The image of China

Escrito el 9 Enero 2010 por Mikel Aguirre en Economía Global

Last year was the 60th anniversary of the founding of the People’s Republic by the victorious communists over the KMT (Kuomintang) in 1949. In that way the Chinese civilization, one of the oldest of the world (over 4.000 years) and the most populous country on the earth came into the 20th century as the big red menace.  Those were the fifties were the cold war was at its prime.

Actually everybody agrees that the Asian dragon is one of the main economies and is mean to have even a bigger role in the next years: The largest producer of the world, second exporter and the third importer and the main US bond holder.

After these big achievements what should be the main goals for China this year? Perhaps the biggest point is to be able to change the rest of the world’s appraisal on them.

Usually China is presented by their leaders as angry and defensively assertive.  The future demand relay on the West and how those citizens see and rely on Chinese products and services.  In the last Copenhagen’s summit seemed that China realized for the first time that helping to ease climate issues is in the world’s interest and on their own.  This is a start and perhaps now we could expect the Chinese authorities to be able to open a little bit and accept the tolerance in the information inside of its own frontiers.

China is the only country that could repeat an impressive 8-9%growth in GDP this year but the unbalance of the state directed economy, big exports and shavings, too little consumption, could bring some changes in the next 12 months. If China wants to rebalance the economy for a long term growth there will be more pressure for reforms that would help persuade consumers to start spending their hard-earning shavings.  When will be possible to see a bunch of Chinese tourists taking themselves photos over the Eiffel Tower or the Big Ben?  It will be sooner that we think. Last 23rd of December Volvo cars was sold by Ford to the Chinese motor manufacturer Geely, so Europeans would have to learn how to respect and consider the Chinese economy and the Chinese should have to sell a more comfortable image to the world


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Emilio 9 Enero 2010 - 13:19

Interesante post. Realmente, es un imperativo tanto el que aprendamos a mirar con otros ojos a esta gran potencia como que el que transmita una imagen más transparente y fiable. Me aventuro a dejar aquí las impresiones que tuve al volver de un viaje al dragón asiático (con el fin de crear conversación):


Saludos de un seguidor!

patrick balit 10 Enero 2010 - 19:17

In order to analyze China in the 21st century one must consider its role leading up to the financial crisis and during the recovery. For nearly two decades, capital inflows from the mainland purchased US backed debt instruments keeping the back end of the yield curve artificially depressed. Essentially, China has been fueling the expansionary credit cycle that financed the American consumption binge and mortgage frenzy creating enormous global imbalances, which among other things, led to the financial crisis.

Going forward China will probably keep doing what it perceives best for itself domestically and internationally. For instance on domestic issues the US and China agree to disagree over human rights. Meanwhile an estimated 10 million Chinese move from the countryside to the city every year and infrastructure investment is lagging. China needs to maintain its growth rate, to build up its cities and create employment for the peasants seeking to get their slice of the Chinese capitalist dream. As the world emerges from the financial crisis continued Chinese growth is problematic because China has built its GDP mostly on exports. Traditionally a country, like the USA, trying to recover from an economic downturn has a couple options. It can print money and spend its way out. This has been the USA’s approach, but it is a risky because there is always political pressure to remove the stimulus early. The safer route would be to devalue its currency and make its export industry more competitive. Unfortunately China pegs the Yuan to the USD and shows no desire to relinquish its dominance in exports. In reality the relationship is more complex due to the international financial flows and the impact of the weakening USD on the Eurozone, which is equally suffering. The world does have some leverage. The China Investment Corporation (CIC) is seeking to diversify the country’s reserves. CIC is turning to investments in the USA’s and Europe’s private sector. The USA and Europe could force China to let the Yuan appreciate in return for greater access to purchasing overseas assets.

The 21st century will mark the emergence of China as a true global player, but the course of the fragile recovery rests on managing a delicate relationship with the waking dragon.

Evelyn Vigistain 11 Enero 2010 - 12:18

China, despite its protectionist policies and heavily regulated economy, has seen continuous economic expansion. Up until now, China has been able to isolate “Communist” ideology from liberalization of its economy. Therefore, the country has been able to increase its global influence while maintaining a politically rigid system and as such, is not heavily reliant on foreign approval. China’s impressive GDP growth in the past 20 years has been attributed to its ability to quickly impose and implement economic policy (because of its government structure) despite claims that such policy is at times contradictory to its political ideology. As such, I think that it is highly unlikely that in 2010 we will see much change toward social openness and more freedom of information flows in China.

Nevertheless, things are changing- a more open economy signifies more foreign involvement. More foreigners in China and engaged in business with Chinese firms places China in a more vulnerable position in the sense that outside forces can increasingly require certain standards and make economic/political demands.
Moreover, China has the world’s fastest economy and largest current account surplus. It has artificially maintained it exchange rate low and refused to let its currency appreciate according to economic growth and markets. Additionally, China is highly vested in U.S. bonds. When China buys U.S. bonds it is in essence exporting U.S. dollars to pay for these bonds. This influx of currency shows in the American current account deficit.
The issue is that large and long-lasting current account imbalances have also been blamed for leading to international vulnerability of the monetary system and the financial crisis. China’s managed exchange rate is said to shift financial adjustment pressures to other countries, especially post-crisis, since countries with deficits must re-stimulate spending or increase net exports to boost their economy out of recession. China’s advantageous position and dominance in world markets presents some impediments for competitors, and may force other countries to lower wages, for example, to be more competitive.

It will be beneficial for both China and its trade partners to correct these imbalances in the coming year. For Chinese citizens this will imply an internalization of GDP growth benefits in the form of a higher standard of living. Also, if the Chinese use surpluses to stimulate their internal economy, domestic consumption could balance foreign deficits and decreased foreign demand. For trade partners, this will create more equitable and competitive markets.

