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The conflict between Russia and Ukraine has been going on for weeks since February 24. It was widely expected to be a one-sided war at first, but the two sides have reached a deadlock. Although the Western countries did not actually participate in the war, they launched massive economic sanctions against Russia, including but not limited to strict financial sanctions, and the Russian economy was greatly threatened.
There is now a popular view at home and abroad that China will be an important beneficiary of the Russia-Ukraine conflict. The reason is that the Russia-Ukraine conflict highlights the contradiction between Russia and the West, especially the United States, and leads the United States‘ strategic focus from Asia to the United States. Europe, which will reduce the international pressure on China. In other words, China will be the winner of this geopolitical conflict. To demonstrate this point, the claim often cites the US war in Afghanistan as an example. After President George W. Bush took office in 2001, he planned to exert more pressure on China, but the “9·11” terrorist attack in 2001 completely changed this situation. In the following 20 years, the United States has devoted itself to combating international terrorism. ideology and eased pressure on China. China has also won 20 years of golden development opportunities and made great strides in economic construction. Now, at a time when the United States is focusing on deploying a geopolitical strategy of “returning to Asia” and treating China as a strategic competitor, the Russian-Ukrainian conflict has broken out again, which will prompt the United States to reconsider its global strategy and allocate more power to Europe .
It should be said that the above point of view has some truth, at least in the short term, there is a certain possibility, but in the long run and the overall situation, it is very one-sided. Hu Xueyan, a famous “red-topped merchant” in the late Qing Dynasty, once said: “The most important thing in business is vision. If you can see a province, you can do business in a province; if you see the world, you can do business in the world; If you can see a foreign country, you can do foreign business.” This is true in business, and it is also true in strategy, your height determines your views and behavior to a certain extent. After the reform and opening up, China’s economy has grown rapidly, and it is now the second largest economy in the world. There are many reasons for this, but one key point is that China has been well integrated into the process of globalization and has gained huge ‘s earnings. From this point of view, China should do everything in its power to maintain the development of globalization.
The first globalization climax
Taking history as a mirror, we can know the rise and fall.
According to the information provided by the American economist Frederic Mishkin (Frederic Mishkin, hereinafter referred to as Mishkin), the period from 1870 to 1914 was the first stage of globalization. At that time, international trade grew at an average annual rate of 4%, and its share of global GDP increased from 10% in 1870 to 20% in 1914; international capital flows grew at an average annual rate of 4.8%, and its share of global GDP increased from 7% in 1870 grew to 20% in 1914. In his famous book The Economic Consequences of Peace, published in 1919, Keynes described this era profoundly:
“What a glorious era in the economic history of mankind, the era that ended in August 1914! The inhabitants of London could sit comfortably in bed and have morning tea, order by phone the different products they want from all over the world, and have them delivered to their homes door; he can in the same way accumulate wealth from natural resources, open factories, and enjoy the harvest in any corner of the globe at the same time; he can use the integrity of the people of any big city to increase the security of his wealth .”
The first wave of globalization was accompanied by an unprecedented economic boom. From 1870 to 1914, the annual growth rate of global per capita GDP was as high as 1.3%, and from 1820 to 1870, this figure was only 0.53%.
Another question about globalization is whether it has accelerated the development of poor countries, of which Japan is an excellent example. Since the 17th century, Japan has implemented a policy of closing the country. In 1853, Perry led the black fleet to Japan, forcing Japan to trade with the United States, and Japan had to open its door. This eventually led to the Meiji Restoration of 1868, and fully integrated the Japanese economy into the global economic system. In 1870, Japan was still a backward country, its per capita income was less than 25% of Britain’s. From 1870 to 1913, Japan’s per capita income growth rate was 1.5%, while the UK was only 1.0%, the income gap between the two gradually narrowed.
The opposite example also existed at the time, namely China. After the Opium War, although China gradually opened its doors, the pace of reform has been very slow, so China has not fully integrated into the international economic system like Japan, which has led to a widening gap between China and advanced countries. For example, in 1870, China’s per capita income was equivalent to 24 percent of Britain’s, but by 1914, that measure had fallen to 13 percent.
It can be clearly seen from the above description that in the modern economy, the concept of independent development no longer exists. In the modern economy, there is me in you, and you in me. Only by embracing the process of globalization can we achieve the greatest development results, and isolation from the global economic system can only lead to the accumulation of poverty and weakness in a country’s economy. Now Russia is facing a very serious situation, because not only are the governments of Western countries imposing economic sanctions on it, but large companies in Western countries have also begun to take action. For example, Visa and MasterCard have announced their withdrawal from the Russian market, which has led to the Russian financial system in the “final stage”. One kilometer” had a congestion problem.
