Blog

Source: China Network 2020-03-17

He Yafei Former Deputy Foreign Minister, Senior Researcher, Chongyang Institute of Finance, Renmin University of China, Director of the Global Governance Research Center

Since the world financial crisis in 2008, non-traditional security threats have emerged endlessly, and geopolitical contradictions have become prominent. In the third 10 years of the new century, many countries feel that the world is changing too fast, and the existing global governance system is full of loopholes and cannot help them.

In 2020, various non-traditional security challenges and crises followed one after another, and it was breathtaking: After the new crown pneumonia epidemic was effectively controlled in China, it spread rapidly in Italy, Iran, the United States, South Korea, Japan and other countries, causing a global public health crisis; international crude oil prices The cliff fell, and energy security risks swept the world; the capital market fluctuated violently, the stock market and the bond market both fell, and financial risks were unprecedented.

These non-traditional security challenges are superimposed to form a global hurricane, which impacts the world economy, disrupts the relatively complete global supply chain, and poses severe challenges to the global governance system, especially the public health governance system.

1. After the Chinese economy suffered a new crown of pneumonia epidemic in the beginning of the year, the tourism and service industries suffered a setback, the manufacturing industry braked suddenly, the manager's purchasing index plummeted, and short-term losses were large. However, under the strong leadership of the Communist Party of China, with General Secretary Xi Jinping at the core, the entire party was mobilized in an emergency, twisted into a rope, and worked together to fight the epidemic and promote production. According to changes in the situation, the government has issued effective policies to restore economic development, stabilized the economic fundamentals, and is still optimistic about the growth momentum in the medium and long term.

The world economy is facing major challenges this year: the global spread of the new crown pneumonia epidemic has caused a decline in manufacturing, a significant contraction in the tourism service industry, damage to both ends of the real economy supply and demand, and sharp fluctuations in the capital market. On March 13th, the Dow Jones index suffered a "Super Black Monday", plunged 2352 points, and the stock markets of at least 12 countries melted down. The US and European stock indexes fell more than 20% in a month and fell into a technical bear market. The prices of commodities such as U.S. Treasury bonds, gold, encrypted digital currencies, and oil have plunged at the same time, the function of safe-haven assets has been lost, and market liquidity is very tight, comparable to the 2008 financial crisis. Goldman Sachs predicts that if the epidemic is not contained, the global public health crisis will trigger the world economic collapse within six to eight weeks; global economic growth will be less than 2% in 2020, the lowest in 30 years. Saudi Arabia and Russia wage war on crude oil prices, leading to a steep decline in oil prices.

The four major crises of public health crisis, economic crisis, financial crisis, and energy crisis have erupted. No matter whether it is an advanced economy, an emerging economy or a developing country, none of them can be spared, and the outlook for the world economy is worrying.

2. The spread of the new crown pneumonia epidemic and the plunge in oil prices are a severe test of the already fragmented global governance system, especially the global public health system and energy security system, leading to a partial "collapse" in the global governance system.

Now, the world needs an effective, orderly, and powerful global governance system more than ever. However, due to the disdain and abandonment of the global governance system by the United States in recent years, the successive withdrawal from various international cooperation mechanisms and platforms has made global governance The system is full of holes.

Viruses know no borders, and cooperation is key. Economic recession and the financial crisis also have no national borders, and cooperation remains the basis for overcoming the crisis. To repair the global governance system and avoid the overturn of the global economy, countries, especially the major powers, are urgently required to take all measures to fight the epidemic, strive to control the spread of the epidemic as soon as possible, and strengthen their confidence in defeating the epidemic. The epidemic cannot be out of control, especially the major US and European powers cannot be "occupied", otherwise it will bring great impact on the world economy and society, and the consequences will be difficult to predict.

Major economies need to activate the spirit of sincere cooperation in tackling the financial crisis in 2008, abandon populism, protectionism, narrow-neighborly economic policies and geopolitical prejudices against each other, strengthen macro-policy coordination, and firmly support the World Health Organization. Try to avoid the world economic collapse and the financial crisis again.

Third, we must be vigilant and prevent the disruption and dislocation of the global supply chain, so as not to cause long-term and irreversible damage to the world economy.

Over the past few decades, globalization has driven the effective global allocation of capital, resources, people, and information. With their comparative advantages, economies have formed relatively complete global supply chains, production chains, and value chains, occupying different positions. Some countries rely on natural resources, core technology, system monopoly, market size and other advantages to control the "nodes" (Hubs) of global supply chains and various types of networks, which are more profitable than others.

The world financial crisis in 2008 drove all countries to the brink of economic and financial collapse. China and other major economies joined hands to stop the financial tsunami. It emerged on the G20 platform and demonstrated the unique advantages of the socialist governance system with Chinese characteristics. In the face of the oncoming new crown virus, China once again fully demonstrated the ability of the Chinese-style governance system to "focus on doing big things," and provided useful experiences for other countries to fight the epidemic.

From the actual situation, the short-to-medium-term prevention and control measures adopted by various parties regarding the new crown pneumonia epidemic did partially limit the free movement of goods and people, highlighting that the global supply chain was particularly important when the "grey rhino" and "black swan" struck. The vulnerability of "nodes". And China occupies a key position in the global supply chain.

According to statistics, of the Fortune 1000 companies, 163 companies have first-tier suppliers in China, and 938 companies use Chinese second-tier suppliers as their first supply. A survey by the American Chamber of Commerce in Shanghai of 109 US manufacturing companies in the Yangtze River Delta revealed that one-third of the companies believed that if the factory could not resume production, they might move their business out of China.

In fact, since the United States insisted on imposing tariffs on Chinese exports to the United States, and promoting "decoupling" of science and technology from China, some countries with close economic relations with China have begun to worry about the reliability of global supply chains.

The Trump administration of the United States has identified China as a "main strategic competitor", actively promoted "America First", and imposed a technology blockade on China. Nowadays, some people are taking advantage of the short-term impact of the epidemic on the global supply chain and clamoring for the reconstruction of the supply chain. Officials such as Secretary of State Pompeo and Secretary of Commerce Rose began to use the outbreak to encourage US companies to leave China, and then used the supply chain to temporarily interrupt supply as an excuse to advance the "decoupling" strategy and urge US companies to "look for alternative suppliers." This is obviously a geopolitical consideration in the global supply chain that is dominated by hegemonic countries to suppress and contain emerging powers. The US policy of seeking "decoupling" from China is difficult to fully realize within the framework of globalization, but if geopolitics "poisons" the global supply chain, globalization will be distorted and the global supply chain will deviate from the normal track.

Addressing non-traditional security challenges requires concerted efforts by all countries. This is a major test of the global governance system and capabilities. Any short-sighted self-interested approach will harm others.