Have readers noticed that from time to time, there emerges an organization composed of certain countries, with names we often hear like APEC, OECD, RCEP, OBOR, CPTPP, AIIB, SCO, BRICS, etc., giving a somewhat dizzying impression. What is the purpose of these regional economic organizations (“regionalization” not only in terms of geographical/physical proximity, but also in the sense of collaboration/interest alignment)? What kind of impact do they have on globalization? Today, we delve into the concepts, characteristics, and the interrelation of globalization and regionalization, as well as the potential effects they may have on investors.

• Globalization is a multi-dimensional historical development and outcome that encompasses economic, political, social, and cultural aspects. Regionalization, in contrast, refers to the process of intensified economic, political, cultural, and even military cooperation among countries within a specific geographical area.
• Although globalization and regionalization may contradict each other in some aspects, more often than not, they promote and depend on each other. Globalization encourages openness and connectivity between nations, while regionalization helps alleviate the instability and shocks brought about by globalization.
• In the evolving multipolar world order, investors should maintain diverse investment portfolios, flexibly allocating assets across different regions, countries, and industries to achieve steady and stable growth of assets.

What are globalization and regionalization?

The concept of globalization

Globalization is a multi-dimensional process, covering economic, political, social, and cultural aspects. We can start with everyday examples, like a sports brand that can be found anywhere in the world, which we call a globalized brand. Similarly, English, spoken in almost any country, is considered a globalized language. There are many such examples. The globalization of trade and culture can be traced back to ancient times, such as the establishment of the Silk Road. However, this process accelerated in the latter half of the 20th century with technological advancements and market liberalization. After World War II, many countries began lowering trade barriers, promoting global economic integration. Furthermore, the rapid development of information and communication technologies, especially the proliferation of the internet, further propelled the process of globalization.

Economic integration is particularly important in the process of globalization. The growth of international trade and capital flows, as well as the operations of multinational corporations, have promoted the free movement of goods, services, and capital. Technological advancements, especially in information technology and mobile communications, have greatly facilitated the global flow of information, enabling instant communication and exchange. The political impact of globalization is also significant. International organizations and multilateral agreements play important roles in resolving transnational issues, such as climate change and terrorism. These forms and mechanisms of international cooperation highlight the role of globalization in international politics.

The concept of regionalization

Regionalization, in a conventional sense, refers to the process of strengthening economic, political, cultural, and even military cooperation among countries within a specific geographic area, but now it goes beyond the traditional definition to a more complicated/multi-aspect spectrum . Compared to the broad nature of globalization, regionalization is traditionally more focused on integration and cooperation within a specific region. This cooperation is often manifested in the establishment of common markets, the signing of trade agreements, and policy coordination among countries in the region.

The rise of regionalization is related to the restructuring of international relations after World War II and the establishment of regional economic organizations. In Europe, the establishment of the European Union (EU) is a significant example of seeking economic cooperation and political stability. Similarly, in Asia, Africa, and the Americas, many regional organizations have emerged, aiming to promote cooperation and development among member states. Additionally, many organizations have been established across continents for specific needs and objectives in trade, politics, military cooperation, etc., such as OPEC (Organization of the Petroleum Exporting Countries), CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), OBOR (One Belt One Road), NATO (North Atlantic Treaty Organization), and others.

Do globalization and regionalization conflict?

The interaction between globalization and regionalization is a critically important topic in international relations and economic development. Although these two processes might contradict each other in some aspects, they often promote and rely on each other. Globalization, by encouraging openness and connections between countries, provides a broader platform for regional cooperation. Regionalization can be seen as a specific manifestation of globalization within certain regions/countries with shared interests, helping to mitigate the instabilities and impacts of globalization.

Globalization drives nations to recognize the importance of cooperation, thereby promoting the formation and development of regional cooperative organizations. These organizations, such as the European Union (EU) and the Association of Southeast Asian Nations (ASEAN), not only strengthen economic and political ties among member states but also enhance the region's global influence. Such intra-regional cooperation and integration help member states better address challenges brought by globalization, like market competition, environmental issues, and social inequalities. For example, despite differences in human rights, taxation, technology, etc., China and the United States are still members of the APEC organization and continue to cooperate in certain areas.

