Multipolar World

Globalization, China and the war in Ukraine

Jorge Costa Oliveira

Since implementing economic reforms in 1979, with the opening to foreign trade and investment, China experienced annual GDP growth of 9.5% to 2018, and has lifted about 800 million people out of poverty. China’s foreign trade has also increased significantly. China’s exports have risen from 2% of the world total in 1990 to 13% in 2017.

One of the factors contributing to this growth is globalization. Chinese companies have taken advantage of multilateralism and the reduction of tariffs and non-tariff barriers to increase their exports. Chinese authorities have been able to set the conditions to gradually relocate a significant part of production value chains from developed countries to China. Yet, the Chinese economy remains heavily dependent on access to foreign markets, particularly the American and European markets, although to a lesser degree since 2006.

In 2021, the main destinations for China’s exports were EU and UK (19.5%), US and Canada (18.3%), Hong Kong (9.9%), Japan (5.7%), South Korea (4.1%), and Vietnam (3.9%). About half (probably more, considering that Hong Kong is a Chinese trading hub) of China’s exports go to rich OECD countries. This flow is even stronger for foreign investment into China.

The situation stemming from the war created by Russia’s invasion of Ukraine will have consequences for globalization. The most important is the dismantling of the idea of economic interdependence being a sufficient factor for maintaining peace. The total lack of European trust in the Russian leadership is catalyzing mistrust of other emerging powers with whom European economies were progressively integrating (e.g., China and India). Security concerns increase the sentiment in Europe that interdependence with economies that do not share its liberal values, and that actively work against freedom, democracy, respect for human rights and the rule of law, is not desirable.

In Western countries, the public perception of China has reached its lowest point in the last two decades. This sentiment may lead the EU to follow in the footsteps of the US in restricting access by Chinese companies to R&D, advanced technologies, and innovation. Despite the Comprehensive Agreement on Investment between China and the EU, the EU has already adopted legislation that allows it to limit the entry of Chinese companies (and those of other emerging countries) into strategic sectors. In China, on the other hand, the financial sanctions imposed by Western countries on Russia seem to be viewed with apprehension, and consideration is being given to reducing interdependence, starting with the USA.

China, as the biggest beneficiary of globalization, has much to lose from the economic instability ushered in by the war and a rapid erosion of globalization. It is still very dependent on US and European markets for its exports and even more dependent on foreign investment from the US and EU. Until such dependence diminishes, it is doubtful that collaborative neutrality with Russia is the posture that best serves China’s interests.

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