Decoupling & Slowbalisation

Image source: The Economist

I recently went to a conference on shipping, trade and finance. The experienced speakers made several references to the role of that globalisation played when they were studying shipping. They warned the audience that we, as the younger generation, better get used to 'slowbalisation.' As someone who studied China and Globalisation at university, I wanted to share my take on slowbalisation.

It is true that the golden years of globalisation are likely over. In the late 1990s and early 2000s, the world saw a peak in globalisation. China's 'opening up to the world' was one of the most important aspects of this, as it gave the rest of the world access to a massive market. Inward FDI into China "accounted for 25-30 percent of FDI flows to all developing countries," making China the "second largest FDI recipient in the world." This seems to be over. In fact, PwC in as early as 2020, predicted that "slowbalisation is the new globalisation."

I will answer three questions in this post:

1. What is slowbalisation?

2. Is globalisation really over?

3. What does this mean for companies that are in business with China?

What is slowbalisation?

Slowbalisation is a trend that followed the 2008 global financial crisis, and reflects the slowdown of trade liberalisation and reforms, and the decline of international "political support for open trade amid rising geopolitical tensions." The aftermath of the crisis saw a decentralisation of international trade, which continued well into the 2010s and meant that global foreign direct investment and world exports were no longer in the rise as they were before. This effect was only heightened with the U.S.-China trade war, which some are calling a new Cold War. This, coupled with increased protectionism, which is a policy that protects domestic industries and prioritises it over global trade, has made slowbalisation particularly popular in recent years.

Is globalisation over?

I think it is too quick to say that globalisation is over. Yes, it is slowing down, but it is not over. Because of how intertwined the world became during the golden years of globalisation, it is impossible for it to disappear and have the world return to its pre-globalisation state. Staying on the example of the U.S. and China, despite the turbulent relations between the two, trade remains one of the pillars of the Sino-American relations. Trade statistics indicate that imports and exports between the two countries have stayed relatively consistent from 2015 to 2023.

I am not overlooking the ongoing tensions in strategic and high-tech trade and collaboration. However, I argue that the tech sector is especially complex, and it's an oversimplification to claim that globalisation has ended solely due to strategic tensions in one sector.

Implications for companies that have partnered with China

China plays a significant role in shaping the course of globalisation. With several countries imposing restrictions on trade with China, the business environment has become rather tense. China was important when globalisation was picking up pace, and it is unmissable today as one of the world's most prominent trade partners and investors. From trade, and foreign direct investment, to multilateral banking and the global supply chain, China has left its mark in the global economy. China is arguably a poster child for the success of globalisation. So, now that globalisation is slowing down, what does this mean for companies that have developed close commercial relations with China? Should they be worried? Should they leave China?

Many say that it is riskier to ignore China than to engage with it. I agree. China is a unique business partner, but that does not mean that businesses should stray away from it. The challenges are great, but the historically, the opportunities have been greater. There are two points to make when applying this to companies that have built strong commercial relationships with China.

Firstly, who is the company? What sector is it in? Where are its operations? How much power does the government have over the company? In the context of the high tech trade war, the CHIPS and Science Act prevent some U.S. companies from doing certain types of business with "China and other countries of concern." The companies are recipients of significant government funds and must closely follow these guidelines. However, the above does not apply to Walmart, for example, which operates in the retail sector, and is doing great in China.

Second, what exactly does their collaboration with China look like? Is it a foreign firm that set up a joint venture with a Chinese company? Is that Chinese company private, or state-owned? Is the company the investor or the recipient of an investment? So, in addition to the type of companies, we also need to consider the type of collaboration. For example, in 2023, Stellantis bought out Dongfeng Motor Corporation's shares in their long-standing joint venture, Dongfeng Peugeot-Citroën, marking the end of a major Sino-French automotive partnership. This buyout is an example of a foreign company that gained more direct control over their operations in China. On the other hand, other types of business collaborations are more difficult to sever. For example, China's investment in Pakistan's Gwadar Port, a key BRI project, is nearly impossible to end due to its deep economic, strategic, and geopolitical significance for both nations.

My argument is that it is far too oversimplified to claim that slowbalisation is taking over, and that all companies will suddenly return to their home-countries because of these trends. It is much more complicated than this. With China at the forefront of the slowbalisation debate, it is important to consider at least the above.