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China begins introduction of private banks

13 Mar

In an announcement on Tuesday, China announced plans to approve five completely privately owned banks to begin operations within the country.

As reported on by the BBC and the Financial Times, the five banks will be situated in the Tianjin, Shanghai, Zhejiang and Guangdong provinces, an eastern bias towards the presently more developed region of China.

The banks have been chosen individually by the state, and will be under the exact same regulations as their state-owned competitors. These banks include, the already Chinese based Alibaba and Tencent.

This comes after recent claims that the current state owned banking industry is biased towards lending funds to only state owned firms and projects. This opening up to private banks is a strategy to create more competition, bringing a far more competitive and responsive Chinese economy in the future.

Asian Economic Slowdown; the Shape of Things to Come?

10 Mar

A slight turn in the economic markets of South-East Asia has begged the question of China of whether this is the start of an era of economic slow down, or in fact the beginning of a new era of reform policies based in moulding a domestic consumer based economy.

‘(On Monday, 10/03/14) Both Hong Kong’s Hang Sang Index and the Shanghai Composite fell by 2% while Japan’s benchmark Nikkei 225 closed down 1%.’ (BBC) This downturn, spread throughout the entire region, is feared to be indicative of perhaps a slow down for China, the fear that surely the prosperity of the past three decades couldn’t last. With such strong interlinking trade partnerships and diplomatic relations in the region being developed through the likes of ASEAN, perhaps any struggle within China is now guaranteed to leave the region hardest hit over the entire global economic system.

However, the links and dependency China has developed globally can be seen in the reaction to this economic fall, ‘China said exports plunged 18.1%.’ (BBC, 10/03/14) This is a display of the outward dependency China’s growth has been formed upon and how easily it can be taken away, hence why efforts within China have been strategically focussed on creating a domestic consumer based economy that can make use of the huge population and provide long term growth.

Perhaps we will see more slow downs and upsets as the CCP attempts to implement very difficult reforms to ensure the longevity of their economy. We can see the domestic led focus on the economy when the Chinese finance minister discussed the aim of 7.5% GDP growth in 2014, yet still highlighted that missing this target or bypassing was not the main aim, rather job creation was at the centre of the Party’s thoughts (BBC, 10/03/14). Clearly the strong growth, although wanting to be maintained is not the primary focus during this reform period, rather satisfying the citizens through job creation and hopefully leading to the eventuality of returned strong growth at the hand of domestic consumers is the end goal.

Read more of the Monday downturn here:

http://www.bbc.co.uk/news/business-26510500

US and China: The Future of Relations?

4 Mar

This small BBC article focuses on how the US initially outlined the attacks in Kunming as “a horrific, senseless act of violence”. (BBC,2014) Yet now, in light of the Chinese media reaction to this statement and them not deeming it a ‘terrorist’ attack, they have declared it an act of terrorism. Although a minor scuffle, I think the exchange draws on a much more contentious debate in International Relations; the way in which the two powers will engage in light of China’s rising power.

There are two main competing paths about which way the United States will react to the rising power and obviously we already have examples of engagement between the two to draw on.

Will it act cooperatively or competitively? Neo-realists like Mearsheimer would suggest that the US should expect China to act in an aggressive, competitive manner as they will what to ensure their own security in international relations, and he believes this is achieved by securing the most power, thus America should respond in the same manner. Neo liberal institutionalists would believe that America has little to worry about so long as they integrate China in to the standing systems of international governance which create interdependency and cooperation between nations, thus informing America to act in a cooperative manner. This example here would see America acting in quite a cooperative manner, it has angered the Chinese and thus wishes to put right.

However if we analyse further this may be because America simply has no other choice. The United States is in a position where China holds the largest amount of off shore dollars and treasury bonds as well as being highly indebted to them. Whilst China has the largest surplus in its current account, America’s has the largest debt. Chinese prosperity may be having the effect of thus far deciding American foreign policy towards it for them as the United States has more to lose through acting competitively than it has to gain. It would seem the hegemonic power the United States has been so happy to manipulate in the past is waring away in light of a developing competitor. The United States may see itself as having to act cooperatively so as to ensure China doesn’t feel threatened in a way so as to act competitively, which thus far it hasn’t, out of fear of the global ramifications.

