Thursday, February 24, 2011

China's increasing economic clout will shuffle the present order and ruffle a few feathers, says Gyanendra Kashyap

IIPM BBA MBA Institute: Student Notice Board

Japan, once hailed as the 'economic miracle', an ascendant juggernaut on its way to rivaling the US, today finds itself in the midst of a political upheaval, increasing national debt and an aging population, producing a downward spiral. Given the difficulty in managing its economy, Japan was perhaps readying itself for the day when it would be eclipsed economically by China.

The uninterrupted economic ascent, that lifted hundreds of millions of people out of poverty, saw China overtake Britain and France in 2005 and then Germany in 2007. Recently it has overtaken Japan to become the world's second-largest economy, thanks to the dynamism unleashed by Deng's reform. The Chinese economy expanded 11.1 per cent in the first half of the current year and is likely to log a growth of more than nine per cent for the whole year. If the estimates provided by the World Bank and Goldman Sachs are any indicator, then China is on its course to overtake the US and vault into the numero uno spot sometime around 2025. In the same time span, the number of households with an annual disposable income above $10,000 (in nominal terms) will almost quadruple from 57.1 million in 2010 to 222 million. The question to be pondered upon is whether the growing economic might of Beijing will bring to an end the existing global economic order. What will be the possible ramifications in the arenas of trade and diplomacy and military power? Does this imply that China is going to be a threat to the US economy?

Craig K Elwell, Marc Labonte and Wayne M Morrison of Congressional Research Service in their report prepared for the members and committees of Congress argue that from an economic standpoint, 'describing China's economic rise or its economic policies as an economic threat to the United States fails to reflect that China's growth poses both challenges and opportunities for the US.' Nevertheless, there are others who see China's rise as America's relative decline. Their concern ' the accumulation of US Treasury securities by China and the ever widening trade deficit. While some in the West fret about 'China price' and its impact on Western economies, there are some firms in the Western economies which will benefit from the increasing division of labour and so will those who have a stake in these firms. Ellen H Palanca, Director, Chinese Studies Program, Ateneo deManila University, mentions in paper China's Economic Growth: Implications to the ASEAN states that China's economic growth has presented market opportunities to the ASEAN countries instead of impediments to their economic growth. One can only hope that the positivity spreads to other economic blocks as well. It is logical that without economic, structural and political adjustments in the rest of the world to China's ascent, there will be political tensions that will inevitably frustrate (though not prevent) the redistribution of power in the global economy. From Beijing's point of view the larger question would be if such a fast growth can be sustained.

China's rise in terms of economic might has produced glaring contradictions. The economic disparity between an elite who profited the most from three decades of reform and its poor majority is so wide that China has dozens of billionaires while average income for the rest of its people is among the world's lowest. There are problems ranging from bad loans to an under-funded pension insurance scheme, the lack of rural health care system and bankrupt local governments.

China's rise as the number two economic powerhouse thrusts on it the mantle of increasing responsibilities in global affairs, requiring it to contribute positively to global stability, progress and prosperity through cooperation with other players in the global economic system. Will it live up to the expectations?

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