Lu Zhiqiang

Research Report, No.106, 2000 (Total 1284)

I. A historic trend – economic globalization

1. The concept of globalization

Globalization is a most attractive phenomenon at the turn of the century. However, it is still an open concept without a clear definition up to now. Unbridgeable disagreements exist in various types of understandings about it, even in the basic concept and principle. For example:

The time of the initial stage of globalization. Hio Zomen, a German, considered that globalization began when mankind moved out of the forest in the primitive times. However, most scholars considered that globalization should have begun from the first industrial revolution at the end of the 18th century, the time when capitalism took shape and began to expand. Some other scholars held that the term "globalization" first appeared in 1944, but it was noticed and widely accepted in the recent decades. It is considered, accordingly, that globalization took shape in the mid-1980s when information technology made breakthroughs and progress. The disagreement on the inceptive time of globalization is actually a reflection of the understanding of the essence of globalization. The first two judgments failed to explain why globalization suddenly caught worldwide attention in the 20th century whereas the third judgement overlooked the system backgrounds and historical origin of globalization.

As to the connotation of globalization, there are glaring gaps in people’s understandings. Some say that globalization refers to the process whereby social relations worldwide become increasingly closer and the people of all countries in the world come together to form a global society. Some say that globalization is the worldwide expansion of the capitalist mode of production and the enlargement of the market economic system in the entire world, therefore, globalization means Westernization, or even Americanization. Some scholars have even listed the specific contents of globalization. For example, the Lisbon group composing of scholars from many countries consider that globalization includes the following seven aspects: the globalization of the possession of finance and capital, the globalization of market and market strategy, the globalization of technology, related scientific research and development as well as knowledge, the globalization of living style and the mode of consumption as well as cultural life, the globalization of the adjustment capability and political control, the globalization of the world political unity and the globalization of observation and consciousness. It virtually includes every aspect of global politics, economy, science, technology, culture and social life.

Comparatively, there is less disagreement on economic globalization, however, it could only be roughly defined as follows: the inter-country flow of commodities (including services), information and factors of production, the increasing degree of mutual dependence of the economies of all countries, and the integrating process and trend of the world economy.

2. Manifestations of economic globalization

Economic globalization caught close attention was mainly attributed to three phenomena that emerged in and after the mid-1980s in the world economy:

First, the rapid growth of transnational financial transactions. In 1980, the global capital transaction volume was only US$5,000 billion, it increased sharply to US$35,000 billion in 1992, and is expected to reach over US$80,000 billion in 2000. According to the latest estimates by Morgan Stanley International Investment Co, the total amount of market capital of the 48 largest security exchanges in the world stood at US$31,700 billion at the end of 1999, surpassing the world gross national product for the first time, and also surpassing the total trade value of commodities and services in the world. International investment also increased drastically, its growth rate was much higher than the global economic growth rate during the same period.

Second, the rapid increase in global trade volume. From 1990 to 1999, the average growth rate of gross domestic product was 1%, but the average annual growth rate of export volume in global trade was as high as 6% during the same period. The United Nations estimate that the global trade is expected to increase 8% in the year 2000, higher than the world economic growth rate (3.5%). In addition, the trade structure also underwent a drastic change, service trade emerged and developed fast, maintaining an annual average growth of 9.3% and accounting for 20% in the global trade.

Third, the rapid integration of the global production. Multinational companies made investment worldwide and carried out their production and operation across the world. In 1997, the development of direct investment overseas and the other activities by multinational companies surpassed the growth rate of the world GDP and trade, the growth rate of the sales volume of their overseas branches was higher than that of export in world commodity and service trade. The formation of the global production system increased the mutual dependence of the world economy, its influence overtook that of international trade, thus rewriting the history of global links with international trade as the main player.

3. Contributing factors to economic globalization

The formation of globalization is not an accidental event.

First, the world political environment underwent dramatic changes, peace and development have become the main themes of the world. After the end of the Cold War, the détente of international relations provided a favorable international environment for the development of the world economy, economic development has become an urgent task for all countries, particularly the developing countries. The economic development of the newly emerged industrialized countries in Asia served as a model encouraging more and more developing countries to imitate the development mode of opening to the outside world and strengthening international trade. After the disintegration of the former Soviet Union, the former republics of the Soviet Union and Eastern European countries as well as the majority of socialist countries all embarked on the road of reforming their economic systems. These changes prompted the trend of market-oriented economy worldwide and created necessary system conditions for economic globalization.

Second, the breakthroughs in science and technology offered technological foundation and driving force for globalization. The rapid development of information technology and the continuing progress in ocean transportation and air transport technologies in the 1980s and 1990s greatly reduced the cost for international transportation and information exchanges. According to estimates by the World Trade Organization, during the 1990-1997 period, the transport cost of exporting commodities worldwide accounted for merely 2% of their value. The cost of telecommunications dropped even more. As calculated by the US dollar in 1996, long-distance telephone call charge from New York to London per three minutes dropped from US$330 in 1930 to merely US$1 nowadays. Cheap and fast telecommunications and transportation made the global production layout and management possible.

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