Full article:

http://www.bbc.co.uk/news/world-asia-china-26414018

China’s Greatest Threat to Development Lies Within.

4 Mar

Despite China’s prosperous growth over the past three decades many onlookers suggest they still have many boundaries to overcome. Some place emphasis on their role in global politics and governance as a key threat to their future success, however I will explore the threats that reside within China’s own borders, and how these could be the most important factors to their continued success. Moving forward Anka Lee suggests that, “the build up of internal pressure, coupled with the inability of developed economies to sustain China’s export-oriented economy, means that efforts to rebalance-internally and, in the process, externally- must take place.” (2013)

As a result of the economic downturn in the west China’s own economy began to suffer because of its export-led foundations. Zheng Xinli explains that what became apparent because of this was that, “fiscal reform (will be) the main force to shift the investment oriented growth pattern into a consumption-driven one.” (Chen, 2014) Reform to the economic system is imperative in China to move away from its outwards dependency and rather utilise its mass population to create a consumer driven economy. These reforms are hugely important to continued success, because its external dependency allows actions throughout the world to destabilise itself, Bijian (2005) outlines why it is even worse for China to face any issues, “(as) China has a population of 1.3 billion. Any small difficulty in its economic or social development, spread over this vast group, could become a huge problem.” The gravity of the situation is felt by China’s leaders and has seen them adopt policies to allow for transition in the economy, Li Keqiang explains how they will, “adjust the economic structure (to) help enhance sustainability of growth, accelerate the shift from a policy driven economy to a domestically oriented one, and prevent wild economic fluctuations.” (2012)

Thus, motivating the large population and modernising the country are implicit to creating the consumer-led economy that is so vital to ensuring long term prosperity. This is already being pursued, “about 10 million Chinese migrate to urban areas each year in an orderly and protected way, they provide Chinese cities with new productivity and new markets and help end the backwardness of rural areas.” (Bijian, 2005) This move is important as related statistics show that urban residents spent 3.6 times more than rural dwellers in 2010 (Keqiang, 2012) displaying why urbanisation is implicit to overcoming future economic threats through the creation of a large consumer base. They still have a long way to go, with such a large population it makes development of this type of economy that much more difficult, in 2010 China’s consumption ratio was 47.4% whilst the US was 87.7%, the EU was 80.7% and Japan was at 78.6%, these are the figures China needs to push for to remove that dependency on foreign consumers.

On top of this need to modernise the population comes the sustainability threat it creates through doing this. As modernisation and development takes place and more move into large cities, environmental issues present themselves which also could hinder the future success of China, “China has paid a heavy environmental price for three decades of economic growth.” (Bloomberg, 2013) Firstly, “the scarcity of natural resources available to support such a huge population, especially energy, raw materials and water-is increasingly an obstacle.” (Bijian, 2005) This over time threatens the ability to continue the level of development they are currently working at, however on top of this is the environmental degradation aspect that is associated with their current development path. “In Beijing, air pollution levels (have) rose to 20 times the recommended limit by the WHO…over a million Chinese citizens die of air pollution per year.” (Klabin, 2013) These extraordinary numbers display the harmful nature that is attached to the unsustainable mechanics of China’s development, more environmentally sound methods need to be pursued alongside rapid development if the country is to not find instability created through its methods of progression.

This potential instability sources with the large population who’re becoming angered over pollution and who will become antagonised should economic prosperity falter, presenting another point of how Chinese success hinges on satisfying the citizens, primarily so they do not become disenchanted with the government; the CCP’s largest fear. What is happening is that the opening up of China’s economy has allowed for other ideas to filter through the censorship and as a consequence more people are outspoken about issues they find with the system and the government. “Between 2006 and 2010 the number of mass incidents doubled to at least 180,000…increased use of mobile phones and the internet has allowed protesters to show their anger more effectively.” (Bloomberg, 2013) This displays how modernisation and development may in fact also be causing negative effects to the durability of the current system despite them having created mass economic growth and wealth uplift. This may present a huge issue to stability with the government in the future potentially having to manage serious governmental reforms in light of further citizen mobilisation and awareness.

