(Why) Is China the Top Beneficiary of Globalization?

Frustrations surrounding an alleged “free ride” that certain countries have been getting as a result of globalization have been building up in the proverbial West for quite a while, with the year 2016 being perhaps a textbook example to that effect in light of two events which have both proven that a significant segment of the population demanded a “game changing” policy/attitude shift: the Brexit vote on the one hand and Donald Trump’s victory in the US elections on the other.

Two “elephant in the room” questions arise:

1. Have certain countries indeed been on the receiving end of a free ride?
2. Is China one of them?

When it comes to the first question, the answer needs to be extremely nuanced because painting the entire story in either black or white leads to dangerous misunderstandings. First and foremost, yes, it is relatively straightforward to identify countries that have benefited from globalization tremendously but is it fair to see things in a “they’ve received a free ride” manner?

The ChinaFund.com team believes it makes sense to also understand other aspects pertaining to the so-called “free ride” recipients:

1. They have for the most part been under-developed nations and as such, the “free ride” in question was more of a free ride out of poverty than a free ride to a lavish lifestyle, a particularity worth keeping in mind
2. A rising tide tends to lift all boats because individuals who escaped poverty will gradually become more sophisticated consumers… among other things, of course, consumers of Western products and services as well
3. Furthermore, this “free ride” also facilitated peaceful development and made the ascension to power of brutal dictators less likely. As such, it would be a shame not to acknowledge that globalization also ended up facilitating peace. Many mistakenly believe that even if brutal dictatorships would have emerged, the problems would have been localized in nature but in light of the fact that many under-developed nations are resource-rich, with the many alliances, agendas/interests and issues this brings about, this perception (that things could have been contained) is quite naïve
4. The facilitation of innovation cannot and should not be underestimated, with the fact that the creative and productive potential of billions (literally) of people has been unleashed being a development so positively dramatic in nature that it becomes next to impossible to quantify its beneficial long-term effects

To put it differently, the idea that globalization beneficiaries have received a proverbial free ride with little in the way of benefits for the West is misguided at best, especially in an economic framework such as the one we find ourselves in today, one involving unprecedented levels of economic interconnectedness.

Moving on to the second question, the answer is far more straightforward: yes, China is most definitely one of the countries that can be considered a net beneficiary of globalization, perhaps even the number one beneficiary in light of the fact that 1.4 billion individuals have been given a chance to tap into the global economy.

Why did China become one of the top globalization beneficiaries, perhaps even the number one beneficiary?

For a wide range of reasons, such as:

1. Its sheer size, with the international community considering it unwise to simply ignore developments in the world’s most populated nation
2. Geopolitics-related reasons, with Western leaders such as Richard Nixon understanding that the West would have much to gain by exploiting the increasing animosity between China and the USSR. Needless to say, establishing closer economic ties to China enabled the West to do just that, thereby weakening Soviet positions
3. A paradigm shift with respect to China’s leaders, from Mao Zedong who especially in the earlier part of his rule was pretty much an isolationist (even if this changed somewhat toward the end of his regime, once again for geopolitical reasons) to Deng Xiaoping who ended up understanding that learning from the West and becoming a cog in what was shaping up to be a global economy that was becoming more and more interconnected would be in China’s long-term interest
4. The fact that for an extended period of time, China was perceived as a poor nation and as such, anything but a threat to the let’s call it Western order. Therefore, the general public didn’t perceive globalization as something that helps an “adversary” of the West until… well, much later on

The list could go on and on but instead of continuing, let us elaborate a bit when it comes to reason #4, by making a parallel to the present, a parallel which will help us understand why Western leaders as well as citizens are no longer willing to tolerate China’s “free ride” and instead, are interested in measures which keep their worryingly high trade deficits with China under control.

This parallel for the most part revolves around the fact that today’s China is in no way as poor and vulnerable as let’s say Mao’s China. On the contrary, it represents the #2 economy worldwide in terms of nominal GDP and the #1 one on a PPP basis, with it most likely only being a matter of time until the United States is surpassed. Of course, a valid case could be made that things look considerably less stellar when analyzing China’s GDP per capita numbers, numbers roughly 6.5 times lower than US ones and more at par with under-developed nations than the West but let’s just say politicians as well as the general public over in Western nations are harder and harder to convince that things are… well, complicated.

All in all, despite the many nuances that exist as far as this equation is concerned, the conclusion is fairly straightforward: yes, certain countries can without a doubt be considered significant net beneficiaries of globalization and indeed, China is most definitely one of them, with a more than compelling case in favor of it being perceived as the #1 beneficiary existing. Needless to say, the West is far less willing to tolerate this status quo than in the past in light of China’s increasing dominance but that is a topic for future articles.