanoi, Vietnam, if you visit the shops, supermarkets and large commercial centres, you will find that a lot of quality Chinese products, from knitting kit to domestic electric appliances, are on the shelves. This has provided to the Vietnamese people more economical and more diversified products. In Thailand, the industries of agriculture, fishery, timber, rubber and electronics have all benefited from the establishment and implementation of CAFTA. As a result, the prices of many products have fallen. In Indonesia, the people at first feared the influx of large volumes of Chinese goods. They even demanded that the Government defer the implementation of the Free Trade Zone. Now they have changed their stand and started to support the establishment of the Free Trade Zone.

Admittedly copycat mobile phones comprise a grey area, yet for some countries in Africa and the South Asia, if there are no low price copycat mobile phones, their people would have to defer their purchase of mobile phones for a considerable time. In fact, the copycat mobile phones are not just an imitation of famous brands of mobile phones. They also demonstrate their special creativity in terms of technological design, look and feel, as well as their functions. Just after Barack Obama was elected US President, there appeared in Kenya a mobile phone advertisement with a fake Obama image as the spokesperson. According to data from the Indian Mobile Phone Association, since 2007, the brandless mobile phones have seen exponential growth in numbers. There were less than 5.5 million such mobile phones in 2007—2008; in 2009—2010 the number shot up to 20 million, and in 2011 the number reached 38 million.

Consumer: Chinese Market Attracts Multinational Corporations

For foreign enterprises operating in China, they have remitted a total of US$261.7 billion from 2001 to 2010, with an average annual growth of 30%. On this wonderful piece of land that is China, multina tional corporations from all industries and from all countries have shown great vitality and energy.

People regard food as their prime wan. t The Chinese people, no matter rich or poor, all enjoy the pleasure of taste. Coca-Cola's popularity in China is no difference from any other place in the world. At a new product mark announcement hosted by Starbucks in March 2011, their Managing Director for China—Wang Jinlong—said that the success of Starbucks was closely tied with their development in China since 1999, and the company's development in China in the next four decades would depend on China. For KFC, their 3,000 shops are all successful and profitable. On top of this, KFC China is even painting the smile of Colonel Sandoz on the landscape of some four-tier cities. This is in sharp contrast to their decline（and some of the chain restaurants have even closed down）in the US, where they came from. As the market with the fastest growth rate in terms of new restaurant openings, China has become the third largest market globally for McDonald's. The company forecast that in 2012, their investment in China would be 50% more than that of the previous year. About 250 new restaurants will be opened during the year. Meanwhile, car-restaurant “Drive-Through” will be one of the focuses of development in the project.

In the realm of garment, the spending power of the middle income group in China is rapidly on the rise. According to the Bloomberg Billionaire Index, with the stock price of ZARA's mother company Inditex SA setting a record high at market close on 8 August 2012, the company's 76-year-old founder—Amancia Ortega from Spain found his fortune gaining an extra US$1.6 billion, to reach US$46.6 billion, overtaking Warren Buffett, Managing Director of Berkshire Hathaway Inc. with a net fortune of US$45.7 billion. Ortega then became the world's third richest person. Since five months after the release of the Bloomberg Billionaire Index, Buffett had all along maintained his third position. However, two months ago Ortega beat the founder of IKEA—Ingvar Kamprad, with his fortune of US$37 billion, now the richest man in Europe.

While the domestic market in Spain has been unstable since the debt crisis, and the Government has been resisting the pressure to apply for assistance from the central bank of Europe, yet Ortega's personal wealth in 2012 shot up US$11.4 billion, an increase of up to 32%. So what is the trick used by the “fast-accomplished leader of the fashion kingdom” to acquire wealth? His path to fortune was to open new shops in newly industrialized markets like China. The huge consumer market of China's middle class has offered to ZARA an irreplaceable space for development. This was crucial to the 40-year-old company Inditex SA reaping a profit for 12 consecutive seasons.

In the realm of cars and electronics, the size of China's huge consumer market has made old companies very happy. In 2011, China made a trade deficit of US$11.7 billion—US$1.9 billion higher than 2010. This trade deficit was achieved through the import of car load. In the entire year of 2011, China imported a total of 1.03 million entire cars, a growth of 28% over the same period in the previous year. Driven by strong demand, General Motors Company sold more cars in China than in the US. As for BMW and Rolls-Royce, China has also become their largest market in the world for their luxury cars. Benz forecast that in 2015, China would overtake Germany and the US as their largest market in the world. Whenever Apple Corporation launches a new product, their outlets in China will need a team of security guards comparable in size to the police stationed at Madison Square when U2 gave their concert there. Judging from the volume of downloads of the application procedures of Apple iPhone and iPad, China has in 2011 become the second largest market globally for App Store, after the US.