The final internal issue i’m going to discuss is with regard to the ageing population of China. “At the end of 2011, when the total Chinese population reached 1.34 billion, 13.7% of the population were 60 or over, that’s 185 million people…the UN considers a population to be ageing when 7% of its population is aged 65 or over.” (BBC, 2012) Although a portrayal of how successful development is allowing people to live longer because of better living standards and access to health care there are economic and social consequences of such age. As a developing country China may not be able to take the burden this brings with it, “a huge fiscal deficit due to soaring pension expenses and increased medical costs.” (BBC,2012) On top of this the labour force is affected, and this is key to continued economic growth thus the ageing population also has the potential to hinder economic sustainability. Professor Cai Fang “estimates that the rapid decrease of labour force will lower China’s annual growth rate by 1.5% points from 2012 to 2015, and decrease a further percentage point during the period from 2016-2020.” (BBC, 2012) This shows the huge ramifications the likes of the one child policy and modernisation, which can trigger families into having less children, may have caused for the country and its future stability and success.

China and its government have a long task ahead of them to achieve developed country status and many hurdles stand in its way of getting there. It will take long term policy making and a sustainability focus to all policies that will allow them to hopefully continue their success however it will be a tumultuous journey that is far from ease.

References

BBC News. (2012) Ageing China: Changes and Challenges. BBC. Available at: <http://www.bbc.co.uk/news/world-asia-19630110>

Bijian, Zheng. (2005) China’s “Peaceful Rise” to Great-Power Status. Foreign Affairs. Available at: <http://www.foreignaffairs.com/articles/61015/zheng-bijian/chinas-peaceful-rise-to-great-power-status> [Accessed 24th February 2014]

Bloomberg News. (2013) Chinese Anger Over Pollution Becomes Main Cause of Social Unrest. Bloomberg. Available at: <http://www.bloomberg.com/news/2013-03-06/pollution-passes-land-grievances-as-main-spark-of-china-protests.html> [Accessed 24th February 2014]

Haass, Richard N. (2011) China’s Greatest Threat Is Internal. Council on Foreign Relations. Available at: <http://www.cfr.org/china/chinas-greatest-threat-internal/p26930> [Accessed 24th February 2014]

Keqiang, Li. (2012) China Deepens Strategy of Domestic Demand Expansion in the Course of Reform and Opening Up. China.org.cn Available at: <http://www.china.org.cn/china/2012-03/04/content_24801231.htm> [Accessed 24th February 2014]

Klabin, Roy. (2013) The Biggest Risk to the Environment? China’s Population. PolicyMic. Available at: <http://www.policymic.com/articles/53181/the-biggest-risk-to-the-environment-china-s-population> [Accessed 24th February 2014]

Lee, Anka. (2013) Taking a Different View on China’s Rise. Truman National Security Project. Available at: <http://trumanproject.org/in-the-news/the-diplomat-taking-a-different-view-on-chinas-rise/> [Accessed 24th February 2014]

Chinese yuan reaches 6 month low against US dollar

27 Feb

yuan-dollar-400x272During Wednesday this week the yuan, the chinese currency, reached a 6 month low of 6.1192 against the US dollar.

In China, this was a catalyst for fears of ailing economic growth in the country, however (as reported by the BBC) numerous Chinese media outlets have attempted to ease concerns.

Chinese paper China Daily, explained that “the unexpected fall of the yuan against the US dollar since mid February has gained far more attention than is justified by its size.”

This falling value of the yuan follows reports of a new Chinese central bank strategy of lowering the value of the yuan in preparation for wider trading of the currency. A more free yuan will give Chinese consumers more flexibility as it will be easier for them to convert their yuan into other competing currencies.

These reports of the new central bank strategy, aiming to one day rival the US dollar as the most used currency in the world, follows news that the Chinese yuan has this week overtaken the Swiss franc as the world’s 7th most used currency. In fact the Chinese yuan has increased its world usage dramatically. In the last three years the yuan has overtaken 22 currencies, including this weeks Swiss franc.

Despite the falling value of the yuan against the US dollar, it all seems to be going according to plan for the Chinese central bank, a plan that is long term and a threat to the US dollar’s world dominance.

