Globalization 3.0 and Beyond: What’s Next for China’s Economy?

Feb 05, 2013 By Trey Archer, eChinacities.com Comments (4)     Add your comment Newsletter

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Thomas Friedman argues in “The World is Flat” that there have been three major stages of globalization. While globalization 1.0 (1492-1800) saw countries/militaries pave the way to a new global system and globalization 2.0 (1800-2000) witnessed the rise in big business interconnect peoples from all over, globalization 3.0, which is occurring right now, is primarily lead by the “flattening” of the world, a metaphor Friedman uses for the leveling of the commercial playing field wherein all competitors have an equal opportunity. Even though China struggled greatly during globalization 2.0, the country was able to carve a niche in the early stages of globalization 3.0, having prospered enormously from it. But what will China’s economy look like further in to globalization 3.0? Will it become the next world super power as some predict or will it fall into the doldrums of stagnation like neighboring Japan? While it’s nearly impossible to predict the future, we can look at contemporary trends and facts to help make an insightful projection.

Globalization 3.0 and Beyond: What’s Next for China’s Economy?
The world is flat. Photo: newretailblog.com

Decline of foreign companies outsourcing to China

Thus far, a major theme of globalization 3.0 has been outsourcing—something that very quickly turned China into the manufacturing capital of the world. However, due to an increase in the Yuan’s value, drastic increases in domestic salaries and issues concerning product quality control, many prominent corporations like Apple and New Balance are starting to pull out of China, according to an article on chiefexecutive.net. In the case of New Balance and other apparel stores, it’s now much cheaper to manufacture in Bangladesh, Vietnam, Indonesia or Cambodia. And in the case of Apple, the company recently discovered that “total worldwide labor costs for the iPad was $33 of which only $8 represented China’s share.” With this statistic, the tech giant realized that most of its operations in China aren’t as cost efficient as they once perceived, no doubt causing it to actively consider relocating some of its manufacturing plants back to the US.

It’s possible that nationalism is also playing a subtle role in the decline of Chinese outsourcing. In the same report, Jeffrey Immelt, CEO of General Electric, states that his company has “outsourced too much” in some areas. Instead of continuing operations in China, GE is moving a plant outside of Detroit to create 1,000 jobs. Similarly, Boeing announced that they too are going to open a major production plant in South Carolina. Along with producing better quality goods faster and more efficiently in the U.S., the companies likely think that the nationalistic “Made in America” tag will help boost their brand popularity and sales amongst the American consumer, especially during a period of slow economic growth. If these trends with American corporations shifting manufacturing operations back home continue, it may suggest that the U.S. is reentering an era of economic isolationism (an extreme notion, but one that should be taken seriously nonetheless).
 
Transition from manufacturer to consumer

In recent years, China has been quite vocal about its planned transition from a manufacturing-based economy to a consumer-based economy like the U.S. According to a 2012 Forbes report, China is well on the way to becoming the world’s top consumer nation: it has already “leapfrogged” the U.S. to become the planet’s biggest auto market in 2009, it overtook Japan as the planet’s largest luxury goods market in 2012 and it’s predicted to become the world’s largest importer by 2014. If things go according to plan, China is expected to become the planet’s largest consumer by the year 2020.

If (or when) China becomes the largest consumer, the Yuan will become much stronger, increasing the average citizen’s purchasing power as well as turning the RMB into a major international currency, fortifying the country’s economy and reducing its dependency on other countries. Foreign countries that trade with China should also see an increase in GDP, since China will buy more goods from them. Moreover, this transfer to a consumer nation may even improve the international economic balance, since it’s widely perceived that China is currently under-consuming and over-producing. However, despite these perceived benefits, high levels of corruption, environmental/health problems and a wide variety of other issues if left unresolved could hinder China from becoming the king of consumption.

Switch from imitator to innovator

China is not only making the transition from manufacturer to consumer but also from imitator to innovator. As of now, many Chinese copycat companies simply replicate foreign products with cheaper parts and sell them for lower prices. But since there is still a demand for cheap goods, these companies do eventually turn over a profit. Part of this profit is then used to invest in R&D, which will lead to more innovative products. If you’re skeptical of this process, you’re not alone. However, Japanese and Korean companies did just that. In the early eighties and nineties (respectively), they were criticized for ripping off high-tech consumer goods and automobiles, however each country eventually profited enough to develop their own technology to compete globally. (Several Chinese companies could already be considered in the “innovators” column—Lenovo and Haier are both renowned for producing high quality goods).

