Sunday, August 16, 2009

Why China will rule: trading instead of invading

Figuring out why China is the new superpower is not rocket science. You get more flies with honey than with vinegar. Harmony is preferable to perpetual warfare.

China seeks to add to its development and power through a win-win strategy; it identifies the advantages of those countries it does business with, makes promises it keeps and strives for a harmonious relationship. Compare this to the US and Great Britain's strategy of bombs, bullets, invasion, proxy wars and lies to maintain their hegemonic goals alienating the entire world.

Another reason why China will rule the world is its policy of keeping multinational corporations on a short lease with the government maintaining 51% of any corporation operating in China. This short circuits the type of fascist corporate strategy that turns governments into big business puppets, as in the US and UK.

More reasons why China will emerge as top dog in world development:
1) It has the economic resources to provide loans to developing countries without the strangulation of regulations the World Bank and IMF imposes on its clients.

2) It strives for a multipolar world governance to the benefit of all countries and,

3) It has within its power to change the reserve currency, along with its allies in BRIC and SCO, from the dollar to a more acceptable unit for all nations.

Those who delude themselves that those dirty Chinese are the bad guys probably need to pull their heads out of the propaganda sandbox, and at the very least, look in a mirror.

China puts people before banks

China is one economy where there is no disconnect
between the financial and normal world [GETTY]

Samah El-Shahat, Al Jazeera's resident economist, writes a regular column analysing key elements that have contributed to the global financial downturn and its impact across the world.

China hasn't allowed its banking sector to become so powerful

The one question that isn't going away this global recession, is whether China can save the world.

But before we go running to Beijing, hat in hand, demanding assistance or else, there are some home truths that need to be considered first.

China is a developing country, with a per capita income of $4,000, which is much closer to those of African economies than to the US per capita income at $39,000, and $33,000 in Europe.

China has 130 million people who still live in absolute poverty, and even electricity hasn't made it every household yet.

So why should China be asked to save anyone but itself right now?

In fact, as Michael Pettis, a professor at Peking University's Guanghua School of Management says, China's consumption was about the equivalent of France's last year, but no one is calling on Paris to save the world.

The crisis, though, has exposed and clearly magnified the fault lines in China's emerging economy of 1.3 billion people.

The Asian giant needs to nurture its own domestic demand, so that when the export market goes sick, like it has in this Great Recession, it doesn't drag China down with it.

But making her people spend more than they save is harder said than done. After all, less than a generation ago the Chinese were so poor that hunger was the accepted norm in their daily lives.

Tiger has risen

Speak to Chinese officials in their late 40s onward and they will tell you that thinking about food was a major preoccupation as they were growing up - it was so scarce and many had to collect food coupons.

Yes, this Asian tiger has risen despite a recent past of malnutrition. So getting the Chinese to move away from the "survivors'" mentality of savers to one of spenders will not be easy.

Economists believe it takes a whole generation before people can change their ways and habits. But such a change can be overwhelmingly helped by the establishment of social welfare and safety nets such as health care provision, and other forms of social security.

This might encourage the Chinese to loosen their purse strings.

So why do we assume China can save the global economy?

Is this not a warped sense of economic prioritising to ask a developing country with pressing economic and social problems of its own to come in and sacrifice herself for the rest of the world?

Lending the US

This could have something to do with China's $2tn in denominated securities, and bonds it has acquired from the US. It is after all the US's biggest lender.

Yet, take that two trillion-dollar sum and divide it by 1.3 billion - the Chinese population - and I assure you not much would be left for your average Chinese citizen.

However, I feel this basic misunderstanding of China and her position in the world, has to do with our negative bias toward that country - we are much tougher and harder when it comes to the way we report our economic stories on China.

We are not telling enough stories of how we can in fact learn from China, particularly in the way its keeps the power of its banks in check.

Something we have been unable to do.

China is the one leading economy where the divide - the disconnect between its financial sector and the world normal Chinese people and their businesses inhabit - doesn't exist.

Both worlds are booming again and this is due to the way the government handled its banks.

China hasn't allowed its banking sector to become so powerful, so influential, and so big that it can call the shots or highjack the bailout.

In simple terms, the government preferred to answer to its people and put their interests first before that of any vested interest or group.

And that is why Chinese banks are lending to the people and their businesses in record numbers. Why don't we hear more about that in the media?

Different planets

In the UK and US, the financial sector is booming, while the world of normal people seems to be going from bad to worse, unemployment is high, businesses are folding and house foreclosures are still taking place.

Wall Street and Main Street might as well be existing on different planets.

And this is in large part because banks are still not lending money to the people.

In the UK and US, banks have captured all the money from the taxpayers and the cheap money from quantitative easing from central banks.