China’s Debt Explosion

21 Feb

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China is becoming increasingly indebted. This is a big problem for the future. China’s bank lending has skyrocketed in the past five years and now the banks bad debts have reached a new high. According to recent figures released by the China Banking Regulatory Commission (CBRC), “non-performing loans rose by 28.5 billion yuan ($4.7 billion) in the last quarter of 2013 to 592.1 billion yuan, the highest since September 2008” (Bloomberg, 2014). On official data, non-performing loans are 1% of total lending. This might not look much but the reality is likely much, much more because many banks, especially those owned by the state, tend to roll over loans that are due if they know that the borrower is having difficulties repaying. That means they do not demand immediate repayment when the loan falls due but carry forward the liability as if it is still going to be repaid, just later. This is a process called ‘evergreening’, and is a way for the banks to disguise the extent of problem loans they hold on their books. According to Investopedia, evergreening is “loans usually in the form of a short-term line of credit that are routinely renewed leaving the principal remaining outstanding for the long term” (Investopedia).

Another problem for China is that, just like in the west before the financial crisis, it is not just bank lending that is fuelling the debt bubble. There are non-bank institutions, known as shadow banks, which are less tightly regulated, and which are likely to have far looser lending rules. This combination is pretty toxic. Charlene Chu, the ex-China banking analyst for Fitch ratings “has explained the creation – from a standing start just five years ago – of a shadow banking industry in China that today is responsible for as many loans in terms of volume as the country’s entire mainstream financial system” (Wilson, The Telegraph, 2014).

Any failure of a shadow bank or a bank will have knock-on effects. The bank’s depositors will lose their money, and – eventually – anyone taking a loan from it would still have to repay, possibly all in one go. Probably state banks will not be allowed to fail – the government would just bail them out – and private banks will have some sort of depositor guarantee. That will be a cushion, but there would still be serious consequences.

Meanwhile, a lot of the bank lending has been for things that were arguably not the best use of resources. Research by the McKinsey Global Institute comparing the performance of China’s banking system with international benchmarks shows that “although the country’s banks have come a long way, they are not yet out of the woods. Chinese banks still lend too much of their money to underproductive state-owned enterprises (SOEs)” (Farrell et al., McKinsey and Company, 2006). So lots of property and construction, funded by borrowing, yet many new-build properties are left empty because the buyer just wants them for investment, while some people are living in poor or overcrowded conditions. But the asset looks good on a balance sheet. However, there may have been better uses for the funds.

So the 1% bad debts that the banks declare to be problems may be a fraction of the real total of problem loans. In the worst case, just like in the west, the government might have to step in to provide a troubled bank with more capital, rather than risk a run on a bank or a wider liquidity crisis like in 2008 whereby the flow of money freezes and economic activity grinds to a halt. “Credit flows to the private sector were choked off at the same time as consumer and business confidence collapsed. All this came after a period when high oil prices had persuaded central banks that the priority was to keep interest rates high as a bulwark against inflation rather than to cut them in anticipation of the financial crisis spreading to the real economy” (Elliot, The Guardian, 2011).

For example, in 2008/9, some economies, like Taiwan, saw their exports fall by 40% in six months because credit stopped being available. Chinese policy makers would be horrified if that were to happen again. Just think of the social unrest. Stephen Roach claims that “one of modern China’s deepest economic dilemmas – (is) the interplay between stability and growth” (Roach, 2014, p. 67). Roach continues that Wen Jiabao, ex-Chinese Prime Minister, “worried about the trade off between China’s rapid development and the need for economic and political stability … He pondered whether an increasingly unbalanced and unstable Chinese economy could stay the course. But, he also worried about the social instability that had arisen from China’s mounting income inequalities – ultimately the greatest threat to the socialist dream of what Chinese leaders call a ‘Harmonious Society’ (Roach, 2014, p. 68).

And the impact on the rest of the world, especially as it is so worried already about China’s growth rate slowing to 7.7%, “the slowest pace since 1990” (Anderlini, The Financial Times, 2014) following three decades of some 10% a year, would be acute. Markets would crash, hitting economies round the world and possibly bringing a new global crisis. This would be a disaster just as the world economy emerges from the last crisis. Disappointment can carry political consequences.

Now the world economy is increasingly interconnected through the global supply chain and international capital lows. Who holds most of US government debt? China. So if China withdrew some of that, then interest rates in the US would have to be higher, aborting the recovery there.

Positively, though, China’s government has less debt outstanding than was the case in the UK or the US before the banking crisis. So it can afford to bail out a banking problem, even including the shadow banks. And the regulator is trying to clamp down on the activities of the shadow banks, to gradually solve the problems rather than having them explode. Lets hope they can.