However, this transition is much easier said than done and will likely first require extensive changes to China’s social, economic and political structures in the future. First, China will have to drastically remodel its entire educational system from one that emphasizes rote learning, repetition and gaokao preparation to one that more openly encourages creative thinking. Second, corruption needs to be addressed, as, especially when it’s intertwined with guanxi, it can seriously block the most innovative people and ideas from rising to the top; something that’s extremely disadvantageous for independent business and society at large. Third, copyright laws, for domestic as well as foreign products, need to be strengthened and enforced if China wants its products to compete internationally. After years of violating intellectual property rights, China has already burned many bridges in this respect. If China expects foreign companies not to do the same to its own innovations it the future, it would do well to implement stronger copyright laws as soon as possible.

Cultural exports and rise in soft sower

From Rome’s Latin alphabet to America’s Hollywood, every empire and economic powerhouse exports its culture in some way, so we can expect China to do the same. And with the country’s (soon to be former) president Hu Jintao saying, “We must enhance culture as part of the soft power of our country to better guarantee the people's basic cultural rights and interests,” it may be happening much sooner than expected. A report on CRI English notes that Chinese cultural exports rose to nearly 18 billion USD from January to October in 2012; a 21% increase from the same time period in 2011. Meanwhile, Confucius Institutes—internationally based Chinese Language/cultural schools aligned with the government—are springing up all over the world and are now present in more than 60 countries. Mandarin is also becoming one of the most popular secondary languages, as more than 670,000 students abroad took the Chinese Proficiency Test in 2010, as compared to 117,000 students in 2005. Furthermore, the 2008 Beijing Olympics and China’s performance at other international sporting events as well as the increasing popularity of Chinese films are no doubt further increasing China’s soft power abroad.

Conclusion

As China and the world move deeper into globalization 3.0, some experts are calling the 21st century “China’s Century”, predicting that the “Middle Kingdom” will reclaim its place back at the center of world political and economic affairs, much in the same the way the country historically views its position in the world. On the other hand, if we look at the “American Century” and its rise to “superpower” status, that country had to overcome economic downturns, major wars and conflicts, social unrest, political scandals and numerous other obstacles along the way. In other words, while it certainly seems that China will become more powerful in the coming years, before it truly becomes the next superpower, it must first overcome some extraordinary hardships and complications.

Keywords: China the world is flat future of China’s economy China Globalization 3.0

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4 Comments ( Add your comment )

1
13david
comment|35483|228230

Ah yes, but what stance is the communist[?] party taking?

Feb 05, 2013 09:50
2
lightend
comment|35603|41839

didnt read the article, just looked at the picture, WAW. If the picture was for a film I would love to see it. haha

