In the round of anti-globalization which was characterized by trade frictions, the depth of the adjustments faced by the global economy may exceed the expectations of most people. In a historical perspective, economists can always use the theory of economic cycle to explain the ups and downs of the economy. In fact, if the flexibility of history is assumed to be true, there are no economic ups and downs nor national rise and fall that cannot be explained by the theory of economic cycles.
However, macro-analysis alone from the theory of economic cycle does not fully explain the structural changes in the global economy and the changes of power in international relations. During the internal discussions of Anbound's macro research team, Chief Researcher, Chen Gong, indicated one of his observations: "Even though the economic strengths of the countries involved in global trade conflicts are considerable, the situations and problems faced by each country vary greatly." For instance, China's GDP in 2018 has exceeded 90 trillion yuan, making it the world's second-largest economy. In 2017, the size of China's economy reached US$12.2 trillion, accounting for 15% of the world economy. The U.S. economy was US$19.4 trillion, or 24% of the world economy. However, judging from the trade frictions between China and the United States since last year, it is fair to say that China faces more challenges and pressures than the United States does. The difference of pressures that faces by both countries is so great that it far exceeds the different sizes of both economies.
Germany, which is the largest economy in Europe, the world's fourth largest economy and the most important country in Europe, had an economic scale of US$3.68 trillion in 2017, accounting for 4.63% of the world economy. Germany has a world-renowned and developed manufacturing industry. Its numerous industries and large enterprise groups have also been making an important impact on the world. In addition, Germany's global competitiveness has also been persistently top-ranked. However, even for such a classic western developed country, whose development level is much higher than China's, it is still facing great pressure from the United States in this wave of anti-globalization. The United States can completely ignore the feelings and explanations of Europe and Germany by treating the very commonplace automobile trade as a "national security threat" for the United States. In other words, Germany is also in a very passive and helpless position in trade friction with the United States. As Anbound previously pointed out, the competition between the United States and Europe is the main axis of global economic and technological competition, and Germany may still face greater pressure from the United States in the future.
According to Anbound's research team, the answer has to do with the fact that the world economy has entered a new stage of development -- we are in the buyer's world! As Anbound had pointed out earlier, the most valuable things in the buyer's world are not the cheapness and abundance of goods, but the size of the economy and purchasing power. Elements that have decisive power is the total consumption strength and the market space of a country. By constantly emphasizing the "China market" over the years, it functions to point out that in addition to becoming the "world's factory", China has to possess the market space that is valued by the buyer's world.
Moreover, the formation of the buyer's world is related to overproduction. Given the progress of science and technology, the globalization of the industrial division, the entry of developing countries with a large number of cheap labors into the market, the arrival of the information society and, the emergence and development of Internet commerce, the occurrence overproduction is extremely possible. To some extent, it is the great development of globalization that has created the world of overproduction.
Countries with market space are uniquely competitive especially when there is overproduction in the world. In contrast, the major manufacturing countries that used to dominate in times of shortages are now in a passive position. What is the value of such production and capacity if large quantities of surplus products cannot be "cashed" or sold in the market? The "uncashed" surplus will result in excessive production lines, accumulated inventories, idle factories, inflated debts, potential financial risks, large consumption of energy, polluted environment and the rest. In short, there is no value in production capacity that has not been "cashed out" in the market. If such "uncashed" manufacturing capacity is "unfortunately" at the lower end of the value chain, it is more vulnerable to elimination.
As global consumption gradually shifts to service consumption, the manufacturing downturn has begun to spread around the world. The tracking study of Anbound's macro research team found that the global manufacturing boom came to a halt again in February. In addition, the actual value of the U.S.' Markit Manufacturing Purchasing Managers' Index (PMI) in February was 53.0. Although it continued to expand, it was lower than the initial estimated figure of 53.7. On the other hand, the actual Markit manufacturing PMI for the Eurozone in February fell to 49.3, the seventh straight month of decline. It was the first contraction since May 2013. Manufacturing sentiment in Germany and Italy also contracted in February. Manufacturing activity in major Asian countries also continued to weaken last month, with Japan's Markit/Nikkei actual manufacturing PMI falling to 48.9 in February, the first contraction since August 2016. It was declining at the fastest pace in more than three years. China's PMI has also been continuously below the threshold line. Things are also getting worse for ASEAN as a whole -- with data from the Philippines falling to a six-month low. Malaysia slipped further, Indonesia is stagnating, and Vietnam's growth has weakened.
The above phenomenon seems to be accidental or appear to be normal fluctuations, but in the era of anti-globalization, the appearance of weakness in manufacturing industry may imply the inherent laws of the buyer's world working. Understanding this change also has practical implications in terms of policy. In the future, if China continues its low-priced, low-grade manufacturing competitiveness in the global market, it will be difficult to gain the market space in the buyer's world and to win in the future.
Final analysis conclusion:
In the buyer's world, the owners and dominators of the market space stay at a leading position. There is no value in "uncashed" manufacturing in the future market.
