China's entry into the World Trade Organization (WTO) in 2001 was a pivotal moment in the country's economic takeoff. This event marked the Chinese mainland's formal integration into the global economic system, ushering in a new era of globalization. The country's WTO membership sparked a rapid liberalization of international trade, reducing trade barriers. This move has proven highly beneficial for both the global and Chinese economies, underscoring the Chinese mainland's increasing influence on the international economic system and inspiring optimism about its future.
The success of Chinese companies can be attributed to two main factors. First, they quickly learned from and successfully competed with Western companies by absorbing valuable experience and outperforming their competitors through innovation, discovery, and invention. Second, the Chinese mainland's presence in global markets has facilitated the flow of knowledge, technology, and capital into the country. Open markets have played a key role in enhancing competitiveness and fueling China's long-term export boom.
This global exposure and access to international markets underscore the importance of economic integration and have played a significant role in the emergence of many domestic companies as global leaders in their industries. For example, Huawei, Baidu, and Tencent have excelled in electronics and telecommunications, while Alibaba, BYD, and Contemporary Amperex Technology have made their mark in e-commerce, electric vehicles (EVs), and batteries.
Facing challenges to their competitiveness, Western countries began to use sanctions and trade restrictions to protect their domestic markets, thus disrupting the established world economic order. In response, Chinese corporations have started building production facilities in friendly jurisdictions such as Ireland, Hungary, Mexico, Singapore, and Vietnam to bypass discriminatory barriers.
This strategic approach has led to numerous successful projects. In the last year alone, investments in such ventures surpassed $18 billion. U.S. and European officials are becoming increasingly cautious about potential market loopholes as this trend gains momentum, highlighting the challenges they face.
A recent International Monetary Fund study has revealed a significant trend. While trade and investment between the U.S. and China have declined, the study highlights the growing and pivotal role of \"connector countries.\" These nations serve as intermediaries or bridges between the Chinese mainland and Western markets, reshaping the global economic landscape and demonstrating their rising significance.
Why do Chinese investors choose these \"connector countries\"? For example, Singapore and Vietnam enjoy significant advantages through their bilateral free trade agreements with the U.S. and membership in the Regional Comprehensive Economic Partnership (RCEP). These agreements allow for the export of goods and services from these countries to the U.S. with zero tariffs, making them convenient partners to serve the American market. This strategic insight, a testament to Chinese business acumen, is reshaping the global economic landscape.
Mexico's participation in the United States-Mexico-Canada Agreement has also opened new opportunities for Chinese investment. This agreement allows free trade of products between the countries, leading to a significant increase in the Chinese mainland's foreign direct investment (FDI) in Mexico. From $500 million between 2000 and 2004, investment has grown to $2.5 billion in 2022. Although this figure is down from its peak of almost $6 billion in 2016, it is still more than double the amount of 2018 and continues to grow.
Similar considerations apply to Ireland and Hungary. Both countries are part of the European Union (EU), which has a single market for its 27 member states. If products are manufactured and sold within the EU, tariffs imposed by the bloc on products imported from the Chinese mainland do not apply.
Ireland's trade with the Chinese mainland has tripled in the last five years, and both sides strongly desire to increase investment. Meanwhile, according to a study by the Berlin-based think tank Mercator Institute for China Studies, Hungary is set to receive 44 percent of all Chinese FDI in Europe in 2023, surpassing investment in Germany, France, and the UK.
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China's access to Western markets is reshaping globalization
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