China and deglobalization of the world economy

Stanojević, Nataša and Zakić, Katarina (2023) China and deglobalization of the world economy. National Accounting Review, 5 (1). pp. 67-85. ISSN 2689-3010

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Abstract

This paper analyses the causes of the downward trend in three key cohesion aspects of the world economy: international trade, foreign investment and global value chains. The paper shows that the causes of these trends are not cyclical, but structural; that is, it is the process of deglobalization of the international market, and transformation of the very foundation of the international economic system is underway. The specific aim of the study was to investigate the impact of current trends on China’s economy. The question is whether the Chinese economy, which has developed due to globalization processes, will be negatively affected by reverse processes, and to what extent. To capture the short-run effect of globalization-related factors on China’s economy, an autoregressive distributed lag (ARDL) model was used. For estimation of the long-run linkage, the ARDL bounds testing approach to cointegration was launched. The results of testing the short-term effects showed that the new Chinese development strategy, aimed at protecting domestic economy from external disturbances, has produced excellent results. Significant changes in the Chinese development paradigm, as based on domestic production to meet domestic demand and financed by internal resources, have led to a decrease in the share of all international indicators in the Chinese economy. This is shown by both the statistical description of changes in the globalization-related variables, and it is confirmed by the results of conducted empirical research. Testing of long-term relationships has given conflicting results, so it is not possible to identify the long-term impact with certainty. Nevertheless, the parts of bounds testing that are statistically indisputable indicate a long-term, strong cumulative impact of these variables on the Chinese economy, while the direction and intensity of the action of individual variables are unpredictable. A new paradigm enables China to take a better international position as a global investor instead of a recipient of investments, to take over growing parts of global product chains instead of being their production link and to initiate a new form of globalization in the Chinese way.

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