Global Dual Value Chain - from the Perspective of Chinese Economy

Abstract

In the context of globalization, there are new trends of evolution in the world economy. This article has reviewed the structure of the world economy, which is gradually transforming from a center-periphery economy model focused on developed countries into a more complex dual-circulation model. According to the model of the global dual value chain, China occupies an intermediate position and is a key link in the global dual-circulation chain between developed and developing countries, which determines its role between the upper and lower levels of the system.

Full Text

Introduction Economic development and the process of globalization are not unidirectional processes. In accordance with the global management system and the theory of global value chains (GVC), global production chains are gradually beginning to take on new forms, in which the structure of the world economy “center-periphery”, where the main role was assigned to developed countries, is gradually moving to a more complex model of “dual circulation”, where fast-growing developing countries become main drivers of economic development. In this context, arises a possible new approach to world trade and globalization of the world economy. International Political Economy Globalization is a distinctive feature of the modern world community, and also one of the key processes in the development of the world economy. However, it should be noted that economic development and the process of globalization is rather a universal and all-embracing than unidirectional trend. The world economy cannot develop without cooperation between countries. No country can develop in a regime of absolute self-sufficiency. The economical globalization is the process of transforming the world economy into a single market for goods, services, capital, labor, knowledge, intelligence and production process. The cycle of production and consumption goes far beyond national borders and is rapidly acquiring a network character. The phases of production are fragmented with different countries. Final products are often the result of interactions between tens or hundreds of suppliers of intermediate components and services, which may be located in different countries around the world. In accordance with the system of global management and the theory of global value chains (GVC), developing countries in many cases join the chain within the framework of an OEM project, which is considered as an effective strategy for the industrialization process [3: 292]. However, it should be noted that the OEM system promotes the establishment of modern industry only at the initial stage, and at the final stage of industrialization, developing countries are most likely “in captivity” of the system [1: 1019]. After entering the global value chain, developing countries enter the process of modernization of production, which brings about resistance from developed countries and large transnational companies, therefore hinders further industrialization, as a result of which developing countries find themselves at the bottom of the value chain with low added value. As a result, in today’s global chains, most developing countries are in the middle and bottom of the chain, and less developed countries become the resource base at the very bottom. Developing countries are joining global chains mainly through the export of resources, raw materials and intermediate products. In the context of the modern system of international labor division, for most developing countries, due to historical reasons or limited natural and production resources, it is quite difficult to modernize industry, move to the upper level of the chain and accelerate economic development. Nowadays, the world community is faced with the question of a balanced and coordinated development of national economies, the creation of a more reasonable system of international labor division, which will allow the countries to receive economic benefits at all stages of development. In consequence, global production chains are gradually beginning to acquire new forms, in which the structure of the world economy “center-periphery”, where the main role was assigned to developed countries with a high level of income, is gradually moving to a more complex model of “dual circulation” [4: 81]. In modern conditions of globalization, the development and economic growth of the countries with transitional economies, the main representative of which is China, lead to dramatic changes in international trade. During the period from 2010 to 2018, China is at the stage of accelerated industrialization, the growth rate is almost 30%. During the period from 2002 to 2007, the role of the largest importer and exporter in North America, the EU and East Asia passed from Japan to China. In 2010, China overtook Japan and became the second largest economy in the world with a total economy output of $10 trillion U.S. dollars [2: 23]. With its development and strengthening, the influence of the Chinese economy on the economic situation not only in Asia but also in the world is increasing. In considering the verification of the dual circulation model by comparing and cross-checking the model from the perspective of China and from the perspective of other countries in the world, the specific content can be formulated from two views. Dual Circulation Model I (China’s Economy) As Fig. 1 shows, China’s trade flows include: imports of intermediate products from developing countries and exports of final products to developing countries, imports of final products from developed countries, and exports of intermediate products to developed countries. It should be noted that China is central in both cases. Fig. 1. Exports and imports of final and intermediate products in the international trade system (from the perspective of Chinese economy) Dual Circulation Model II (World Economies) As can be seen from Fig. 2, in the system of world trade for developing and developed countries, China is an exporter of intermediate products and an importer of final products, occupying a central place in the international trade system. In the “dual circulation” model, on the one hand, a system of movement has been formed between China and developed countries based on the international labor division, international trade, investment and cross-border financial flows, on the other hand, between China and the developing countries of Asia, Africa and Latin America is formed system based on trade and direct investment flows. Fig. 2. Export and import of final and intermediate products in the international trade system (from the perspective of other countries) From the perspective of global value chain, as Fig. 3 shows, developing economies remain the lower end. Due to the high-speed technology progress of developed countries, some developing economies can not meet the needs of technological requirements for