China’s Crisis, Global Economy and Relations

Introduction

Throughout history countries build their international relations on cooperation and confrontation in which they try to satisfy their national interests. At the present stage, the politics of geoeconomics has gradually replaced the politics of forces, and the interdependence of countries has become stronger, which affects the nature of their relations. The cause and effect of these events is globalization, in which major world actors depend on each other’s economic stability. China is one of the countries that have a significant impact on the global economy. The state’s level of development, the pace of international trade, and the size of the population affect the economy of the rest of the world to a greater or lesser extent. For this reason, according to the theory of neorealism and neoliberalism, a significant crisis in China can lead to a global economic crisis and the increased cooperation between states.

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Neorealism

The theory of neorealism is a continuation of the classical theory of realism but adjusted for the modern development of international relations and the strengthening of globalization. This theory, as well as realism, has, in the base, an assumption that the national interests of countries build their international relations and cooperation or confrontation is a way of their implementation (Jørgensen 2017, 96). In other words, all states are competitors that pursue only their national interests, and any cooperation or assistance is a mean of their implementation.

Hence, in the context of globalization, countries make those decisions that lead to their selfish interests, and maintaining global stability is one of them. Otherwise, the imbalance will lead to negative consequences for all members of the interaction. However, unlike classical theory, representatives of neorealism claim that not absolute but partial anarchy is the basis of international relations, since changes in global trends depend mainly on developed states (Jørgensen 2017, 102). Thus, countries with more power determine the main trends in international relations.

Moreover, neorealists recognize the growing role of international organizations and supranational institutions, although states are still fundamental in shaping global trends. This theory distinguish international relations as interactions between states, and world politics as the interaction of nonstate actors (Jørgensen 2017, 103). In addition, the basis of international relations remains national interests, or in other words, the need for countries to survive in the international arena (Jørgensen 2017, 99). At the same time, their main participants are only states, since other actors do not have enough power to influence the development of political trends. Countries are also heterogeneous and have varying degrees of influence on global events (Jørgensen 2017, 96). Consequently, large states that have sufficient power must maintain a balance of power to keep the stability and functioning of the system.

Neoliberalism

Representatives of neoliberalism determine the main feature of international relations as the growing influence of international unions, organizations, and institutions, which play a significant role in shaping global trends (Jørgensen 2017, 71). States are also important actors who pursue their national interests, the main of which is economical and military security. Therefore, the primary interaction between countries is cooperation for obtaining absolute benefits through mutual assistance and trust.

The main task of states is to ensure security and economic prosperity by the work of international organizations and other forms of cooperation. Neoliberal theory focuses on the fact that although the basis of state policy is their national interests, their implementation should be manifested through international law but not through the balance of power (Jørgensen 2017, 79). This point is logical and necessary in the era of globalization and the increased dependence of countries in the global arena.

Moreover, neoliberalism is essentially the source of globalization, since it aims to create open trade and freedom of economic relations. Neoliberalism involves the gradual creation of a global market and a global community that will function under the rule of international laws (Jørgensen 2017, 79). Consequently, neoliberalism is the partial embodiment of modern world trends in politics and economics.

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China in the Context of Global Relations

China is one of the largest countries in the world, which has shown a significant pace of development in recent decades. The level of growth of its GDP remains in the leadership position of past decades, which indicates the development of its economy, and therefore political influence (Frieden 2016, 27). Although today China is not yet ready to appear on the international stage as an active political player, high economic growth allows it to influence countries in the region, and this impact may increase over the years. China is also the largest exporter in the world, and the largest consumer of investment, which is the basis of its economic growth (Frieden 2016, 27). It conducts active trade both with developing countries of the region and the world, and with such global players as the USA, EU, and BRICS countries (Frieden 2016, 27). At the same time, government policies, high consumer demand, and cheap labor force thousands of global and foreign companies to start their business in China.

Furthermore, China is the country with the largest population in the world, and high development rates have virtually eliminated poverty in the country (Frieden 2016, 29). For this reason, many states are also dependent on imports of goods and services for Chinese residents, since consumption levels are still high due to the large population. Import also includes raw materials, which are necessary for the development of production. Therefore, for many countries, China is also a source of income.