Word Count: 990

Anderlini, J. (2014) China economic growth continues to cool, Available at: <http://www.ft.com/cms/s/0/1aa3450c-8176-11e3-95aa-00144feab7de.html#slide0> (Accessed 21st February 2014).

Bloomberg News (2014) China Banks’ Bad Loans Reach Highest Since Financial Crisis, Available at: <http://www.bloomberg.com/news/2014-02-14/china-banks-bad-loans-rise-to-highest-since-financial-crisis.html> (Accessed 21st February 2014).

Elliot, L. (2011) Global financial crisis: five key stages 2007-2011, Available at: <http://www.theguardian.com/business/2011/aug/07/global-financial-crisis-key-stages> (Accessed 21st February 2014).

Farrell, D., Susan Lund, and Fabrice Morin (2006) The promise and perils of China’s banking system, Available at: <http://www.mckinsey.com/insights/financial_services/the_promise_and_perils_of_chinas_banking_system> (Accessed 21st February 2014).

Investopedia, Available at: <http://www.investopedia.com/terms/e/evergreen-loans.asp> (Accessed 21st February 2014).

Roach, S. (2014) Unbalanced: The Codependency of America and China, New Haven, Yale University Press.

Wilson, H. (2014) The $15 trillion shadow over Chinese banks, Available at: <http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10611931/The-15-trillion-shadow-over-Chinese-banks.html> (Accessed 21st February 2014).

Why does China still have a managed peg exchange rate system?

20 Feb

During China’s reform era foreign trade was used to drive industrialisation as part of the Chinese government’s policy objective to sustain economic growth, with minimal disruption to society. Trade allowed China to import more of the key industrial inputs and technology which it could not produce.  When China joined the World Trade Organisation and opened up to free trade on 11th December 2001 it agreed to ‘liberalize its regime in order to better integrate in the world economy and offer a more predictable environment for trade and foreign investment’ (WTO, 2001). However, it is argued that China has ‘an unfair competitive advantage to Chinese producers and exporters’ (Morrison and Labonte, 2013). China’s progressive move to market liberalisation involves the move away from a fixed-peg mechanism. This leads to the question why today does China still have a managed peg exchange rate?

The yuan or renminbi is the currency of China, meaning the “people’s currency” (Qing, 2012). The People’s Bank of China and therefore the Chinese government manages the value of the renminbi (RNB) by fixing the rate on each trading day for trade flows in and out of China (ECR Research, 2014). The RNB is therefore now calculated by market supply and demand. The basket to which China fixes the RNB contains 11 currencies; the US dollar, euro, British pound, Japanese yen, Russian rouble, Australian dollar, Canadian dollar, South Korean won, Malaysia ringgit, Singapore dollar and Thailand baht. Although since 2005 China has discontinued a fixed exchange rate to the dollar, the weights given to each currency are not made public. The People’s Bank of China therefore still has incentive to give a greater weight to the dollar, the U.S. being China’s main trading partner.

The main reason China does not have a floating exchange rate is due to the economic benefits of an undervalued currency. A weaker currency means that imports are relatively expensive and exports are relatively cheaper. A managed peg system therefore allows China to achieve a higher export-led growth rate since Chinese goods are more appealing to foreign firms and consumers (Morrison and Labonte, 2013); which in turn provides more jobs for Chinese workers. This therefore supports China’s market oriented development strategy and reflects why the RNB still follows a similar trend to the dollar today. Secondly a managed peg exchange rate system is beneficial for China as a developing economy because it will ‘give rise to lower inflation and facilitate more investment’ (Yi, 2013); necessary conditions for gradualist reform. FDI is also crucial because it provides access to foreign ‘technology and know-how’ (Morrison and Labonte, 2013). The exchange rate and China’s four macroeconomic performance indications are interlinked; a fluctuating exchange rate impacts growth, unemployment, inflation and the balance of payments. China therefore must continue a gradual move away from a fixed peg system in order to maintain economic stability and achieve ‘a relatively balanced balance of payments account’ (Yi, 2013).

