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Since the end of the Cold War, companies from rich countries, especially America, Europe, and Japan, have dominated global trade. Today, these corporate giants are everywhere, impacting consumers and employees worldwide. However, their dominance is now being challenged by the rapid expansion of Chinese companies in various sectors, such as automotive and apparel. This new commercial rivalry is playing out in the fast-growing economies of the global south, rather than in China or the traditional rich countries.
The expansion of Chinese companies takes place through two pathways: globalized supply chains and direct engagement with consumers in developing countries. Last year, Chinese companies significantly increased their foreign direct investment, spending $160 billion setting up factories in countries such as Malaysia and Morocco. Meanwhile, Chinese companies are also targeting the 5 billion consumers in the developing world, with their sales in these regions quadrupling to $800 billion since 2016. This trend presents a challenging scenario for the West, which is grappling with the rise of China.
The reason why Chinese companies are looking abroad includes a slowdown in domestic economic growth and fierce competition at home. These companies are gradually gnawing away at the dominance of Established multinationals in regions such as Indonesia and Nigeria. For example, Transsion, an electronics company, now produces half of the smartphones purchased in Africa. In addition, Chinese manufacturers of electric vehicles and wind turbines are expanding in the developing world, where nine of TikTok's ten largest markets are located.
The nature of Chinese expansion is partly determined by the policies of both Western and Chinese governments. While rich countries erecting trade barriers against Chinese goods, including solar panels and electric vehicles, some Chinese companies are shifting production to the global south to circumvent these restrictions. At the same time, emerging markets have become more attractive as destinations in their own right. China's diplomatic efforts, in particular through the Belt and Road Initiative (BRI), which facilitated $1 trillion in infrastructure investment, has further paved the way for these companies.
In the midst of the current backlash against globalization, there are important lessons for policymakers. Trade can bring significant benefits and improve the lives of billions of people with access to affordable, innovative and environmentally friendly products. For example, the $100 Transsion smartphones Some of the poorest people in the world access the internet's extensive resources, while affordable medical devices save countless lives. Low-cost, climate-friendly technologies allow developing countries to grow economically while controlling their greenhouse gas emissions.
Another crucial lesson is the high cost of protecting Western multinationals from competition. China's fierce domestic market competition has led Chinese companies to excel at producing goods for low-income consumers, a market segment often overlooked by Western companies. Chinese companies are now leading in sectors such as Electric Vehicles and batteries, which are heavily subsidized by Western governments. The idea that Chinese brands don't have global appeal has been debunked by companies like Shein, a fast-fashion company. Sales of Chinese companies in the global south have already surpassed those of Japanese multinationals and are poised to overtake European companies and become equal to American ones by 2030.
For governments in the Global South, the challenge is nuanced. Policymakers have the opportunity to enrich their consumers, create jobs, and promote innovation and competition. However, they have to navigate between protectionism and passivity. While local industries may insist on protection from Chinese competition, excluding Chinese products would deny consumers the benefits of choice and innovation. On the other hand, being too lax can lead to negative outcomes, such as mounting BRI debt and minimal local employment.
Chinese companies could eventually see the value of deeper integration with local markets, just as U.S. and Japanese multinationals once did. Establishing stronger local roots could increase China's influence in the global south, just as closer commercial ties strengthened the soft power of America and Japan in the late 20th century.
For decades, the West was the biggest proponent of globalization. The recent inward turn to protect against Chinese competition will have long-term consequences. Meanwhile, Western multinationals, once the main agents of cross-border trade and investment, are losing ground in the world's fastest-growing markets, while China is reaping the benefits of this new commercial era.
