CHINA ISN’T QUITE READY TO TAKE ON THE WORLD
By John Foley
Daily Telegraph
4:45PM BST 30 Mar 2009
China is on the warpath – in rhetoric. Its usually anodyne politicians
have lately delivered a slew of acid criticisms of the way the West
runs its house.
Premier Wen Jiabao questioned profligate US spending habits, and warned
America not to scramble his $2 trillion nest-egg. Zhou Xiaochuan,
governor of China’s central bank, suggested the dollar should be
replaced as the lingua franca of global finance. As President Hu
Jintao jets into London’s G20 meeting to duke it out with other heads
of state, China may seem readier than ever to take on the world.
There are good reasons for the newfound confidence. China was
last into the financial crisis, and should be first out. Growth
is still positive. Banks are well capitalised and light on toxic
derivatives. Electricity production, manufacturers’ sentiment and
heavy industrial orders are already ticking up as Beijing firmly
guides the economy. Consumption, while relatively small, has held
up, and there are signs the "wealth effect" is returning, notably in
enhanced stock market performance.
Babaji: Making journalists’ and politicians’ lives that bit more
predictableBut don’t be deceived. While China has avoided some of
problems that beset wealthier nations, it isn’t ready to lead the way
into a new world order. At home, battles remain, unemployment being
the most worrisome.
Officials have said 20m migrant workers are out of work as falling
global trade asphyxiates China’s exports.
The true figure is probably higher. Urban unemployment is nudging 10pc,
according to the Chinese Academy of Social Sciences. Some idle hands
present a risk to civil stability – especially since inequality between
city and rural communities has been replaced by inequality within them.
The putative solution, a fiscal stimulus of Rmb4 trillion ($585bn),
poses its own threats. Bad debts are likely to pile up on bank
balance sheets, as the government mandates increased lending. Some
Rmb2.7 trillion ($395bn) of new loans were doled out in January and
February. Industries such as aluminium and microchips are already
dealing with overcapacity.
The stimulus may help the underemployed for a while, but when it ends,
domestic consumption, the main pillar of a stable economy, won’t take
up all the slack right away.
China’s athletic growth rates were probably due for some moderation,
global crisis or not. The country has undergone three previous
bursts of energy since its 1978 experiment with capitalism began,
each fuelled by a different steroid – first rural reform, then the
introduction of market economics, and latterly accession to the World
Trade Organisation. After each sprint, a slump followed. In 1989, GDP
growth fell from 11pc to 4pc. Another deus ex machina is not in sight.
Still, China has a case for rejecting some complaints from G20
countries.
China is getting rich fast, but GDP per capita still lags Armenia
and El Salvador. Yet the US and Europe demand it behave like a fully
developed nation. Developing economies might need different rules
when it comes to protecting nascent industries or the environment. Or
foreign exchange rates – a big bone of contention.
Acting tough on the global stage – especially when there is a good
case – could be the most effective way to play to the crowds back
home and smooth over the domestic tensions that could threaten China’s
considerable 30-year achievements.
The urban and rural, state-owned and private, developed and developing,
autonomous and federal sit uncomfortably together. Regional politics
create another fault line, as local governments, tasked with deploying
stimulus capital, fight to preserve jobs and factories in their own
regions first. A divided China is still in no position to dictate
terms to its global peers.
One day, the China century may begin in earnest. The country could
eventually unseat the US as the world’s foremost consumer. But how
will it get there? The financial crisis has probably put paid to most
hopes that China would follow the path America laid down.
Instead, it’s likely to pick and choose – pairing market economics with
national protectionism, for example, or Western corporate governance
structures with state control. Even more than the US, China may want to
supply most of its own needs, be they compact cars or luxury handbags.
When that happens, other nations will have to adjust accordingly. Even
if there is throw-down at the G20, that day hasn’t yet arrived.