The Engine of the World

In 2010, with an abundance of uncertainty about the U.S. economy and debt-laden Europe, China continued to lead the world economy out of the gloom. The signing of major economic and trade deals is good news for the countries concerned and will be conducive to global economic recovery.

The deals are just one of the examples of China’s commitment to the world economy in 2010. Zhao Jinping, a veteran trade expert at the Development and Research Center under the State Council, said China has been making positive contributions to global economic stability and recovery by adhering to the principles of expanding imports and stabilizing exports, and China’s efforts have been generally acknowledged by the international community.

The biggest contributor

Most noteworthy of the year’s events was China’s replacement of Japan as the world’s second largest economy.

Japan’s second quarter GDP stood at $1.2883 trillion, while China’s totaled $1.339 trillion. In the third quarter of 2010, Japan’s GDP reached $1.372 trillion, while China’s rose to $1.415 trillion.

The robust economic growth of China has provided a much-needed boost to the recovery of world economy and has even spurred its growth. In an article published in the December issue of Finance and Development, the International Monetary Fund said that in the short and medium term, a 1-percentage point shock to China’s GDP growth would be followed by a cumulative response in other countries’ growth of 0.2 percentage points after three years and 0.4 percentage points after five years. In the bluebook of Chinese society published on December 15, 2010, the Chinese Academy of Social Sciences (CASS) predicted China’s economic growth would stay at a high level of around 10 percent, meaning China’s contribution to world economic growth was at a considerably high level.

China’s most direct contribution to global economy lies in its effort to maintain the stability of the euro. After the outbreak of the sovereign debt crisis in the EU, the Chinese Government immediately offered support to the EU and backed the IMF’s joint mechanism to save debt-stricken countries like Greece. Instead of selling its euro assets, China reached out to Iceland, Greece, Spain, Portugal and Italy. In his visit to Greece in October, Premier Wen Jiabao pledged that China would continue to buy Greek bonds, and announced the setting up of a $5-billion fund to assist Greek shipping companies in purchasing Chinese vessels. In July, China bought 400 million euro worth of Spanish bonds.

“Under the circumstances of the negative influence brought about by the U.S. quantitative easing monetary policy, Chinese practice is obviously conducive to stabilizing the euro zone economy,” said Chen Fengying, Director of the World Economic Research Institute of the China Institute of Contemporary International Relations.

Chen said China is expected to contribute one third to world economic growth, ranking first in the world.

Zhao said China’s continuously expanding imports also created substantial profit and employment opportunities for other economies.

Figures from the General Administration of Customs showed the country’s import and export value from January to November totaled $2.677 trillion, rising 36.3 percent from the same period in 2009. Exports stood at $1.424 trillion, growing 33 percent, while imports reached $1.253 trillion, surging 40.3 percent. The resultant trade surplus of $170.42 billion was a year-on-year drop of 3.9 percent.

China is the biggest export destination of Japan, Australia, South Korea, the Association of South-East Asian Nations, Brazil and South Africa; and the third biggest export market of the United States, the European Union and India.

At the China-U.S. Joint Commission on Commerce and Trade held in December, the two sides signed a series of economic and trade cooperation agreements while the U.S. side scored major deals from China. At a press conference held on December 15, Tom Vilsack, Secretary of the U.S. Department of Agriculture, said with each $1 billion increase in his country’s exports, about 8,000 to 9,000 jobs would be created at home. At present, Sino-U.S. trade tops $400 billion, with U.S. exports to China surging 43 percent in the first 11 months of 2010.

On the Chinese side, its exported products are less expensive with relative good quality, which is conducive to stabilizing market prices of the importing countries, reducing inflation risks, and raising the purchasing ability and living standard of low- and middle-income groups.

“A lot of countries’ economic development benefits from China’s rising demand,” said Zhao. Greater Chinese demand could help balance the world economy, he said.

China is also an emerging country with increasing outbound investment. It is actively expanding outbound investment and improving other countries’ infrastructure. These efforts have contributed to employment and economic and social development of recipient countries. Ministry of Commerce figures show, in the first 11 months of 2010, domestic investors made direct investments in 2,786 overseas companies in 122 countries and regions. China’s non-financial outbound investment amounted to $47.56 billion during this period.

Next year, 2011, China will commence its 12th Five-Year Plan. The Central Economic Work Conference that wrapped up on December 12 said China will continue to implement its proactive fiscal policy and prudent monetary policy, expand domestic consumption and explore new economic growth engines. Yuan Gangming, a CASS macro-economic expert, said China’s economic policies will also benefit the world economy.

Yuan said China’s policies to boost domestic demand will spur domestic consumption, which will certainly increase demand for foreign products. For instance, imports of high-end consumer goods such as luxury cars and clothes might grow substantially, which will spur world economic growth in direct or indirect ways.

In 2011, China will speed up efforts in industrial restructuring and make changes to its economic development patterns. China’s contribution to the world will no longer rely on its GDP figures, but on balancing international payments and relieving trade frictions by helping emerging economies and the development of low-carbon industries.

Zhang Yansheng, an international trade researcher at the National Development and Reform Commission, said the transition of the Chinese economic development mode will lead China from resource-oriented extensive growth to intensive growth relying on scientific innovation.

A fog of uncertainty still hangs heavy over the world economic prospects in 2011. The U.S. quantitative easing policy makes liquidity more rampant throughout the world, posing a serious challenge to China’s monetary policy. As such, Chinese decision-makers must take effective management measures to handle possible world economic shocks.

Hu Xingdou, professor of economics at the Beijing Institute of Technology, said that the international community should not pin unreasonably high hopes on China, as Chinese development is still unbalanced due to the huge urban-rural gap. Chinese cities look like those of Europe, but the vast rural areas and the less-developed western part are as underdeveloped as poor African countries. Hu said what China needs most is self-balanced development, and its internal balance is the country’s greatest contribution to world economic stability.

Source: bjreview.com.cn