Hi! I am back to blogging after a small period of writer's block and to begin, I am going to do something that an amateur blogger should never do; I am going to make a predicition!!! That too about China, and I will tell you why I believe my prediction will be true eventually. Being a regular reader of two of the top selling business newpapers in the country, I am exposed almost daily to hundreds of words written about everything Chinese, from government policy to manufacturing, from censorship to currency manipulation. I find that there is an equal number of subscribers in either camps - those who buy the Chinese growth story and those who don't - while unanimously agreeing over its aggressive foreign policy.
I have reached the conclusion that the entire Chinese strategy is of challenging the might of the US as the sole super power post Cold War era!!! Now, you would say that I deserve to be booed away for stating the obvious. Before you boo me away I would like you to take a look at the deeper meaning of the statement - which is about China's strategy to create a dominating and self-contained economic black-hole which sucks everything the rest of the world has, while spewing out very little. Though outsourced manufacturing to the Chinese makes them spew out a lot more currently to the Western world, this will gradually reduce though not entirely as consumption increases in China over the years.
To elaborate my point of view, I would like to highlight how China is pursuing a strategy of self-containment at both the economic and political levels and why comparatively, India seems to get left behind in this race. At the economic level, there are 2 things: facts and arguments.
Facts:
1) The Chinese have an underdeveloped banking system which is completely blocked out from world view due to regulatory opacity in China.
2) They have a whopping inventory of US Dollars which they can utilise wherever they want.
3) Chinese manufacturers remain the biggest suppliers to the Western world.
4) Artifical devaluation on Yuan leads to a small competitive advantage for the Chinese firms against their Asian counterparts which leads to manufacturing job transfers to China and not India.
5) The availability of reliable financial information regarding companies is almost zilch.
6) The Chinese are investing heavily in the acquisition of natural resource assets all over the world.
Arguments:
1) The Chinese want a secure future, one that is not marred by the shortage of raw materials to feed the industry of the most populous country in the world as well as the population whose energy needs will only go up as development takes place. To this effect, the Chinese government is aggressively acquiring assets all over the world, often working with corrupt and dictatorial regimes such as Angola to secure oil assets for the future. The Chinese government owned sovereign wealth fund is actively making investments in the resources sector as a part of this strategy, a point that has been raised in the US Senate as well about China's increasing economic intervention in resource rich countries.
2) The Chinese government for many years has purused aggressive and forward looking policies to give a boost to the manufacturing sector. While hugely successful due to outsourcing of manufacturing activities by US firms, they have acquired something that a lot of people ignore at times, which is capability. While Nike, Adidas, Apple and almost every known American brand is renowned for it's product quality, remember that all of this comes from China. This in turn has taught the Chinese how to manufacture high quality products at low cost. This capability itself is a stepping stone to innovation that will be a decisive factor in the crowning of the new superpower many years later. Hence, the Chinese economy will be fed by high quality, low-cost products that will be made in China and hence, foreign firms will find it very difficult to get a toehold in the Chinese market. Just sit back for a while and think why long known American MNCs have been so successful??? Simply because they went to those markets where their superior products were needed or where a market for such products did not exist at all because no domestic firm produced them. The US corporations also benefitted from an aggressive US foreign policy that used political muscle to invade the markets of smaller countries (a point I will higlight later about China as well). Thus, the Chinese economy will become self-sustained due to strong domestic consumption and the surplus goods will either be exported to the West or dumped in the neighbouring weak Asian countries.
3) To oppose the above argument, sceptics would say that the opacity of the Chinese economy often hides the fact that the banking sector in China has for long been saddled with bad loans that were given to sick government owned companies and that involved a lot of political maneuvering. Sooner or later the loans should take their toll on the banking system, choking it to the extent of a collapse that would impact the rest of the economy. I say that while this may be true, the Chinese are not fools! The CCP might be pursuing an agenda of growth at all costs, but it does understand the impact of a bad financial system on the overall health of the economy and that is why it is making investments in infastructre and taking a capitalistic point of view towards enterprise to foster entrepreneurship and in turn, high profitability of private firms which will find it easier to pay back debts if they make profits.
4) The Chinese foreign policy helps in drafting free trade agreements with smaller Asian counterparts that heavily favour the Chinese while edging out India. This gives China the advantage of dictating the rules of trade in the region and none of the smaller nations are able to oppose the Chinese dominance.
5) Whatever the Chinese may be doing with the manipulation of it's currency, one thing is clear, the CCP is very efficient when it comes to policy implementation and single minded pursuit of growth. One needs to understand that growth is never a win-win situation for all sections of the society, certain structures need to be demolished to build new ones and somewhere someone always feels cheated no matter how much inclusivity is taken into account.
The above facts and arguments in my opinion may not give a real picture of the situation in China, but what they accomplish is that they clearly illustrate how China is trying to create an economy that is open to foreign investment, yet slowly closing in so that it sucks the best the rest of the world has to offer while giving back little in terms of superior economic value as it progresses.
My next post will talk about how China is pursuing its policy of self containment using its political arm-twisting at the global level.
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