Mondialisation et Chine: Vers une tranformation mutuelle

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Yves Tiberghien, Harvard University China and
Globalization Toward a Mutual Transformation
Presentation at the CÉRIUMs Summer
SchoolChina Risen How it changes and change us
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China and Globalization Toward a Mutual
Transformation

• Yves Tiberghien
• Harvard Academy Scholar
• ytiberghien_at_wcfia.harvard.edu
• CERIUM-Summer School,
• July 5, 2006

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From this
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To this
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Preliminary Test - Who are they?
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Who is this cow-boy?
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What about this event?
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And this event?
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Presentation Outline

• 1. Stakes and Big Picture
• 2. Impact of Globalization on China
• 3. Some Chinese Vulnerabilities in the Process
• 4. Impact of China on Globalization
• 5. Some Essential Milestones

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1. Stakes

• 1) The process of Chinese modernization has
  entered a new phase of intense internationalizatio
  n since 1997. Does it destabilize China? Can the
  Chinese state maintain control over the process?
  Is the balance between a communist regime and a
  market economy sustainable?
• 2) Can the global economic system absorb China
  without getting destabilized? Will levels of
  national political support last?
• 3) Will Chinas integration into the
  international system force a global power
  transition? Can the transition be managed
  peacefully?

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Key Points

• 1. Until Now, China has kept an astonishing
  degree of control over the process of
  globalization and has managed to influence the
  sharing of benefits.
• 2. The current path leads to new milestones that
  may be harder to manage.
• 3. The continuation of mutual gains depends on
  political factors in the US, the EU, and Japan,
  as well as a wise management of relations with
  the US.

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2. Globalization and China Many Benefits
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A/ FDI Flows and Technology Transfers
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Key Points on FDI flows

• Cumulated Total in 2004 600 billion, much
  beyond other developing countries
• Concentration in a few regions Pear River Delta,
  Fujian, Shanghai area, a few cities.
• 22 of FDI MA
• Impact on SOEs competitive pressures, some
  crowding out, discipline effects
• Impact on the generation of laws and rules
• Rise of a transnational elite

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Wuhan Citroen Factory
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B/ Trading Boom
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A few Key Figures in 2005

• Trade Surplus with the US (total with world)
  reached 200 Billion.
• 2004 China became Japans first trade partner
  200 billion total trade (surplus of 15 bn for
  Japan)
• Enormous production 85 of worlds tractor
  production, 75 of world watches, 70 of world
  toys, 50 of world PCs.

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C/ Growing Financial Weight

• Jan 2006 Chinas foreign reserves reached 816
  Billion, 2 of world, just behind Japan. Key for
  stability of US.
• China can influence the world forex markets, just
  by changing the mix of its foreign reserve
  holdings.
• Growing of US Treasury Bonds held by China (cf
  related debates during Katrina last summer).

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New Fact Explosion in Chinese Outward FDI

• 2004 8000 Chinese companies present in 160
  countries
• Lenovo purchases IBMs PC division
• Oil Companies very Active (cf Battle CNOOC-
  UNOCAL in the US)
• Well-Known Names Huawei (telecom), Ningbo, Haier
  (electric appliances)

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Summary of Economic Picture in Context of
Globalization

• Economic Growth 10 per Year
• GDP (just revalued in 2005) now superior to FR,
  probably passing UK this year. Will pass Japan in
  2020 and the US in 2040.
• Chinese growth 18 of world growth in 2004.
• Technological rise
• Trade explosion since 1995 3 world exporter in
  2004, 8 of world exports.
• Huge impact on world oil market
• Large role in all global issues, soon likely in
  G8 (G9)
• Rapid military modernization

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Economic By-Product Growing Military Budget
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3. Some Chinese Vulnerabilities

• Is the hands-on approach to globalization
  sustainable?
• Is the trajectory domestically stable and
  sustainable? precarious banks, rising tensions
  in the countryside, iron rice bowl now broken
  (xiagang gongren)
• Can the regime retain its political legitimacy in
  the context of SOE restructuring and a social
  contract in tatters?
• Politically, is the regime stable over time?
• Risks related to national unity (growing
  inequalities)

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Key Point SOE Restructuring

• Since 1997, SOE restructuring has become a key
  bottleneck for Chinas integration in the world
  economy (development of competitive companies).
• Recent acceleration of the process 58 of SOEs
  disappeared between 1997 and 2002, 92 of
  collective enterprises.
• Several pathways followed identification of 1000
  national champions, mergers, bankruptcies, or
  privatization for smaller SOEs.
• Use of WTO as Troyan horse?

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Social Impact

• 50 Million workers laid-off between 1997 and 2003
  in SOEs
• Collapse of living conditions
• Concentration in North-East 27 M workers
  laid-off, 16 of entire population in Fushun,
  7.5 in Shenyang
• Many protests, riots, and petitions
• Pressure to build a welfare system

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The Mingong - migrant workers

• 140 Million migrant workers with limited legal
  identity and protection
• Still attached to their rural hometowns
• Comparative advantage for China or exploitation?

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Another weak point the stock market

• Created in 1991 in the midst of euphoria
• Aim raising funds for SOEs
• Only a third of shares are sold, other 2/3 remain
  controlled by state directly or indirectly
• Weak corporate governance, question marks about
  quality of regulators, weak minority shareholder
  protection

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4. Impact of China on Globalization

• Key lessons gradualism works, the state has a
  key role in managing the process, power matters.
• Convergence? No! A socialist market economy is
  compatible with the globalization
• Trade theories of comparative advantage and free
  trade pushed to the limit, due to size and speed
  of Chinas entry into the trading system.
  Adjustment takes time and has human costs.
• Flying Geese Theory also pushed to the limits
• On the interaction between development and
  democracy, was Lipsett wrong?
• The Unknown how stable is the process?

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5. Five Key Debates in Recent Years

• A/ The Asian Crisis salutary role played by
  China in stopping the domino reaction
• Chinese choices come out reinforced
• Another lesson any financial vulnerability can
  be exploited by other economic powers
• B/ Hong Kongs peculiar role during the Asian
  crisis

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Other Debates

• C/ Global Exchange Rates the Chinese Debate
• D/ Energy, oil, raw materials the role of
  diplomacy is rediscovered
• E/ WTO rise role played by China within the G 22
  group
• F/ Global Environment Treaties
• G/ GMOs Pivotal Role played by China

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A Striking Example Airbus, dec05
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Conclusion

• Rediscovery of the role of politics in managing
  global economic flows.
• China is able to benefit from globalization, due
  to its political and economic power and to its
  political stability - a state able to manage
  transition
• Challenging some of the key debates on
  globalization (convergence, loss of maneuvering
  space)
• At the same time, the sustainability of the
  current equilibrium hangs on international
  political relations and on the capacity of the
  current regime to manage a painful social
  transition (and rising inequalities).

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