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China in the economic crisis

Published on January 20, 2010 by: in: Economy

When the autumn of 2008 began with the global economic crisis, the world’s eyes turned to the growing economy – China. Many questions were asked: how Middle Kingdom will manage with the increasing problems, whether they will be the beginning of the political changes and finally whether the entirety system will lead to a redefinition of the international relations.

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Ecstatic struggle

Started more than 30 years ago reforms, in addition to the undisputed success stories, brought many new and unprecedented problems. Relatively quickly China joined the international market and Chinese economic growth in the blink of an eye became addicted to external demand. Chinese authorities have set aside ad acta creating of internal demand and have started advertising the export economic model. Inward investment, mainly for the coast of the province, led the development of China to become uneven. Disparities between the rural and urban incomes are like 3.2:1. According to Chinese economist Hu Main Anganga difference in 2020 will be 5:1. These expectations do not take into account the possible emergence of an economic crisis. When the crisis began, the Chinese economy gained 2.5 trillion dollars a year through exports. Due to foreign investments it gained 870 million USD.
In addition, the half of the foreign exchange reserves were invested in U.S. debt securities. By contrast, 25 million of Chinese has been employed in the companies with the foreign capital.
Dependence could be seen very quickly in the first quarter of 2009. Chinese exports have declined by almost 25 percent. Consequently, this has led to job losses by nearly 20 million people, mainly “migrant peasants”, who were leaving their home towns to find a job. It is difficult to estimate the extent of the phenomenon because of the disputes involved the so-called: “Black society”, in other words: black economy.

In addition, there has been a significant increase in tensions between workers and employers, mainly due to non – payment of salaries on time. Effects of the crisis have prompted a discussion in the Chinese media. Revealed sentiments were accusing the West of the causes of the failures in China. Group called: “New Left” actually indicated that the party has become a “minion” of the western states and accession to the WTO was wrong and reckless.

Shortly afterwards the Chinese government considered it appropriate to prepare a stimulating package which was to lead to a rebound in the Chinese economy to “two-digit level”. During the spring 2009 session of the National People’s Congress (Chinese parliament) prime minister Wen Jiabao presented concrete proposals: 580 million USD for the stimulating program and to increase the budget to 139 billion – the highest in recent years. The government’s task is to stimulate the labour market through government investment, which initially allocated one billion dollars. According to economists 1/10 Chinese GDP devoted to government investment would create a million of workplaces. The main task of the stimulating plan is to maintain the same level of exports and the creation of internal demand which is to revive the Chinese economy and become independent of its exports.

In this case the same questions arise: what effect will the Chinese “New Deal” bring in the provinces where the infrastructure is already very well developed? Local authorities undertake new challenges very willingly, but are they effective? In this situation, there is a chance that the social tensions will be strongly reduced, although at the expense of such negligence in protecting the environment, for which the Chinese future generations will pay. In addition, it should be noticed that the economic export model faced with the barrier in the form of protectionist measures in other countries. The best example is the duty imposed on products manufactured in China by the U.S. administration. On the September 11th Barack Obama put on a three-year period, 35 percent duty on Chinese tires. In this situation, the profitability of import tires from China will certainly fall.

Is it a political change?

Constantly the question arises whether the economic crisis could be a catalyst for the political change. Global crisis, like the Olympics or the SARS, does not accelerate the pace of political development in China. Changes generally occur, but in a more evolutionary way. Views on democratization in China are divided. Some argue that the public should be educated and only on such grounds a democratic system can be built. However, including the opinion of the academics from the Chinese Academy of Social Sciences that democracy does not need special education, and the peasants who vote in China in more than 600 thousand constituencies, easily realise the gravity of their choice. It should be noticed that the elections at the lowest administrative level do not have a major impact on the overall state policy, but at best only on the location of the water supply in their own village. Others, such as Chinese conservatives, take as a major determinant the cultural factor, which prevents from introducing democracy in China. The fact is that the hierarchical social structure advocated by Confucius may have an impact on perceptions of their role in society, but it should be noted that the Middle Kingdom has opened on an unprecedented scale to influences from the West.
Authorities in Beijing, regardless of the economic crisis, take the attempt to change the political system in China. The changes in the Chinese Constitution may be an evidence of that, which despite the inconsistency with the Western rule of the law, it is an important step forward. However, any changes in the near future will hover around the maintenance of the legitimacy of the party. This is possible only by maintaining the stability, ensured by economic growth or promoting controlled Chinese nationalism.
Any lack of stability behaviour, while a matter of one – party system, may lead to the awakening of nationalistic tendencies.

