Is China Today the U.S. of 1929? 14 comments
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Good piece in Foreign Policy making a case that I do regularly, which is that there are striking similarities between the U.S. circa 1929 and China today. Both were/are creditor nations with massive trade surpluses, and both sit/sat astride the decline of the prior world power, which was the U.K. in 1929 and is the U.S. today. Most importantly, however, the U.S. in 1929 had an opportunity, as does China today, to use its economic power to drive the financial system to a new post-crisis place.
Just before the Asia-Europe meeting last October, President Hu Jintao stated that China would behave "with a sense of responsibility." It remains to be seen what stake China really has in the survival of the global economy. As in 1931, the political arguments are all against a rescue. Only the farsighted will see that the economic case for such an operation is compelling. Much depends on the extent of China's voice in an altered international institutional architecture.
But that voice will make demands that are increasingly difficult for the old world to accommodate, including demands for a guarantee of China's U.S. asset holdings and suggestions for an alteration of the world's reserve management. In proposing a global reserve currency to replace the dollar, the Chinese central bank president recently followed in the footsteps of Charles de Gaulle in the 1960s. But unlike France, China is in a much stronger position to assert its preferences for international monetary reordering.
In other words, the world may be asked to transition from an American to a Chinese model of capitalism, and as in the 1930s, that won't be an easy switch for any of us.
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Europe busied themselves with 2 massive wars back then and USA entertained itself with the never ending war on terrorism and fast food.
The difference this time, however, is that the US is not going to come out of this crisis as the dominant financial super-power. Those days are over. Frankly, they have been for a while but the cracks have been papered over with cheap credit, and the global picture has been distorted with totally ridiculous exchange rates.
China is a military super power, second or third degree, relative to the U. S. Economically, they are also still in the developing stage and this global crisis has come too early for them to step in to the void if the U. S. falters.
What it would require for China to expand its influence in the near future would be internal revolts and adoption of China's political and economic model by other developing countries. They are not in a position to pull the rest of the world out of its economic doom by themselves. They are having a difficult time responding to their own internal problems. The Chinese economy has lost more than 20 million jobs in its heavy manufacturing industries, especially in steel production. Plants are shut down and former employees are moving back to the peasant farmer life.
Social unrest is a real threat in China if the government is unable to create more jobs through domestic infrastructure projects, which are needed. They just need to compress the timeframe and initiate work that had been planned for later.
But for China to move into the world leadership role at this point is dreaming. It is more likely that they will be more inwardly focused economically but still attempt to gain a share of the decision-making role that is currently in the hands of the G7 (sorry, but Russia seems a bit impaired, also, right now). Using its financial wherewithall, China could conceivably gain more say in some international organizations by agreeing to put up an increased share of the funding at a time when industrial powers in Europe, North America and Japan are weakened.
If things get markedly worse here and in Europe (and I wouldn't count that out as a possibility) it only strengthens China's hand. But, still they are not in the position that the U. S. was in 1929, IMHO. A couple of decades from now, things could change.
China also devalued the yuan over the weekend to keep its exports from going up in price. They have lots of competition from other emerging markets that are also operating at reduced capacity.
I believe that China is, at least momentarily, boxed in. Here's hoping our situation -- ours and China's -- don't materially change to make them contemplate a change in strategy.
China today is middle of the pack in terms of per capita GDP on a PPP basis and its industry focuses primarily on lower value-added industries relative to the rest of the world. It does not have a lot of natural resources.
What that means is significantly less ability to dictate the global economic order than the U.S. did on the eve of the Great Depression. Their success lies very much in the success of other countries; as a result, I would expect policies that are more accomodating to fostering world trade vs. protectionism.
They just blocked YouTube again. They can underwrite the world economy, but YouTube makes them cry.
And they're the next world power?
I do not think China wants to be a world power at this time, because there are consequences when one is a leader. What the country wants is not to lose value of their US treasury holdings. After all the country had invested billions in Wall Street firms and saw their money went down the drain quickly.
A US Expat Living in Guangzhou
On Mar 30 11:33 PM @TexasER wrote:
> China is in serious trouble. The government constantly faces social
> unrest and that will only rise along with unemployment.
>
> They just blocked YouTube again. They can underwrite the world economy,
> but YouTube makes them cry.
>
> And they're the next world power?
international traders do not want a trading currency. that puts both the buyer and seller at risk as they have to hedge their local currency against the international currency. and i suspect china is only posturing before devaluing their currency.
currency values are the alternative to the tariff wars we had during the great depression. history will show that currency manipulation exasperated and elongated this great recession.
They are a people with great patience (you would be too if you were constantly rubbing elbows with a quarter of the worlds population. Try riding the Beijing subway to work during rush hour if you need a quick course on patience and tolerance for your fellow creature). They know these kind of systemic changes take time. The younger nations, especially those that wield substantial power, will need to adjust to sharing real power. But they are also an intelligent and determined people.
Things will change one way or another, this is almost a certainty. What kind of changes, we don’t know. In the meantime while events unfold, now in fast motion because of crisis, no need to conjure up horror stories about some version of yellow capitalism that will some day dominate the world. It is not going to happen.
On a PPP basis, the IMF lists India's GDP at $3.0 billion. In non-PPP terms, it is $1.1 billion.
On Mar 31 11:11 AM Amitabha Mukhopadhyay wrote:
> There is no way one can compare Chinese economy with that of American
> economy. In order for China to emerge as major economic and military
> superpower it has to change its society to a democratic one and make
> trillions of dollars of investments in human resources in the area
> of education, health, housing and intellectual aspirations.
> At present it is only a country of enormous labor resources and so
> lots of MNCs have crowded to make maximum profit by utilizing cheap
> labor. In many cases the quality of the products are also not comparable
> to international standards resulting low penetration in Indian markets.
The US suffered economically during the 30s but came out of it much less impaired than Europe.
Likewise, China will suffer now but probably will not suffer the drop in living standards that we will, albeit our absolute standard of living will remain better.
The scary part is in remembering how the bad economy gave rise to fascism and national socialism in Europe in the 30s. Today our scapegoating of immigrants and populist taste for protectionism could push us in the same direction. Especially given the predilections of politicians in both of our major parties to play to the lowest, most nativist and most envious common denominator of the voting public.