China’s role ‘in the global economy is irreversible’

China’s economic ascent during the past two decades has been an engine of global prosperity and a source of disruption. Once the “world’s factory” for cheap consumer goods, it has transformed into a hub of innovation, such as electric vehicles or EVs.

At the same time, it has fueled commodity booms across Latin America and Africa, anchoring price stability in advanced economies. Yet China’s rise has also exposed weaknesses in the West’s response to globalization.

The transformation of the world’s second-largest economy did not happen by accident. It was propelled by ambitious state-led industrial policies such as Made in China 2025, which poured resources into industries like robotics, aerospace, green tech and biotechnology. 

Strategic overseas acquisitions and technology transfers helped build a “full-spectrum” production structure, giving China a comparative advantage across labor, capital and knowledge-intensive industries.

Still, this transformation cannot be attributed solely to government direction. It also reflects the entrepreneurial drive of its people, who have thrived in a competitive environment.

Policy shifts

From delivery workers to world-class entrepreneurs, China’s workforce has sustained innovation through its adaptability, despite policy shifts and geopolitical headwinds.

The global effects of this economic transformation have been twofold. For the developing world, China has been an unparalleled growth engine. Its voracious demand for commodities and other intermediate goods has spurred a “super-cycle.”

In turn, that has boosted Brazil’s iron ore and soy exports, Chile’s copper and Africa’s oil, as well as other materials. China’s Belt and Road Initiative has also financed ports, railways and digital infrastructure across Asia and Africa.

That has eased infrastructure bottlenecks and integrated developing economies into global supply chains. Yet for the developed world, China has been a disinflationary force. 

Its so-called “price” phenomenon began with cheap toys and textiles. It now extends to solar panels, wind turbines and high-quality manufacturing equipment. Cheaper goods anchored global inflation, enabling Western central banks to maintain low interest rates.

For years, it also boosted household purchasing power, while American and European consumers enjoyed immense welfare gains, often overlooked in political debates.

But perceptions of China’s rise have been shaped not only by economics but also by geopolitics. The growing sense of threat in the West reflects competitive pressures and deeper ideological and strategic tensions.

Decisive role

Among the strongest critiques of the country’s rise is the so-called “China shock” – the wave of import competition that hollowed out many manufacturing industries and devastated industrial communities in the United States. 

In the early 2000s, regions most exposed to Chinese imports often experienced unemployment, stagnant wages and social dislocation. But this narrative also ignores the decisive role of American domestic policy failures.

By contrast, Germany faced similar pressures but mitigated the damage through labor market policies, vocational training and worker participation in corporate governance. These policies did not eliminate disruption but softened its social impact.

Many Asian economies also worried about losing low-end industries to China’s cheaper labor in the early 2000s. But instead of resisting, much of Southeast Asia adapted, reconfiguring supply chains, upgrading domestic industries and deepening integration. 

Over time, ASEAN economies benefitted from China’s growth rather than being overwhelmed by it. Adjustment costs were real for some sectors and workers, yet regional adaptability and social resilience proved stronger than in many advanced economies.

Where Southeast Asia embraced adaptation, the United States defaulted to resistance. The result was that the same force became an engine of opportunity in Asia but a political flashpoint in Washington.

China’s integration into the global economy is now irreversible. It is too deeply embedded in supply chains, capital flows and innovation networks to be contained. So, the real question for policymakers is not whether to engage with China, but how to adapt to its impact.

The lesson of the past two decades is clear – the benefits of globalization are real, but they are only as sustainable as the domestic policies designed to share them.

Central force

ASEAN’s and Germany’s experiences offer lessons for the United States and its allies on how investing in adjustment, retraining and competitiveness can help economies adapt.

China will remain a central force in shaping 21st century prosperity. The challenge for the rest of the world is to treat this as an opportunity, not a shock to be feared and resisted.

Hoe Ee Khor is a Professor of International Economic Relations at Nanyang Technological University. He was the former Chief Economist of the ASEAN+3 Macroeconomic Research Office, Deputy Director of the Asia and Pacific Department at the IMF and Assistant Managing Director of the Monetary Authority of Singapore.

Tan Kim Song teaches international economics at the School of Economics at the Singapore Management University and serves as a business adviser to various companies in the region.

This edited article is republished from East Asia Forum under a Creative Commons license. Read the original article here.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.