Characteristic I: “Dual-Core & Five Zones”

First of all we should give a definition to the ‘dual-core’. The ‘dual-core’ refers to two countries, China and the United States. Although Chinese government has intentionally avoided the use of the words like ‘G2’ in their official diplomatic documents as possible as they can, in fact, the pattern of ‘dual-core’ or, in other words, G2, has already taken shape and would further enhance in the future. The economy of China and the US accounted for 36% of the global economy. A relatively moderate forecast is that China would turn to be the top 1 around the year of 2024 to 2025, by then the economic scale of the two countries together would take up 40% of the global economy.

Then we should make clear what the ‘five-zone’ refers to. The ‘five-zone’ was artificially divided among more than 200 countries and regions all around the world into five so as to help people directly understand the general outline and pattern of global economy.

The first zone refers to the US and the UK. From the perspective of economy, an extremely obvious fact that has always been ignored is that the economy of the UK is highly similar to that of the US but quite differs from that of the continental Europe or the Eurozone. This trend has gradually emerged especially since 2008, the UK and the US shared similar economic target and decision-making, but against that of the Eurozone.

The second zone consists of Europe (refers to the Eurozone) and Japan. Broadly speaking, the Eurozone and Japan shared similar economic structure and development level; more specifically, they are also facing the analogical constraints and objective restrictions on their monetary policies and fiscal policies.

The third zone refers to the economies of emerging market, which is mainly represented by China and India, but also includes some countries in Southeast Asia and Latin America. Countries of this zone still have great growth potential, but the specific economic prospect of which would be determined by the resolution of the reform and innovation and the flexibility of their policies. What should be noted is that India is on her way to profound economic development and thus has been a rising star in the recent years among this zone.

The fourth zone refers to the source-dominated economies consist of counties of the Middle East, Africa, and Latin America. The countries of this zone were profoundly influenced by the external economic environment and suffered economic fluctuation far more than that of the world average level.

The fifth zone holds all the underdeveloped countries, represented by those of sub-Saharan Africa.

Characteristic II: Inequality is Intensifying

The intensifying inequality refers both to the inter-state economic imbalance and the economic inequality within a country. The inter-state economic imbalance was also called as the global imbalance issues, which has been widely discussed as early as the year of 2006 and 2007 before the financial crisis. The external performance of the global imbalance often manifested as the imbalance of current account, while the root of the imbalance originated from global economic cooperation system and the savings and investment structure. And the problems concern the inequality of earnings and wealth among the different departments and entities within a country seemed to be even more serious than that of the inter-state economic imbalance.

The essence of the inequality lies in the problem of the income distribution that includes the distributions of capital, labor, and taxation. The structure of the factor distribution is actually a hub which directed related to consumption rate and saving rate of the economy, determined the aggregate demand, and exerted influence on the momentum of the economic growth. According to the present situation, it’s evident to conclude that the intensifying inequality can be blamed as one of the important causes for the scant demand and excess capacity at macro level and the key point in studying the issues of the sluggish global growth.

At micro level, the inequality would also cause a series of social problems. Take the referendum of Brexit as example, those of the elite class of the UK preferred to stay in the EU, while the ordinary people tended to leave the EU as they concerned more about the matters of immigration, labor, and the distribution of social welfare. Similarly, in the American Presidential Election, most of the members of the elite class preferred to support Hillary Clinton, while the common people and grass-root class were apt to Donald Trump. Moreover, the problem of income distribution inequality has never limited to the UK and the US but a universal and exacerbated problem all around the world.

Characteristic III: the Great Monetary-Easing

There are many similar words in the economics to describe the most prominent characteristic of a certain period of economic history, for example, the great depression, the great moderation, the great divergence. To pick up the most proper phrase to describe the feature of global economy after the financial crisis of 2008, it would be the great monetary-easing.