All in all, China is slowly but increasingly becoming more exposed to an information flows and scrutiny from civil society. Yet, these liberalizing forces will not have much influence in 2010. The Chinese economy is expected to maintain its high (7-9%) GDP grow rates for 2010. I believe that while China faces more and more foreign demands for policy change, a drastic transformation is not in the best political interest of the communist regime and thus, will not take place.

Miguel Mora - El Pais 13 Enero 2010 - 01:23

Senores: algo nuestra Espana es muy fiable.
El propio ‘Frankfurter Allgemeine Zeitung’ se ha preguntado con ironia en sus paginas si Europa tiene algún seguro que cubra los posibles danos del semestre de presidencia espanola. La cadena de información N-TV repite insistentemente reportajes sobre la critica economia espanola y ayer en la web de esta cadena de noticias era un artículo titulado “PROPUESTAS DE UN FRACASADO”. Está claro que el fracasado en question es el FRACASADO n°1: Mr ZA……RO.


A. McConnell 15 Enero 2010 - 18:11

China’s impressive ability to sidestep the worst of the effects of the economic crisis came at a high cost to the global economy. By keeping the value of its currency artificially low, China was able to run a massive trade surplus. The earnings from that surplus poured into US markets, and the result was the American mortgage bubble that eventually burst into a global economic crisis. Though it is fair to say that the Fed could have raised interest rates to avert the mortgage bubble, and US monetary policy was indeed loose during this time, perhaps even too loose; however, higher interest rates in the US might also have encouraged the world’s savers to invest even more of capital in the US and this would have had a similar effect.
Although China’s current account surplus is the largest ever recorded by any country, the majority of Chinese remain very poor, largely due to the government’s insistence on amassing vast sums of foreign currency rather than taking any significant level of interest in infrastructural improvement, which in theory would help cope with the influx of people flooding into China’s urban centers I search of employment.
China has a surplus much larger than is needed to cover its exports, and pay for its own investments abroad, and yet China continues to invest the vast majority of the foreign currency reserves it has amassed in long-term US Treasury bonds and other government securities.
The US (China’s largest trading partner), on the other hand, has a massive current account deficit. To correct this large and persistent account imbalance, and bring the global economy back into order, the value of the yuan must be allowed to increase, China would have to agree to eliminate (or greatly reduce) its current account surplus, and the US would have to try and reduce their current account deficit by approximately half…

How’s that for a set of New Year’s resolutions?

Payal Mulchandani 17 Enero 2010 - 16:03

Agree, only three things will define if China will remain only an Economic superpower or it will surpass the US as the Global superpower
1) Savings: How China spends its savings will be the most important factor. China saves between 30% to 40% of its income while US saves just about 4% of its income. China has two options here to either invest these savings in its domestic market and fuel the spending power in the country like India is doing or the other option which it is currently following is to invest abroad in US bonds and other such investments.
2) Currency: Yuan is kept on an artificial level by the Chinese authorities and that in turn has helped the export market in China. Neither does it make sense for China or the world at large that China shifts to floating currency right away. It will be a huge blow to the people in China and would result in humanitarian issues. A shift is needed but a gradual phased shift is more important so that China has time to develop its domestic market at the same time.
3) Human rights: The current case of Google withdrawing from China just proves that the Chinese communist government wants to control the minds of its citizens. The government doesn’t want their citizens to have freedom of speech and rights of any sort and is thus curbing from any free flow of information from around the world. The Chinese government should realize the power of new age technology and such succumb to free flow of information. It wont be long before citizens of China go against such a regime.

With the formation of the so called ‘G2’ there is no doubt that China will be a dominant power in world affairs in the near future. But the question – ‘is China really ready to take on such powers?’

Gregory McEwan 23 Febrero 2010 - 18:46

In just one year China saw 80,000 internal uprisings. Despite an overall better quality of life (an increase of 9.8% disposable income in 2009), the gap between the rich and the poor is expanding (Gini coefficient is now 47).

To ensure long-term growth and to remedy the wide-spread discontent the government must concentrate on its infastructure and welfare – both in the cities and in rural areas. In doing so, China will see incresed efficiency, quality of products and quality of live.

One real worry for the Chinese this year is inflation. Moey is being moved from savings accounts to current accounts and is, of course, more likely to be spent sooner rather than later. The incentive to spent is only intensified by an expected increase of interest rates (from 2.25% to 3% later this year). But there is little the government can do and to increase interest rates of savings accounts would risk impeding on the country´s growth.

As the country continues with an artificially low currency to promote exports, pressure from both the US and the EU is mounting – as we have seen with the “shoe case” and the WTO. China´s sensitivity on issues of human rights and the Dali Lama, as well as selling weapons to rogue states, weakens its position as a global player.

In summary, China should focus internally on economic policies and look outward for political co-operation. In doing so, we will see the continued emergence of a reponsible economic super-power.

Daniela Colpo 30 Marzo 2010 - 11:52

Nowadays there are certainly big expectations regarding what China will do next, as response to the pressure for internal reforms from the international community. Having seen China taking gradual steps in the economic development in the past 30 years, starting from the reforms of Deng Xiaoping back in late 1970’s, and taking into account the government’s restrain to let go to more open reforms, I expect China to keep maintaining the same track and GDP growth in the next coming years, with a bit more attention to environmental control and with further investments like the Volvo’s one in the foreign sector. “Chinese rules” will be kept in force despite the international pressure and the competitiveness of this country in export will remain strong. As for the internal consumption, the local population is still not ready for massive consumerism, therefore we cannot expect big changes quite soon, even though examples of western consumption are filtering inside the country and stimulating people to imitation.

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