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Beijing Consensus Challenges the Neo-liberal Global Order

History might record that China’s re-emergence after its World Trade Organisation (WTO) accession in 2001 marked the highpoint of globalisation; it was also one of the biggest economic events so far in the 21st century. While China has benefited from the global trade system, the ineluctable rise of this economic superpower has also brought great changes to the global trade regime. Beijing shows scant enthusiasm for multilateralism, as it generally sees the established order as an instrument of Western hegemony. As China now challenges Europe and America’s century-old status as the world’s most dominant trading and rule-setting nations, it seems keen to remould the global trade system into one with Chinese characteristics.

By Jörg Wuttke, former President of the European Union Chamber of Commerce in China, 2007-2010; 2014-2017.

At least up until now, China has managed to square the circle. While maintaining a Leninist political system, it unleashed Manchester-style capitalism to drive its economy by about 10 per cent annual GDP growth for 30 years. As it looks toward the next stage of economic development, the country wants to hold on to its large 20 per cent share of global manufacturing and to try to break out of the middle of the ‘smile curve’ that Stan Shih has outlined. In this model, highly profitable product R&D, branding and design at the beginning of the process as well as distribution, marketing and sales/after service at the other end represent the high points of the curve. In contrast, the far less profitable stage of actual manufacturing and assembly, the segment where China’s economy is still primarily focused, represents the low point in between.

A stronger and more effective focus on innovation is subsequently necessary due to the fact that China’s labour force has also begun to shrink as its society ages. From 2014 to 2015, the working-age population between the ages of 16 and 59 fell by 4.9 million, the fourth year in a row that it dropped. While China still possesses an extremely large labour force, and the trend may help to keep the unemployment rate down, it places upward pressure on wages, corroding the country’s advantage in terms of low-cost labour vis-à-vis some less developed countries with cheaper labour.

At the same time, advanced economies, such as the United States, Germany and Japan, have all formulated policies supporting further development of their own manufacturing industries. Emerging economies like India and Brazil are also catching up with their own advantages. The Chinese government therefore holds upgrading the country’s industrial base to be important to its ability to both hold on to its current manufacturing industry while simultaneously working to compete further up the value chain in the face of reshoring to advanced economies whose competitive position benefits from digitisation of the industry. As an official from the MIIT put it, ‘China is being pressured from both sides’ Made in China 2025. To achieve a redirection away from the current focus on the low-value stage of manufacturing, China is now in the process of implementing an industrial policy blueprint called China Manufacturing 2025 (CM2025), which is designed to move its economy up the value chain, from ‘Made in China’ to ‘Invented and Branded by China’.

This will not be easy. On 14th December, 2016, the official government-owned newspaper People’s Daily published a front-page editorial titled ‘New Orientation of the Chinese Economy’. The article recognised that China faces many challenges: besides the aging problem the country needs to avoid getting stuck in the middle-income trap; and China’s economic trajectory will follow an ‘L’ shape, not a ‘U’ or a ‘V’ shape. At the same time, China’s domestic supply, which faces conditions of overcapacity in some industries, is poorly aligned with domestic consumers’ demand for high-quality products and reliable advanced equipment. As a result, some domestic demand is seen to ‘spill out abroad’. This ‘problem’ requires that domestic supply be redirected toward producing higher-end goods with government playing a role in the process. When combined with the market share targets for international markets as outlined in the 2025 vision, the current approach to the economy appears to amount to mercantilism. This raises serious questions regarding the Chinese government’s willingness to allow its leading trade partners and foreign investors to benefit from the next stage of its economic development.

Addressing tensions in the global trading system
China’s expanding impact on the global trade system might cause an increase in protectionism and contribute to a retreat from globalisation. In these times of fragile global demand, an integrated global economy needs a cooperative political architecture. Unfortunately, in recent years the global trade climate has changed a lot, as indicated by the failure to conclude the WTO Doha round, the sanctions brought against Russia, Brexit and the election of President Trump. The increasingly protectionist measures seen internationally since the financial crash of 2008 all point to globalisation in reverse. China alone is not to be blamed for this: narrow, nationalist tendencies in many countries are elbowing aside global commitments.

The Western world was trying to re-establish the moral high ground on free trade by negotiating the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Pact (TTIP). Yet, as the 2016 US Presidential campaign testifies, the US is currently retreating from global engagement. Despite the conclusion of the TPP by the outgoing Obama Administration, its ratification is being stopped by a triumphant Donald Trump. The less-than-impressive commitment of the US to the TTIP negotiations with the EU are also failing to facilitate a timely conclusion, particularly as the European Commission is struggling to establish a consensus among EU Member States.

Domestic politics reinforce these trends. If Western leaders can be said to have grown wary of globalisation, many in their electorates have turned positively hostile. Globalisation was sold for too long in the West as an exercise in enlightened self-interest: everyone would be a winner in a world that pulled down national frontiers. The 2016 Brexit referendum shows that globalisation seems to hold little appeal to the squeezed middle classes, as they perceive the top one per cent as scooping up the lion’s share of gains from economic integration.

The architects of the present era of globalisation no longer seem to be willing to lead or to commit to their creation. Neither the Europeans nor the US seem to see a vital national interest in upholding an order that redistributes jobs to other countries. China, despite being the largest exporter in the world, is unwilling to step up as guardian of the existing multilateralism, preferring instead to impose its own agenda. But, without open trade advocates, globalisation cannot but fall into disrepair.

Globalisation requires powerful and likeminded advocates in order to ensure that global governance arrangements are sufficient for the fair application of rules that have been agreed to. Without a political architecture that locates national interests in mutual endeavours, the economic framework is unfortunately destined to fracture and fragment. This is not to say that globalisation is doomed or that China cannot play an important role in upholding the international economic order from which it has gained so many benefits. This crisis also presents a real opportunity.

Author Information
Jörg Wuttke was the President of the European Union Chamber of Commerce in China 2007 to 2010, and again from 2014 to May 2017. He heads a Multinational company in Beijing since 20 years. Wuttke holds a BA in Business Administration and Economics from Mannheim and studied Chinese in Shanghai 1982 and Taipei 1984-85.