This year, the Geopolitics and Business Club at London Business School hosted their first conference, “World in Flux: Geopolitical Uncertainty and the Future of Business’, supported by the Wheeler Institute.
Among its highlights was a Fireside Chat on “Macro-Economics: Rise of the Global South,” with David Lubin (former Head of Emerging Markets Economics at Citi and author of Dance of the Trillions: Developing Countries and Global Finance), moderated by Elias Papaioannou (Professor of Economics at London Business School and Co-Academic Director of the Wheeler Institute). This discussion centred on the impact of emerging economies’ growth on the existing world order, with a particular focus on China.
The Chinese Economic Paradox
The discussion began with a deep dive into China’s current economic landscape. Lubin highlighted a paradox in China’s economy: despite a steady average growth rate of over 5%, corporate and household confidence remains low. For corporations, Lubin attributed this lack of confidence to the increasing influence of government ideology since 2021. In response to doubts about the private sector’s alignment with government goals, Chinese authorities implemented a “traffic light system” for investments, creating uncertainty about the private sector’s autonomy.
On the household side, Lubin attributed the lack of confidence to geopolitical factors. He explained that China’s strategic decision to reduce its reliance on real estate investments—previously contributing up to 30% of GDP—is part of a broader effort to diversify the economy and free up capital for investments in sectors that reduce dependence on imports. This move aims to enhance self-reliance amidst a tense geopolitical landscape, where economic sanctions, like those imposed on Russia, are considered possible. This comes as part of an “asymmetric decoupling” strategy focused on decreasing import reliance to withstand sanctions better and increasing global dependence on Chinese exports. This shift towards import substitution, coupled with an economic slowdown, has reduced the significance of Chinese demand globally while elevating the importance of Chinese supply.
Shift from Efficiency to High-Quality Growth
Lubin explained how from 2005 to 2017, China saw a rise in private-sector investment, surpassing state-owned enterprises. However, this trend has reversed since the 19th Party Congress in 2017. By 2021, state-owned enterprises accounted for more than 50% of fixed-asset investments, highlighting a shift in economic power from the private to the public sector. Lubin pointed out that while the private sector yields higher returns on equity and assets, shifting towards state control prioritizes security over efficiency. He highlights that China now focuses on “high-quality development” over mere growth, which reflects its emphasis on national security and ideological alignment. The phrase “high-quality development is the hard truth” encapsulates this shift’s irreversible and challenging nature. Lubin points out, “Loss of efficiency is only important if you think that efficiency is all that matters, and I think that the Chinese leadership would say efficiency is not what matters; national greatness is what matters”.
Impact of Globalisation
The conversation then turned to globalisation, and how it has played a critical role in promoting income convergence between developing and developed countries; but it has also increased inequality within countries. This has led to economic dislocation and political unrest in developed nations like the U.S., which lost millions of manufacturing jobs due to competition from emerging markets. The West’s frustration is rooted in the perception that globalization’s benefits have not been politically reciprocated, with countries like China not adopting expected liberal democratic norms. Consequently, there has been a shift towards protectionist policies under leaders like Trump and Biden and movements like Brexit, aiming to counteract globalization’s negative impacts on domestic industries.
Outlook: China as an alternative pillar of global order?
Lubin noted that China aims to position itself as an alternative global power. To do so, he explained, China needs to “establish itself as a magnet for other developing countries.” Initiatives such as the Belt and Road and Global Development Initiative are key to this strategy. “I think China establishing a leadership position in the global south is an exceptionally important problem,” Lubin remarks. The conversation closed by addressing the rise of the term “Global South”, which has recently gained more traction than “emerging markets”. This change indicates an important shift from a commercial to a political perspective in the ways that these regions are viewed, emphsising the importance of these countries in shaping world order.
About the speakers
Elias Papaioannou is a Professor of Economics at London Business School, and Co-Academic Director of the Wheeler Institute for Business and Development. In the academic year 2019/2020, Elias held the Varian Visiting Professor of Economics at the MIT Department of Economics. His research has been recognised with a consolidator ERC grant in 2018, the inaugural 2013 European Investment Bank Young Economist Award, the 2005 European Economic Association’s Young Economist Award, and the Royal Economic Association’s Austin Robinson Memorial Prize, 2008. He is a research affiliate of the Centre for Economic Policy Research.
David Lubin is the Michael Klein Senior Research Fellow in the Global Economy and Finance Programme where he focuses on China, and on economic policy in developing and advanced economies. Before joining Chatham House, he was managing director and head of emerging markets economics at Citi, an American bank, where he was responsible for a team of some 30 economists in 15 locations globally.
About the author
Juliana Escobar Díaz (LBS MBA 2025) is an Outreach and Communications Intern at the Wheeler Institute for Business and Development. Prior to joining London Business School, Juliana spent four years at McKinsey & Company as a Location and Business Analyst, based in Bogotá. She has a keen interest in business for impact and business as a force for good.