1．Brief History of Economic Globalization

International capital flow caused by colonization of western countries gave rise to the first wave of globalization and came into blossom in the 19th century. Newly-built international economic governance structure after WW II paved the way for institution of contemporary globalization, with its influence to a large degree being restricted by the pattern of the Cold War. In the 1980s, the pattern was changed initially due to extensive ideological trend of neoliberalism, especially when an unprecedented trend of “powerful globalization” after the Cold War appeared.

The Great Discovery greatly enhanced trading relationship between the east and the west in the 16th century, which was regarded as the primary stage of globalization. In the 19th century, the globalization was firstly pushed to a new height by the European Industrial Revolution and colonialism. After World War II, “regional” globalization restricted by the Cold War occurred, and the “actual” globalization followed. The globalized trend starting from the 1980s and blossoming after the Cold War with incomparable size and influence, which I called it the “mighty globalization”. Although this wave of globalization, to a large extent, optimized resource allocation and promoted competition and economic welfare within an unprecedented scope and degree, its income distribution was unbalanced. Relying on unprecedented opportunities behind international trade and investment as well as shift of productivity, China stood out from the crowd and became a big winner of this wave of globalization. The outbreak of the financial crisis in 2008 indicated the gradual reduction of globalization, while such major political events as Brexit and Trump's election implied the increasingly intensified momentum of “adverse globalization”.

Power Source of Globalization

“Economic globalization” refers to the description of an ever-increasingly intensified and interdependent economic relation between countries around the world. In terms of country aspect, it gives expression to the further economic opening-up and internationalization. From the global perspective, it is presented as more and more countries intensify efforts to make international economic exchange in an in-depth manner, and flow and velocity of commodities, capitals, personnel and information among countries are raised. The relation between the globalization of world economy and the internationalization of state economy is the whole and the part. As for the former, the ratio of international economic aggregate and global economic gross output (total GDP of all countries) reflects the level of economic globalization. As for the latter, the ratio of international economic aggregate and GDP of its country reflects the level of its economic internationalization.

Economic exchanges between countries mainly includes two aspects: first, international trade, mainly involving requited transfer of goods and services worldwide, in a broad sense, including technology trade, which involves knowledge flow worldwide in a payable manner; second, international finance and investment, mainly including capital flow worldwide through cross-border credit business and other financial service as well as international investment. The first aspect reflects the globalization of substantial economy, while the second aspect reflects the globalization of finance. International investment is divided into direct investment and portfolio investment. The former one, with capital flow worldwide accompanied with the flow of resources of talents, technology, management experience and international markets, actually reflects the globalization of substantial economy. The latter one is often of pure financial nature. The above aspects of international economic exchanges are interrelated, with unclear boundaries sometimes. In my view, there are two conditions for the international economic relations to upgrade to the height of globalization. One is the expansion of transnational economic activities from trade to finance and direct investment, the other is the expansion, in geographical range, from between regions to worldwide.

Before the advent of “modern” stage in western history, starting from the year of 1500, the main form of the international exchange included smal-l scale trade and personnel exchanges. Geographically speaking, international trade was often limited between neighboring countries; long-distance international trade was limited to high value goods. It was simply the burgeoning stage of globalization. In the 16th century, with the advent of the Great Geographical Discovery and the Great Navigation Era, the international economic cycling, based on large-scale maritime trade, especially between Europe and Asia, thus came into being. It was the primary stage of globalization. In this period, China was an active participant. Private maritime trade flourished after the opening-up during the Reign of Emperor Longqing, which made the Ming Dynasty occupy an important position in world trade and accumulated huge amount of wealth. After the 18th century, fueled by western industrialization and colonialism, international trade showed on an unprecedented expansion. European powers, especially Britain, possessed tremendous amount of overseas assets, which led to the first climax of globalization from the end of the 19th century till the outburst of WWI. After the twists and turns of WWI and WWII, economic globalization entered a new stage and arrived at an unprecedented upsurge at the end of the Cold War. In general, the two globalization upsurges, led by western countries in the 19th and 20th centuries, were based on the world economic order dominated by western countries. The former was a colonial system, the latter was built on the basis of the financial trading system subject to the international law. During the two globalization upsurges, China became an “outcast” for its weak national strength.

