Domestic challenges and US political developments have proved such a preoccupation recently that it has been all too easy to miss a key global shift. China’s rise to global prominence has accelerated markedly as a result of the past year’s events.
This is not to blame Europeans for underestimating the transition. To put it mildly they have had to contend with immense domestic difficulties. At the same time, the bizarre spectacle of the US presidential transition has proved a compelling distraction.
Yet looking eastwards it should be clear that the world is approaching an inflection point.
Shifting economic fortunes are a good place to start. China’s GDP rose by 2% in 2020 compared with a drop of 3.6% in the US and a 7.4% fall in the euro-zone. That is according to World Bank estimates published in January.
That in a year where the global economy was sent spinning by COVID-19. Yet by the final quarter the Chinese economy was expanding at an annual rate of 6.5%.
Next year the global economic balance is likely to tilt even further towards China. The World Bank forecasts Chinese GDP will rise by 7.9% against a 3.5% rise for the US and 3.6% in the euro-zone.
Of course, the relative shift towards China is not new. It has been underway since it started to liberalise its economy in the late 1970s.
What is new is that the existing order in international relations no longer looks tenable. Many of the key institutions of the global economy, such as the World Bank and the IMF, were established in the mid-twentieth century. Yet this old rules-based order looks obsolescent in world where China is immensely more powerful than it was back then.
In addition, the financial world looks set to follow the economic shifts. Indeed there are many indications this is already happening.
For example, a recent study by CrossBorder Capital, a consultancy, showed that China provided nearly one-third of the $23trn (€19trn) surge in global liquidity in 2020. That compares with a 23% contribution from the US.
The longer term shift is even more stark. In 2000, according to CrossBorder, China only provided 7% of global liquidity.
None of this means that the Chinese economy has no weaknesses. On the contrary, it has many including high debt levels.
But it looks increasingly like the world is approaching an inflection point. For Europe and the US it means coming to terms with the relative decline in their global importance. The process may have started a long time ago but it still has some way to go and it is gaining pace.
Daniel Ben-Ami, Deputy Editor