From The Asia Times:
This whole lengthy article is worth reading. It goes through the list of reasons why China is prepared to fight the economic crisis: low urban unemployment, high savings rate, state-controlled banking system, energy expansion and security, and the rise of its currency, the yuan.
Cartoon from Truthdig.com
In the midst of the worst economic crisis since the Great Depression, a new world order is emerging, with its center gravitating towards China. The statistics speak for themselves. The International Monetary Fund (IMF) predicts the world's gross domestic product (GDP) will shrink by an alarming 1.3% this year. Yet, defying this global trend, China expects an annual economic growth rate of 6.5% to 8.5%.
During the first quarter of 2009, the world's leading stock markets combined fell by 4.5%. In contrast, the Shanghai stock exchange index leapt by 38%. In March, car sales in China hit a record 1.1 million, surpassing sales in the US for the third month in a row.
"Despite its severe impact on China's economy, the current financial crisis also creates opportunity for the country," said Chinese President Hu Jintao. It can be argued that the present fiscal tsunami has, in fact, provided China with a chance to discard its pioneering reformer's leading guideline. "Hide your capability and bide your time" was the way former head of the communist party Deng Xiaoping once put it. No longer.
Recognizing that its time has indeed come, Beijing has decided to play an active, interventionist role in the international financial arena. Backed by China's US$2 trillion in foreign exchange reserves, its industrialists have gone on a global buying spree in Africa and Latin America, in neighboring Russia and in Kazakhstan, to lock up future energy supplies for its economy. At home, the government is investing heavily not only in major infrastructure, but also in its much neglected social safety net, its healthcare system, and long overlooked rural development projects - partly to bridge the increasingly wide gap between rural and urban living standards.
All signs are that Washington will be unable to restore the status quo ante after the present "great recession" has finally given way to recovery. In the coming years, its leaders will have to face reality and concede, however reluctantly, that the economic tectonic plates are shifting - and that it is losing financial power to the thriving regions of the Earth, the foremost of which is China.
Read the Whole Article
While some of the arguments the article makes can be debated, it makes compelling arguments for why, on a whole, China is going to be much stronger when the world economy "recovers."
There is another article out today, from the Financial Times, that discusses the eventual rise of China and why it will establish itself at the top of the post-crisis world. This article focuses more on financial matters:
Emerging economies such as China and Russia are calling for alternatives to the dollar as a reserve currency. The trigger is the Federal Reserve’s liberal policy of expanding the money supply to prop up America’s banking system and its over-indebted households. Because the magnitude of the bad assets within the banking system and the excess leverage of its households are potentially huge, the Fed may be forced into printing dollars massively, which would eventually trigger high inflation or even hyper-inflation and cause great damage to countries that hold dollar assets in their foreign exchange reserves.I found this article's discussion of Chinese peoples' love of the US Dollar to be interesting. I can understand that when the trillions of dollars that are now flooding the US market in the not too-distant future will cause debilitating inflation and, thus, turn off the Chinese, whose massive savings in US dollars will be rendered worthless.
Ethnic Chinese, including those in the mainland, Hong Kong, Taiwan and overseas, may account for half of the foreign holdings of dollar assets. You have to check the asset allocations of wealthy ethnic Chinese to understand the dollar’s unique status.
The Chinese love affair with the dollar began in the 1940s when it held its value while the Chinese currency depreciated massively. Memory is long when it comes to currency credibility. The Chinese renminbi remains a closed currency and is not yet a credible vehicle for wealth storage. Also, wealthy ethnic Chinese tend to send their children to the US for education. They treat the dollar as their primary currency....
America’s policy is pushing China towards developing an alternative financial system. For the past two decades China’s entry into the global economy rested on making cheap labour available to multi-nationals and pegging the renminbi to the dollar. The dollar peg allowed China to leverage the US financial system for its international needs, while domestic finance remained state-controlled to redistribute prosperity from the coast to interior provinces. This dual approach has worked remarkably well. China could have its cake and eat it too. Of course, the global credit bubble was what allowed China’s dual approach to be effective; its inefficiency was masked by bubble-generated global demand.
China is aware that it must become independent from the dollar at some point. Its recent decision to turn Shanghai into a financial centre by 2020 reflects China’s anxiety over relying on the dollar system. The year 2020 seems remote, and the US will not pay attention to something so distant. However, if global stagflation takes hold, as I expect it to, it will force China to accelerate its reforms to float its currency and create a single, independent and market-based financial system. When that happens, the dollar will collapse.Read On
It only makes sense that the Chinese are itching to get the world's financial systems working in the "Chinese way."
I'm going to feature one more article today, an editorial from The Los Angeles Times, that talks about the "Chinese way" and why the Chinese are going to run into a whole different set of problems when it is their turn to be leaders in the twenty-first century:
Which country -- the United States or China -- will make the 21st century its own?Just like the world has faced problems because of the way the US has run itself, the world will surely face problems because of the issues China has. As I've discussed a few times recently, China's education system has some very serious problems. The Chinese system just has not figured out how to get its students to think creatively.
When President Obama recently called for American young people "to be makers of things" and focus on subjects such as science and engineering, it was partly a nod to China's rapid growth. Had he lived, taught and consulted in China for the last 33 months, as I have, he might have urged American students first to follow his example and study the liberal arts. Only technical knowledge complemented by well-honed critical and creative thinking skills can help us regain our innovative edge. China's traditional lack of emphasis on teaching these skills could undermine its efforts to develop its own innovative economy.
I once challenged my Chinese MBA students to brainstorm "two-hour business plans." I divided them into six groups, gave them detailed instructions and an example: a restaurant chain. The more original their idea, the better, I stressed -- and we'd vote for a prize winner. The word "prize" energized the room. Laptops flew open. Fingers pounded. Voices roared. Packs of cookies were ripped open and shared. Not a single person text-messaged. I'd touched a nerve.
In the end, five of the six groups presented plans for, you guessed it, restaurant chains. The sixth proposed a catering service. Why risk a unique solution when the instructor has let it slip he likes the food business?
Though I admitted the time limit had been difficult, I expressed my disappointment and reiterated what I had expected -- originality -- and why. But they'd been so enthusiastic that I couldn't deny them a winner. After a polite discussion of the merits of each idea, the Haagen-Dazs gift certificates were awarded, but not without controversy. Runners-up later complained that an identical concept had been featured on CCTV the night before.
Ultimately for China, becoming a major world innovator -- and by extension, a robust economic power -- is not just about setting up partnerships with top Western universities or roping off elites and telling them to think creatively. It's about establishing an intellectually rich learning environment for young minds. It's about harnessing the same inventive energy of the street markets and small-time entrepreneurs and putting it in the schools.
The Chinese don't need expensive free-agent scientists. They need a new farm system -- and about 10 million liberal arts professors.
From the articles I've referenced today though, the conventional wisdom is saying that the twenty-first century will be China's. At this point in time, it's pretty hard for me to imagine a world going forward that doesn't have China on top.
In terms of people, land size, location, and development, China rising to the top of the world's pecking order seems to be a pretty natural move to me. It's the most populated nation on Earth. It's the heart of Asia. It has tons of natural resources. It's infrastructure is finally reaching the point where it can really take off.
Indeed, it's almost impossible for China to not overtake the US at some point in the coming century in terms of economic prowess, influence, and everything else that goes along with being a superpower.
China is not quite a "super-power" yet. But if one thinks that it's more than a decade or two from being one (or the one), I don't think that that person is looking at the facts. And for the US or any other countries that don't like China's rising, I don't see how the Middle Kingdom can be stopped.