Since July 2005 the RMB has appreciated 34% on a nominal basis against the U.S. dollar (Morrison and Labonte, 2013) reflecting that today market forces have a more dominant role, as central bank intervention begins to decrease. It is argued that a stronger currency within China could decrease global imbalances. By fixing to the dollar China is effectively importing America’s monetary policy (The Economist, 2009). A stronger currency could therefore not only decrease America’s trade deficit but allow China to implement monetary policy more suited to its rapidly growing economy. It would also help to ‘avoid the resource misallocation caused by exchange rate distortions’ (Yi, 2013) and today benefit China as import levels are increasing. Yet the economic benefits of a managed peg system reflect why ‘China is dragging its feet’ (The Economist, 2009). It becomes clear that whilst China still aspires to become the next global superpower it will not appreciate its currency completely until the fuel of Chinese growth shifts from exports to consumption; a pattern which is unlikely to occur in the near future.

Amy Warwick

 

References

ECR Research, 2014. China’s exchange rate policy. Available from: http://www.ecrresearch.com/chinas-exchange-rate-policy [Accessed 19/02/14].

Koh Gui Qing, 2012. Timeline: China’s reforms of yuan exchange rate. Available from: http://www.reuters.com/article/2012/04/14/us-china-yuan-timeline-idUSBRE83D03820120414 [Accessed 20/02/14].

Morrison, M.W. and Labonte, M. (2013) China’s Currency Policy: An Analysis of the Economic Issues. CRS Report for Congress, Congressional Research Service, RS21625.

The Economist, 2009. A yuan-sided argument, Nov 19th 2009. Available from: http://www.economist.com/node/14921327 [Accessed 19/02/14].

WTO News, 2001. WTO successfully concludes negotiations on China’s entry. 2001 Press Release.  Available : http://www.wto.org/english/news_e/pres01_e/pr243_e.htm [Accessed 20/02/14].

Yi, G. (2013) Exchange Rate Arrangement: Flexible and Fixed Exchange Rate Debate Revisited. International Monetary Fund, 16th April 2013.

China’s Growing Presence in Africa

20 Feb

With the ‘open door’ policy implemented from 1988 onwards, an explicit and planned process of increasing the scale and scope for utilising foreign capital was implemented. This inward FDI was a keystone in the aim to become a more market orientated economy and thus grow economically. Since opening up it has since become a critical driver for further economic growth. Currently stock of FDI at home is $1.344 trillion, the 3rd largest stock in the world.  (CIA, 2014)

Since the success of Chinese economic growth man Chinese firm have prospered and there for are looking for investment opportunities. This along with the growing complex development needs of China has led to increasing supply of outward FDI. Stock of FDI abroad is $509 billion. (CIA, 2014)

The most watched of these flows is between China and Africa. In 2012, Chinese firms 40% cooperate contract compared to 2% of US firms (Frost, 2011). US foreign Secretary of State, Hilary Clinton, has warned against what “new colonialism of Africa” where by raw materials sourced from Africa are used to fuel China rapidly growing economy. (Ighobor, 2013)

Chinese rapidly growing industry and vast population with rising standard of living are both creating an increase in demand for raw materials that China simply cannot domestically satisfy. This has resulted in searching for these materials overseas. Africa is a continent abundant in natural resources, but often without the resources to utilise them. Fuel resources are one of Chinas largest need, which has led to many Chinese mining and oil-related projects.

These investments in principle should be beneficial for both countries, with China gaining the needed raw materials while the African nation benefitting from the jobs created, infrastructure built as well as a stronger GDP (Caulderwood, 2014). In practise however these benefits do not always occur. Often many Chinese workers are brought over, limiting the job creation particularly in the high paying managerial roles. The extraction of these raw materials for export to china means they are unable to be used for the domestic development. There are environmental issues created through this extraction, which is furthered through improper practises, which greatly impact on the African host nation but little direct impact on China as a nation. This is shown with the Zambia Environmental Agency suspending the licence of a Chinese mining company halfway through a $832 million project. (Caulderwood, 2013)

Africa also creates an important trading partner for China, with the world market currently somewhat saturated, new market for Chinese products are needed. China is now Africa’s largest trading partner, with $114 billion of trade occurring in 2011 (Frost, 2011) Many African nations are currently progressing through development stages and likely many of them to become emergency economies in the next few decades. It has been observed that China are positioning themselves is key position in order to benefit when Africa goes through the growth phase.

