Academic journal article Global Economic Observer

Industrial Restructuring in China and in the EU and New Opportunities for China-EU Industrial Cooperation in the Context of a Changing Global Economy

Academic journal article Global Economic Observer

Industrial Restructuring in China and in the EU and New Opportunities for China-EU Industrial Cooperation in the Context of a Changing Global Economy

Article excerpt

1. The situation of the world economy over the past few years and the new wave of industrial strategies

It has been over 8 years since the outbreak of the 2008 international financial crisis, and the world economy still remains in the doldrums. On the one hand, the economic recovery in the world's major developed economies including the US, the euro area and Japan has slowed down and the long-term economic growth tends to be at a low level. On the other hand, the emerging economies, with China as a typical representative, have been transferring from a high-speed growth into a medium-high or just a low-medium growth, facing the daunting challenge of how to escape the so-called "middle-income trap". The current situation of the global economy and its trend in the near future determines to a great extent the policy choices and actions of the governments.

Firstly, having a look at the trend of economic growth in developed countries since 2008 can be seen that the "secular stagnation" hypothesis proposed by some economists, especially by the American economist Larry Summers, seems to be gradually verified. The "secular stagnation" hypothesis was initially proposed by the American economist Alvin Hansen in 1930s and was borrowed by Larry Summers in 2013. Using this old phrase, Summers (2016) predicted that the developed economies, especially the US and the Eurozone, will probably go through a long-term stagnation for ten, or even for twenty years. In Summers' opinion, the "secular stagnation" implies that a long-term period of near-zero growth rate is inevitable and persistent. In short, the phenomena that made the long-term stagnation be refocused on mainly include: 1) the real economic growth is lower than expected long-term growth rate, 2) the expected growth rate continues to drop, and 3) the trend of real interest rates continues to decline (Summers, 2016).

Although the "secular stagnation" hypothesis has been controversial in the past few years, the data of economic growth in developed countries show that this hypothesis seems to become reality. Just like Larry Summers wrote in his article of February 2016 "I am increasingly convinced that it captures what is going on in the industrialized world and that the risks of long term weakness on the current policy path are growing. Unfortunately, since I put forward the argument in late 2013, the data have been all too supportive" (Summers, 2016). Fig. 1 and Fig. 2 provide the comparison of the actual and potential economic growth rates since 2007, separately in the US and in the Eurozone. These two figures show that, on the one hand, the real growth rate has been lower than the long-term potential rate, both in the US and in the euro area, and, on the other hand, the potential growth rates in these two economies have been revised downwards.

The above mentioned "secular stagnation" and the policy experience in developed economies in the past few years show that the traditional macroeconomic policies have become either much less effective, or even toothless. The space for pushing the economy back to a sustainable growth track, relying on monetary policy (conventional or unconventional measures) and on fiscal policy is becoming much narrower.

From the perspective of monetary policy, just as Summers concluded in his article "Despite monetary policy being much more expansionary than was expected and medium term interest rates falling rapidly, growth and inflation throughout the industrial world have been much lower than anticipated" (Summers, 2016). There are several explanations for this phenomena: 1) shocked by the crisis in the past several years, the confidence of investors in developed countries has been severely depressed and investment demand is still insufficient even if interest rates have already reduced to a historical low level; 2) the maturation of economies, in which the basic industrial structure no longer needs to be built up from scratch, but simply reproduced (Foster, 2008); 3) the absence, for long periods, of any new technology that generates epoch-making stimulation and transformation of the economy, such as with the introduction of the automobile (even the widespread use of computers and the Internet has not had the stimulating effect on the economy of the earlier transformative technologies) (Gordon, 2014); 4) growing inequality of income and wealth, which limits consumption demand at the bottom of the economy, and tends to reduce investment as unused productive capacity builds up and as the wealthy speculate more with their funds instead of investing in the "real" economy - the goods and services producing sectors. …

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