At the national level, globalization is reflected in the continuous enhancement of internationalization of major economic entities, mainly in the absolute quantity and relative proportion of GDP of growing cross-border economic activities, which include international trade, investment and finance. If trade is considered as the bond of economic ties between countries, investment will be the approach for economic integration between countries. International trade emerged as early as human history started, while a certain scale of international finance and investment activities appeared much later, which explained the origin of globalization. At enterprise level, the primary stage of internationalization was to seek overseas expansion via import and export and then through international direct investment. With the expansion of business scale and enhancement of internationalization, transnational corporations became the leading force in globalization. The early MNCs had political and military functions for colonial governance, and meanwhile promoted international economic exchanges through monopoly of international trade and establishment of trade strongholds, such as British East India Company and Dutch East India Company. With the advent of international enterprises in modern sense, MNCs became the dominant force to advance globalization and lead the world economy.

The impetus for globalization consists of many aspects. Technical factors affect the market transaction expenditure and enterprise management costs by determining the costs of transportation, information transmission and production and management, and thus pushing forward internationalized operation of enterprises. What deserves particular note are the general purpose technologies widely applied and widely influenced. For example, the invention and promotion of ships and telegraph played a critical role in the first round of the wave of globalization in the 19th century, while jet aircrafts, operation of ships and ports in container transportation, as well as progress of information and communication technology greatly fueled the wave of globalization in the late 20th century. Correspondingly, the construction of major transport infrastructure exerted worldwide effect on shipping costs, such as the Suez Canal built in 1869 and the Panama Canal built in 1914.

The system factor determines the tariff and non-tariff trade barriers in terms of trade, as well as industry access and investor guarantee, and thus “pulling” international operation of enterprises wherein. As a whole, the government's opening up policies in trade, investment and talent flow play a vital role, while the ideological basis of the opening up policies of the government is the liberalistic trend of thought. After the European Enlightenment Era in the 18th Century, liberalism dominated the whole 19th Century, which was the ideological basis of the first wave of globalization. Similarly, in the late 20th Century, both the western economic order in the Cold War and the global one after the end of the Cold War were basically established on the basis of liberalism, with the same strain of classical liberalism, advocating privatization and laissez-faire market economy against excessive state intervention. The practice of neo-liberalism economic policies began to spread over the world in the early 1980s, and reached its peak from the 1990s to 2000s with the end of the Cold War and formation of Washington Consensus.

The time at end of the Cold War divided the globalization wave in the late 20th century into two stages, the “partial globalization” inside the western world, and the “mighty globalization” throughout the world. After WWII, the world economic pattern separated between the east and west came into being. Featured with domestic planned economy as well as international division and trade, the USSR-led country camp operated with its unique low-efficiency economic mechanism. Meanwhile, the pattern of liberalization in trade and investment was established in the western world to promote efficient operation of international economy. The common market economy system and opening up trade policies were the institutional foundation of such pattern. Many developing countries carried out passive and closed trade and investment before the 1980s. They adhered to the trade policy of “export substitution” and considered western multinational corporations as the negative factor that hindered the development of their national economy. As opposed to it, East Asian economies followed the trade policy of “export drive” and actively integrated themselves to economic globalization led by western countries. In general, globalization in this stage mainly appeared inside western developed countries, without entirely spreading worldwide because of the absence of the Warsaw Organization and main developing countries. The real watershed was the collapse of the Berlin Wall and the collapse of the former Soviet Union and the drastic changes to East Europe. The end of the Cold War signaled the overwhelming success of the mode of western market economy over that of planned economy in the bloc of the former Soviet Union and East Europe, as well as the formation of the new world economic order featured with economic liberalization and internationalization. A new wave of globalization therefore occurred and reconstructed world economic and political pattern.

Overviewing the history of world economy, the main pusher of globalization changed from Britain-led European powers in the colonial era to the United States, a new hegemony of world political economy after WWII. The two waves of globalization in the 19th and 20th centuries had different influence on the overall pattern of international division of labor. The former created the basic pattern for developed countries to engage in industrial production and provide agricultural products and raw materials for developing countries. The latter achieved large-scale transfer of industrial productivity to developing countries. The trend of globalization in financial field reflects not only the interaction between industrial capital and financial capital, but also the independent cycle of financial capital. Concerning international monetary system, the financial system environment of globalization experienced from Silver-oriented System to Gold Standard System, and from Gold Exchange Standard System to Dollar Standard System. Although the “US dollar hegemony” was faced with many challenges, the dominant position of US dollar among global currencies was one of the basic characteristics of economic globalization in the 20th century. At the micro level, multinational corporations were all along the dominant force to drive globalization, especially the unprecedented expansion of international direct investment whereof and widely extension of value chains became an important feature of the “mighty globalization” era.

