Why Is China’s Modernization Important for the World?

Each generation deals with big changes, but the world is currently experiencing a perfect storm of seismic disruptions in the balance of power, a technological transformation and a climate crisis. China is central to each of these, and how China also manages its own internal challenges, will affect not only the people of China, but also the rest of the world.

It’s a highly-charged international environment that China must cope with. The United States appears to be hopelessly polarized and is therefore unpredictable. Russia’s conflict with Ukraine appears to have thrust Europe back into a traditional battle of wills. We are in a more pessimistic era than the world has known for decades and this brings real risks of miscalculations contributing to a downward spiral of confrontation and conflict.

Meanwhile, China’s ambitious building of new institutions and platforms for interdependence across large areas of the world, from the Shanghai Cooperation Organization and BRICS to the Belt and Road Initiative, is interpreted in the West as re-shaping world order. But it can be observed to contribute to stability, international cooperation and development, all much needed in tumultuous times.

We are also seeing a retreat into nationalist protectionism. The United States levied 100 percent tariffs on Chinese Electric Vehicles (EVs), 50 percent tariffs on solar cells and has gradually tightened restrictions on Chinese access to high-end semiconductors. U.S. presidential candidate Donald Trump is threatening 60 percent tariffs on all Chinese goods. None of this makes economic sense but populism has mobilized strong constituencies in Europe as well as the U.S. against a level playing field for trade.

China has benefited – and the world enjoys net benefits – from free trade. Hopefully, China can resist the temptation to join a tit-for-tat trade war. Reform of the World Trade Organization will be in everyone’s interests. As would greater transparency around subsidies provided to nurture industries by all major economies. There are sound reasons why governments subsidize research and development and in particular strategic industries, although to be sure some subsidies distort trade and therefore need to be phased down by agreement. It will be in China’s interests to stabilize the world trade system rather than to allow the populists to drag it down.

Perhaps China’s most significant contribution in the coming years will be its leading role in combating climate change. This is the slow crisis the world has seen coming, but we are approaching a tipping point this decade if we cannot slow global warming. China’s giant economy is likely to have peaked greenhouse gas emissions in the last year in terms of CO2 emissions per unit of GDP. Now the challenge is to rapidly bring down emissions towards net zero by mid-century.

The switch to renewable energy is well underway, with China’s rapid transition a major reason why world leaders agreed at COP28 to triple renewable energy output by 2030. China is also leading the world in the rollout of new energy vehicles. The smart digitalization and greening of all industries are underway. China accounts for 35 percent of the world’s industrial production and so a green China will mean a greener world.

Besides these big global disruptions, China has many internal challenges. It is transitioning from the heady, high-growth era to inevitably slower growth that must be more balanced. China needs less speculative real estate development and more productive investment in the industries of the future. It needs to manage a demographic challenge of a declining workforce while ensuring there are enough new, well-paid jobs as new technologies eliminate some of the old low-paid jobs.

There is a need to get people to save less and spend more. Various policy measures have been attempted and no doubt there will be more to come. The big global disruptions underway are undermining this, just as there is a need for some domestic reform such as residency rights for migrant workers and better healthcare for an aging population.

A climate of dialogue and understanding between the major powers on how to provide confidence and security would go a long way here, rather than the recent tendency of fear and blame. There is quite a turnover of leaders around the world underway this year, so there may yet be some room for innovation and initiatives that stabilize the international environment, rather than continue the recent downward spiral.

The Third Plenary Session of the 20th Central Committee of the Communist Party of China that convened in Beijing from July 15 to 18 will be a milestone in seeking to find solutions to some tricky economic problems in a complex, global environment. It will require hard work, but nobody ever accused Chinese people of avoiding hard work. The bottom line for the world – that should provide some confidence for the medium term – is that China has built an impressive infrastructure for trade and can contribute to a more sustainable international environment as it trades, invests and disseminates the green technologies of the future.