The post-Covid economic order has exposed Beijing's vulnerability
Deglobalisation is the idea that the integration of the world economy is going into reverse. But is it actually happening? After decades of globalisation, will the future be one of economic conflict between rival trade blocs?
The following chart appears to provide an omen. Shared on Twitter this weekend by the investor Jens Nordvig, it shows a steep decline in foreign direct investment (FDI) in China.
Nordvig adds that in the second quarter of 2023 foreign investors “only put about $5bn of fresh capital into China […] in 2021, we saw close to $100bn per quarter!”
There are many forms of foreign investment, but one of the most important is (or perhaps was) the wholesale offshoring of the West’s industrial capacity. This mega-trend has changed all of our lives by flooding consumer markets with cheap goods, while degrading the productive side of our economies — and in particular the availability of well-paid jobs in manufacturing.
If this process is now coming to an end — or at least slowing to a crawl — then that’s a big deal.
Of course, it’s tempting to dismiss this development as yet another Covid side-effect. The disruption of supply chains has played all kinds of havoc with the global economy. Until normal service is slowly and painfully restored, it wouldn’t be surprising if Western investors in China were holding back temporarily.
Except that Covid hasn’t just exposed the vulnerability of a globalised economy to pandemics, but also something more enduring, which is the true nature of the Chinese state. From the cover-up of the origin of the virus to the draconian imposition (and sudden collapse) of China’s Zero Covid policy, the depredations — and limitations — of Xi Jinping’s dystopian rule are plain for all to see.
Then there’s the Ukraine effect. China is not the only non-Western power to maintain close relations with Russia. However, unlike India or Brazil, China has also continued to threaten war against a state with close ties to the West — in this case Taiwan. The experience of companies like McDonald’s in Russia provides an example of what would happen to Western investments in China if President Xi went full Putin and ordered an invasion of his own. Even if peace is more likely to be maintained than not in the South China Sea, why would Western investors run such a risk?
There’s also the vulnerability of China’s export-oriented economy at a time when the West is waking up to the danger of depending on dictatorial regimes. For instance, Italy has announced its intention to leave the Belt and Road Initiative (BRI) — which is China’s multi-trillion-dollar programme to build (and control) a Eurasian trade network. The Italian Defence Minister described his country’s previous decision to join the BRI as “atrocious” and voiced concerns about the Chinese government’s “increasingly assertive attitudes”.
There has always been a self-hating tendency at work in the West. Guilt-stricken liberals, subversive Leftists and Putin-loving populists delight in the rise of the non-Western powers and the various humiliations of the free world. But while there’s nothing wrong with learning our limits, we shouldn’t imagine that countries like China are invincible, or that they won’t suffer the consequences of their own arrogance.