China’s Pivot to the Global South Can Only Do So Much

As Beijing has come to accept the loss of export prospects in Europe and the United States, it has begun to consider a pivot in its export strategy toward the so-called Global South. Speaking recently at the Hongqiao International Economic Forum in Shanghai, former Vice Minister of Foreign Affairs Le Yucheng made the case for such a change.

He described the Global South as “rising” and likely a source of robust sales growth, though at a faster rate than in the past, if not at the level of former export sales to the United States and the European Union. To elucidate the potential, he reminded Chinese officials and business listeners of the growing prominence of the so-called BRICS association between Brazil, Russia, India, China, and South Africa, and the other nations of the Global South that have begun to flow in the BRICS’s wake. He also noted the export support provided by Beijing’s Belt and Road Initiative (BRI), though his enthusiasm avoided any mention of recent setbacks and failures within the BRI.

This new emphasis has a very different character from China’s past engagements with the Global South. Previously, most Chinese businesses have set up operations in less developed countries to gain access to cheaper labor and to avoid American and European tariffs by shipping their output from a non-Chinese location. Mexico and Vietnam have seen a good deal of this sort of activity, but they are not the only areas.

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The BRI involves substantial overseas investments via Chinese loans to associated nations for large and small infrastructure projects that Chinese interests build and manage. Both these efforts have boosted Chinese exports: the BRI through the need for equipment and materials, especially during the projects’ construction phase, while direct business investments create a constant demand for inputs. These efforts, according to official data cited by the Hong Kong Trade Development Council, have provided outlets for some 34,000 Chinese investors who have established 52,000 overseas enterprises in some 190 countries.

The new approach would avoid the transfer of so much capital to risky parts of the globe and instead rely on what proponents refer to as “localizing”—finding outlets for Chinese products through local partners and simple sales offices. Not only would this approach reduce the risk to Chinese assets, but it would provide a means for the 90 percent of the 52 million small- and medium-sized businesses in China that, in a recent survey, reported that they would like to “go global.”

Such a pivot does indeed have the potential to substitute for the lost export possibilities in the United States and Europe, but as already indicated, not all of them. The differences in market sizes are simply too vast. What is more, Africa, Latin America, the Middle East, and less developed Asia present business impediments of a different kind. Chinese exporters have already complained about the number of deals that fall through and their inability to enforce contract obligations as they can in the developed West.

Ultimately, China’s only effective answer to lost markets in Europe and America lies in its own people. The country needs to become less export-dependent than it has been and remains. The only answer to that need is to develop an active consumer sector and the investment by domestic and foreign businesses that would come in its wake. With a firm and expanding domestic demand, China would need neither demand from Europe and the United States nor from the Global South, “rising” or not. Given Beijing’s poor track record with the household sector so far, this essential domestic growth engine seems unlikely to develop any time soon.