Wave of “Mighty Globalization” Sweeping the World

The wave of “might globalization” emerged in the 1980s, rose in the 1990s and culminated in the first decade of the 21st century, which reflected the growth in international trade and international capital flow at total and relative levels. In the middle of the 1980s, international trade, including goods and service trade, began to show an obvious and continuous growth until 2008. Accordingly, the total volume of international trade amounted USD 2.4 trillion in 1985, USD 4.3 trillion in 1990, USD 8 trillion in 2000 and USD 20.1 trillion in 2008. Comparatively, the ratio of international trade total volume against the total output of world economy (sum of GDPs of all countries)rose from 18.2% in 1985 to 32.7% in 2008. International capital flow(including international direct investment, international security investment and international bank loan) also began to grow in the middle of the 1980s, got a short-time decline in early the 1990s and started its growth with shocking high speed in the middle of the 1990s. Correspondingly, the total amount of international capital flow soared from about USD 1 trillion in the middle of the 1990s to USD 12 trillion in 2007, with the ratio of it against the total output of world economy (sum of GDPs of all countries) increasing from about 5% to above 21%. Please see Figure 2.1.

The mighty globalization was achieved under the impetus of technical and institutional factors. In technical aspect, the tremendous progress in general technical field, especially in communication technology, greatly reduced transaction costs and shortened the distance between countries. It made it possible for some cross-border economic activities without technical possibility and economic feasibility to come true and even become necessity under the pressure of competition. In particular, against the backdrop of information technology revolution, storage, computing and transmission costs of data went on an acute slump. Besides, the development of information technology, communication and Internet led to revolutionary changes in way and efficiency of international transfer of information. For example, in the 1990s, the great development of submarine optical fiber cable made communication frequency go on a rise by thousands of times in 10 years, which greatly promoted transnational and transcontinental information flow and reduced international management costs. More importantly, technical progress promoted the separation and segmentation of all sections of value chains, and thus creating conditions for international transfer; especially the technical progress in production led to the creation of a globalized mode of manufacturing and fueled the “offshore” wave in production of value chains.

In terms of system, as the practice of liberalization-oriented policy after the end of the Cold War led to the prerequisite of globalization, the close international economic correlation between western countries began to extend to the whole world. Major developing countries and transitional economies of the former Soviet Union and East Europe adopted the economic policies of liberalization and opening up. After China opened market reform for more than ten years since the 1970s, India started the liberalization reform in 1991. Policy changes reduced barriers to trade and investment, shortened the “institutional distance” between countries, and facilitated international investment and operation of transnational corporations. Meanwhile, international economic governance system was continuously improved. At regional level, the European Union and the North American Free Trade Area were respectively founded in 1993 and 1994. More importantly, the optimization of multilateral trading system and international investment protection system, mainly at bilateral level, provided effective protection for free flow of goods and capital, and advanced opening up and market access in finance, trade and investment. In terms of trade, the GATT Uruguay Round started in 1986 and made significant headway after more than 7 years of negotiations with tariffs being enormously slashed by about 40%. The WTO was established in 1995 and replaced the GATT. As for investment, since the beginning of 1980, a large number of bilateral investment agreements were signed between countries, and thus providing basic institutional guarantee for large-scale international investment of transnational corporations.

Thought is the basis of institutional reform. As the wave of globalization in the 19th century, liberalism was also the thought and ideological foundation of the wave of “mighty globalization”. Its policy was mainly presented in internal privatization and external liberalization, especially in financial opening up. In the course of dealing with stagnation in the 1970s, the new liberalism economic thoughts gradually arising in the United States, Britain and other countries began to exert increasingly extensive international influence in the early 1980s. Until the end of the Cold War when the Berlin Wall was collapsed, such thoughts and policy practice gradually swept the world. The economic liberalization in major developed countries, especially the United States, and the wave of reform in major developing countries, such as China and India, formed concerted forces and started to dominate the proceeding of international economic policies. Undoubtedly, such round of globalization was strongly pushed forward by the US-led western developed countries, while the active participation of major emerging economies made it an unprecedented wave of “mighty globalization”.

For a long time, as the world largest economy, importer and capital exporter, the United States played a vital role in promoting globalization, while the U. S. financial institutions and multinational corporations took the lead in globalization. In addition, the dominance of the United States in the era of “mighty globalization” was also manifested in the following aspects: firstly, the “vanquishing without battles” United States had strong political leadership and appeal after the Cold War, which laid the foundation for the expansion of influence of its economic thoughts and political advocates in the world. Next, its strong global business interests and broad economic influence promoted the expansion of the U. S. economy ideas and political propositions worldwide. Furthermore, the United States institutionalized free trade and investment conception by leading formulation of rules at global level, and the influence of the core institutions of international governance system made these institutions become the tool of popularizing the U. S. conception.