Feb 05, 2013 23:34
3
Guest2071172
comment|35674|230130

The idea of consumerism is becoming unpopular. It seems to me that the real issue for developing economies, and always has been, throughout World Version 1.0, 2.0, and now 3.0, is that the developing economies get locked into a process of chasing after the trends that made the more developed economies leaders. And at the same time become deeply embroiled in contradictory comparisons of cultures, which confuse culture with universal goals. And so, it seems that in order to break that cycle the developing economies have to become true leaders. A true leader, it seems to me, is someone or, in this case, an economy, that actually leads by example. Referencing statistics about how China is beginning to outshine past leaders in various areas of economic growth show that China, as Japan, Taiwan, South Korea did before, is doing an admirable job of catching up. But will China simple surpass and then continue to target existing markers of economic growth, or will China begin to lead us all into new definitions of economic success. Consumerism, as I mentioned is beginning to ring a sour note in the west, but is hailed in developing countries as the means to the next level of development. This is both a complex issue and a simple observation: complex because it involves politics and culture and other types of face values; a simple observation because although, through it’s enormous size and the decision to finally unleash China’s potential, stagnated for years, China has done better than previous economies that relied on business outsourced from the west, the model remains the same as with those previous examples – Japan, Taiwan, South Korea, and as the article points out China is susceptible to the same ceilings on growth. I, personally like to look at something I call dumping second rate thinking – I use that term so as to gain a bit of traction for the idea by invoking the common occurrence of dumping second rate technologies. From this viewpoint, consumerism now a bit tarnished in the West but an undeniable driver of western economies, is an example of that ‘dumping.’ To give two other examples of dumping second rate thinking: management bonuses based on end of term profits rather than mid term growth, and growth spread across a broader spectrum, such as real asset growth – this sort of management bonus is very nearly outlawed in many western contexts but is ‘dumped’ into China by many western own businesses and second; a sort of cultural patronization, very nearly a type of affirmative action – in large part a failed western idea, which here in China sees, for the sake of profits, many western companies showing favoritism for culture in China such that they often allow Chinese forms of management to the detriment of their own performance – a real balancing act that may be part of why companies like Apple are not now achieving the same success in China where, as the society modernizes and the RMB strengthens, the value of allowing local culture to over-rule good management looses it’s value. But as with everything, this too has two sides. And it is incumbent upon us all, Chinese and western interests, to see the future now rather than later. I recall the words, though not the name, of a professor at Beijing university who suggested: that all nine world-leaders since the fall of the Egyptians have failed for one common reason: they failed to enact laws within their domestic borders which protected those outside their borders from the negative influence of what it takes to become a world leader. In this sense perhaps western countries have to recognize that short term thinking, such as dumping second rate thinking, reduces our own soft-power – the soft-power that caused western countries to be admired in the first place, because eventually the developing countries note that we are not giving them the best of what we have at home, we sell out for profits. That is one side. And from the perspective of the developing countries it seems wise that they place aside political goals – this is a very complex move, no doubt but, set aside any political goals that do not enhance their own path towards the types of societies that caused them to admire the west in the first place. And it seem equally important that developing countries examine their understandable thirst for wealth, which often caused them to welcome ‘dumped’ ideas, and be mindful of the time lag that often causes them to take up ideas as being new to them, ideas which have already become old in developed countries. That is a learning issue, for the would-be world leaders -- the developing economies, and a leadership issue, for the current leaders -- the developed economies. It’s all seems very tricky doesn’t it? I think we have to look more clearly at what we have now, how we got where we are -- in any society and in every society, and use that to better predict our futures. When I look around big cities in China, I do see fine examples of Chinese culture but more and more I see ever internationalized scenes, and some times I feel inclined to call that a sort of ‘want to be western’. Developing countries often suffer under an internal contradiction; if one listens to the political positions of many developing countries and compares that to the view on the streets there is a contradiction. Perhaps, though, we can see the future better than we believe possible. But that will take real political will and real desire to strike out into uncharted leadership territory. Think of the stalled discussions concerning global warming and environment change. Perhaps those efforts would gain momentum if developed countries truly examined their own past developmental paths and accepted that developing countries are central to future, better management of resources. Perhaps movement would increase if developing countries, which are clearly aiming for social changes and technologies already present in developed countries, accepted the present signs of their road ahead and allowed that the greater degree of pollution caused by the West was an investment and is price that we all enjoy and must pay. Perhaps that is idealistic of me. Nonetheless, there are certain contradictions for developing countries, political views versus what the people on the street seem to want, that we do seem to accepts as inherent to our current model of 3.0 Globalization – contradiction