Series on macro-control in the past decade (No.47)
The interaction between countries in the catch-up phase, developed countries and resource-rich countries reveal the underlying inter-workings of the global economy and major characteristics of its structural evolution in the early years of the new century.
If the world economy before and after the financial crisis is considered as a drama, three types of economic entities, countries in the catch-up phase, developed countries and resource-rich countries would be the main actors. Their interactive relationship has shaped the basic plot of the grand drama of the world economy.
The first economic entity is mainly China, which represents the countries in the catching-up phase. Economic development is the process of structural evolution in the industrial technology and improvement of per-capita income. Economic catch-up was primarily realized in tradable goods sectors, and can especially be seen in the improvement in labor productivity, which in the respective developed countries underwent a contraction. The “primary driver” of dynamic evolution in the current global economic layout should be the rapid growth of labor productivity in the manufacturing industry driven by China’s reform and opening institutional transformation.
It is estimated that China’s labor productivity growth increased more than 3 times than that in the US from 2002 to 2012. The same indicator increased nearly 70% in the same corresponding period in America, and so China’s catch-up relative to the US was 1.7 times. Taking the appreciation of the real exchange rate into consideration, China’s catch-up was about 3.3 times, if the growth rate was measured in dollars. In other words, if the productivity level of China relative the US is 100, measured in 2002 dollars, the index rose to 430 in 2012, which was a little higher relative to the average productivity growth rate level of the OECD.
The influence of productivity growth in one country on the outside world is determined by the relative economic scale of the catching-up countries. In the beginning, the general economic quantity is small, which had but subtle influences on the world economy. In the last 10 years, with the rise of its GDP, China has an unprecedentedly reshaping influence on the world economic structure, a theme which provides a clear and concise key insight for understanding the “New Three Kingdoms” of the contemporary world economy.
China’s catch-up has followed the process of industrialization as in other major countries. With the evolution of China’s industrial structure and improvement of its overall efficiency, and propelled by the mechanism of open markets, different sectors had achieved import substitution and became export sectors. Meanwhile, industrialization is continuously carrying forward and improving, though China still needs to import more advanced and knowledge-intensive capital goods from developed countries.
Now for the basic orientation of the second actor— developed countries; The North American and European countries import more and more consumer and capital products, which are with greater levels. Meanwhile, they export a large quantity of capital products with much more technology and knowledge.
Statistics showed that the export of China’s manufactured goods rose from $297 billion to $1.9482 trillion, which increased 5.56 times in a decade. The total amount expanded as the economic structures evolved. For example, export of textile increased from $57.85 billion to $246.04 billion, constituting 17.8% in 2002 to 12% in 2012 of gross export value. In the same period, the export of mechanical and electrical products with high capital and technology increased from $115.92 billion to $971.58 billion, with its proportion of export value rising from 35.6% to 47.4%.
Developed countries, such as North American and European countries are not only major export markets of China’s manufactured goods but also import markets of high-end manufactured goods. For example, China imported “vehicles, aircraft, ships and transport equipment” from Europe Union and America, which amounted to $31.3 billion and $15.9 billion respectively. Compared with the import amount of $2.85 billion and $2.61 billion from the EU and America in 2002, it increased 10 times and 5.1 times last year. In 2012, China achieved surplus of $7.3 billion and $2.6 billion on these projects.
Economic catch-up can be realized by expanding urbanization. Great nations reconstructed the systems of the modern economy, with an immense and intensive resource requirement, such as energy and metal. In 2012, China’s consumption of steel, copper, aluminum and oil were 670 million ton, 8.84 million ton, 20.24 million ton, and 10.03 million barrel per day respectively. In last decade, the consumption growth of metal resources mentioned above made great contributions, with the contribution rate reaching 80% to 90% in the area of global consumption growth and almost 50% in the area of oil growth. The environment of globalization provided actual solutions for China to satisfy the demands of resources by export. For example, the import of iron ore, copper concentrate and crude oil reached 112 million ton, 2.07 million ton and 69.41 million ton respectively in 2002; and reached 744 million ton, 7.83 million ton and 271 million ton respectively in 2012.
Therefore, resource-rich countries play an important role as the third actor. Export of resources could satisfy massive resource demand in the climax of China’s urbanization, and lead to enormous benefits to this kind of country. For example, the boom of commodities brought about surplus receipts of more than $1 trillion to Russia, the big exporter of energy resources, which amounted to 3.68 times of GDP in Russia in 1998, based on the measurement of dollars. In 2006, Russia paid back the majority of his foreign debts in advance, which dragged him to crisis in 1998. They also held currency reserves in excess of $400 billion.
Countries in the catch-up phase, developed countries and resource-rich countries interact with each other, which reveal major characteristics of the global economy and structural changes in the early years of the new century. The “Three Kingdoms” are all winners; however their specific positions vary. Countries which are catching-up have the most dynamic character, as they represent the driving forces of reform. Developed countries play a dominant role in the supplies of high-end capital goods and the leading edge of technology, whereas domestic markets and consumption capacities are pivotal for short-term economic growth. Resource-rich countries play an irreplaceable role and achieve brand-new development opportunities. However, they are also faced with the problem of “Dutch Disease”.
History’s evolution cannot be totally rosy. The mechanism of the “New Three Kingdoms” has its own internal conflicts. Developed countries keep watch on catch-up countries; the soaring of commodities prices change the welfare effects of trade conditions; the evolution of the world order and existing governance framework are imbalanced. All these plunge globalization in the new century into multiple challenges. US’ lax fiscal discipline and lack of financial regulation, together with abnormally large reserves throughout the world due to interaction of the “Three Kingdoms” could evoke an American financial crisis. It flashes a yellow card to the existing operational model of economic globalization and calls for the international community to introspect and choose how to improve the mechanisms of globalization.