The latest news about the US and China trade wars, as well as state trade indicators and participation in the G20, show how closely China interacts and depends on other countries (Frieden 2016, 28). Besides, one of the global projects, “One Road, One Belt,” funded by the Chinese government, is also a demonstration that globalization is continuing, and many developing countries in the region hope for help and friendly relations with China (Kuo and Kommenda 2018). As Frieden (2016) notes, “This gives China both a tremendous impact upon, and a tremendous interest in, the stability of the international economy, and international finance” (27). These facts define China as an important player in the international arena that can determine and influence global processes.

Application of the Theories

The theory of neorealism is suitable for studying this topic and creating predictions, since today, China is one of the key participants in geoeconomic relations and falls under the concept of a global actor. The current pace of globalization makes the politics and economies of countries practically inseparable. Therefore, many states pursue their national interests and analyze the influence of any changes in an internal state of economic for making political decisions. Consequently, although China still does not have much political power, its economic impact affects the policies and economies of others, and neorealism theory can reflect the changes that the crisis in China will bring.

Neoliberalism, in this case, helps to explain current trends in world politics to predict its future changes. Representatives of neoliberalism suggest the same changes that political scientists observe in modern globalization processes; therefore, understanding the characteristics of the theory, I can guess what impact the crisis in China will have. In addition, despite the many differences between neorealism and neoliberalism, both theories converge on many points. For example, the basis of international relations is national interests, including ensuring security and economic stability, the growing role of non-state actors, and the need for cooperation.

Moreover, both theories use an open-economy policy approach that can explain changes in countries ’interactions during a crisis. This approach studies the influence of national politics and the state economy on global relations. Therefore, since the crisis in China will affect the economy of all countries of the world, this approach will help to predict their next actions.

Predictions

China is a state that has a significant impact on the global economy. A financial crisis in the country will lead to a crisis in the global economy, since the modern system of international relations connects all countries of the world. However, these negative changes contribute to the intensification of the activity of supranational organizations and international cooperation and cooperation of states in different areas of politics and economy.

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First of all, it is necessary to predict the changes that will lead to a severe financial crisis in China’s domestic economy and its impact on the global economy. Faced with the crisis, China will be forced to maintain the work of the main sectors of the economy at least at the minimum level, but companies will be forced to reduce production due to a lack of funds for materials. This reduction will lead to a decrease in exports and government revenue. However, the government will need to restore foreign exchange reserves by reducing benefits to private entrepreneurs and international companies, which will lead to an outflow of investment. At the same time, due to a decrease in production rates, inflation, and unemployment will increase, which will cause the growth of poverty. China will need additional investments and loans to restore the former pace of production and exports, as well as to equalize the social welfare of the population.

Such internal changes will reflect in the state of the economy in the world. China’s low level of exports and imports will reduce the profits of countries that are in a trade partnership with it. Foreign companies will lose their privileges and will be forced to pay increased taxes; besides, the value of the Chinese currency will fall. At the same time, poverty and unemployment will reduce consumption among the largest nations in the world, which will also affect the profits of international companies.

Moreover, since most of China’s trading operations are associated with such global actors as the United States, the EU, and the BRICS countries, the crisis will lead to financial difficulties in these states (Frieden 2016, 27). Countries with low economic development will suffer the most, since even in a stable world, globalization creates winners and losers (Frieden 2019, 182). Consequently, the “losers” will suffer even more from the global crisis. In the future, the scenario of the 2008 financial crisis may repeat, since less powerful and developed countries of the world depend on large states.

The theory of neorealism can explain two different scenarios. In the first version, I rely on the concept of power that is central to this theory. According to this concept, states will try to seize control of power by force. The whole world will be dealing with the consequences of the financial crisis, which may aggravate both existing international conflicts and internal problems of states. However, aggravation of situations will provide more reasons for intervention by international organizations whose main interest is to reduce violence within and between countries (Frieden, Lake, and Schultz 2013b, 188). In addition, the crisis in China exacerbated its internal conflicts, such as the riots in Hong Kong (Bradsher, Hernández, and Stevenson 2019). And while China has the institutional structures and means to overcome the problem, Hong Kong also has every chance in the times of crisis to win and maintain its autonomy (Frieden, Lake, and Schultz 2013c, 291). However, in conditions of interdependence, war is most often disadvantageous for countries; therefore, I consider the following scenario as more likely.

