Transcript China and Globalization

Yves Tiberghien, Harvard University
China and Globalization:
Toward a Mutual Transformation
Presentation at the CÉRIUM’s Summer School
China Risen
How it changes and change us
China and Globalization:
Toward a Mutual Transformation
Yves Tiberghien
Harvard Academy Scholar
[email protected]
CERIUM-Summer School,
July 5, 2006
From this…
To this…
Preliminary Test - Who are
they?
Who is this cow-boy?
What about this event?
And this event?
Presentation Outline:
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1. Stakes and Big Picture
2. Impact of Globalization on China
3. Some Chinese Vulnerabilities in the
Process
4. Impact of China on Globalization
5. Some Essential Milestones
1. Stakes:
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1) The process of Chinese modernization has
entered a new phase of intense internationalization
since 1997. Does it destabilize China? Can the
Chinese state maintain control over the process? Is
the balance between a communist regime and a
market economy sustainable?
2) Can the global economic system absorb China
without getting destabilized? Will levels of national
political support last?
3) Will China’s integration into the international
system force a global power transition? Can the
transition be managed peacefully?
Key Points:
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1. Until Now, China has kept an astonishing
degree of control over the process of
globalization and has managed to influence
the sharing of benefits.
2. The current path leads to new milestones
that may be harder to manage.
3. The continuation of mutual gains depends
on political factors in the US, the EU, and
Japan, as well as a wise management of
relations with the US.
2. Globalization and China:
Many Benefits
A/ FDI Flows and Technology
Transfers
Key Points on FDI flows
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Cumulated Total in 2004: $600 billion, much
beyond other developing countries
Concentration in a few regions: Pear River
Delta, Fujian, Shanghai area, a few cities.
22% of FDI = M&A
Impact on SOEs: competitive pressures,
some crowding out, discipline effects
Impact on the generation of laws and rules
Rise of a transnational elite
Wuhan: Citroen Factory
B/ Trading Boom
A few Key Figures in 2005
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Trade Surplus with the US (=total with world)
reached $200 Billion.
2004: China became Japan’s first trade partner:
$200 billion total trade (surplus of $15 bn for
Japan)
Enormous production: 85% of world’s tractor
production, 75% of world watches, 70% of world
toys, 50% of world PCs.
QuickTime™ and a
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QuickTime™ and a
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QuickTime™ and a
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C/ Growing Financial Weight
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Jan 2006: China’s foreign reserves reached $816
Billion, #2 of world, just behind Japan. Key for
stability of US$.
China can influence the world forex markets, just by
changing the mix of its foreign reserve holdings.
Growing % of US Treasury Bonds held by China (cf
related debates during Katrina last summer).
New Fact: Explosion in
Chinese Outward FDI
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2004: 8000 Chinese companies present in
160 countries
Lenovo purchases IBM’s PC division
Oil Companies very Active (cf Battle CNOOCUNOCAL in the US)
Well-Known Names: Huawei (telecom),
Ningbo, Haier (electric appliances)
Summary of Economic Picture
in Context of Globalization
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Economic Growth: 10% per Year
GDP (just revalued in 2005) now superior to FR, probably
passing UK this year. Will pass Japan in 2020 and the US in
2040.
Chinese growth = 18% of world growth in 2004.
Technological rise
Trade explosion since 1995: #3 world exporter in 2004, 8% of
world exports.
Huge impact on world oil market
Large role in all global issues, soon likely in G8 (G9)
Rapid military modernization
Economic By-Product:
Growing Military Budget
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TIFF (LZW) decompressor
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3. Some Chinese Vulnerabilities
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Is the hands-on approach to globalization
sustainable?
Is the trajectory domestically stable and sustainable?:
precarious banks, rising tensions in the countryside,
iron rice bowl now broken (xiagang gongren)
Can the regime retain its political legitimacy in the
context of SOE restructuring and a social contract in
tatters?
Politically, is the regime stable over time?
Risks related to national unity (growing inequalities)
Key Point: SOE Restructuring
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Since 1997, SOE restructuring has become a key
bottleneck for China’s integration in the world
economy (development of competitive companies).
Recent acceleration of the process: 58% of SOEs
disappeared between 1997 and 2002, 92% of
collective enterprises.
Several pathways followed: identification of 1000
national champions, mergers, bankruptcies, or
privatization for smaller SOEs.
Use of WTO as Troyan horse?
Social Impact
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50 Million workers laid-off between 1997 and
2003 in SOEs
Collapse of living conditions
Concentration in North-East: 27 M workers
laid-off, 16% of entire population in Fushun,
7.5% in Shenyang
Many protests, riots, and petitions
Pressure to build a welfare system
The Mingong - migrant
workers
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140 Million migrant workers with limited legal
identity and protection
Still attached to their rural hometowns
Comparative advantage for China or
exploitation?
Another weak point: the stock
market
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Created in 1991 in the midst of euphoria
Aim: raising funds for SOEs
Only a third of shares are sold, other 2/3
remain controlled by state directly or
indirectly
Weak corporate governance, question marks
about quality of regulators, weak minority
shareholder protection
4. Impact of China on
Globalization
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Key lessons: gradualism works, the state has a key
role in managing the process, power matters.
Convergence? No! A socialist market economy is
compatible with the globalization
Trade: theories of comparative advantage and free
trade pushed to the limit, due to size and speed of
China’s entry into the trading system. Adjustment
takes time and has human costs.
Flying Geese Theory also pushed to the limits
On the interaction between development and
democracy, was Lipsett wrong?
The Unknown: how stable is the process?
5. Five Key Debates in Recent
Years
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A/ The Asian Crisis: salutary role played by
China in stopping the domino reaction
Chinese choices come out reinforced
Another lesson: any financial vulnerability can
be exploited by other economic powers
B/ Hong Kong’s peculiar role during the Asian
crisis
Other Debates:
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C/ Global Exchange Rates: the Chinese
Debate
D/ Energy, oil, raw materials: the role of
diplomacy is rediscovered
E/ WTO: rise role played by China within the
G 22 group
F/ Global Environment Treaties
G/ GMOs: Pivotal Role played by China
A Striking Example: Airbus,
dec05
Conclusion:
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Rediscovery of the role of politics in managing
global economic flows.
China is able to benefit from globalization, due to its
political and economic power and to its political
stability - a state able to manage transition
Challenging some of the key debates on
globalization (convergence, loss of maneuvering
space)
At the same time, the sustainability of the current
equilibrium hangs on international political relations
and on the capacity of the current regime to manage
a painful social transition (and rising inequalities).