Wednesday, July 13, 2011

When Will China Take Over the World? (Video) *Fundamental restructuring of economy necessary?*

● Baidu Planet 

The National Bureau of Statistics of China reported a +9.6% GDP growth YoY for the 6ME 6-30-11

Chinese Instabilities Ian Bremmer, President of the Eurasia Group, says China needs to "fundamentally rebalance their economy" to maintain the growth rates that have led to proclamations of this being the Chinese Century and China to be come the world's largest economy. Further, Bremmer says China "needs to restructure how the government is involved in the economy". Finally, he says China probably needs to "fundamentally restructure a lot of their political system". This must be done to "get to the point where they start looking more like a developed economy and a responsible stakeholder". These "instabilities" become more prominent, and important, in the longer-term: 5, 10, 15 years out.

Resistance by Vested Interests John Bussey of the Wall Street Journal notes that the Chinese government has made a compact with the 1+ billion Chinese people: we'll improve your life economically every year if you leave the politics to us". Since the fundamental shift in the management of the Chinese economy in 1978, this seems to have worked. Bremmer comments that to-date, the China's growth has been state-directed, state-invested, and state-owned enterprises, and exports to the West. China's government understands this is not sustainable long-term and internal demand needs to be strengthened. However, the vested interests, the state-owned enterprises, are against this fundamental change in the economy to consumer-driven. So the rebalancing and restructuring of the Chinese economy by taking power away from the vested interests is difficult due to this resistance by the state-owned enterprises.

Still a Developing Economy The state-owned enterprises had previously relied on exports mostly to the West. But as the Western economies slowed down and demand decreased, they have expanded outwards to India and elsewhere to keep the demand, and exports, up. However, to keep Chinese per capita income increasing, it will take more than state-run enterprises' expansion efforts. Improvements necessary include a better banking system, internationalized research and development, and consumers in the "driver's seat". Bremmer says, "The Chinese are not remotely close to that now" - a developed economy. He adds, "We shouldn't presume they are going to get there easily". There are obstacles for China including the developed economies of the world are in crisis, food and commodity prices are increasing, rising oil prices, climate change, and globalization is challenging Chinese institutions.

New World for China Bremmer states that the world China must restructure and rebalance into is vastly different than the world dealt with successfully for the past 30+ years. Bussey notes that China also faces an internal demographic problem due to the one-child policy: "China will get old before it gets rich". Bremmer says the good news is that the Chinese government is aware of all these problems, but their ability to implement all the changes necessary is the challenge. China's "domestic constituency" has increasing demands, more access to information, more ability to communicate, and more ability to organize. "Even without being democratic, the Chinese central government is going to have to respond to them".

When Will China Take Over the World? In an interview with WSJ's John Bussey, Eurasia Group President Ian Bremmer insists that for China to become the economic powerhouse it is predicted to become in this century, the Chinese must fundamentally restructure their economy.

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