Almost all the countries implemented the policies of the Great Monetary-Easing after the financial crisis of 2008. The economies including the US, EU, and Japan all took the large-scaled bailout schemes, especially in the monetary policies, and employed every available means to rescue the market compared with that of the previous years. At first they adopted the traditional monetary policies--decreasing interest rate; and then they resorted to quantitative easing (QE) when the interest rate was near to the zero lower bound; finally they turned to the measure of negative interest rate as very few changes and stricter limit on the scale had received with implement of several rounds of QE.

One of the important but taboo reasons for resorting to the monetary policy was that the fiscal policy was limited by its special and political feasibility; moreover, it’s extremely difficult to carry out the structural reform.

Characteristic Ⅳ: Increasing Asset Price Fluctuation

One of the direct results caused by the great monetary-easing was the excess liquidity all around the globe. On one hand the capital was surplus, on the other hand the high-quality asset was insufficient. Large amount of capital ran after limited asset and thus emerged the fourth characteristic among the global economic pattern--the increasing asset price fluctuation.

The asset price was similar to the sea surface, the profits of various assets were almost the same in a balanced state, however, when the bulk of capital runs after the superior assets and seeks the investing opportunities across the world, the storms and waves would arise over the sea. The more excess of the liquidity, the stronger the storms of the asset prices would be. And that explained the big rise and fall of various assets prices (including the prices of the gold and other alternative investments) in the past several years and the boom-bust cycles ranged from real-estate market to the bulk commodity, exchange rate, and bond.

Characteristic Ⅴ: Momentum of Growth Tends to Wear Out in a Short Time

The fifth characteristic of the global economic new pattern is the temporarily stagnation of developing new market, and thus the momentum of growth tends to wear out in a short time. What should be noted is that there are two aspects in developing new market, one is called extensional development, such as to exploit the geographically new market; and the other one is called intentional, for example, to enlarge the stock market.

This is quite similar to that in the early 20^th 70s. The history of economic growth from the end of World War II can be divided into several phases as following:

The first phase ranged from the end of World War II to the early 1970s, during which the momentum of global economic growth was represented by the postwar recovery and construction of Europe and Japan. And drove by those momentums, the new market was developed and a bloom of economic growth emerged. However, the two markets we’ve mentioned in the previous part were near to saturation in the early of 1970s, and thus the new momentum was necessary for maintaining economic growth. The present economic situation is very similar to that of the 1970s; we are facing large-scaled excess capacity, declined economic growth of the major economies, the boom and bust of the price of bulk commodities, the trade protectionism, and a series of turbulence in regard to the international relations and geopolitics.

A new round of global economic growth that exploited new market and drove up the global economic growth started from the interim and late periods of 1970s with highlight of the four Asian Tigers. And then it’s the third phase of the market expanding conducted by the emerging economies since 1990s represented by China.

If there’s no newly-emerged incremental market, there would be a massive excess capacity that would therefore impede trade globalization in a short term. The trade conflicts were arisen more and more frequently in the recent years, among which China became a target of public criticism. Not only the developed countries imposed investigation and sanction of anti-dumping and anti-subsidy, but also some traditional emerging economies, like Brazil and Argentina, have taken trade protection measures against China to protect their domestic markets. 

The major two forms of international economic interaction are international trade and international capital flow. With the rise of trade protectionism, the international capital would flow more frequently and the enterprises tend to be more dependent on the form of capital flow to exploit overseas market, arrange resource allocation, and build international production and distribution network. And that may help us to understand reasons for more and more the Chinese enterprises keen on overseas purchasing. It has been a universal phenomenon across China’s enterprises including Fosun, Ampang, Alibaba, Sany Heavy Industry, and Wanda. Meawhile, more and more Chinese civilians and families began to think of allocating part of financial asset to overseas market, including purchasing real-estate in foreign countries and allocating overseas financial asset.

*This article is edited and translated by CCM. The original article comes from thepaper.com.

About CCM:

CCM is the leading market intelligence provider for China’s agriculture, chemicals, food & ingredients and life science markets. Founded in 2001, CCM offers a range of data and content solutions, from price and trade data to industry newsletters and customized market research reports. Our clients include Monsanto, DuPont, Shell, Bayer, and Syngenta. CCM is a brand of Kcomber Inc.

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