Could China Save Globalization?

Globalization has fueled growth in advanced and developing economies alike, but it is now at the center of a polarizing debate. Today even its staunchest defenders acknowledge that globalization has unleashed disruption and unintended consequences, from job losses to environmental degradation.

Unless these issues are squarely addressed, the current drift toward protectionism and nationalism in many Western countries could harden into policies that choke off critical sources of growth. At a time when many of the world’s major economies are turning inward, the future of globalization depends in no small part on whether China can lead it onto a more inclusive path.

The movement of goods, services, finance, data, and people across borders adds to GDP and fuels productivity growth—and China has been one of the world’s major beneficiaries. The nation’s period of double-digit GDP growth in the mid-2000s was fueled by even faster growth in the flow of goods in and out of China. As China established itself as the world’s top exporter, industrialization created a pathway out of poverty for hundreds of millions of people.

But while developing economies such as China boomed, and inequality between countries lessened, inequality within many countries has risen. Across 25 advanced economies, some two-thirds of households experienced stagnating or declining income from 2005 to 2014—all while watching the wealthiest few in their countries realize tremendous gains.

Globalization is not the sole cause of growing inequality in advanced economies. The transition to a digital economy that disproportionately rewards highly skilled workers and automates routine tasks has been a driving factor. But import competition has clearly taken a toll.

In nations where underlying growth has been lackluster, there is a growing tendency to blame globalization in all its forms for the fact that large segments have fallen behind. A wave of wrong-headed protectionism could have damaging consequences in a world still struggling to jumpstart growth—and this scenario poses serious economic and social risks for China.

Nations around the world will largely have to rely on their own domestic policy toolboxes to grapple with inequality and economic growth. But there is work to be done at the international level—not to mention the fact that the most effective responses to shared challenges such as climate change, volatility, terrorism, cybersecurity, and public health are built on global cooperation rather than going it alone.

The world needs to direct more investment and innovation into education and training in an age when workers face fast-moving labor market shifts, whether they are caused by foreign competition or automation technologies. Additional priorities include broadening participation in the digital economy; launching infrastructure projects that can boost global demand and productivity; and improving global governance of cross-border investment, trade, and digital flows. Innovations fostered in one part of the world need to make their way to the broader global populations who stand to benefit.

China can and should make a distinctive contribution in all of these areas. In the realm of education and training, for example, China can take advantage of its huge size and diversity to experiment and forge new models that could be of tremendous value to other nations, particularly with regard to digital and remote learning.

In higher education, there are major opportunities to establish international research collaborations and two-way student exchanges, welcoming more of the best global talent to China and expanding Chinese universities globally. And finally, China can direct its considerable research capacity into scientific challenges such as developing affordable drugs or increasing agricultural yields.

China could also play a leading role in expanding access to the digital economy. More than half of the world’s population still lacks access to the Internet, which exacerbates inequality. China, with its manufacturing prowess and expertise in building huge infrastructure projects, is one of the few global actors capable of marshaling an initiative that finally brings the rest of the world online.

The world also needs to put fundamental frameworks in place to secure the healthy growth of the digital economy. China can push for international cooperation on issues such as data standards, data sharing, cybersecurity, and artificial intelligence. Given the immensity of its own potential data sets, sharing more of China’s own information with the world could also contribute to global growth.

Infrastructure investment was a major component of China’s own economic rise, and now the nation is in a position to back projects that can spur economic and human development beyond its own borders. The capital, expertise, and ambitions that have gone into the Asia Infrastructure Investment Bank and the One Belt, One Road initiative can be applied to projects all over the world—in advanced as well as developing economies. 

More broadly, China can reshape global governance. Within multilateral institutions, China is in a unique position to bridge the perspectives of developing and advanced economies. It will also be important for China to signal its seriousness about improving corporate governance. As Chinese companies expand, they should adopt global standards in labor, environmental, and business practices, both at home and abroad.

China is deeply embedded into the global economy, and its prospects for continued growth and social stability are closely tied to the success of globalization. It is in the nation’s own interests to invest in global public goods and mitigate the risk of other nations turning inward. Proclamations alone will not be enough. It will take tangible steps toward reform and inclusiveness to rebuild the public’s trust and backing for globalization.

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I'm a senior partner in McKinsey's Shanghai office and Director of the McKinsey Global Institute (MGI) in Asia. I also co-lead the Urban China Initiative (UCI), a thinktank devoted to transforming China's urban future. Visit the UCI website here. Read my latest work as co-author of No Ordinary Disruption (Public Affairs, May 2015), which examines how long-term shifts in the global economy challenge long-held assumptions.

A condensed version of this essay also appeared in China Daily.