The new wave of globalization is coming, see how companies like Anke and SHEIN respond to it

Companies like Anke and SHEIN respond to the new wave of globalization

Five months have passed this year, and most of the companies that are going global still feel a little chilly. Head companies that go global are facing growth pressure, while small and medium-sized companies are struggling to survive.

The reasons why the light has not yet come are twofold: the slowdown in global economic growth and the lingering effects of the epidemic have left most people with insufficient consumption power; the rise in global raw material prices and logistics platform costs has increased the operating costs of enterprises; and the “anti-globalization” that looms over many companies has brought many uncertainties to the entire industry. The impact of these international situations seems to be far away but is actually close, and it is only when we are on the mountain that we cannot see clearly. When we do see it, it has already affected the development and outcome of enterprises.

This time, we want to talk about “anti-globalization”. At this point, we are facing the third wave of “anti-globalization”, which, based on historical cycles and the current economic situation of various countries, is an inevitable trend that is closely related to the duration and results of the US-China dispute. As for the US-China dispute, it is difficult to say who will come out on top over the next twenty years, given the strong comprehensive strength of the United States. However, in the process of returning to the world’s number one, China will adjust the market direction and product structure of its overseas companies, with the importance of seaports declining and the importance of land and air ports increasing. Companies such as ANKR, SHEIN, and Tianzu Capital have also made early layouts.

1. “Anti-globalization” is a periodic phenomenon

2. It is an inevitable trend

Looking back at the development of this round of “anti-globalization”, the Brexit in 2016 became a symbolic event of “anti-globalization”. Subsequently, in early 2017, after Trump took office, he began a series of “withdrawal” decisions, including withdrawing from the Trans-Pacific Partnership Agreement (TPP), the Paris Climate Agreement, UNESCO, etc. During this period, China and the United States imposed tariffs on each other and sanctions extended from manufacturing to high-tech industries, restricting companies such as Huawei and ZTE. After Biden took office, he continued to use Trump’s policy of trade containment against China. In May 2022, he launched the “Indo-Pacific Economic Framework” to rally countries in the Regional Comprehensive Economic Partnership Agreement (RCEP), which is dominated by China, to achieve “de-Chinafication” of the supply chain, etc. Various signs of decoupling indicate that this round of “anti-globalization” is becoming more and more intense.

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So why is there a current wave of anti-globalization? It is due to both historical cyclical influences, and also policies implemented by countries to protect their own interests, as a result of the damage caused to the developed countries, led by the United States, in this round of globalization.

Specifically, in global history, humanity has experienced three waves of “globalization” and “anti-globalization”.

The first wave of globalization was led by Britain. After experiencing two industrial revolutions, Britain and some capitalist countries greatly improved their productivity, and the excess production capacity drove them to implement “free trade” policies globally. However, with the development of globalization, capitalist economies entered a cyclical decline, and many European countries, including Britain, began to increase tariffs based on their national interests. With the outbreak of World War I, the first wave of globalization led by Britain came to an end, and the economic depression of the 1930s made the “anti-globalization” of that time reach its peak.

The second wave of globalization originated in the 1950s. After World War II, the United States replaced Britain as the world hegemon and ushered in the second wave of globalization led by the United States. However, due to the impact of the Vietnam War, the growth momentum of the US economy slowed down and gradually became a country with a trade deficit. During this period, Japan’s strong rise also caused the US-Japan trade war to escalate again, until Japan signed the Plaza Accord in 1985 and fell into a more than 30-year economic recession. The threat from the United States was relieved, and this round of “anti-globalization” gradually came to an end.

The third wave of globalization began in the late 1980s, when many emerging economies joined the WTO, and globalization created unprecedented economic benefits. However, after 30 years of development, there are signs of history repeating itself today.

Firstly, the trade deficit between some developed and developing countries has increased. In this round of globalization, developed countries gradually lost their original advantages in capital and technology, while emerging market countries represented by China gradually expanded their trade advantages in development. With the expansion of trade deficits, the interests of developed countries in globalization have been damaged, and the idea of “anti-globalization” has further spread.

Secondly, the wealth gap within developed countries is serious, and Western populism is prevalent. Data from the US Department of Commerce shows that the Gini coefficient used to indicate income inequality in the US has been rising steadily since the 1990s. Based on a McKinsey survey report, 60%-70% of households in 25 developed countries have experienced a decrease in income, mainly from low- and medium-skilled households. In addition, data from the Penn World Table also shows that during this round of globalization, the proportion of wealth obtained by capital has increased dramatically, while the proportion of wealth distribution obtained by the laboring class has decreased year by year. These data reports indicate that globalization is positively correlated with the wealth gap within countries. This has also led to the prevalence of populism, and government-related “anti-globalization” policies will also receive support from the public.

