China is poised to rule the world’s economy

By VLAD GRINKEVICH

RIA NOVOSTI

MOSCOW — The China-Russia Friendship Year is finishing early this month with great pageantry. Economic contacts underlying the galas are asymmetrical — Russia has silently accepted the role of China’s sales outlet and raw material supplier.

The two countries’ political and business leaders are gathering in Moscow for a second bilateral economic forum to take stock of mutual interests. Chinese interests are clear as it is, while Russian are based on China’s advance to the world economic stage.

Indicatively, Jim Rogers, board chairman of Beeland Interests Inc. investment company, is shifting all his assets from the dollar to the yuan, which he expects to treble or even quadruple in the next decade. The American financial pundit said in late October he was pessimistic about his country’s economy. Warren Buffett, the world’s greatest stock market investor, and second on the billionaire list, mentioned non-dollar investment as his vital strategy several years ago. Equally tellingly, there are five Chinese blue chips and only three American on the world’s capitalization top 10 list.

China is, in certain respects, no exception in the developing world, whose markets are growing at an annual 50 percent rate or even faster from their low starting point — a pace that naturally implies hazards.

Eastward shift

The promise of quick money is not the only thing that attracts big business to China. There is a general eastward shift of global finance due to world economic and demographic trends.

Chinese economic growth has kept at an average 10 percent last years. China firmly leads the world as manufacturer of low price and low-tech consumer goods, and ranked second in high-tech exports last year. It is following the road of Japan, Singapore, Thailand, Taiwan and Hong Kong, who owed their economic booms to export orientation. With cheap workforce, and free of intellectual property legal restrictions, they were avidly borrowing Western R&D to offer competitive commodities at much lower prices. Western companies soon shifted their own production to Asia.

China differs from its economic forerunners — its population of 1.3 billion makes up 20 percent of the world total. Low wages satisfy its huge and conscientious workforce. Low yuan rates promote Chinese exports worldwide. Immune to market ups and downs, the yuan has earned its country the reputation of an investment haven.

It is difficult for the Western world to compete. The present-day U.S. economic growth rate is 3.9 percent, and the European Union’s is 2.9 percent — this against burdensome pension and public welfare expenses as the population is aging rapidly. Social expenditures will peak in 2010-2015, with an expected drop of economic progress and living standards.

Production has shifted its core to Asia. The United States owes its leadership to sophisticated finance in need of steady inflow, with snowballing debts. Its trade gap made $836 billion last year, and the national debt leapt more than $8 trillion.

China has a contrasting problem, with a need to slow down its economic growth from the current 10 percent. Meanwhile, some experts forecast its high-pressure economy to treble within the next 20 years, and lead the world in trade and the gross domestic product, if calculated according to purchasing power parity.

Asia Pacific leads the world economy even now. It accounted for half of foreign trade and 60 percent of the world aggregate GDP at the turn of the century.

New leader

With all these initiatives, Asia is passing over in conspicuous silence the emergence of China as its new leader. Certain experts point to its long-established grip on the Asian-Pacific economy. America leads the show through financial institutions. Unlike it, China uses its Diaspora as a tool. Ethnic Chinese control 50 percent of private capital in the Philippines, 70 percent in Indonesia, and 80 percent in Thailand and Malaysia. The Diaspora is China’s main overseas investor and export promoter.

X Vlad Grinkevich is an economics commentator for the Russian News and Information Agency Novosti. Distributed by McClatchy-Tribune.