When China looses strength...

Column published on 26th October 2015 on the Huffington Post website (available in French only)


INTERNATIONAL - It is too soon to measure the impact of the Chinese economic crisis, too soon to know if it is structural or temporary, too soon to know if its weakened financial market, banking system, real estate market and demography (ageing population) could result in a long-term slowdown. Nevertheless, one conclusion can already be drawn: China can no longer drive global growth. Generally speaking, Europe, which seems to be condemned to low growth rates for the coming decade, cannot keep up with the dynamism of a few major global actors - China, United States, India, Brazil...

Naturally, these major globalisation actors play an essential role. However, we must be aware of the key role of the other transformation of the international economy, which is regionalisation - that is to say the creation of large groups of countries tied by their complementarity and proximity. Besides, seeing China only as a global actor would be a mistake. As soon as the 1990’s, as it was transforming its national economic system, China dramatically modified its regional strategy via its East Asian integration (”Asean+3” agreements, that is to say, Asean + China + Japan + South Korea). Even though relationships in this area are complex, especially with Japan, the Chinese East Asian integration strategy provided China with the necessary foundation to conquer global markets. The WTO keeps explaining that a large share of Chinese exportations are assemblies of subsets designed in Japan and manufactured in Malaysia, Taiwan, Korea... In the 1980’s, only a third of East Asian exportations were destined to other countries of the region – they now account for almost two thirds. When the Japanese relocate their manufacturing units abroad, it is very often in East Asian emerging countries. In other words, public opinion identified the globalisation tendency, but it failed to see that of regionalisation. These two major trends of the global economy are complementary, the globalisation-regionalisation dynamic is key to the ongoing transformations.

European countries were the forerunners of regionalisation. For many economic reasons (weak R&D) and institutional ones (weak federalisation), Europe cannot face on its own the Asian rise and the American technological colonisation. It must rely more on the sources of growth that are the emerging countries of its region (which in European language is called the “Neighbourhood”). The Chinese crisis is a good opportunity to focus on regional integration, especially in the Mediterranean region and in Africa. Instead of staying focused on the migrant crisis and terrorism, accelerating the Euro-Mediterranean and African economic integration could help build political stability, economic growth and co-development in the long term.

To do so, Europe must change its perception of market opportunities in Southern Mediterranean and African countries. The Chinese crisis, along with price growth (real estate and wages), already made some American companies settled in China relocate in North America and Mexico (maquiladoras). European companies must follow this lead and, in the light of what is going on in China, reconsider the investment risk in countries such as Morocco, Tunisia, Algeria, Turkey and Egypt... that could become the European “Dragons”. Then, Europe must recast its European Neighbourhood Policy currently focused on a combination of free-trade and administrative control. It must now aim at a Trans-Mediterranean productive system, based on co-production, and rely on the civil society - including companies of both shores.

A regional economic integration of Europe with its emerging South - Mediterranean Area and Africa - would boast many assets: broadened markets, even if this means protecting them better; collective preferences, especially in terms of social rights, universal social security coverage and respect for the environment; common regulations, instead of chaotic globalisation; increased economic stability, instead of a cyclical global economy driven by a few global powers. When the United States or China loose strength, the region Europe-Mediterranean-Africa should gain some.

Jean-Louis Guigou, Senior Official and founder of IPEMED
Pierre Beckouche, Expert in economic geography and OECD expert