China ’s manufacturing/export sector is slammed. Massive layoffs. Jobs disappearing. She’s hurting, right? Well, yes, but given the centrally-directed economy of a regime, whose only fear is masses of the unemployed making life a bit harder for the government, has global positioning on its mind. She is now the third largest economy on earth, behind the U.S. and Japan . And with the US as the international scapegoat for this meltdown, China is making lots of sounds like it wants to be the new big-big player in the world of economic policy-making. They know that this moment of global economic chaos is their moment of opportunity, the day we’ve all joked about for years: “Hey, someday, we’ll be working for them; they’ll have the money to buy anything they want.” That time is now.
“The capitalist system dominated by the West is stuck in serious and deep crisis -- and is bringing disaster to the entire world,” said Huang Jisu, a sociologist at the Chinese Academy of Social Sciences and co-author of a bestselling book. (April 2nd LA Times). This view seems to reflect the general Chinese perception of American-style capitalism.
Chinese officials and companies are running around the planet, buying up natural resources by the nation-load. Oil & gas deals in Venezuela , Sudan , Russia and Iran . Buying stakes in all sorts of mining companies. Setting up farming consortia all over the world to feed her people. China will control a disproportionate share of the earth’s future raw materials. She has the cash – massive currency reserves generated from years of export surpluses with solid banks (no derivatives or subprime mortgage issues to worry about) – to buy those commodities and cement herself into a strong economic power position for the foreseeable future.
They’ve announced that hybrid and electric car technologies are new priorities. They have sent economic representatives into the Western world to seek out companies they can buy or control, benefiting from high-level research and engineering, distribution structures and/or simple targets of opportunity in distressed times.
The April 2nd Los Angeles Times: “Chinese companies are also looking to buy high-profile Western brands on the cheap, while recruiting foreign talent to upgrade China's technology. China 's Geely Automobile Holdings Ltd. has reportedly talked with Ford Motor Co. about purchasing its distressed Volvo unit. And analysts on both sides of the Pacific have floated the prospect of a Chinese automaker acquiring General Motors Corp.'s venerable Buick line, if not the entire company, something once considered unthinkable…. Already, China had been on a buying binge. Last year its outbound mergers and acquisitions were worth a record $52.1 billion, according to New York-based Dealogic. In the first quarter of this year, Chinese companies have cut deals worth $17 billion.”
Part of moving up the G-20 hierarchy into a policy-making (if not “dictating”) role means moving the former big-big, the United States , into a vastly reduced position. The rest of the world, eager to blame the U.S. style of financial capitalism for this fall, seemed to be ready to help. Yet while the U.S. couldn’t “dictate” the G-20 summit results, President Obama was able to use finesse instead, moving in and around the heads of state, pulling together a surprising consensus. America was most certainly not marginalized!
But we’ve not heard much about replacing the dollar as the global standard until the last year or so, and it is sobering to remember that oak trees grow from acorns. China is setting the longer-stage reality by beginning to manage global expectations about what she wants… and may actually get someday. She’s stepped out of her quiet, isolationist shell and is now most certainly one of the most prominent influencers of global economic policies.
The fact that the world has used the U.S. dollar to value almost everything, from oil prices to gold, from the currency reserves of international organizations to global financial analysis, sits very clearly in China ’s sites. If the “dollar standard” goes, the economic ramifications for the U.S. will be devastating, taking away one of the greatest reasons for the international community to support the value of the dollar.
China knows that and is aware, as French and German governmental officials have repeated, that U.S. budget deficits are very likely to erode the long-term buying power of the dollar – an inflationary fear that lay beneath almost every consideration as global leaders met to discuss global economic problems. It’s why the U.S. (and the U.K. ) didn’t even try to get the rest of the G-20 nations on board with more stimulus spending. And China has been less than subtle in their criticisms of U.S. deficit borrowing policies, worried about their own massive dollar reserves ($2 trillion, half in bonds purchased in support of U.S. deficit borrowings).
You only have to look at China ’s pre-G-20 summit position on the Washington-D.C.-based International Monetary Fund. Wikipedia: The IMF is “an international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rates and the balance of payments. It is an organization formed to stabilize international exchange rates and facilitate development. It also offers financial and technical assistance to its members, making it an international lender of last resort.”
As China was being asked to contribute vast sums to this international body, not only did she challenge her voting rights within that organization, but Beijing also challenged the continued use of the dollar as the currency-of-choice for IMF reserves: “Beijing worries about the possibility of a falling dollar or serious inflation eroding the value of its investments, as Washington borrows record sums to dig itself out of the recession. Last week the head of China 's central bank, Zhou Xiaochuan, raised the idea of creating a new global reserve currency to replace the dominant dollar -- a kind of super-currency made up of a basket of national currencies and controlled by the IMF.” (LA Times)
Everybody knows that it would take years to implement a new currency structure like the one suggested by China . The results of the G-20 summit, in which China agreed to make a major contribution to a massive $1.1 trillion infusion into the IMF, show that the U.S. still’s “got game,” and Obama was heralded as a consensus-builder. But China was also openly praised for her efforts in making the summit a success – she’s not sitting quietly in the corner anymore. And if the dollar does in fact begin to erode, the writing is already on the wall. The clock is ticking. How’s your Mandarin?
I’m Peter Dekom, and I worry about it more than I should.
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