China Center for International Economic Exchanges

Chen Wenling: The nine contradictions in today’s world
Date:Jun 18,2019    Source:CCIEE

In recent years, the unilateralism, protectionism, populism, bullying, separatism and militarism adopted by some countries have produced uncertainties and great risks in the global economy. To understand this era of contradictions and hope is important for us to make the right choice.

There are many old and new contradictions and problems around the world. They are common challenges faced by human society and important factors affecting the healthy and sustainable development of the world economy.

Rich and poor contradiction

The most unfair problem in the development of the world economy is the rich-poor contradiction between different countries and people. In general, rich countries are getting richer while poor countries are getting poorer.

Among the 193 economies that have joined the United Nations, the GDP of the top 10 economies create 80% of the total global economy; the GDP of the next ten economies accounts for 10% of the total global economy; the remaining 170 countries produce only 10% of the total global economy. The increase in the world economy and the amount of wealth are increasingly concentrated in developed countries and countries that are developing rapidly.

The gap between the rich and poor is growing. The British “Guardian” reported on April 7, 2018 that by 2030, the world’s richest 1% of the population will have 2/3 of the world’s total wealth. The contradiction between the rich and poor is an important source of populism in some countries and regions.

North-South contradiction

After the Second World War, developed countries are generally referred to as the North while the developing countries are referred to as the South. Therefore, the North-South relationship refers to the relationship between developed and developing countries.

In the past few decades, the North-South relationship has undergone great changes. Emerging economies and developing countries continue to develop rapidly and their aggregated economy is growing bigger and bigger. The “BRICS”, “CIVETS” and “E11 countries” have become more important and increased their influence in the United Nations, the World Trade Organization (WTO), the International Monetary Fund (IMF) and other international organizations. Furthermore, they have started to play a decisive role in such organizations as the “G20”, “BRIC” and “SCO”. The rise of emerging economies and developing countries as a whole has promoted profound changes in the North-South relationship. To a certain extent and at a certain point in time, emerging economies, developing countries and developed countries are competing head to head in the international community for more discourse power.

New and old momentum contradiction

This refers to the contradiction and entanglement arising from the transformation of momentum. The new generation of information technologies such as the Internet, Internet of Things, artificial intelligence, cloud computing, and cloud services has led to the emergence of new economies and momentum, replacing the old economic form, industrial format, and momentum. On the one hand, the economic links between different countries and regions are becoming closer than ever, creating intrinsic needs for inclusive, shared and common development. On the other hand, the contradictions between some countries have become more prominent. The contradiction between new and old management methods, economy, and business model have become increasingly fierce.

As the transformation between the old and new momentum gets fast, the Trump administration of the US has started to attack this kind of new format. Despite the earth-shaking changes in international trade, the US still use the principles of origin of 1809, the tariff law of 1930, and the trade law of 1974 to formulate global trade policies, which has brought great uncertainty to the development of the world economy.

Revenue and expenditure contradiction

The global revenue and expenditure contradiction has become increasingly prominent. According to the International Finance Association, the current global debt has reached 247 trillion US dollars, the highest level ever. According to the data released by the agency in October 2018, the US sovereign debt reached 21.8 trillion US dollars, accounting for 106% of GDP, and Japan’s debt reached 260% of GDP. In Europe, the average debt accounted for 95% of GDP, and the figure in countries like Greece, Italy and Britain are even higher, accounted for 179%, 138%, and 89% respectively. The size of China’s government debt is generally controllable. The debt of the central and local governments account for 37% of GDP, and the household debt is also well under control. However, corporate debt is between 250% and 260%, and the total leverage ratio is 249%.

Overall, global fiscal spending is quite tight. The US wants to maintain its hegemonic position but its fiscal expenditure capacity is not so strong, and its annual debt is increased by more than 1 trillion US dollars. By the end of President Trump’s first term, the debt is expected to reach 25 trillion US dollars. In Europe, especially the Nordic countries, the reduction in social welfare have been strongly resisted. In some poor countries, the situation is even worse.