However, there are certain contradictions between globalization and regionalization. While globalization advocates for openness and free trade, regionalization can sometimes lead to stronger economic integration within a bloc but create higher trade barriers against external countries. This kind of “regional fortress” might conflict with the principles of global free trade promoted by globalization. Additionally, political and economic integration in regionalization might be affected by uneven development within member countries, which could, to some extent, weaken the effects of globalization.

Regional organizations are not to be seen as a means to reverse globalization. It must be recognized that although all parties hope to benefit from cooperative agreements, political factors and uneven resource distribution might weaken the effectiveness of regional accords. When pursuing their own interests, countries often consider their political positions and available resources, which might hinder intra-regional cooperation. For instance, a country may choose not to cooperate in certain areas due to political reasons or to protect its domestic industries, which could hinder the implementation and effectiveness of regional cooperative agreements.

Moreover, the uneven distribution of natural resources and climatic conditions around the world, like oil reserves, means that commodity exchange will still be a more effective approach. Different countries have varying natural resource advantages, which under globalization, promote international trade in goods and services. For example, resource-rich countries may export raw materials, while technologically advanced countries provide manufactured goods or services. This complementarity is the basis of global trade, but it may cause disagreements in regional accords, as different countries' interests may not align.

From a risk management perspective, diversification is crucial. However, when leveraging their economic power or natural resources, countries often choose the path most beneficial to themselves. Such self-interested choices can lead to conflicts, as arrangements beneficial to one country might be detrimental to another. For instance, in a regional trade agreement, one country might promote policies that are advantageous to itself but detrimental to other member states. This not only creates tension within the region but can also affect international cooperation in the process of globalization.

Finally, the impact of the COVID-19 pandemic cannot be ignored. Three years of the pandemic have clearly caused disruption of the global supply chain, leading many observers to predict a shift from globalization to regionalization. In other words, more international movement is expected to occur within regions rather than between them. Whether the disruption in global supply chains is long-term or temporary remains uncertain. For different industries and types of businesses, how to balance the relationship between globalization and regionalization is a strategic consideration, which demands constant review to adaptive over time.

How should investors consider asset allocation?

Under the backdrop of globalization, the formation of more regional economic bodies is an undeniable fact, and we can refer to this as a developing multipolar world. The re-adjustment of global trade will bring significant changes to industries such as technology, industrial manufacturing, and renewable energy, just to name a few. In recent years, globalization has faced challenges with national security taking precedence over efficient circulation of goods and services. Realigning global commerce to this emerging multipolar theme might require trillions of dollars in infrastructure investment and a long-term adjustment of industrial supply chains. This will create potential opportunities for investors, but the accompanying risks must be kept within manageable limits.

Firstly, investors need to build a diversified investment portfolio to effectively balance risks, covering different regions and industries, particularly considering the potential of emerging markets and developing countries in globalization. Paying attention to regional advantages is crucial, especially for industries and companies that may benefit from the process of regionalization.

Dealing with political and economic uncertainties is vital, particularly investing in politically and economically stable countries and regions, and focusing on sustainable and responsible investments, especially in companies that excel in environmental, social, and governance (ESG) aspects. The fields of technology and innovation, such as artificial intelligence, biotechnology, digitalization, and cybersecurity, offer observable investment opportunities.

Moreover, a flexible and dynamic asset allocation strategy is crucial for responding to changes in the global and regional economies. This requires investors to regularly assess and adjust their portfolios based on market conditions and trends. Lastly, investors should take a long-term view of the market, focusing on opportunities with long-term growth potential and robust operational strategies to achieve sustained asset appreciation.

Conclusion

Looking forward, the trends of globalization and regionalization will continue to evolve. With technological advancements and changes in the global political landscape, we may see the emergence of new global and regional dynamics. This will have profound impacts on international trade, investment strategies, and policy-making. To address these challenges, nations and businesses need to adjust their strategies more flexibly to find new growth opportunities within the framework of globalization and regionalization. Similarly, for investors, it is essential to adjust their asset allocation portfolios according to changes in the broader environment.