This trading relationship has benefited African consumers as Chinese products are cheaper than those offered by the European counterparts.  However most worryingly, as has been seen with the textile factories in Nigeria, it has led to the collapse of local markets which are unable to compete with the cheap Chinese products. (Ighobor,2013)

Despite potential benefits, Africa needs a strategy to deal with emerging giants such as china and also India and Brazil. The current model of export raw materials and import cheap goods is unstainable and likely to hinder rather than help African development as stated by South African President Jacob Zuma (Ighobor, 2013). Many African nationals are to join together “grand free trade area” to give a greater collective power and voice. Bilateral forums such as Forum on China-Africa Cooperation(FOCAC) established in October 2000, aim to strengthen this strategic relationship.  

The relationship is not just about money and goods it is the exporting of governing and developing methods (Frost, 2011). Most worryingly for the western world to the exportation of the “Beijing Development Model”  which broadly states that a country can achieve successful economic growth without full-scale political and democratic liberation like the western economies BBC(2012)  This is often supported by African nation such as Ethiopia, where by the prime minister Meles Zenai criticized western “Band-Aid” approaches to development (Wonacott, 2011) It is predicted the Chinese-African relations will only get stronger as African development require vast foreign investment.

This is a key Challenge to the international community and has the potential to cause a fundamental change. Summarised in a desperate plea from the BBC (2012) “Our core argument to our Chinese friends across the world should be to strengthen the existing order rather than allow it to become increasingly dysfunctional, let alone replace it with something else”

BBC (2012) Viewpoint: China and the world. Available from: http://www.bbc.co.uk/news/world-asia-china-20217333 [Accessed 19 February 2014]

CIA (2014) The World Factbook: China. Available from: https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html [Accessed 20 February 2014]

Caulderwood, K. (2014) China is Africa’s new colonial overlord, says famed primate researcher Jane Goodall. International Business Times, 18 February. Available from http://www.ibtimes.com/china-africas-new-colonial-overlord-says-famed-primate-researcher-jane-goodall-1556312 [Accessed 20 February 2-14]

Caulderwood, K (2013) Chinese Copper Mining Operations Haulted by Zambia’s Enviromental Agency. International Business Times, 9 December. Available from http://www.ibtimes.com/chinese-copper-mining-operations-halted-zambias-environmental-agency-1501396 [Accessed 20 February 2014]

Ighobor, K. (2013) China in the heart of Africa. Africa Renewal, January 2013. P.6  

Frost, P. (2011) United States Watching China in Africa. Foreign Policy Association, 14th September. Available from http://foreignpolicyblogs.com/2011/09/14/united-states-watching-china-in-africa/[Accessed 20 February 2014]

Wonacott, P. (2011) In Africa, U.S. Watches China’s Rise. The Wall Street Journal, 2 September.  Available from: http://online.wsj.com/news/articles/SB10001424053111903392904576510271838147248 [Accessed 20 February 2014]

 

 

China: Strategic Softening?

17 Feb

A clear sight over the past two decades has been Chinese economic growth and the threat it poses to existing world order, especially US global dominance. However, what we see emerging is China taking on new approaches to increase its global presence; in the form of soft power. ‘Though debates mainly revolve around economic and military aspects of China’s increasing power, its soft power components are considered to be an integral part of its influence.’ (RT, 04/02/14)

On January 1st 2014, ‘President Xi Jinping vowed to promote China’s cultural soft power by disseminating modern Chinese values and showing the charm of Chinese culture to world.’ (China Daily) However, we see this promotion of the Chinese brand even prior to Xi’s quest which begun earlier this year. The Beijing Olympic Games were ‘considered to be very important in the sense of public diplomacy, with the intention of creating the image of a “nice country”.’ (RT, 04/02/14) The government spent 42 million on the games more than London and almost double that of Athens, showing despite wishing to promote peaceful global relations and harmonious Chinese values there seems to be a sense of strategy behind these soft power moves. What a development in soft power enables is a new frontier of competition with the United States and the hold it is has throughout the world, despite its declining economic position, due to its cultural hegemony.

