Hyperventilating on China – 2/2
This second part begins with my comments on Gordon Chang’s piece on how China would go the way of Dubai. Dubai is a small place with no home-grown population. It has hardly done much to give the foreigner-residents a stake in the society or the country. It borrowed in foreign currency. It has no resources. Yes, China can become a Dubai if growth stops. For that matter, any country can become a Dubai if growth stops. Simply put, if there is no top-line growth, even one dollar or one rupee of debt is too high.
Most of what he writes are well-known to all and well-known to the Chinese government. They must have done endless simulations on the scenarios that could develop. I doubt if they would be toppled by economic weaknesses. Again, one never says never on any matter in economics, finance or in social evolution and that too while commenting on non-transparent societies. So, let me put it this way: I would not put my money on it.
Those who point to the risk of low growth and unemployment should recall how China managed the restructuring of its public sector in the 1990s.
Whether China makes ‘it’ and sustains it or falls apart would depend on how internally secure it is – ‘internally’ in the minds. If it thinks that overt projection of national power is what would please its people, then it would be courting trouble. Eventually, the rest of the world would unite. Deng XiaoPeng got it exactly right when he exhorted his countrymen and women to keep their heads down while still rising. Of late, they seem to have forgotten it. They are not taking advantage of Europe’s disarray in handling Greece, Spain, etc.
By bailing out Greece, China might not still win brownie points in Europe but it would secure tremendous geo-political advantage over Europe and the US while creating room for potential conflicts between those two in dealing with China. China’s lack of reaction is puzzling. In fact, of late, it has not been in the market buying up the Euro while it was active in diversifying into the Euro at 1.50 and above!
Whether China rises or fails to do so, I think, is entirely in China’s hands. That much credit should be given to them. The same cannot be said of India.
How can or how should the rest of the world deal with China?
Never yield to pressure or appear weak. Both the powerful and bullies think very lowly of the weaklings. Stand up for one’s interests.
While no one single nation can match China’s combined economic and military strengths, collectively they can. But, China would be aware of that. Most powers – nations and people – know how to play the ‘divide and rule’ game between nations and inside nations. That is why it is puzzling that China is not warming up to the idea of bailing out Greece and other European nations.
Finally, we have to acknowledge that we know very little about how to deal with a rising power. For most of us, it is the first time in our life times. Those who dealt with rising powers like the US are not alive to tell us what they did, then.
So, some prayers too would be in order and not out of place. It is time we all realize and act within our limits and limitations – whether it is finance, economics or geopolitics.
[Tailpiece: For a moderate insider's piece on how prepared itself for the economic crisis, see this piece by Fan Gang in MINT]
Dear Ananth,
It would have been nice if you had put in a link to Gordon Chang’s piece in your article. I had to go back to Part 1/2 to find the link.
As a total novice, I get the sense that everyone who is writing about the future rise (or fall) of China is just shooting in the dark. At least you have the grace to admit it.
In his article, Chang says: “Beijing, ignoring advice from Washington and other capitals, did not in the boom times try to restructure its economy to favor consumption. Instead, the Chinese government sought to take maximum advantage of then-surging foreign demand. The role of consumption, therefore declined – falling from a historical average of 60 percent of the economy to about 30 percent last year. No country has a lower rate.” Is this really correct? If so, how can the world’s most populous country, and the second/third largest economy, also have the lowest fraction of consumption in its GDP? That would seem to me unsustainable in the long run.
Just one last comment: So far as I can recall, NO ONE predicted that the rise of China would take place this fast. When The Economist was reviewing the onset of the new millennium in late 1999, it most certainly did not predict that the President of the USA would be kowtowing to the Chinese leadership in just ten years’ time. And yet, very few if any commentators seem to be saying that China is rising faster than anyone thought it would. Perhaps this is one reason why everyone is scrambling to come up with a strategy to cope with the rise of China.
Even good old Bharat that is India has been rising faster than anyone imagined. The very same issue of The Economist dismissed India with the sentence “As for India, it always finds a way to shoot itself in the foot”. It is not as though we are now free from self-inflicted injuries, But, to cite just one example, I have been genuinely surprised by the muted reaction to India essentially bypassing the IPCC to set up its own research institute on climate change. In earlier times the Anglo-Saxon institutions would have been frothing at the mouth about India having the temerity to ignore “world opinion”. What do you think?
A quick reply, Dr. Sagar. I will fix the link in the second post. I agree with what you write. No one anticipated the speedy rise of China and, as you say, nor that of India. Perhaps, in the West, they did not want to? I must check out the decision of India to bypass IPCC. I agree that India needs to display such a courage of its convictions in many other areas too.