The unilateralism and multilateralism contradiction

The competition between unilateralism and multilateralism today is unprecedentedly fierce. After the Second World War, the US and other countries led the establishment of the World Bank, the IMF and the WTO, and built international order and rules that are conducive to Western developed countries. These organizations aim to maintain multilateralism and develop multilateral relations, and to a certain extent, they helped the world to keep a peaceful development for several decades.

With the rapid development of developing countries and emerging economies, the US believes that the original international order and rules cannot guarantee its best rights and interests. Therefore, it has come to the opposite side and has adopted a series of unilateralism and protectionism. One of the them is to use the domestic laws, regulations and standards to deal with global issues, put its interest above other countries and the global rules. The US was the flag bearer of economic globalization, trade and investment facilitation and liberalization, but it has now become a spoiler that undermines global order and rules. The biggest source of risk and uncertainty for the world economy now comes from the US, who was the builder and leader of the original international order and rules.

Openness and closed-door contradiction

After 40 years of reform and opening-up, China has determined to further open its door to the rest of the world. Since Guangdong took the very first processing trade order in 1978, international trade and opening-up have spread to the rest of China. By the time China officially joined the WTO in 2001, it has started to launch institutionalized and high level of openness in line with world markets and rules.

On the contrary, some countries were open economies and have a mature market economic system and mechanism, but now they have taken the path of self-isolation and protectionism. They are not just building physical walls, but also invisible walls by either increasing tariffs, or restricting and prohibiting the export of high-tech products, with the aim of cutting off the global industrial chain. All these practices are based on the outdated economic model and thinking.

The contradiction between the real and virtual economy

The unbalanced development of the real and virtual economy has caused serious global problems. The world economy consists of two basic economic forms, namely, the real economy and the virtual economy and they should complement each other. The real economy is the basis for generating the virtual economy, and the virtual economy is the increment or variable produced by the real economy. We need both of them and have to bring balance to the two types of economy.

The most prominent problem at present is that we have not been able to stop the global economy from getting more and more virtual. Some countries have overstressed the service industry and undermined the manufacturing, unfortunately, these strategies are being adopted by many other countries; the excessive financialization and derivatization of some countries have created new financial and economic bubble; in some countries, there is too much speculation on the real estate. When the virtual economy over expands beyond the real economy, it will collapse.

The contradiction between an aging society and social security

China has entered an aging society since 2000. The proportion of elderly people over 60 years old has already exceeded 10% of its population and the aging rate is getting faster. Worldwide, more than 100 countries have entered the aging society, especially the US, Japan and Europe. According to the World Bank, Japan is the country with the biggest amount of aging population in the world as the proportion of the elderly over 65 years old is 27%, followed by Italy 23%, Germany 21%, France 20%, Britain 19%, Canada 17%, Australia 16%, the US 15%, Russia 14%, and China 11%.

Many countries have insufficient social security capacity to deal with the increasing aging population. The “cradle to the grave” social welfare system of Nordic countries have been seriously challenged and has become an important cause of the European debt crisis. Plus, almost all of the world’s top ten countries have encountered the same problem. Recently, the United Nations World Health Organization (WHO) has adjusted the age classification criteria, from 1 to 17 years old are classified as minors, 18 to 65 years are considered as young people, 66 to 79 years are middle-aged people, 80 to 99 years are classified as old age, and people over 100 years old are classified as long-lived old people. The life expectancy has greatly increased and correspondingly, the payment cycle of social welfare will also need to be extended. The problem of insufficient global support has become more prominent.

The competition among big countries is getting fierce

All the major powers of the world want to become a stronger nation, therefore, the competition among them has become increasingly fierce. After the Second World War, the two major superpowers competed head to head and entered a Cold War. After that, the world economy formed a structure of “one super & multiple poles”: the superpower is the US, and the multiple poles includes the EU, Japan, China, Russia, India, ASEAN and others.

During the fierce competition, countries continuously adjust their strategies according to their own interests and core concerns, which has become an important factor influencing the structural adjustment of the world economy. The adjustment of relations between major powers has made the world more diversified and ended the bondage of traditional allies. In the new international competition and development pattern, the space for the development of the world economy is not compressed, but expanded.

 

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