China’s New Style of Globalization as a Route to a More Sustainable Growth Path

Abstract

This chapter describes the foundation for a new type of globalization whereby China positions itself in the center with BRI as the major infrastructural project. Finally, this should lead to a transition toward a more developed economy. In this chapter, the current trade war, i.e. the ongoing trade conflict between China and USA and related increase of inbound and outbound investments are explained to show the impact of China on the world economy and the changing role of the Chinese companies from global manufacturers to global investors. Since Chinese private-owned enterprises currently account for half of the China’s outbound FDIs, the number and size of private-owned enterprises are growing and an increasing number of them are also joining hands with state-owned enterprises to expand globally. As a global player in terms of trade and investments, China’s monetary and foreign exchange policy is playing a more significant role in the world as well with the largest stock of foreign exchange reserves and a currency listed on the IMF’s reserve basket. China’s new style of globalization is also described in a policy trilemma context. Although China never abandoned all its capital controls, there were numerous ways to move money into and out of China. At the same time, the RMB has started to float more against the USD and liberalized its interest rates without too much impact on the exchange rate. Thus, the policy makers made the argument that China negotiated between the three choices and in essence circumvented the logic of the impossible trinity. With the rise of China’s shadow banking since the global financial crisis and the desire for more RMB internationalization since the late 2000s, the increasing financial liberalization is at odds with the striving for more financial stability. The significant costs associated with the credit crisis added financial stability to the policy trilemma policy goals, modifying its framework into the policy quadrilemma. China and other emerging markets frequently coupled their growing financial integration with sizable hoarding of reserves, as a means of self-insuring their growing exposure to financial turbulences. Also, the impact of the BRI in the policy trilemma or quadrilemma is examined. China’s new style of globalization to a more sustainable growth model is eventually described as the main feature of China’s ‘new normal’ economy and as a way to avoid a ‘middle-income trap’ in the near future.