With the beginning of the second year after the pandemic, the poles of the global economy, along with developed countries, are facing new structural challenges that require reconsidering many of the old and traditional social and economic concepts.
I start with China, which is huge in everything, whether in population or natural resources. It is enough to mention that 38 percent of the world’s minerals are located within its territories, according to USGS data, and its oil production exceeds all OPEC countries, except for the Kingdom of Saudi Arabia.
However, China’s consumption of oil is three times the volume of its production, and it is a big importer of semiconductors – which are equivalent to 30 percent of its total imports from neighboring countries.
Since it adopted communism in 1949, China has faced many challenges, such as the great famine between 1958 and 1962, due to imposed economic policies and some natural disasters. Therefore, the wise among them at that time realized the difficulty of implementing the Maoist ideas contained in the “Red Book.” The country recalled Chinese philosopher Confucius' famous saying: “Virtue lies in the middle.” Indeed, it lies in the middle class, the more stable its income and the higher its percentage in any society, the more stable the state will be.
With China adopting this approach, economic transformation began to take shape in the 1970s. Half a billion Chinese moved quietly from below the poverty line to the middle class. The Asian country soon developed into an industrial state, before shifting to technology and services, thanks to the huge spending on research and development, which represented 2.4 percent of its total economy in 2020 - the second largest value worldwide after the US spending on this sector.
China has even preceded the United States in some fields of digital development, such as digital currency and spending on the fifth generation technology, while supporting the East Asian renaissance in neighboring countries, such as Cambodia and Vietnam.
However, changes witnessed in China came in parallel with stricter internal controls, in terms of state interference in the simplest details, such as children’s playing hours and the work of technology companies, where the central authority is omnipresent, limiting individual freedom and the stardom of entrepreneurs.
It may seem that China is changing from within, but the world wants this change to keep pace with progress and innovation. It wants the Asian country to become a disciplined and effective partner in global growth.
The importance of China lies in the fact that it represents one-fifth of the global economy. When the United States confronted China with the trade war, the global industrial index fell below 50, which led to a global industrial depression in 2019.
The western capitalist world is not in a better condition a year after the pandemic, even with the arrival of vaccines. Many industries are still suffering, such as the aviation sector, which has incurred severe losses since the start of the pandemic, and its debts tripled over the last four years.
The energy industry has also been suffering from lack of investments and high prices. For example, Yara, the world’s largest producer of fertilizers, was forced to shut down some of its factories due to gas prices, despite food price inflation of 28 percent according to the United Nations index and an increasing demand for agricultural products.
All of the above are complex problems that created the inflation, which continues to plague the world (it reached 7 percent in the United States and 4.8 percent in the eurozone).
In fact, most of the classic monetary laws that emerged 90 years ago are no longer highly effective today. For example: The size of quantitative easing is not related to inflation, which was mainly caused by shortages in the supply of energy, basic commodities, and industrial inputs, rather than by an abundance of demand.
The labor market was also affected by the pandemic: the need for new skills and specializations arose, which reduced the weight of the workforce in society and made the decrease in the percentage of the unemployed less significant.
It should be noted that more than 3.3 million workers have recently left the labor market, most of whom were women, people over 50 years of age and with an educational level below university. The data confirmed that the pace of skills development exceeded the capabilities of the labor market in some age categories.
This comes in addition to the increasing wealth of society, which was pushed into early retirement.
According to the estimates of the US Federal Reserve, the net wealth of families over the age of 55 has grown by about 12 percent, and therefore the decrease in the unemployed is not necessarily an indicator of the production capacity and the increase in interest rates.
The development of thought and concepts is the basis of the renaissance and building of civilizations. If China wants to continue to amaze the world, it must recall the saying of the Father of Capitalism, Adam Smith: “In competition, individual ambition serves the common good.”
The West also has to review its old laws to achieve its frozen development goals. As Confucius said: “When it is obvious that the goals cannot be reached, don’t adjust the goals, adjust the action steps.”
*Mazen Al-Sudairi is the head of Research at Al-Rajhi Capital.
