The Changing Chinese Economy and Its Implications for The Region

For much of the last thirty years, globalization—defined as large and sustained increases in the cross-border flow of goods, services, money and people—was the most important driver of global growth. Global commerce surged as transport costs fell, trade and tariff barriers dismantled, financial systems around the world liberalized, and the telecommunications and internet revolution shrank distances and enabled new business models. As emerging countries (most notably, China) plugged into global supply chains, and opened their doors to foreign investments, they were able to close the gap with developed ones.

 

In recent years, however, the pace of global economic integration has slowed on many measures. Trade has fallen from 61% of world GDP in 2008 to 58% now. Foreign direct investment (FDI) has tumbled from 3.5% of world GDP in 2007 to 1.3% in 2018. Cross-border bank loans have collapsed from 60% of GDP in 2006 to about 36%. While globalization has not gone into reverse, it is clearly slowing. Trump’s trade war with China gets the most attention, but it is in fact a reflection of the broader trend of slowing globalization.

The reasons behind this trend of slowing globalization (or “slowbalization”, a word coined in 2015 by a Dutch analyst) are complex. One of them is economics. The cost of moving goods has stopped falling. Technology advances, especially in automation and robotics, have made it possible for multinationals to re-shore some of their manufacturing operations. This has contributed to “premature deindustrialization” in many middle-income emerging economies, not least those in Southeast Asia. These economies are now shifting towards services, which are harder to sell across borders. And Chinese manufacturing has become more self-reliant, so needs to import fewer parts.

 

The second set of reasons for slowbalization has to be do with the fact that domestic politics and popular sentiment—especially in, but not limited to, the rich world—are, today, far less conducive for liberal internationalism. From Trump’s election victory, to Brexit, to Frances’s gilets jaunes, and to the rise of right-wing nationalist parties and politicians in much of western Europe, Turkey, Hungary, Poland, Brazil, India and the Philippines, the signs point to a resurgence of nationalism and identity politics around the world, and a rejection of globalism. This, in turn, will have profound implications for global business as governments abandon the previous principle that investors and firms should be treated equally regardless of their nationality.

Nowhere is the reaction against globalization and liberal internationalism more evident than in the world of technology. Geopolitical rivalry and fears and suspicions of industrial espionage are at the heart of the US-China competition in technology. China’s industrial policies give its firms a significant advantage; it has little intention of giving foreign firms a level playing field.

Partly as a result of slowing globalization, large emerging economies such as China are looking to domestic sources of growth and technology development. It is also investing in the infrastructure of the region (Southeast Asia, South Asia and Central Asia) to create new markets and connect to new customers.

 

Perhaps the best example of China’s efforts to boost domestic demand is the Greater Bay Area (GBA), the Chinese government’s plan to link the cities of Hong Kong, Macau, Guangzhou, Shenzhen, Zhuhai, Foshan, Zhongshan, Dongguan, Huizhou, Jiangmen and Zhaoqing into an integrated economic and business hub, especially through the establishment of more transport links. China’s Pearl River Delta is already one of the world’s most successful emerging economies. Its GDP, at more than USD 1.2 trillion, has been growing at 12% for the past decade. The region generates more than a tenth of mainland China’s GDP and a quarter of its exports. It attracts up to a fifth of the mainland’s foreign direct investment; it has already brought in over a trillion dollars-worth of FDI since 1980.

Meanwhile, Hong Kong has always played a key role in the region’s economic transformation in the last forty years. Hong Kong’s success, based on open markets and private enterprise, provided the inspiration for the region’s economic liberalisation and its transformation into China’s leading manufacturing and export hub. As the delta’s main source of capital and provider of manufacturing and commercial services, Hong Kong was also responsible for much of the region’s division of labour and globalisation.

Hong Kong remains central to the region as its financial and business services hub, its cultural capital, and its “global connector”. But as cities in region, such as Shenzhen, reinvent themselves as world-class centres of innovation in areas such as advanced manufacturing, robotics and genomics, Hong Kong will have to adapt and upgrade its links. To stay relevant and competitive, Hong Kong will have to evolve with the region’s more complex and diversified economic structure, the automation of many existing activities, and its growing innovation and technology capabilities.

Objectives

This 5-day program in Hong Kong and Shenzhen would achieve the following objectives:

• Expose senior public officials (at the national and subnational levels) and business leaders to developments in the Greater Bay Area, especially how it is becoming a megacity for technology and innovation;

• Analyse the policy dilemmas and challenges facing Hong Kong in the context of rapid growth and technology development in the Pearl River Delta (especially Shenzhen);

• Gain an appreciation of China’s Belt and Road Initiative (BRI), its growth model, its science and technology policy, and its environmental governance

• Appreciate how Shenzhen is becoming China’s technologically most advanced, most dynamic and forward-looking city.

Curriculum

• Housing & Transport Policy Dilemmas in Hong Kong

• Smart Mobility and Transport Options in Hong Kong

• Learning Journey to the Hong Kong Science & Innovation Park

• Connectivity in the Greater Bay Area

• China’s Belt and Road Initiative and Implications for Southeast Asia

• Governance Challenges for the Belt and Road Initiative

• China’s Growth Model and Lessons for Emerging Asia

• Environmental Governance in China

• China’s Science & Technology Policy