Global economy: Can China calm nerves?

The global financial system is in a frail state currently. Global debt is on the rise and shows no sign of abating. It rose to a record $237 trillion in the fourth quarter of 2017, more than $20 trillion higher from end-2016. Private non-financial sector debt hit all-time highs in Canada, France, Hong Kong, South Korea, Switzerland and Turkey.

The global debt-to-GDP ratio has grown beyond expectations since the 200708 global financial crisis, and governments are struggling to pay off the interest. While a full-blown debt crisis has not materialised, the vulnerabilities are apparent.

For the average worker who is at risk of losing his or her job or pension, the frailty, uncertainty and unsustainability of the current economic system is deeply concerning. The post-crisis years have demonstrated rising levels of income and global wealth inequality and a social menace such as unemployment.

With the advent of artificial intelligence (AI) and automation and the world being on the cusp of the Fourth Industrial Revolution, workers face unprecedented job insecurity. Employment is no more certain across various sectors as technological innovations threaten to substitute the workforce. This is even valid for the well-qualified and highly educated. If some work can be codified, whether it is manual-based or knowledge-based, that job is at risk of being taken over by AI and robots.

The end of World War II heralded a new age of globalisation. Under the leadership of the US and the UK, the Bretton Woods agreement and the development of global institutions such as GATT/WTO, IMF and the World Bank set the stage for a new economic order.

Despite occasional hiccups, this economic system has generated wealth and led to peace and poverty eradication for most countries of the Organisation of Economic Cooperation and Development (OECD) and for many emerging economies in Asia.

Since the global financial crisis, prolonged and unsettling socio-economic woes have eroded confidence in the post-war system and its international institutions. Developing economies are moving away from a reliance on IMF funding towards the creation and use of alternative, regional funding sources. Even the developed West, including the US and the UK, has increasingly lost trust and hope in the world trade order under the WTO. Western democratic governments have started to lose their bearings and become more inward-looking and protectionist. Fears of job competition, terrorism and erosion of local identity bases have led to a surge in right-wing nationalist, populist and xenophobic sentiments. Trump becoming President of America, Putin winning a fourth term in Russia, and a mixture of political parties' winning in Germany re-establish a strong wave of right-wing conservative political establishment sweeping a large part of the world.

How can such global trust deficit be overcome and confidence in the global economic order be restored? The decline of the West has been accompanied by China's re-emergence as a world economic power. According to the IMF, China overtook the United States as the world's largest economy in 2014, producing 17% of the world's GDP, when adjusting for purchasing power parity, compared to the US's 16%.

Could China lead the world into a new economic paradigm? This possibility has been echoed within China itself, especially during the recent 19th Communist Party Congress. During his opening speech, President Xi Jinping voiced China's commitment to international cooperation and global economic integration. But there seems to be a feeling of unease about the idea of a China-led world order, particularly amongst Western intellectuals and leaders. Many are wary of the incompatibility of the current Chinese political system and Western liberal democratic ideals. Given the current atmosphere of distrust in globalisation and the international world order, China will need to begin offering some assurances to the world that the Chinese model of economic growth and development could potentially provide a new, viable alternative of providing a 'safe harbour' as they are more pragmatic and cautious towards bringing about any kind of fundamental change that the situation demands.

The United States' recent imposition of tariffs on steel and aluminium imports heightens the risk of the world descending into protectionism and trade wars. This is an opportune moment for China to try to provide some economic stability and reduce global tensions. One way it could do so is by accelerating its 21st Century Maritime Silk Road component of the Belt and Road Initiative (BRI). In Southeast Asia, China could expedite port and shipping development to promote trade and connectivity.

On the investment front, China could increase and diversify its investments in the region, particularly in the services sectors that could provide more high-skilled jobs to an increasingly well-educated labour force in Southeast Asia. Under such difficult times, the world economy could possibly look up to China and other countries in the BRICS grouping to develop further networks of a strong, modernised and deeply integrated economic order that could benefit everyone, instead of adopting confrontationist and protectionist policies.

(The author is Professor, Lal Bahadur Shastri Institute of Management, Delhi)