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China has to take global economic responsibility

24/04/2009

Dear Mr Shi

It is less than a month since I came back from China, and I am still under the strong impression of my experiences there. I believe the highlight of my stay in China was my interview with you. It is a pity we cannot communicate directly, but I was told that you understand written English pretty well, so I will use this tool to try to express some further ideas about how I see the new economic order, which is developing in front of our amazed eyes.

If I may quote one of my major assumptions in my previous analysis, ‘China has to take global economic responsibility.’

To start with I suggest going to the web site of the CIA (https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html#Econ), where you can easily read the fact that China is the second largest economy in the world, measured on a purchasing power parity (PPP) basis, which adjusts for price differences (and not the third as most newspapers mention). Its size is about half that of the US economy and double that of Japan or Germany. Assuming that the most developed economies will probably shrink rather than grow in the next five years and the Chinese economy grows at an average rate of about 10%, China will be the greatest world economy in less than 10 years, and most probably within six to seven years. That means within 6 to 10 years China’s GNP will be about US$ 15 trillion (PPP).

To be able to create this additional production, additional demand of the same size has to be created as well. The question is: Where will this additional demand come from? Very probably the most developed nations (MDNs) – the USA, Europe, and Japan – have no capacity to increase their demand. On the contrary, I expect a decrease of consumption and imports from the USA and probably from Europe and Japan too.

The source of this additional demand can only come from the emerging economies, which are trying to catch up with the most developed economies (MDNs). China of course is the leader amongst these emerging economic regions (EERs), which include India (with more than 1.2 billion people), Latin America (about 700 million people) and the South-East Asian countries (about 600 million people). The total population of these regions is about 4 billion people, compared to about 1 billion people in the MDNs. These regions with emerging economies (EERs), with young and growing populations (in contrast to the ageing and stagnating populations of the developed nations), are about to take over the leading role in the world economy within a few years. China of course has, and will have, the leading position among them.

The question is what direction those emerging economies are going to take their economic and social development. Are they going to copy the economic and social policy of the most developed nations (MDNs), where the driving force of the economy is profit and over-consumption, or are they going to create economic and social development with different values?

It seems, our planet is having difficulties carrying on with the today’s existing appetite for consumption in the most developed nations. Indeed, it seems almost impossible for the world to cope with an additional 4 billion over-consuming people.

It is inevitable that any attempts by the emerging economies to achieve the same levels of consumption as those of the MDNs will create competition for raw materials and energy sources, and will have a severely detrimental impact on the natural environmental. We actually started to see this scenario in the last five years before the beginning of the current economic crisis, when commodity and energy prices skyrocketed. My opinion is that in today’s technologies, the world level of consumption is close to its upper limits, and any attempt to increase it in one region will force another region to decrease its consumption level.

It is necessary to emphasize that while an increase of consumption at the national level is politically and socially easy, a decrease is almost unacceptable without an unpredictable political crisis accompanying it.

The current economic crisis, started to solve the problem of the uneven distribution of the consumption in the world, since it has hit primarily the most developed regions, and less so the emerging economic regions. The economic stimulus made by MDNs governments, which is actually an attempt to forestall a reduction of consumption in the MDNs, has temporarily moderated such a shift of resource use, which could have otherwise catastrophic consequences on the economies of exporting as well as importing countries.

China’s economic policy in the last years was developing its economy by unrestrained support of exports. This policy appears now as a mistake, and is one of the causes of today’s economic crisis.

With the current size of its economy, China can no longer make such macro-economic mistakes without causing a major disruption in the world economy (same like USA). This brings us back to my words at the beginning of this article, ‘China has to take global economic responsibility.’



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