Bad News From Beijing
Hints that the Chinese economy would have been severely hit by the global recession were already visible last year. 2011 data showed that China had grown less than expected and less than the central government had hoped. This news had worried the authorities and most likely – given the power struggles that always characterize communist regimes – created an internal war within the party. Most likely, this is the reason why the real figures never came out.
Far from having achieved the status of a mature economic system, let alone of a democratic government, China has been rushing towards development stages at an extremely fast pace. It had just came out of poverty in the early 1990s and has been – in the last 15 years – the world symbol of economic growth. It finally became - in 2010 - the second biggest economy on earth, surpassing Japan and Germany and placing itself just behind the United States of America.
In a world that plunged into recession in 2008, China was an example of steady growth that seemed to be safe from the mayhem that was happening in the rest of the planet. A massive program of public investment had been added to the bursting private entrepreneurial effort. Bridges, highways and high – speed trains were being build at a rhythm that could not be matched by any developed nation.
Foreign companies invested in the country. Car manufacturers as well as the luxury industry saw opportunities stemming from a constantly rising wealth. Electronics hardware manufacturers outsourced their plants over there, attracted by the low salaries and the much below standards workers rights.
The Chinese government started to use its sovereign fund to make investments in sovereign bonds all over the world, including US treasury bonds. The Chinese were pictured as “savers” in a time where the rest of the "developed" world was seen as irresponsibly spending and increasing its debt.
But as China took advantage of the globalized economy and played it safe by artificially keeping the value of the renmimbi low to help export its goods and services, it kept ignoring the risks that such an integrated system could have represented to their own progress.
In 2011, a persisting crisis in the Eurozone area and a US recovery that has still to really pick up have abruptly deprived Chinese goods and services of potential consumers. And when an economy is so strongly dependent on foreign demand – and on the capacity of foreign nations to finance it albeit with their own debts – it will suffer if the buyers stop buying. Add that the country should be able to create 25 million jobs a year if it wants to keep growing at this rate, which is highly unlikely, considered the global context...
So China is learning it the hard way.
But this is no good news for us either. If China slows down, the central government will feel compelled to stop investing in foreign debt and start pumping money inside the country, therefore lowering the demand for foreign bonds and depriving the developed economies of a steady financer. Moreover, the markets – which have been lately extremely volatile and bashed by the lack of liquidity – will react immediately (and most likely not happily) to the news.
But is there some political move that the far east country should do or could do to stop all this?
For a start, China should now start to be aware of its responsibilities in the world’s economic scene. For years, it has played the role of the aggressive rising star, meanwhile refusing to take action on its own currency in-balances and in general avoiding the duties that being a powerful economy should entail. It has to take action if it wants to claim its role as a world superpower. As the United States know very well, there is no power without responsibility...
China also has another dilemma, which is possibly even more complicated to solve. The country desperately tries to give the image of a modern society but it still has to make the transition from a hard-industry based economy to an economy based on education, freedom to invent, highly specialized services for the people. It lacks the element that makes western developed societies so peculiar: freedom.
Of course, freedom alone is not sufficient. But there is sufficient evidence that the less people are prone to power, the more societies are likely to come out of a crisis by re-inventing themselves. Creativity only stems from a free education system, from transparent political actions, from the repeal of blunt obedience and passive acceptance of superior orders.
A transition towards a democratic China is important not only for the Chinese people, but for the well-being of the whole planet.
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