The Two Chinas

Today, a new, but very different, “two Chinas” question is emerging. It centers on whether China is best understood as a strong country, with a promising future despite some short-term difficulties, or as a country facing serious structural problems and uncertain long-term prospects. In short, two very different Chinas can now be glimpsed. But which one will prevail?

http://www.project-syndicate.org/commentary/two-chinas-economic-slowdown-by-richard-n–haass-2015-08#Wljsj1yf0dr49qyZ.99

Uptil a few years ago, the world was living the China Dream. It’s economy was growing above 10% rate – an unbelievable pace – since more than three decades. People all around the seemed attracted to the Chinese model of development. Eve with the world’s largest population, it had managed to transform a substantial part of its rural population into the middle class. Particularly astounding was the fact that with its authoritarian economy, it had been able to mitigate itself from the worst effects of the 2008 Global Recession, which had severely hit USA and most of Europe – severely discrediting the liberal-capitalism theory.

But switch over to 2014-15, things are nowhere the rosy pitch they once were. The Chinese Economy is now at a pace of 7% – way more than India, from where I am penning down this- but it is a far cry from those days. There are also rife speculations that this government figure is also not particularly honest – a typical Chinese authoritarian trait- and that the actual growth rate is only 5%. The seriousness of the situation was reflected in the alarm with which the government froze stock markets in the midst of a dramatic price correction.

Furthermore the August move of China to deregulate renminbi was the most alarmist move made by China is what I feel the last two decades.

And this is coming at a time when the BRICS is launching their New Development Bank as a rival to The World Bank, and China is making plans for inter-trade collusion with Russia with the renminbi as the flagship currency in it. These two headlong collisions with the USA and its allies – armed with a resurgent dollar – has to be done at a time when the renminbi is strong at dawn, not at its twilight.

A big part of this is due to the intense anti-corruption campaign unleashed by President Xi Jinping. More of a power-grabbing campaign rather than a reformist campaign, due to the wave of prosecutions that it has unleashed, officials in China are now more vary than ever while taking decisions – for fear of repercussions which they might have to face in future years.

China’s aging population, an unintended consequence of its draconian one-child policy, poses another threat to long-term prosperity. With the dependency ratio – the proportion of children and pensioners relative to working-age men and women – set to rise rapidly in the coming years, economic growth will remain subdued, while health-care and pension costs will increasingly strain government budgets.

The increasingly apparent conclusion from this whole scenario is that China wants to have the economic growth that capitalism produces, but without the downturns that come with it.  It is vital for the Chinese economy to recover, otherwise the whole world will have to face a backlash from it. Some analysts recommend china to liquidate its immense assets overseas ( China is the biggest foreign owner of real estate in USA ) to pump in cold hard money in its economy, but that is a short-term solution at best.

So whether China is facing short term problems or long term serious structural problems; only time will tell. But one thing is certain, the next three decades will not mirror the past three ones.

Advertisements

Chinese Laundry in America’s Backyard

One of the world’s most powerful journalistic mouthpiece – The  Economist – came up this week with a startling relevation that there might be a competitor to the famous Panama Canal coming up in the near foreseeable future. This has literally opened up the floodgates; in this context, a barrage of opinions and columns which I can reasonably predict to come up in the coming days by the global diaspora. http://worldif.economist.com/article/8/what-if-the-panama-canal-gets-a-rival-trench-warfare-in-nicaragua

A place that looks as if it is still sleeping, the Brito river in Nicaragua might become the stage of a world conflict in the next decade. The main brouhaha is about a new canal being envisioned in Nicaragua, by the Chinese government-military and some big Chinese companies, which could very well pose as a competitor t the Panama Canal, providing an alternate route between the busiest sea routes in the world, joining the two biggest oceans in the world- the Pacific and the Atlantic.

Chinese billionaire, Wang Jing’s company is willing to gamble 40 billion USD on a fiendishly astute project, which would make a canal that exceeds the existing Panama canal in all aspects – allowing 500 metre long supertankers to pass through, a problem that both the Suez and the Panama face in the wake of ever-increasing size of ships.

The construction alone would be a spectacle. Some 50,000 labourers (perhaps a quarter of them Chinese) might work on site, and 2,000 diggers, dredgers and other giant machines would excavate about 5 billion cubic metres (177 billion cubic feet) of dirt, using 5 billion litres of fuel in the process. They will lay what they dig up 1.5km either side of the canal, which HKND promises to turn into new arable land about three times the size of Manhattan, partly for the 30,000 people uprooted from their homes.

Construction will no doubt damage the environment. A 107km-long, 280-metre-wide trench will be dredged through pristine Lake Nicaragua, rainforests will be uprooted, big-cat migration routes traversed and indigenous families ousted from sacred lands. Mr Wild pledges that, when finished, the reforested land along the canal route will be better cared for than it is now. But can any pharaonic enterprise, let alone a Chinese one, be trusted not to cut corners? Environmentalists will try to block it every step of the way.

Screenshot (2)

The proposed canal route

But all these considerations and grandiose plans apart, this mega project raises many dangerous questions. Nicaragua, a relatively obscure country, has willingly let go of its sovereignty and has given a concession of 100 years to the Chinese company. What future does this hold for Nicaragua? Will this project shoot-up its economy – Yes, definitely it will. But can we eliminate the thought that this is  just another of a series of Chinese incursions in foreign territory, something on the lines of South China Sea? And most importantly, will this turn out to be a 21st Century Cuban Missile Crisis, where the meek country of Nicaragua maybe used by the Chinese military as a base to target the American soil – after all they built an air strip on those disputed islands which have the capability to land any air force plane for that matter ? Who can stop if the Chinese Navy decides to send its warship on a hopscotch from one ocean to another?

These are some serious questions that need not only some very deep thought, but also some constructive action. After all USA, with its own version of “Truth, Justice & Liberty” which it continues to uphold in all corners of the world, to not do something about what’s going on in its own backyard is something surprising.

So far, America has been phlegmatic about the enterprise. Perhaps, like Jorge Quijano, administrator of the Panama Canal, it believes that financially the project is a bottomless pit and has no future. Mr Quijano reckons that for the Nicaraguan canal to earn a competitive return on investment, it would have to charge double the tolls levied in Panama, which would put off most customers.

Nicaragua’s Sandinista rulers shrug off the worry. “If China is behind the project, it will not be a big problem for Wang Jing to get the financing,” Mr Coronel says. After all, what wouldn’t China pay to see one of its naval fleets one day emerging from the Central American jungle right under America’s nose?