Both neorealism and neoliberalism can predict that the crisis will force countries to take measures aimed at eliminating financial difficulties and restoring the economic situation and balance in the world. For this purpose, states will begin to cooperate to assist both to China, which is the source of the problem, and to other countries that will be suffering the most crisis. The United States tried to take similar actions in 2008 to help the consumer countries of their goods (Frieden, Lake, and Schultz 2013a, 368). I base this assumption on the approach of open economy policies, since each state will be interested in restoring its economy, and in a state of global decline, this move will not be possible. Besides, according to Walter (2015), countries are more inclined towards cooperation and mutual assistance in the face of a threat to national security (308). Supranational institutions and entities will also participate in this process, as they are also interested in maintaining security and stability in the world.

The theories of neorealism and neoliberalism, in this case, push me to the same predictions because they have many similar features in matters of open economies and globalization. However, the reasons for cooperation are different, since according to neorealism, countries see this any assistance as their interests, and the neoliberal model says that countries cooperate out of a sense of moral duty. Hence, another difference arises that, according to the theory of neorealism, such cooperation will be temporary, as, for the last 200 years, there are no examples of stable alliances (Parent and Rosato 2015, 82). After the restoration of balance, countries will again be guided only by their principles and interests. At the same time, according to neoliberalism, such cooperation will only deepen, which will lead to the creation of a global world in which general laws will rule.

Conclusion

Therefore, China is an important player in the global economic arena. The financial crisis will bring significant losses both for the internal economy of China and the financial situation of other countries. For neorealism, these changes can aggravate existing international and domestic conflicts, which will further exacerbate the crisis in some countries. However, it is more likely that global financial difficulties will increase cooperation between states. Such changes are possible both according to the theory of neorealism and neoliberalism, but their causes are different motives of the countries. The goal of states from neorealism is exclusively national interests, which will lead to the creation of temporary alliances to establish an economic and political balance in the world. The neoliberal theory is inclined to argue that such cooperation will stimulate the formation of a global market and global society in which countries and people will live by moral principles and international law.

References

Bradsher, Keith, Javier C. Hernández, and Alexandra Stevenson. 2019. “China Condemns U.S. Over Hong Kong. That Won’t Stop Trade Talks.” The New York Times, Web.

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Frieden, Jeffry A., David A. Lake, and Kenneth A. Schultz. 2013a. “International Financial Relations.” In World Politics: Interests, Interactions, Institutions, edited by Jeffry A. Frieden, David A. Lake, and Kenneth A. Schultz, 346-284. London: W.W. Norton & Company.

Frieden, Jeffry A., David A. Lake, and Kenneth A. Schultz. 2013b. “International Institution and War.” In World Politics: Interests, Interactions, Institutions, edited by Jeffry A. Frieden, David A. Lake, and Kenneth A. Schultz, 186-235. London: W.W. Norton & Company.

Frieden, Jeffry A., David A. Lake, and Kenneth A. Schultz. 2013c. “Violence by Nonstate Actors: Civil War and Terrorism.” In World Politics: Interests, Interactions, Institutions, edited by Jeffry A. Frieden, David A. Lake, and Kenneth A. Schultz, 235 – 291. London: W.W. Norton & Company.

Frieden, Jeffry A. 2016. “Macroeconomic Rebalancing in China and the G20,” China & World Economy 24 (4): 15-33.

Frieden, Jeffry A. 2019. “The Political Economy of the Globalization Backlash: Sources and Implications,” In Meeting Globalization’s Challenges, edited by Maurice Obstfeld and Luis Catão, 181-196. Princeton: Princeton University Press.

Jørgensen, Erik K. 2018. International Relations Theory: A new Introduction. London: Palgrave.

Kuo, Lily, and Niko Kommenda. 2018. “What Is China’s Belt and Road Initiative?” The Guardian, Web.

Parent, Joseph M., and Sebastian Rosato. 2015. “Balancing in Neorealism.” International Security 40 (2): 51–86.

Walter, Andrew. 2015. “Open Economy Politics and International Security Dynamics: Explaining International Cooperation in Financial Crises.” European Journal of International Relations 22 (2): 289–312.

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