The same scenario applies to the financial industry. Following China's accession to WTO a decade ago, China has constantly opened up its financial arena to allow more foreign capital companies to enter the China market. While foreign companies bring to the China market advanced management concepts and enriched financial services, they also benefit a lot from the rapid development of the Chinese economy.

Take the insurance industry as an example. In late 2004, the Chinese insurance industry ended its transitionary period and took the lead in implementing the total opening-up of the financial industry. Over the decade, the over 40 overseas insurance companies listed among the Fortune 500 have entered into China's insurance market. As one of the 10 top insurance enterprises in the US, AIA Company that was originally set up in Shanghai, China, re-entered China in the early 1990s, and found new space for growth in the Chinese market. They were listed in Hong Kong in October 2010, becoming the greatest IPO in the history of Hong Kong.

Output Agent: Chinese Factor Supports Technology Innovation

All the significant milestones in the history of mankind are invariably linked with reforms in productivity. To develop the global economy, we can rely on consumption in the short term; but in the long term we must rely on innovation. China's export commodities are cheap and of good quality, and help to lower the cost of living for the consumers, as well as reduce the purchasing and production costs for the manufacturers all over the world. In the meantime, through greater competition they stimulate the technological advancement of the importing countries and indirectly promote innovation in the production process.

The outflow of high calibre talents from China indirectly raises the competitiveness of other countries'technology and industry. Developed countries like to move their processing work to China that has an abundance of manpower, so that they will be able to invest more manpower, materials and financials to develop new industries and continue to lead the world's economic trends. Today, when various districts in the world carry out research and development, they will notice a great difference and a lot of distinctions.

The US has made huge investments to conduct research into newly developed strategic industries. The focus of their innovation is on new sources of energy, and the ongoing research directions include corn alcohol, clean electricity generation, highly effective long distance power transmission, intelligent power grid, solar panels, and high efficiency fuel batteries. In February 2012, US Secretary for Energy Steven Chu announced that in the next five years, the US Government would invest US$120 million to set up a new energy innovation hub, to conduct research on advanced battery technology and energy storing technology. In the financial year of 2012, the Government will allocate US$20 million mainly to expedite research into electro-chemical energy storage.

Europe's high-tech innovation puts relatively more focus on life sciences, and overall speaking, it lags behind the US. We will always remember that in 1997 the world's first cloned sheep Dolly, born in the Roslin Institute in Edinburgh, was a milestone breakthrough that shocked the world. The world's first batch of asexually reproduced genetically engineered sheep were also born in the UK. With the commissioning of the Life Sciences Laboratory Building in Stockholm, Sweden in May 2010, DNA sequencing work on European Picea started, with an aim to detect the genetic configuration of this kind of “Christmas tree” by 2013. European Picea is an evergreen coniferous plant often used as Christmas trees. As their wood is soft and the strands are straight, they are also used for building, as well as making furniture, musical instruments and boats. Sweden is using this laboratory to build the largest genetic centre in Europe, taking an unprecedented move in integrating genomics with proteomics.

Sony's Walkman has been hailed as Japan's greatest contribution to the 20th century. It once took the world by storm, taking the lead in enhancing the lifestyle of the younger generation. Although Japan's technological innovation has been criticised as “bringing the 21 st century back to the 20th century”, yet their robotic technology is still leading the world. In May 2010, a “companion robot” that can play the violin made its appearance in the Shanghai World Expo. In September of the same year, Chiba Industrial University developed “Core”, a robot that can bend its knees and walk around, carrying loads of up to 96 kg. In October of the same year, the National Institute of Advanced Industrial Science and Technology and Osaka University jointly developed a robot that can simulate different facial expressions. Using a young lady as the prototype, the robot is connected to the computer camera, and after identifying the expressions of the operator, it can instruct the robot to put on the same expression.

While there is no single truth, truth is everywhere to be found. The focus of innovation for the emerging markets in the Asia Pacific is the electronic information industry. Although their high technologies are not yet at the cutting edge in the world, yet they are able to ride on the products'life cycles and gain cost advantage through large scale standardised production, or through the use of a powerful sales network as core competency to sell the products of other economies to the world. Indeed, their special core competitiveness has led the strong growth of their economy. In the US, Apple mobile phones are leading the fashion trend in electronic products. Meanwhile, Korea's Samsung and Taiwan's HTC have also created their own territory in the intelligent mobile phone market.