Just a couple of days ago a Chinese film won the best picture award at the Berlin film festival, cinema a traditionally US and European stronghold, now an avenue China wishes to use to develop a cultural presence throughout the world. This aim was also reflected in Xi’s earlier speech in which he ‘called for efforts to promote advanced socialist culture, deepen reform in the cultural system, and enhance peoples cultural creativity.’ (China Daily, 01/01/14) We see further challenge to US worldwide cultural dominance through the reforms the Chinese government has taken with education, and the their expansion worldwide, particularly with the promotion of foreign students studying in China. In 1992 China had only 13,000 foreign students in its universities, as of 2006 it had 162,700, although still far off the United States large amount of foreign intake it displays a determination to bring in individuals and display the Chinese character, as well as expanding Chinese beliefs and values beyond their own borders. The influx has mainly come from surrounding countries and ‘what is important (to take on) is the fact that previously the US was the most favourite direction for southeastern Asian youth, but now there is a remarkable shift towards Chinese education.’ (RT, 04/02/14) Much like most areas of Chinese development and challenge, the US still pulls rank. However the fast paced nature of growth China has taken makes us pose the question, ‘for how much longer?’

The expansion of Chinese soft power lies right on our doorsteps as well, the Chinese New Year celebrations in Trafalgar square are some of the biggest in Europe, attracting almost half a million international visitors. This endorsement of a holiday whose principles vary so much from our own western values and the magnitude the festival has taken outside of China ‘are a reminder of how growing popularity and expanding international recognition of Chinese culture and traditions demonstrate the progress of China’s soft power.’ (RT,04/02/14)

Read more:

http://www.bbc.co.uk/news/entertainment-arts-26211896

http://www.chinadaily.com.cn/china/2014-01/01/content_17208354.htm

http://rt.com/op-edge/growing-chinese-soft-power

China’s high speed railway to Southern Asia

16 Feb

China high speed rail

Later this year, after years of planning, China’s high speed railway to Southern Asia will begin construction. The railway will pass through Laos and into Thailand and ultimately through Malaysia and into Singapore, further increasing China’s trade links within the region (Eimer, 2014). The railway is set to transform the landlocked country of Laos which lacks proper infrastructure and transport networks. It seems that this poor rural country will gain significantly from China’s desire to expand its trade, however the railway comes at a great cost to the small country. Between 50,000 and 200,000 Chinese workers will work on the construction over 5 years (T.J 2013: Eimer, 2014). In order to pay for this the government of Laos has accepted a loan from China of $6.2 billion plus interest, a sum almost equal to the country’s GDP (T.J, 2013). This loan is regarded as unaffordable and a disaster waiting to happen as Laos will become the fourth most indebted nation in the world (Eimer, 2014). The untapped natural minerals in Laos were used as collateral in the loan (Eimer, 2014). China requires resources such as those found in Laos to fuel its economy and therefore this move seems to benefit China in more ways than meets the eye.

Firstly the new trade route will allow increasing exports from China to its southern neighbours but also allows faster and cheaper importation of raw materials (T.J, 2013).

In addition to this the loan given to Laos to cover its section of the railway is miniscule compared to China’s GDP but the debt is likely to cripple Laos economically as the annual interest itself amounts to 20% of the Laos government’s annual spending (Eimer, 2014). With Chinese workers drafted in to carry out the construction the railway will yield no benefit to Laos until its completion in 2019 and in that time thousands of people in Northern Laos will be forced to relocate. In order to pay off the loan Laos will inevitably have to sell of mining rights to China and will have little negotiating power in this matter (T.J, 2013). Lastly corruption is ripe in this industry with the former Chinese rail minister, Liu Zhijun, who set the plan in motion, given a suspended death sentence for corruption in 2013 (BBC, 2013). China is set to gain significantly from this move whilst Laos is likely to suffer unless it can make the most of the new trade the railway may bring. With political corruption strong though it may be difficult for progress to be made, especially with the crippling debt hanging over the country.

BBC (2013), China ex-rail minister given suspended death sentence, [online] Available from: http://www.bbc.co.uk/news/world-asia-china-23222240 [Accessed: 16/02/2014]

Eimer, D. (2014), China’s 120mph railway arriving in Laos, Telegraph [online} Available from: http://www.telegraph.co.uk/news/worldnews/asia/laos/10572583/Chinas-120mph-railway-arriving-in-Laos.html [Accessed: 16/02/2014]

T.J. (2013), One night to Bangkok, The Economist [online] Available from: http://www.economist.com/blogs/banyan/2013/09/infrastructure-laos [Accessed: 16/02/2014]