Possible redefinition of the international system

By using the economic problems of the developing countries, China has begun to give them financial support. This was the case of Jamaica. In March 2009 a contract of the loan was signed on 138 million USD and China has become a major business partner of Jamaica. The crisis revealed weaknesses in the “capitalist” system, for which according to one of the Chinese professors – Cui Zhiyuana – Beijing Consensus may be an alternative to the current system of international economic relations. According to Cheng Enfu from the Chinese Academy of Sciences, Beijing Consensus – means economy based in a bulk on the value of the state, on slow reforms instead of the shock therapy and on the half – opening to the world.
In the financial sector, the Chinese actions may be perceived as a desire to play an increasingly important role. Indicate that these agreements with Jamaica, but also introduced by Zhou Xiaochuana – the manager of the Central Bank – proposals to create a separate foreign exchange reserves associated with the Asian currencies, rather than the dollar. This idea was supported by Hugo Chavez. Interestingly, China began signing contracts with the exchange containing clauses of the need to maintain some of the provisions in Chinese yuan. According to Nouriel Roubini from the University of New York, it may mean that for about 10 years, the yuan will be the base in the basket of currencies of the world. Such moves, according to Wang Yizhou from the Chinese Academy of Social Sciences, will be possible only when China will have a large representation in decision – making circles of the WTO and the World Bank.

Here and now the Western world is a major challenge. Who will represent China – proponents of state control or the widely understood Beijing Consensus, or economists of a more liberal attitude? Although the Beijing Consensus was presented by Joshua Ramo, some Chinese intellectuals began to promote him as a Washington model. Whether the Chinese model will replace the Western system, depends on whether West will draw conclusions from the crisis and catch up on the outstanding lesson. It should be also noted that the Chinese success has been lasting for several years and it is not said that it will continue for the next decade. Nevertheless, China forms a strong partnership within the BRIC – Brazil, Russia, India and China. These countries rejected large loans from their foreign exchange reserves to the International Monetary Fund in a very clear way, in order to increase funding for the most vulnerable. It should be noticed that China, with the largest currency reserves in the world, is presented as a “developing country”, which in this respect derives specific benefits, as a recipient of the foreign economic assistance, including World Bank and United Nations programs.

The whole of China efforts can be described as an attempt to find allies in the “poor South”. The division into the “Rich North” and “Poor South” was promoted by Mao Zedong. Following “the path seeking after justice” since 2005, China has been promoting an idea of the harmonious world. The world which is just for the poor and points out the perpetrators of all global problems. On the other hand the Chinese authorities are very restrained to criticise in its dealings with West. Nevertheless, using the situation, China will seek to gain an increasingly important position for itself in the arena of international politic.

The most important element of the current economic crisis is a redefinition of international relations. China moves, diplomatically skilful, seeking allies in the developing countries, create an interesting mosaic of international relations. In addition, the globalization has resulted in a de facto an unprecedented situation. State, which by the influx of foreign investment and the export economic model, has become one of the main leaders of the world economy rather than only the global supplier. The best of the opportunities which China made use of was buying U.S. debt. From the point of view of the authorities in Beijing to build great – power position is not the most challenging priority. Any internal shocks in China, including growing social discontent, leading to larger instances, will be dangerous not only for the Middle Kingdom, but also for the entire international system.

Translation: Justyna Kmiecik, Dawid Lachcik

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About Dominik Mierzejewski

Lecturer at the University of Lodz, political scientist. He is a specialist on China with emphasis on political and economic changes in this country and society. He is also interested in the regional political and economic situation in Eastern Asia.

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