The unprecedented impact of this wave of globalization redrew the world political and economic pattern. What is particularly noteworthy was that China, India, the countries of the bloc led by the Soviet Union and East Europe, as well as other developing countries that originally adhered to planned economy and closed policies, began to embrace globalization. Main emerging economies successively joined the WTO, which laid the institutional foundation for these countries to be really integrated into global economic system and advanced worldwide trade and investment liberalization. In this regard, billions of people in the world were incorporated in international labor division system, which displayed an unparalleled expansion in economic globalization. Whether in the field of real economy, such as international trade and direct investment, or in the field of finance, such as international credit and securities investment, this wave of globalization reached a new height in breadth, depth and impact. At enterprise level, transnational corporations and banks internationalized their business, constantly expanded new markets and became the pusher for globalization. At individual level, the way of life and work of consumers, laborers, entrepreneurs and bankers were deeply influenced by globalization.

An important feature of the new wave of globalization was the internationalization of industrial production and large-scale transfer of relevant productivity from developed countries to emerging markets. It included stock transfer, and more importantly, the incremental transfer, which was detailed as through the two major ways of international direct investment and manufacturing outsourcing. From a macro perspective, such a process is called “offshore production”. Since the 1980s, the internationalization of supply chain promoted the segmentation and transfer of production activities, and even the reconstruction of industrial layout in global context. The situation in different industries varied greatly. The electronics industry, as the largest and most important sector in modern industry, stood at the forefront. The large-scale manufacturing outsourcing of the electronics industry in developed countries started in the 1980s, accelerated in the 1990s and reached an unprecedented level in depth and breadth in the first decade of the 21st century. The constant improvement of the depth and breadth of manufacturing outsourcing, such as in consumable electronic products, PCs, laptops, smart phones and PPCs, made global value chains turn on a new form, with production network and export base highly concentrated to East Asia, especially China. The importance of manufacturing outsourcing continued to go up with the increasing rise of contract manufacturers in Asia. Accordingly, the trend of the so-called “manufacturing service” also appeared in industries. Some enterprises no longer produced by themselves, but entirely replied on the “manufacturing service” provided by contract manufacturers.

With the advent of the wave of “mighty globalization”, global goods and service market, global labor division pattern and global financial system were established. The power of capital went smoothly to promote the allocation of scarce resources in the world. Accordingly, global economy was quickly developed with the expansion of cooperation, intensification of competition and improvement of performance. The world as a whole benefited from it, and globalization also brought unprecedented opportunities for economic development and social progress for all countries. However, owing to the existence and expansion of competition, the distribution of globalization was not balanced inside a country and between countries. In fact, globalization brought about globalized allocation of resources, globalized division of labor and competition, and polarization tendencies. There were both winners and losers in global competition, accompanied by polarization between the rich and the poor. Such polarization might occur between countries as well as between different classes within a country. From a global perspective, under the restriction of national economic structure and international economic order, the greatly development of globalized division of labor led to separation between production and consumption, investment and saving to a certain extent, and exacerbated the imbalance of trade and international payment.

The impact by redistribution of international trade and investment growth was a neglected issue for long in the context of globalization. The traditional theory about the impact of trade on the labor market could not effectively explain the redistribution effect of trade. Concerning transfer of investment and capacity, when developed countries exported capital and manufacturing capacity to low-income countries, the benefits of different sectors and stratums from globalization were differentiated, and some people, especially workers with relatively low skills, might be adversely affected in employment opportunities and income. For low-income countries, globalization made it possible for late-starting advantage to develop and display and provided good conditions for leap-frog development. From the final results, some developing countries availed the rare opportunities for development by resorting to international division of labor and incremental resource inflow. However, considerable numbers of lowincome countries continued being marginalized in the competition in the globalization era, and unable to share economic benefits from globalization.

Frustrations and Prospect of Globalization

Globalization includes the two aspects of substantial economy and finance, both of which might deviate from each other, mainly manifested in that finance goes on its own cycling and strengthening regardless of the actual need of substantial economy. Since the middle of the 1980s, international capital flow went at an accelerated rate higher than international trade growth. The obvious deviation between both started at the beginning of the 1990s. Both substantial economy and financial internationalization went on a quick rise, with the latter much more vigorous and faster than the former, as shown in Figure 2.1. International capital flow was characterized by high volatility, with its “big rise and fall” in sharp contrast with the relative stability of substantial economy internationalization, which was a major origin of world economic risks. The wave of “mighty globalization” was mainly featured with excessive financial globalization, while the global imbalance was therefore manifested by the deviation of substantial economy from financial globalization.

