China will be deglobalisation’s big loser - If President Xi Jinping allows Russia to divide the world with its war on Ukraine, it is China that will pay the heaviest price
That agreement had been born of the belief that Europe would maintain strategic neutrality in the Sino-American cold war, to reap the economic benefits of engagement with China. But if human rights concerns were enough to convince the European Parliament not to ratify the deal, Russia’s war against Ukraine — which China has tacitly supported, and which has pushed the US and the EU closer together — seems likely to drive the EU toward a broader economic decoupling from China.
For starters, China will suffer from reduced access to major Western markets. In 2021, Chinese merchandise exports to the US, the EU, and Japan — accounting for 38% of total exports — amounted to nearly $1.3-trillion. If China’s access to these three markets is halved over the next decade — a likely scenario — the country will need other markets to absorb roughly 20% of its exports, worth some $600-billion .
High debt, rapid population ageing and an imploding real-estate sector will continue to hamper GDP growth, while sharp income inequality, soaring housing costs and weak social protections will constrain consumer demand. The closure of factories producing goods for export, and the associated job losses, will exacerbate these problems. A significant share of China’s infrastructure — especially energy and transportation networks — will be underused or even become redundant.
The third key cost of deglobalisation for China is harder to measure, but it may well turn out to be the highest: the loss of efficiency gains from dynamic competition. Products made and sold in China are of a far higher quality today than they were two decades ago, largely because Chinese companies must compete with their Western rivals. But if they are insulated from such pressure, they will not face pressure to produce higher-quality products at lower cost.
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