The Yuan Underrated, China Overrated
Stimulus packages have made sure that natural selection has not been able to cut away businesses that would normally be doomed to fail. But, as practically everyone now knows, if natural economical selection would have had free reign, the number of companies going bankrupt would have been enormous, leading to a disastrous situation. We could envision a dramatic spike in unemployment, permanent damage to production capacity and an inability of people to pay for their houses and financial burdens for starters.
In the wake of stimulus injections, as much as we expected Western countries to go through a revival before the normally trailing Asians, the contrary seems to be the case. Will China take the lead in global politics? Will their innovative processes, combined with their fast-growing economy (the latest figures point to an 8.9 percent increase in the third quarter of this year) shove them forward and legitimize their status on the world stage?
Most of the answers will still point to no. Even the firm grip China holds by having all its reserves in dollars is less threatening than it might seem at first sight. Sure, in theory they could wreck the American economy: After years of lending to the American state, in order to keep up the level of American spending, their share in state obligations is huge. But then again, so is Japan's. And by wrecking the dollar they would wreck their own financial backing. China is dependant on exports to the United States. It is true, of course, that China does export fervently, but many of the relevant products are shipped only via China, rather than having been produced there. The value added by Chinese companies is relatively low compared to the total amount of money involved.
The United States is still more than thrice as large in sheer size. The most important factor that differentiates the two countries is the way in which their economies breathe. America is driven by innovation. China, running like a madman, still lags far behind on this issue and relies more heavily on industry and agriculture. It relies on imported knowledge, which it can combine with cheap, labor-intensive processes possible only by virtue of having been invented and developed by others. There are not many things on which all economists agree, but there seems to be relatively widespread consensus that, in order to make something stable and profitable in the long run, research and development will have to be the pillars upon which to build.
This is not to say that China is not developing. Its large infrastructure projects are impressive by almost any standard, and a lot of knowledge is needed in order to make them work. But hardly any of it is new. Even the Maglev, a train driven by magnetic levitation, best known by the trip from Shanghai to its airport, was labeled "made in Germany," rather than the all too familiar "made in China."
China needs to change, in order to let its people change. The scale of that project is enormous; healthcare, juridical rights and freedom will all have to be involved. Innovation cannot be arranged from top to bottom. It needs not only people who are able to put their ideas into practice, it also needs the circumstances that will allow them to do so.
Climate change is another sensitive issue—not just for the Chinese, but also for the Americans and Europeans. Optimists may point out that many cars sold in China are efficient ones, though honesty might force us to admit that this owes more to the fact that they are cheap than to the fact that the Chinese care about the climate. When average income rises, so might the prices of their cars. And if prices for a car are high, this generally implies more horsepower and less efficiency.
The Chinese have traveled great technological distances, and their ambitions are unlikely to hold them back. Creating an aircraft carrier is said to be one such ambition, and missiles with mid- to long-range potential and nuclear submarines pop up in conversations every now and then. Of course, one aircraft carrier will be no match for America's muscles. But the development seems a must in order to be taken seriously.
Because we of course do not want another cold war, China should do what it takes to be drawn further into the scene of world politics. China is already very much a force on the scene, but the relationship between China and the United States as if they are on equal footing as superpowers is fictional. In this new balance, Western influence will have to share more power, but it will not, seen from within the current framework, suffer the loss of its prominent position.
As great as China's economic growth, projects and ambitions are, they still remain catch-up labor. In comparison to the United States and the European Union they have a long, hard road to go. Its currency has seen appreciation, its nation depreciation.
Jurnan Goos is a Dutch writer who works under the pseudonym Reckless Rose for jurnan.eu.