Finally, China and the United States are gradually forming a bipolar pattern in the world, falling into the “Thucydides Trap.” At least in the next 25 years, the game between the two countries will become increasingly heated, and the trade war is only one aspect of it.

Currently, the three largest economies in the world are the United States, China, and Japan. In 2022, the total GDP of the United States is 25.47 trillion US dollars, and China follows closely with 18 trillion US dollars. Other countries in the range of 10 to 20 trillion US dollars are absent. Japan ranks third with 4.23 trillion US dollars. If the Japanese economy continues to decline, countries with GDP between 500 million and 1 trillion US dollars will also be absent for a long time. French President Macron also mentioned in a public speech in 2019 that Western hegemony may have come to an end, and the world will revolve around the two poles of the United States and China. This year, under enormous pressure, Macron visited Guangzhou, China, and also wanted to mediate for France in the relationship between China and the United States. Based on these, it can be judged that China and the United States have gradually formed a bipolar pattern.

The fate of the bipolar world is nothing but the containment and suppression of emerging powers by established powers, and their conflict or even war is inevitable. As Mills wrote in “The Tragedy of Great Power Politics”: There is no night watchman in the international system. It is a dangerous and cruel arena. When a country is threatened by another country, there is no higher authority to seek help, and a country can never be sure that other countries do not harbor hostility towards it. In this arena, countries have no choice but to continue to compete with each other for power in order to survive, until they become a hegemonic power or fall.

Therefore, the relationship between China and the United States has become the focus of this wave of “anti-globalization”. Even if other developed countries emerge from the economic recession in the next few years, as long as the game between China and the United States continues, “anti-globalization” will not end. In the process of the game, either China will replace the United States and start to dominate a new round of globalization, or China’s economy will be significantly inferior to that of the United States under US pressure, the US threat will be lifted, and this round of “anti-globalization” can end.

2 The Potential of a New Globalization is Gathering

Adjusting Product Structure and Enhancing the Importance of Land-Air Ports

In this round of “anti-globalization”, not only will the United States impose trade sanctions on China, but other countries may also be forced to take sides between China and the United States in the future. However, based on interests or current considerations, we are more inclined to see China win in the game.

First of all, it is a historical inevitability. In the past 600 years, the West has risen, and Portugal, Spain, the Netherlands, France, Britain, and the United States have all led the world for about 100 years. The United States has replaced Britain and dominated the world for almost a century. China’s return to the world’s number one position is also a historical inevitability.

Moreover, in Chinese history, almost all dynasties reached their peak or prosperity around the 100th anniversary of their establishment. The Han Dynasty was at its height during the reign of Emperor Wu at the 100th anniversary of its establishment; the Tang Dynasty was in the early stages of its Golden Age under Emperor Xuanzong at the 100th anniversary of its establishment; the Ming Dynasty was controversial but overall strong and undefeated militarily at the 100th anniversary of its establishment during the Chenghua era; and the Qing Dynasty was in the early stages of the Qianlong era at the 100th anniversary of its establishment. In another 25 years, China will celebrate its 100th anniversary of its founding, and there is historical evidence that it will return to its position as the world’s top country.

Secondly, China is more proactive in learning from the outside world than the United States. China and the United States are two different operating systems, each with its own advantages: China, with its collectivism, is able to concentrate its strengths in accomplishing great things, while the individualism of the United States is good at unleashing individual creativity. Therefore, do not mock the poor infrastructure capabilities of the Americans, nor be overly disappointed with China’s lack of criticism and originality. The key issue is which country can learn and draw on the strengths of the other. Currently, due to China’s century of humiliation after closing itself off to the world, China’s system is more open and actively absorbs external advanced experiences, while the United States feels no need to learn from other countries as it has been the world’s top country for a long time, thus its system is relatively closed.

Therefore, in this round of “anti-globalization” process, China is highly likely to become the advocate of the new globalization era and redefine the new globalization era that is distinct from the old one in the process of returning to the world’s top position. This new globalization era will have the following four characteristics:

First, countries along the “Belt and Road” are becoming increasingly important, and companies that go global need to reshape their globalization perspectives.

Previously, due to the strong economic power and broad consumer market of European and American countries, most companies chose to focus their globalization efforts on Europe and America. However, as the US-China trade war escalates, the scope of US sanctions will gradually expand. For example, in recent times, the United States has claimed that TEMU and SHEIN have touched upon issues of user data security and improper procurement, which foreshadows the future. In history, the United States has also imposed multiple sanctions on rapidly rising Japan.

Image source: Wind, CICC Research

Therefore, companies going overseas should gradually shift their focus from Europe and America, and at least give equal attention to the markets of “Belt and Road” countries. Currently, the growth of trade along the “Belt and Road” has exceeded the average level of world trade growth, especially in the context of the pandemic and the decoupling from the United States, the trade situation is better than that of developed countries.