The end of the first globalization climax
Misfortune is where good fortune rests; good fortune is where misfortune lies. The same goes for globalization.
With the economic prosperity brought about by the first globalization, the national consciousness of many countries began to awaken, and this eventually led to the outbreak of the First World War. The outbreak of war made many countries meet each other, and normal trade and investment activities were naturally greatly affected, and the first climax of globalization came to an end. Very unfortunately, the post-war years can also be described as turbulent. From 1914 to 1929, the average level of international trade fell from 22% of global GDP to 16%, and capital flows fell from 20% of global GDP. to 8%.
However, worse things are yet to come. In 1929, an economic crisis occurred in the United States, which quickly spread to other countries, and the world economy was hit hard. Unemployment in the United States was as high as 25% at the time, and per capita income fell by 30% by 1933, only to recover to levels slightly higher than 1929 by 1939. In order to protect themselves, countries have begun to implement beggar-thy-neighbor economic policies. For example, the United States introduced the Smoot-Hawley Tariff Act, which greatly increased tariffs on imported goods; the United Kingdom withdrew from the gold standard, and the pound immediately depreciated sharply. , the share of British manufacturing in the world market has increased. In addition, the UK has imposed additional duties on imported goods. Since some countries have withdrawn from the gold standard and let their currencies depreciate, those countries that still adhere to the gold standard feel that they are “at a loss”, so they also withdraw from the gold standard, depreciate their currencies, and impose import taxes. The result of everyone’s devaluation of the currency was that the international trade and financial order was chaotic for a while, and some people later described it as a “currency war”. The result of tariffs imposed by all countries is a sharp decline in the volume of world trade, and in the end everyone loses everything.
The economic crisis brought a years-long economic downturn in the United States, historically known as the Great Depression, and in Germany and Italy it was much worse. Because of the stagnant economy and intensified social conflicts, the democratically elected government could not control the situation. Both Germany and Italy were governed by the fascist government. As soon as these governments came to power, they advocated “cannons, not butter”, actively expanded their arms and prepared for war, and launched World War II just a few years later. World War II is by far the largest war ever fought by human beings, and it also caused the greatest losses. From 1939 to 1945, at least 50 million people lost their lives, more than half of them civilians.
Mishkin believes that the end of the first globalization climax and the outbreak of the two world wars taught us two lessons: first, globalization is not an irreversible process; second, the result of anti-globalization may be disastrous.
Globalization and China’s Fundamental Interests
Let me put it here first, in addition to geopolitical interests, maintaining Ukraine’s neutral status is also beneficial to China. Today Ukraine is neither a member of NATO nor a vassal of Russia, but a neutral country. Ukraine is an important participant in China’s “One Belt, One Road” initiative, and China has more and more investments in it. Maintaining a peaceful Ukraine is of great significance to ensure the security of these investments. Moreover, Ukraine is an important industrial center of the Soviet Union with strong industrial and technological strength. A neutral Ukraine is more likely to cooperate with China in sensitive technologies such as military. Conversely, although Russia is now ostensibly close to China, Russia has long maintained a wariness of China due to problems in the Far East, and this wariness will not disappear in the foreseeable future.
Back to the question of globalization. After World War II, in order to prevent the recurrence of world wars, the capitalist countries led by the United States established the Bretton Woods system. The system is mainly characterized by a “dual peg”, the US dollar is pegged to gold (one ounce of gold is worth $35), other currencies are pegged to the US dollar, and the International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO) have been established. three institutions. It is accompanied by a new round of globalization.
In this system, Japan developed first, followed by the Four Little Dragons of East Asia, and finally China. Before 1978, the atmosphere of the “Cold War” was very strong. The highest level of China believed that revolution and war were the themes of the times, so they focused their energy on preparing for war and famine, and put economic development in a relatively secondary position. By 1978, with Deng Xiaoping becoming the core of a new generation of leadership, the Chinese Communist Party changed its view of the past and began to believe that peace and development were the themes of the times, thus shifting the focus of work to economic construction. Fortunately, the leaders at the time did not work behind closed doors, but chose to integrate into the global economic system, as Japan and the “Four Little Dragons” did. Since then, a large amount of foreign capital has begun to flow into China, bringing not only capital, but also advanced technologies and concepts, which have greatly promoted the development of China’s economy. At the same time, China has also joined the international production chain through foreign trade, and has continuously improved the added value of its own products.
Reform and opening up has brought China’s economy to great strides, which is evident from the following indicators:
Chart 1
Source: World Bank.
Chart 2
Unit: Current US dollars.
Source: World Bank.