intermediate products, resulting in a decrease in their share of involvement in GVC (curve C), shrinking space for industrial upgrading, reducing added value created by exports, and therefore declining overall social welfare. Under the dual circulation system, the two parts of the global economic cycle may form the internal value chain division, namely, the upper circulation value chain curve A and the lower circulation curve B. Developing countries, especially less-developed countries at the lowest end, can re-participate in a certain segment of production through the division of labor within the lower circulation, and gradually gain more benefits and added value in the process of globalization through industrial upgrading on curve B [5: 51]. Fig. 3. In the global dual circulation creating value chain Source: Zhang Hui, Tang Yuxuan, Yi Tian, One Belt, One Road: A Comparative Study of Regional and National Economy. Beijing: Beijing University Press, 2017. Р. 51 China has created an relatively independent and integral industrial structure and become a part of the international division of labor. The uneven distribution of natural and labor resources in China leads to an imbalance both in production and in the industrial development of regions, which determines the diversification of China’s industrial structure. At the same time, in the process of participating in the international division of labor, China has absorbed technology capital from all over the world in an all-round way, thus comprehensively upgraded its industrial structure and become the most developed country in East Asia with the most complete industrial structure. A complete industrial structure enables China to have not only labor-intensive and capital-intensive industries under the vertical division of labor system, but also high-tech industries under the horizontal division of labor system. As a result, China has a relatively high level of participation in both revolutions, curves A and B. In the upper circulation, China’s industrial production has reached the level of participating in the technology-intensive and knowledge-intensive industrial division of labor. On curve A, China provides developed countries with intermediate products and services with high added value. The lower circulation countries in the value chain curve B indirectly participate in the production of the upper circulation curve A through China, thus returning to the national division system of the global value chain C. In terms of economic cooperation, in the upper circulation, developed countries export to countries with transitional economies, of which China is a representative, capital, high-tech, services and other factors of production; whereas, countries with transitional economies export high-quality intermediate and final products, thereby stimulating their own economic development, meanwhile, repatriating the foreign exchange reserves brought by trade surpluses and capital inflows to developed countries in the form of debt and indirect investment. The lower circulation unfolds between developing countries. China and other fast-growing economies make direct investment in other developing countries with rich resources and import needed primary raw materials for further export of final products, thus forming a trade flow between resources and final products. At the same time, fast-growing economies are shifting the production of certain industries to other developing countries such as Asia, Africa and Latin America to form the flow of production factors such as investment and industrial transfer (Fig. 4). On the one hand, developing countries such as China stimulate modern industrialization and economic development by importing resources, products, exporting capital and transferring industry, and on the other hand, to a certain extent, solve the problems faced by their own economy. Fig. 4. Economic cooperation of the countries of the world in the framework of global value dual circulation models In fact, since the global financial crisis, the role of developed countries as the engine of world economic growth has been greatly reduced, trade protectionism and anti-globalization trends have gradually emerged. At the same time, fast-growing developing economies, especially the BRICS countries represented by China, have increasingly become an important driving force for world economic cooperation and development. The former model of the world economy, in which there was a dependence of the world’s economies on developed countries, has turned into a “twin-engine model” of cooperation between developed and developing countries. From the above, we can draw the conclusion that for developed and developing countries, China is a connecting node. In terms of the level of economic and industrial development, China occupies a position slightly above average and is a key link in the global dual-circulation chain between developed and developing countries, which determines its role between the upper and lower levels of the system, importing from North American countries and Western Europe new technologies and production, meanwhile, cooperating with developing countries, thus forming a model of dual circulation in global value chains (the figure 8 model). Therefore, using the advantages of a highly developed industry, China, on the one hand, unceasingly narrows the gap with developed countries in the international system of labor division, increasing product added value, on the other hand, exports capital and technology to countries with a lower level of development, receiving in return resources necessary for further development, and ultimately expands economic cooperation and regional development in an all-round way. Results When investigating the global trade both from the perspective of China and from world economy, can be observed, on the one hand, a system of movement has been formed between China and developed countries based on the international labor division, international trade, investment and cross-border financial flows, on the other hand, between China and the developing countries of Asia, Africa and Latin America is formed system based on trade and direct investment flows. Conclusion In world economy a model of the global dual value chain is being formed, in which China occupies an intermediate position and is a key link in the global dual-circulation chain between developed and developing countries, which determines its role between the upper and lower levels of the system. Summary Taking the advantages of a highly developed industry, China, on the one hand, continuously narrows the gap with developed countries in the international system of labor division, increasing product added value, on the other hand, exports capital and technology to countries with a lower level of development, receiving in return resources necessary for further development, and ultimately expands economic cooperation and regional development in an all-round way.