The Rebalancing World

Influence can come in the form of a crisis or event but can also develop over time. The same can be said about influence’s decline. The world is entering another fascinating decade of geopolitical and economic change that will certainly rebalance the world’s influencers. International governing bodies are experiencing increasing levels of infighting and ineffectiveness. Low growth and global distrust could very likely persist for years to come.

What must we do to keep a steady footing as the world rebalances?

Rebalancing world - FACTS
  • For the 110 Chinese companies in the Fortune 500, 80% of their revenue is earned domestically.5
  • In Germany, an estimated one in three companies has major Chinese customers, and around 80% rely on Chinese suppliers – significant exposure in the event of Chinese disruption.73
  • As China’s middle class grows, more consumers will travel abroad, creating even more global dependencies on China for one of the world’s largest sectors: tourism. 

Strength and stability through strategic investments

  • 1826 U.K. opens first intercity railway
  • 1914 Panama Canal is completed
  • 1935 Germany opens first autobahn section
  • 1955 U.S.-USSR space race begins
  • 1956 U.S. interstate highway system is formed
  • 1975 U.S. starts Strategic Petroleum Reserve
  • 1988 China National Space Administration is established
  • 1988 International Space Station launches
  • 2002 Elon Musk founds SpaceX
  • 2003 U.S. starts Strategic National Stockpile for medical supplies
  • 2009 China formally sets up strategic national pork reserve
  • 2013 China announces Belt and Road Initiative (BRI)

Current events

Rise of specialized manufacturing hubs. Specialized manufacturing hubs have grown in pockets around the world. These are distinct from discussions about general manufacturing hubs in China and Africa (which is a development to watch).69,70 South Korea is seeking to emerge as an expert in biotech, especially in gene editing.71 Germany has differentiated its manufacturing sector by organizing based on industry clusters with deeply ingrained knowledge, such as microelectronics, aviation and life sciences. This expertise is very difficult for others to copy – a key reason why many German industries are currently protected from China’s expanding global manufacturing presence.72

Growing flexible supply chain, dual-sourcing imperative. Today’s supply chains might rely on a single source of supply for any number of reasons, but the COVID-19 crisis resurfaced the need to diversify, especially where there is high exposure to one location. In Germany, an estimated one in three companies has major Chinese customers, and around 80% rely on Chinese suppliers.73 Supply contingency plans will accelerate in the years to come.

Expanding infrastructure investment. Infrastructure overhaul has been long overdue.74, 75 More countries and organizations around the globe are finally seeing and responding to this need. The World Economic Forum has compiled a project pipeline to streamline private infrastructure funding.76 China has supported infrastructure projects around the world through BRI and other partnerships. The European Union announced the Investment Plan for Europe (Juncker Plan) in 2014, which established the European Fund for Strategic Investments to accelerate private investing in European infrastructure.77 Countries are finally moving the needle on these strategic, strength-building investments, which will provide long-term growth and stability and a short-term economic boost.

Changing levels of strategic reserves and investments. Strategic reserves have existed throughout history for a wide variety of resources: coal, oil, grain and medicine, among others.78 Holding resource reserves increases economic stability globally and domestically, especially when markets are threatened by supply disruption. While European nations have been cutting energy reserve levels, including the U.K.'s petroleum reserve post-Brexit79 and Germany's coal reserves, to align with national energy actions,80 China has been building up its stockpiles of natural resources through its BRI and other strategic agreements.81 Strategic space-related investments have also increased, particularly in the U.S., India and China. While all have interest in infrastructure, research and human exploration, China is unique in its pursuit of resource extraction, particularly helium — abundant in lunar soil — for broad applications, from MRI machines to hypersonic wind tunnels.82

Future expectations

The recession will profoundly impact the strategic investment landscape over the next five years. Those companies and countries who can respond to this downturn quickly and strategically will emerge positioned to thrive, whether in supply chains, infrastructure or other strategic investments.

In the wake of global supply disruption by COVID-19, companies will accelerate their pace to diversify supply chains, both to align to national interests and to maintain viability when future crises hit. Some migration of manufacturing jobs will continue (to Eastern Europe and Southeast Asia, for example) but is unlikely to result in new general manufacturing hubs. Specialized manufacturing hubs will be challenging to develop in the face of China’s vast manufacturing cluster network, but exceptions will exist.83

Infrastructure investments have the potential to create economic growth and could be an important piece of the economic recovery equation for the current crisis.84 Many countries will explore such opportunities, but inefficiencies surrounding most Western infrastructure projects will decrease investment interest. China will continue to execute infrastructure projects in record time,85 although success of China’s BRI investments will be predicated on local partnership in each country, which could be muted throughout the financial crisis.

Countries will replenish strategic reserves in the short term and shore up insufficient reserves based on COVID-19 learnings. Space investment may slow during the recession, outside of programs already planned,86 but China’s and India’s scientific and resource-focused missions will likely endure. India’s first manned space mission is still expected to occur in 2022.87 Human space exploration will also motivate continued investments in SpaceX and Virgin Galactic.88