In 2008, the financial crisis broke out, which was a hard-landing adjustment for the highly unbalanced global economy. The crisis was of financial markets and also about the overall finance, economy and debt. Therefore, only the general consideration of finance and substantial economy would enable us to have a thorough understanding about the root causes of the global financial crisis. Obviously, the U. S. financial system itself was the internal reason for the crisis, namely the “cause”; and the global economic imbalance was the external reason for the crisis, namely the “predestination”. Owing to the interaction between the “cause” and the “predestination”, the crisis broke out. The former mainly resulted from the credit expansion caused by excessive leverage of financial markets, while the latter mainly resulted from the imbalance between production and consumption, as well as between saving and investment in developed and emerging economies. After the crisis, with the process of “rebalancing” of economy and “deleveraging” of finance, globalized economy and economic globalization began to undergo major adjustments. From the perspective of financial globalization, after the outbreak of the crisis, international capital flow turned out with a substantial decline in terms of total amount and relativity. There were many reasons for drastic cool down, generally speaking, such as the interaction between the “deleveraging” inside a country and the “internationalization” among countries.

The financial crisis was a major setback in the development and globalization of world economy. If the technical and institutional factors jointly drove the “mighty globalization”, then the thrust from the latter after the crisis was significantly weakened. Correspondingly, the momentum of globalization became attenuated, which was firstly manifested in the sharp decline in global financial capital flow and the sluggish international trade and direct investment. Meanwhile, the “de-globalization” occurred, which was not only presented in some countries as the tendencies of populism and nationalism in domestic policies, as well as isolationism and protectionism in international policies, but also shown in the “reversal” resource flow, including the reflux of productivity and international capital from developing countries to developed countries. In 2016, the British Referendum for Brexit of Europe meant the retrogression of integration from the perspective of internal Europe, and a strong sense of isolationism and de-globalization from the angle of the world. Obviously, the new political trends in developed countries meant that the reverse effect of institutional factors on globalization was evidently reinforced.

Generally speaking, from the relative indicators of substantial economy, globalization became attenuated after the financial crisis, and even showed a sign of “turning to de-globalization”, as shown in Figure 2.1. In addition, globalization presented some new trends. Firstly, financial globalization suffered from a setback in the crisis, while substantial economic globalization experienced relatively small impacts, which changed the balance between the both. Meanwhile, developed countries, with the efforts of the promotion of its “re-industrialization”, shifted from “offshore” to “back-to-shore” in terms of productivity. Secondly, as for institutional arrangements of international economy, the rise of “neo-regionalism” featured with bilateral, regional and multilateral arrangements was exerting significant impact on global economic governance structure. Thirdly, the promotion of internationalization in service sector was expected to become a vital driving force for globalization. Since the early 1990s, the globalization of manufacturing industry and that of service industry were basically synchronized, with the ratio of total global goods trade versus total global service trade maintaining at around 4. However, as the scale of goods trade was much higher than that of service trade, the former was considered as the main driving force of the wave of “mighty globalization”. Looking forward to the future, with the evolution of international trade targets, methods and institutional arrangements, service trade was expected to grow at a higher rate, while service internationalization would become an impetus to advance globalization. Fourthly, in the context of the increasingly integrated globalization and digitalization, cross-border e-commerce rapidly developed increasingly became a problem that cannot be ignored in the evolution of international trade system. In this respect, the proposition of the conception led by the world electronic trading platform was of great significance.

In particular, with the launching of “The Belt and Road” Initiative (Silk Road Economic Belt and 21st Century Maritime Silk Road initiative) and the establishment of new development financing institutions, China began to inject new impetus to the weakened globalization. Looking ahead, when the new wave of “mighty globalization” will arrive depends on the recovery of world economy at macro level and the renewal of impetus for internationalization in industries and enterprises, and especially investment. China and the United States were of great importance in the process. As for the United States,whether it was willing to restart its role of a leader in the “might globalization” depended on the recovery of its economic strength and the political aspiration of the public; as for China, whether it would like to lead a new round of “mighty globalization” depended on the rise of its economy and the establishment of its leadership. As shown in the result of the general election in November 2016, populism and nationalism prevailed in the U. S. domestic politics, and therefore world economy began to face substantial risks of “de-globalization”. On the contrary, China's continuous rapid growth in import, the self-independence and opening-up in the B&R-driven foreign investment and industry access meant that China began to play a leading role in globalization.