- 02
- NOV
- 2011
China bankrolls the world – but for how long?
Author: Jonathan Webb - Categories: Global Sourcing, Economy & Current Affairs
The world is nervously looking at both Greece and China to the future of the world economy. But the merging fates of these two ancient nations masks deeper problems.
The world has been waking up to increasingly grim news over the past week. Not only are there lingering doubts of the Eurozone’s proposal to meet the demands of the crisis, but the Greek Prime Minister’s plan to put the deal to the vote has alarmed investors. Stock markets have crashed across the globe.
The earliest that a referendum can take place is in December. Which leaves the region – and the wider globe – in a difficult hiatus, where no one is sure what are the implications of a ‘no’ decision.
Worse still, it's hard to sell to potential Chinese lenders that Europe offers a safe bet. Undoubtedly, China has taken its position as central, to the vitality of the international economic order. Indeed, the world is eerily shaping into Gary Shteyngart’s dystopian vision in Super Sad True Love Story, where the yuan is the global reserve currency and China refuses to bail an “ungovernable” USA.
I have recently finished Henry Kissinger’s On China (also well worth a read), and although it details a fascinating account of the drawing together of American and Chinese interests, it includes troubling warnings for the future of the global economy.
The most interesting aspect comes in the extraordinary prescience of some of the key actors. Most notable of these is arguably President Nixon himself, whose famous visit to Beijing did much to pull China back into the modern world.
He remarked, in 1971, that China would soon rank highest amongst the nations:
“Well, you can just stop and think of what could happen if anybody with a decent system of government got control of that mainland. Good God... There’d be no power in the world that could even – I mean, you put 800 million Chinese to work under a decent system ... and they will be the leaders of the world.” (p.265)
Yet, below this, are deeper threats. Although Kissinger himself notes that China is subject to its own demographic time-bomb. With the one-child policy, there is a point where the Chinese population will start to age. Indeed, it may follow the path of some European economies where a growing number of pensioners are sustained by a dwindling base of workers.
Kissinger notes: “By 2050, one-half of China’s population is projected to be forty-five or older, with a full quarter of China’s population – roughly equivalent to the entire current population of the United States – sixty-five and older.” (p. 525)
Although this is some time in the future, the hopes of the health of the global economy largely pin on China’s ability to generate increasingly larger levels of wealth. However, if Chinese capital is required to sustain an aging population, its ability to bankroll the world will surely come under question.
Comments
Janet via LinkedIn
Thu 3 Nov 2011 11:58
China still has 1.3 b people to look after, after spent huge amount of foreign currency reserve to purchase American bonds, there isn't much left to save the €, personalty I don't think Greece would stay in the EU. On the other hand, China still has to deal with internal inflation, property decline, banking issue etc. China is not the universal solution!
chenzhuo
Thu 3 Nov 2011 14:44
well, do you expect China to sell dollor and buy Euro in stead?
Peter Murphy
Thu 3 Nov 2011 18:56
Probably post-dating your article, Jonathan, I has heard that, in the short-term, China was reluctant to release much/if any of the $3trillion it has in reserve to support the Euro, despite it's (China's) long-term desire to de-couple the US Dollar as the main form of international exchange in favour of the Euro, as it would be difficult to explain to those many hundreds of millions of their own citizens who live below any measure of the poverty line why they were using such monies to prop-up Europeans who continue to have a very good standard of life?
Longer-term, I also understood that while, currently, dependant on exports to both the USA and Europe to maintain Chinese employment levels, China had/has a policy to reduce foreign demand in favour of domestic demand in order to maintain employment? If ( a big IF) my analyses above are valid, then China is unlikely to be any sort of saviour to the west in short or longer-term terms - no matter how much it may wish to do so?