In addition, this year Saudi Arabia and Iran have reached a historic reconciliation, leading to a wave of peace throughout the Middle East, which will result in broader investment and trading value in the Middle Eastern markets. As for the Central Asian market, China has remained neutral in the Russia-Ukraine conflict, and Russia has also lowered its control over China’s exchanges with Central Asia. This year, the highest leaders of the five Central Asian countries also came to Xi’an to participate in the China-Central Asia Forum, and economic and trade exchanges between the two regions are expected to be strengthened.

Currently, many leading overseas brands have begun to gradually expand into markets outside of the United States. ANK Innovation has increased its investment in the Middle East since last year and has started to gradually shift away from the U.S. market. Many new energy vehicles are also exploring Southeast Asia, with considerable benefits. SHEIN is also continuing to build in Africa, and Tianzu Capital has already invested in Central Asia.

Second, the importance of sea power and ports will decline, leading to a redistribution of power and interests.

Due to China’s large imports of oil from the Middle East, and most of the transportation to Europe passing through the Strait of Malacca, the management of the Strait of Malacca is in the hands of three countries: Singapore, Indonesia, and Malaysia. Malaysia and Indonesia are important partners of the United States, and Singapore provides a naval military base for the U.S. In the future, as the competition between China and the U.S. intensifies, it will not be difficult for the U.S. to block the Strait of Malacca, and China will be very passive if it does not prepare for it. Therefore, China’s grand strategy is to enhance the importance of land ports.

Now, most of China’s efforts are aimed at the integration of the Eurasian continent. The “China-Europe Railway Express” (international railway trains running between China, Europe, and countries along the Belt and Road Initiative) connects more than 50 countries and regions along the route and will become a major artery for the Central Asia-West Europe Economic Corridor. This will gradually drive the revival of the overland Silk Road, and inland port hub cities such as Nanning, Xi’an, and Chongqing will benefit. For example, Chongqing can reach Europe directly through the China-Europe Railway Express to the west, Southeast Asian countries to the south, and Russia directly to the north. Xi’an, as the starting point of the ancient Silk Road, currently has 17 mainline channels open to West Asian countries. Goods from Belt and Road Initiative countries and 29 domestic provinces will be distributed here. This is one of the reasons why the first China-Central Asia summit chose to be held in Xi’an. Nanning, as the gateway to Southeast Asia, is also crucial along the Belt and Road Initiative.

In addition, China has signed air transport agreements with many countries along the Belt and Road Initiative. In the future, airports will also take away the advantages of seaports. Airport hub cities such as Chengdu and Zhengzhou will have development dividends. Recently, Zhengzhou has officially been approved to become the first national-level pilot zone for the development of the aviation economy and will build an airport-type national logistics hub. Chengdu has become the third city with two international airports after Beijing and Shanghai, and is the only city with two airports along the overland Silk Road.

Therefore, the importance of sea power and seaports will decline in the future. This, in turn, will further affect the global distribution of power. From a macro perspective, the world center will return to the Eurasian continent. From a micro perspective, it will also bring about changes in industrial belts, and the disadvantages of some inland cities compared to coastal cities will gradually narrow.

Thirdly, the structural changes in the outbound industry are accelerating.

Previously, China’s outbound industry had long relied on the “old three” of furniture, household appliances, and clothing as the main products. However, now the “new three” represented by electric cars, new energy batteries, and photovoltaic solar energy have become the new driving force. Foreign trade data for the first quarter of this year showed that the total export of “new three” products increased by 72% compared to the same period last year, which overall raised the export growth rate by 2.1 percentage points.

In the future, as domestic labor costs rise, the trend of transferring China’s low-end supply chain to peripheral countries is irreversible, and domestic companies can only continue to move towards high-end and high-precision industries.

In addition, a new generation of global entrepreneurs has been rapidly replacing traditional foreign trade personnel and becoming the trendsetters of the new era. As the tide rises, some companies that cannot keep up will be drowned, and companies that seize new opportunities will be more successful than ever. Even if they have technological barriers, doing business with foreign OEMs will become more and more difficult, and building independent brands will be the “second curve” that companies have to take.

Fourthly, the new era of “getting stronger” favors brands with global competitiveness.

The outcome of the struggle between China and the United States is not only reflected in military strength, but also more importantly, in the economic interests and soft power competition between the two countries on a global scale. Currently, there is still a large gap between China and the United States in terms of soft power, and this shortfall needs to be filled by brands originating from China.

Exporting low-quality and low-priced goods has caused damage to China’s soft power, and they will not be friends of time. The globalization expansion of enterprises that focus on specialization and innovation, advanced manufacturing, and other directions is the correct side of history.

*This article is compiled based on the speech given by Huang Yuanpu, the founder of Equal Ocean, at the “Overseas Warehouse Two Sessions” in Ningbo held by Yicang Technology. Unauthorized reproduction is prohibited. For more interaction, please follow 【BusinessDialogue】.

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