An aerial view of Yantian Port in Shenzhen, Guangdong Province, which is the fourth busiest container port in the world Photo: TUCHONG

The Chinese economy expanded 5.2% year-on-year in 2023, while global growth was weaker than expected. Focusing on China’s economic achievements and challenges, as well as its role in the global economy, CSST recently interviewed Richard Kozul-Wright, director of the Globalization and Development Strategies Division at the United Nations Conference on Trade and Development.

Recipe for success

“China’s success has over past decades been based on a willingness to undertake policy experimentation, particularly on the supply side of the economy,” Kozul-Wright told CSST.

He highlighted that robust productivity growth has outpaced nominal wage increases, resulting in increased profits which have been reinvested into new plants and equipment, and creating a virtuous circle augmented by expansive credit provision through state-owned development banks. This profit-investment-productivity nexus has underpinned China’s strong export drive.

Strategic policy choices, including trade, technology, and industrial policies, have also played a key role in perpetuating this virtuous circle, Kozul-Wright continued. Critically, China has avoided an unduly rapid opening of its capital account, reducing its exposure to macro-financial stresses deriving from external shocks.

As such, China has done more than most economies to connect medium and long-term challenges with targeted investments and government support in new dynamic sectors, which most recently has included green development and the digital and AI revolutions, Kozul-Wright said. This development path has been characterized by a weaker role for consumer demand and direct central government spending, although both components have, in recent years, become more important growth drivers, while local government spending has also played a compensatory role.

Kozul-Wright stressed that exports have recovered but the weakness in international trade has persisted since the global financial crisis. So far, China has maintained a principled commitment to multilateral practices and the diversion of trade has not been as marked as many expected.

Role in the global economy

Despite its remarkable growth over the past four decades, Kozul-Wright pointed out that China continues to grapple with its own development challenges, distinct from those faced by either the United States or Europe. These challenges have an important bearing on China’s capacity to manage the stresses and strains of an interdependent world whose governance structures are, to a very large extent, the product of decisions taken by, and in the interest of, advanced economies.

China’s rise as the world’s preeminent industrial powerhouse has not only made it a critical source of global growth, but has also transformed the international division of labor and given a strong boost to regional and South-South cooperation, Kozul-Wright said. “This is clearly visible in the geographical reconfiguration of international trade and investment flows, but also in China’s own international cooperation initiatives such as the Belt and Road Initiative and the Global Development Initiative.”

In Kozul-Wright’s opinion, a distinct aspect of China’s growing global reach has been its willingness to share policy lessons from its own success, even as it has avoided instructing other countries on what they should be doing, respecting the importance of national sovereignty in its international relations and recognizing the specific developmental circumstances that countries face in designing their own policy strategies. “This stands in stark contrast with the attitude and actions of bilateral donors from the North,” Kozul-Wright said.

As China’s experience also confirms, access to technology is pivotal to establishing and sustaining a dynamic growth path. Given China’s own remarkable strides in developing cutting-edge technologies in key areas, including in new energy sources, electric vehicles, and artificial intelligence, a South-South framework can again help other developing countries access affordable technologies as they seek to build sustainable and inclusive development paths aligned with their own particular needs and challenges, Kozul-Wright said.

Kozul-Wright believes that a stronger South-South framework can help preserve the policy space developing countries need to integrate effectively into the global economy, by allowing flexibilities in trade agreements and extending financial support needed to overcome binding external constraints and manage external shocks.

China’s support for new financial institutions such as the New Development Bank has been an important step forward in this respect, Kozul-Wright said. Scaling up these initiatives and introducing other innovative arrangements to help expand the financing options available to developing countries will be critical in light of the multiple challenges they will face over the coming years, he suggested.

“China’s large trade surpluses have seen it emerge, in a very short time, as a source of international capital, including for developing countries with limited access to international financial markets or dependent on large multilateral lenders,” Kozul-Wright remarked. However, becoming a creditor poses a multitude of new challenges for policymakers, particularly around the response to distressed borrowers.

“The international architecture created by advanced economies to manage such problems has largely failed to provide solutions that are timely or fair and is in serious need of reform. China can play a constructive role here through its place in such fora as the G20,” he said.

In addition, Kozul-Wright acknowledged China’s wider impact on the international governance architecture where representational weight, financial support, and policy advice continue to be skewed in the interests of advanced countries. “As developing countries become more vocal in their calls for reform of the relevant institutions, China’s voice will be critical in ensuring that a strong developmental dimension, in line with its own experience, is injected into any reform agenda,” he concluded.