Chart 3
* The poverty rate in this chart refers to the percentage of the total population living on less than $5.50 a day in 2011 purchasing power parity terms.
Source: World Bank.
It is evident from Exhibit 1 that before the reform and opening up, China was a fairly closed economy. With the deepening of reform and opening up, China’s foreign trade volume has also made great progress. In recent years, the ratio of China’s foreign trade to GDP has declined, but it is still at a high level compared with before the reform and opening up. Figure 2 shows that China’s economy has developed rapidly after the reform and opening up, and the gap with the global average has rapidly narrowed, and now it is almost the same. Figure 3 is the data on the poverty rate. The data shows that from 1990 to 2016, this indicator in China has declined rapidly. Since China has a huge population base, this means that hundreds of millions of people have been lifted out of poverty. This is unprecedented, if not unprecedented, in history. It is worth noting that during the same time period, the decline in the global poverty rate was limited, and a large part of the decline was due to the sharp decline in the poverty rate in China, so overall, the poverty rate in other countries in the world has hardly changed much.
China turned to reform and opening up in 1978. It should be said that China was lucky because China caught up with the period when globalization was in full swing. Although there have been twists and turns, the general trend has not changed. Today’s Chinese economy has been deeply integrated into the global economy. It can be said that without globalization, there will be no Chinese economy today and tomorrow.
So what is threatening globalization? The first is war, especially between great powers; the second is protectionist policies such as the competitive devaluation of currencies. Globalization is like a public good. In the past, China’s economy was very weak and had little right to speak in the international economy. One advantage of this is that we can take a free ride on globalization. Now that China’s economy is huge and has a significant impact on the international economy, it is immoral and impossible to hitch a ride.
On the surface, the Russian-Ukrainian conflict is a war between a big power and a medium-sized country, but behind it is a wrestling between big powers. The conflict is not out of control yet, but no one knows what will happen in the future. In this regard we can look at the lessons of the 1930s after the Nazis came to power. The start date of World War II is generally considered to be September 1, 1939, when Hitler invaded Poland following the signing of the Soviet-German Nonaggression Pact. In hindsight, this was just one event in a chain of events. At the time, these events may have seemed unrelated.
The events mentioned above include: Japan’s invasion of Northeast China in 1931; Italy’s invasion of Ethiopia in 1935; the remilitarization of the German Rhine region in 1936, the same year the Spanish Civil War broke out; the German-Austrian merger in 1938 and the Sudeten crisis in Czechoslovakia; In 1939, the Soviet Union invaded Poland a few weeks after Germany invaded Poland, and the following year Germany invaded westward; Operation Barbarossa and Pearl Harbor in 1941. It wasn’t until the United States entered the war that World War II finally reached its greatest scale.
This history shows that water droplets can pierce through stones, and that anything builds up slowly. Before the Russian-Ukrainian conflict, Russia had clashed with Georgia and annexed Ukraine’s Crimea. The merits of these things are hard to say at once, but it is clear that in an economically interconnected world, these conflicts are threatening the global economy. For example, Europe relies on Russia for energy, but the US-led Western countries have now imposed a series of severe economic sanctions on Russia, and even kicked it out of the Society for Worldwide Interbank Financial Telecommunication (Swift), Russia is gradually becoming a The pariahs of the global economy.
Countless human experience shows that it is easy to start a war, but difficult to end it. The conflict between Russia and Ukraine has definitely not only brought about the escalation of contradictions between the two countries, but also the turmoil of the entire global pattern. Russia’s relations with the entire Western world are now in a high degree of uncertainty, and this poses a very serious threat to globalization as a whole.
As the biggest winner of globalization in the new era, China is a vested interest in the existing order. Therefore, it is China’s duty to maintain the existing order. From a certain perspective, globalization is the lifeline of China. To realize the great rejuvenation of the Chinese nation, a global system of peace and development is indispensable. Therefore, maintaining globalization is China’s fundamental interest. So what does maintaining globalization require China to do in the Russian-Ukrainian conflict? A very important point is to do coordination work, take active actions, and come up with a plan acceptable to all parties. These tasks are all very difficult things, but it is easy to do it. For its own fundamental interests, China cannot have a free-rider mentality. Fortunately, the highest level of China has now realized that it is impossible for China to stay out of this conflict, so it has begun to actively mediate, which is a very gratifying development. I hope that China can play a greater role in the Russia-Ukraine conflict in the future.
Finally, may the world be at peace, globalization will continue to advance, and the great rejuvenation of the Chinese nation will come soon.
(Note: The author is the deputy dean and professor of economics of Cheung Kong Graduate School of Business. This article only represents the author’s personal views. The editor-in-charge email [email protected])