Contributor: The Rise of China Motivates Its Developing Partners

To the developing countries in Asia, Africa and Latin America, China is a “friendly giant”. In East Asia, China is integrating into their production network, not to displace other developing economies from their opportunities for international division of work, but to promote the expansion of multinational corporations in East Asia to enhance the economic vibrancy in the region. Through the import of spare parts, China achieves supply chain cooperation, risk sharing, labour-intensive production and industry transfer, thus benefitting the East Asian economies. This works against the rules of the zero-sum game theory.

Take ASEAN as an example. In October 2004, at the “Chinese Business Leaders Forum” organised by Chinese Enterprises（Singapore） Association, former ASEAN secretary general Mr Wang Jingrong pointed out, “To ASEAN, the rise of China is not a threat, but a valuable opportunity for economic development. . . The ASEAN-China Free Trade Zone is an ingenious way to enable each party to realise its own goals. ”

China's need for raw materials, agricultural products, intermediate products and capital products provide ASEAN export enterprises with valuable business opportunities. In 2009, under the impact of the international financial crisis, Malaysia's exports to the US, European Union and Japan dropped 27%,19% and 23% respectively. On the other hand, its exports to China grew 6%. In the same year, Thailand's exports to the US, European Union and Japan dropped 18%,23% and 22% respectively, yet its exports to China dropped only 1%. In 2010, with the operation of CAFTA and benefitting from the implementation of “zero tariff”, Thailand's exports to China increased about 30% over the previous year, and China can look forward to becoming Thailand's biggest export market. In the wholesale markets Sampheng Lane in Bangkok, Thailand, the purchase costs for the commodities have lowered thanks to the lower tariffs, and the income for the shop owners actually increased substantially.

Through global competition on commodities and essential factors, China is encouraging trade partner countries that are also in the developing world to implement related policies that stimulate the accumulation of human capital, so as to actively carry out production innovations and various internal reforms. Brazil, the largest country in Latin America, and the world's 6th largest economy, are leading Latin America in terms of technology and innovation. In the production of ethanol petrol, and in the utilisation of renewable energy, Brazil is among the top countries in the world. Multinational corporations have found that some of the products and technologies developed by Brazilians（such as cars, planes, software packages, optical fibre and electrical appliances）are rather competitive.

On 30 June 2011, INSEAD and the United Nations Intellectual Property Organisation jointly announced in Paris the 2011 Global Innovation Index rankings. Brazil's efforts in innovation has reaped significant results—their innovation index ranking rose from No.60 in 2010 to No.47 in 2011, even ahead of Russia, India and Argentina. China was ranked No.29—on the top 30 list for the first time, a jump of 14 places compared with 2010.

In terms of capital and technology, China is actively rendering assistance to other economies. According to the “China's Assistance to Other Countries White Paper” published by the News Office of the State Council on 21 April 2011, up to the end of 2009, China has accumulatively rendered assistance to 161 countries and over 30 international and regional organisations, with 123 developing countries regularly receiving assistance from China. Cumulatively China has given out funds to exter nal parties, amounting to RMB 256.29 billion. Of these RMB 106.2 billion was pure donations, RMB 76.54 billion was interest-free loans, and RMB 73.55 billion was in concessionary loans. China has also organised over 4,000 training courses in China for developing countries, deploying 120,000 trainer-sessions, including interns, managerial and technical staff, as well as officials. The over 20 types of training included economics, diplomacy, agriculture, healthcare and environmental protection. China has signed debt-exemption agreements with 50 countries in Africa, Asia, Latin America, the Carribean and Oceania. A total of 30 due debts were exempted, totalling RMB 25.58 billion.

As the largest trade partner, China has invested in over 150 agricultural projects in Africa. Chinese investors look at Ethiopia—a country with very little mineral ores but has 9 million consumers—as a land full of opportunities. In the Kenyan capital of Nairobi, a lot of infrastructure—from the airport to housing project for low-income families—was constructed by China. In Mozambique, China has invested in building and maintaining industrial parks, and in setting up manufacturing centres in textiles and garments. In 2011, China's direct investments in Africa reached US$13 billion, and bilateral trade amounted to US$155 billion. Chinese enterprises are investing in Africa to improve the infrastructure and facilities there, and to promote the development of manufacturing departments.

China is maintaining a trade deficit with 48 of the least developed countries in the world, including Laos and Angola. Since 2008, China has been their largest export market. This not only assisted them in their economic development, but also actively contributed to the eradication of poverty in the world.