that are much less present in most western countries who rarely what to be like anyone else. However, if we use the past to anticipate the future, we see that the same contradiction existed in western countries, such as America, which copied much that was British and succeeded by doing it better, faster – though it was once unpopular to suggest this. But that method of becoming a world leader by copying and being faster, better, bigger is likely a thing of the past, for there is no longer enough un-renewable resource in the 'ancient sunlight' of our Earth (nor is there leeway to continue the rates of polluting). Perhaps the contradiction is not inherent at all, nor the predicted course of Globalization 3.0 so much a given. In any case, the contradiction I mentioned is a very normal part of change. Change is frightening because in order to change we have to change, and that always means giving up something we have. Getting what we want is often a very scary thing. In China, I think we see that played out in the frequent introduction of “Chinese Characteristics” into ideas and processes that worked perfectly well else where. From my viewpoint, this need to localize an idea results when culture is politicized – and is, may I say, a classic example of wanting to be something else but not wanting to be something else, that contradiction I referred to. Culture is a huge business these day, and is a vended product with profits and vested interest, but that also can cause 'culture' to become a political tool, and sometimes an excuse for being 'uncultured', even as that is measured by the very standards which are admired within the local culture. I think it is important to remember that culture is not a real thing, but a group of ideas that has and will change: pole the group of EFL teachers working in China and I suspect you will soon discover how development of English skills is often mistaken as a need to learn western culture rather than a need to focus on generalities of people. This can make the ‘business’ of teaching western languages a hugely politicize industry, where the students are not serviced as well as might be and companies introduce Chinese Characteristics into the teaching methods. As for corruption in China: That issue seems neatly covered by Professor He Jaihong – Remming University in Beijing, and Professor Richard Hu – Hong Kong University in Hong Kong, guests on a recent CCTV Dialogue show. Both men, in analyzing new Chinese leader Xi Jinping’s “Cage for corruption” metaphor -- for the current move to address corruption in China, referred to the Elephant in the Room. Both professors agreed that strengthening the Rule of Law in China is the only way to "cage" the use of Special Power that often corrodes imagination, motivation, and the efforts of the best and brightest thinkers and business people in China – noting that there will always be, as there always has been, a strong correlation between weakness of rule by law and the abuse of Special Power. That correlation is the often unspoken cause of events leading to cases of corrupt officials; that correlation appears in the high rate of jay-walking, cars that charge the cross-walks, and illegal parking and other forms of low level crime that are often excused by reference to “Chinese Culture.” It seems all very simple psychology if one chooses to look at the simple: when special power is valued every one wants some, everyone wants to be an emperor – even the ticket agent who sold me a ticket yesterday. When I asked her some questions, particular to my needs, rather than just answering the questions, she first demanded to know why I asked those questions; to me it felt like she was displaying her special power and not merely doing her job, answering the questions if she could. Changing this culture of "special power" thinking is not, I think, about changing culture. It is about political will, or so it seems they would agree, the professors Jaihong and Hu. Both men seemed to dismiss the question, “yes or no”, asked by the Dialogue host, “does China have a rich soil for corruption.” I believe they saw that as beside the point. All cultures change. And, indeed, universal concepts seem more appropriate in the "flat world" -- which, incidentally, the "flat world" metaphor, is one I personally am not so found of. But, yes, culture has and will change. I am just not so sure culture will change by trying to change the culture. Here I am thinking of the new “four dishes and one soup” limit, suggested as a way to combat the traditional Chinese value of lavishing benefit on friends and family, a tradition which often leads to corruption and waste. It seems more certain that if law addresses true corruption and crime, the culture will more quickly follow suit. And that need not be such a fearsome thing. In the future of China, when rule of law has more power and corruption is less, unless one actually, today, does see corruption and tolerance of crime as admirable aspects of Chinese Culture, no one will look back with melancholy at the days when Chinese culture seemed to equate with special power or tolerance for corruption. Again, the best protection of Chinese and -- with a powerful and important China welcomed in the world, the interest of all the world seems to reside in how well we see the future now, rather than later. It seems necessary to break cycles: of comparisons between East and West; break the cycle of chasing leaders, by doing more leading; and break the short term thinking that allows second rate ideas to be dumped into developing countries. These are global challenges of the 3.0 World not merely challenges for China.

Feb 06, 2013 16:00
4
silverbutton1
comment|48146|227751

World Wars are game changers, meaning when world wars happen...the post world war world has a radically different landscape compared to the pre. Some predict we are on the eve of WW3 based on the current global diplomatic and economic problems, coupled with ongoing conflict in the middle east, north africa, and Ukraine (and the potential for conflict between Sino-Japan, ROK-PRK, etc.) Only time will tell if such an event comes to fruition (say 2015-2018). Lastly, if WW3 comes, then the big question is asked... "Will nukes be used, and if so to what extent ?" That, my friends IS the big game changer for everyone on the planet.

Jul 07, 2014 16:49

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