Steven Brakman is Professor of International Economics at the University of Groningen and Charles van Marrewijk is Professor of International Macroeconomics at Utrecht University, both in The Netherlands. The authors have worked together for about three decades and published dozens of articles and seven books on international trade, economic development, geographical economics, urbanization, and investment flows. This post represents the views of the authors.
Research Project Information
China in the Local and Global Economy: History, Geography, Politics, and Sustainability is the outcome of a joint research project by the Asian Development Bank Institute (ADBI) of Japan, Xi’an Jiaotong – Liverpool University (XJTLU) of China and two Dutch universities, namely the University of Groningen (RUG) and Utrecht University (UU) in collaboration with other authors from China, the UK, and Japan. The editors in charge are (alphabetically): Steven Brakman (RUG), Charles van Marrewijk (UU), Peter Morgan (ADBI), and Nimesh Salike (XJTLU). The outcome is published by Routledge in the Regions and Cities series.
Chinese Connections
‘China is a big country’ is hardly a surprising conclusion, but looking at the actual numbers remains awe inspiring, as it could also refer to a continent rather than a country. In 2016, China ranked second in land area, first in population, and first in (PPP corrected) income level, with percentage shares in the world totaling 7.2% for land, 18.4% for population, and 17.6% for income. Despite its continent like size, the central theme in the China in the Local and Global Economy project is that China is crucially dependent on economic relations with the rest of the world. International connections in terms of trade, investment, and knowledge linkages are essential for China’s economy. The second observation is that, given its overall development level, China needs the world more than the world needs China. In this way, China is no different from any other country.
From 1955 to 1978 the Chinese economy was relatively closed to international connections. In this time period, China’s share in world income declined from 5.9% to 4.9% even though its population share rose from 22% to 22.3%. Since the economic reform process started in 1978, China has opened up to international connections.
In the period 1978-2016, China’s share in world income grew exponentially, from 4.9% to 17.6%, even though its population share declined from 22.3% to 18.4%, but the decline in share is largely caused by population growth in another giant (India) and in Africa.[1] This is illustrated in more detail in Figure 1, where the Chinese economy is stagnant or in relative decline when it is closed to international connections and prospering when it is open to international connections.
Figure 1. China’s share in world population and income (%), 1955-2016.
History, Geography, and Policy
The book consists of 12 chapters in four section, where the first 3 parts analyze the interplay between history, geography, and policy to better understand the importance of local and global connections for Chinese developments. The final section looks at current challenges for future sustainability. Historical (policy) developments like the Great Leap Forward, the Cultural Revolution, and the Economic Reform process have long-lasting consequences for China far into the 21st century. But the history of China is much longer than the last 50 years or so; many cycles of growth and decline characterize the history of China. Ever since the unification of China, during the Qin dynasty (221-206BC), it has witnessed periods of decline, civil unrest, invasions, etc. In the book, we take this history as a starting point and place the current upswing in a historical context. If history is a guide, it shows that the current discussions on China should be placed in a historical context and that we are most likely just witnessing another upswing. This upswing, however temporary, will have huge consequences for other parts in the world as China is rapidly expanding its influence everywhere.
Global connections include the location of prospering cities in the east of the country and along the coast, which have access to foreign markets and the start of even larger international infrastructure projects in the One Belt One Road initiative, to better connect China with its neighbours in the west and south-west. The consequences of this initiative is discussed in the (forthcoming) special issue of the Cambridge Journal of Regions, Economy, and Society on the New Silk Roads (Brakman et al., 2019). The expectation is that the consequences will be large. Calculations, using the gravity model of international trade, show that trade flows will take another route once the belt and roads initiative is finished affecting the global transportation system in disruptive ways. Also, China is investing heavily in projects along the road, such as Piraeus (the shipping Harbor near Athens). Given that transport routes will change, the income generated along the belt and road will at least partly be transferred back to China. This strategy shows two sides of China; it will strengthen its position as the future economic powerhouse of the world making, the world increasingly dependent on the Chinese economy, but the other side of this export strategy is that China will also become more dependent on the rest of the world to generate part of its income.
Given its size, geography plays an important role in Chinese connections, both locally and globally. Local connections include large infrastructure projects, the rise of cities, and industrialization in combination with migration flows. This has resulted in enormous inland agglomerations like Chongqing, with a population of more than 30 million in 2018. One of the key characteristics of the current Chinese labor market is the so-called Hukou system. This is a permit system that regulates internal migration; between rural and urban parts of China, and migration of workers between industries. China is increasingly becoming more liberalized and allows market forces to do their work. This includes relaxing the Hukou system. The consequences for China can be vast; not only will this stimulate migration from rural areas to cities but also to large inland agglomerations like Chongqing. The belt and road initiative can further affect inland migration along new roads and railways. Further changing the internal landscape of China; the center of economic gravity will possibly move away from the coast.
Sustainability
All in all, China faces challenges with respect to demography, inequality, sustainability, and governance. Demographic knowledge in combination with past policies are crucial for understanding the threats to Chinese developments in the future under the label reverse demographic dividend. China is characterized by an aging population. As a consequence, China’s share of older (65+) people surpassed the world average around 2003 and has been rising rapidly since: it is currently already 2.5 percentage points above the world average and will be 10 percentage points higher than the world average around 2040.[2] This will interfere with the growth ambitions of the Chinese government. The large impact on growth of moving a mostly rural agricultural population to the factories in the cities has ended. The economy becomes increasingly dependent on innovation as a source for growth. Raising the skill-level of the Chinese workforce is the next challenge.
Along with the Economic Reform process and a rapidly rising economy we observe an increase in income inequality since 1978 from an initially low level to currently high levels, particularly in cities. The Chinese government acknowledges that these developments cause internal tension which threatens the structure of society, but so far it has not been able to successfully reverse the trend. The challenge here is to guide and substitute the process of capital investments towards more consumption; ‘only work and no play’ does not work in most countries, and China is no exception. Similar remarks hold for environmental problems, like energy use and water, soil, and air pollution. Tackling these issues requires access to international knowledge flows and a more important role of China in global governance. China needs the world, but the world increasingly needs China.
[1] By 2040 China’s share of older people is higher than the share for Europe and Offshoots, where the latter combines Canada, USA, Australia, and New Zealand.
[2] Rougoor and van Marrewijk (2015) and van Marrewijk (2019) provide more details on the links between demography and growth.
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References
Marrewijk, C. van (2019), “Demography and Inequality in China,” Chapter 10 in: S. Brakman, C. van Marrewijk, N. Salike, and P. Morgan (eds), China in the Local and Global Economy, Regions and Cities Series, Routledge, London, U.K., and New York, U.S.A.
Brakman, S., P. Frankopan, H. Garretsen, and C. van Marrewijk (2019), “The New Silk Roads: An Introduction to China’s Belt and Road Initiative,” Cambridge Journal of Regions, Economy, and Society.
Rougoor, W., and C. van Marrewijk (2015), “Demography, growth, and global income inequality,” World Development 74: 220-232.