They are using it to shore up, and clean up their balance sheets rather than lend it to the people.

The money has been hijacked by the banks, and our governments are doing absolutely nothing about that. In fact, they have been complicit in allowing this to happen.

I asked Costas Lapavitas from the School of Oriental and African Studies (SOAS) whether governments had put the interests of banks before the interests of their wider populations.

"Yes I think you can say that. I think governments will probably come out and say that we helped rescue the banks, and we prevented generalised collapse. And to a certain extent that is true of course," he said.

"However there were so many ways in which banks could have been rescued and this particular way has been done in such a way that the banks have no incentive to change the ways they operate ... It is as if the banks have written the policies that the state adopted."

Interests of shareholders

The US and British governments have allowed banks to solve their own crises in the interests of their own mangers, and shareholders – they are after all private business.

Governments should have made it conditional for banks to lend to us, before they are given access to so much of our money and the Federal Reserve's cheap credit.

So the Western hemisphere is suffering the consequences of government failure, while the Asian Giant is celebrating government getting it right.

Funny, how our seemingly democratic governments have been taken over by vested interests.

So, lay off China. It is the one country that is putting the interests of its people above that of the banks.

And in these pressing times I say Hallelujah to that.

Chavez's 'historic' China strategy

At a land base in Venezuela, Chavez and Morales
cheer the satellite's successful launch [EPA]

By Dima Khatib in Caracas

As the rocket carrying the Simon Bolivar Venesat-1 satellite lifted into space from south-western China, Hugo Chavez, the Venezuelan president, could not help but show his excitement.

Watching the launch live from Bolivar State, in south-eastern Venezuela, with Evo Morales, the Bolivian president, Chavez described the October 2008 launch of the country's first satellite "of strategic and historical importance for Venezuela and China".

The satellite is now used by Venezuela to meet some of its telecommunication needs and is one of the main achievements of Caracas' strategic partnership with Beijing.

Venezuela's interest in such a partnership provided China an excellent opportunity as it searched for a reliable partner that could guarantee energy, particularly oil, supplies in the long run.

Their relationship now stretches from the depths of space to Venezuelan soil.

Developing oil fields

In central Venezuela's Faja del Orinoco, believed to be the world's largest oil reserve, China is helping Caracas explore an area that is believed to hold about 40 billion barrels of crude oil, twice the volume of oil reserves in the US.

As Venezuela seeks to diversify and expand the reach of its energy exports in the world instead of largely depending on US markets, it has started exporting oil for the first time in recent years to far-away China.

It currently exports to China almost 400,000 barrels a day and hopes to reach 1mn barrels by 2010. It is also planning to build refineries in China.

In the meantime, China is also helping Venezuela develop its telecommunications and hi-tech infrastructure.

In the Paraguana Peninsula in western Venezuela, China has helped Venezuela manufacture its first mobile phone and computer.

"Best" mobile phone

Chavez wants to use Venezuela's oil to break what he believes is US hegemony [EPA]
Baptised the Vergatario, or in colloquial Spanish "the very best", the new mobile phone is assembled in a joint Chinese and Venezuelan company called VTELCA.

Chinese engineers have contributed the technology and parts while Venezuela provides the manual labour, infrastructure and financing.

The Vergatario costs a mere $14, the cheapest by far in the market, and is intended to cater to low-income Venezuelans.

The phone was released for the first time on Mother's Day in May earlier this year. Within hours all units were sold out and many Venezuelans are waiting for the next batch to come out.

Technological sovereignty

VTELCA is one of 209 new socialist companies that have been established to help Venezuela reach what Chavez has termed 'national technological sovereignty'.

Most of its 170 workers were hired through local "communal councils" in the area's towns and villages. Comprised of housewives and labourers, the workforce was trained by the Chinese who now only supervise the work in the factory.

In one such factory, which began operating in December 2006, Chinese engineers are helping Venezuelans develop the first homemade computer.

Venezuelans hope Chinese technology and know-how will be transferred to them in the future so they can design their own computers and locally manufacture the parts in future socialist companies.

Joint investments

In 2007, China and Venezuela established a joint investment fund in which China initially pledged to inject $4bn over a period of three years. Venezuela provided $2bn into the fund.

The idea behind the fund is that the Chinese contribution would be a down payment for future oil supplies, while Venezuela would use the money in development projects.

The two would agree on a fixed oil price in a way that protects both from constant fluctuations in the energy market.

Less than two years later, China had already provided its share. In early 2009, at the height of the current global financial crisis, Chavez managed to convince Beijing to add an extra $4bn to the fund; Caracas also injected a further $2bn raising the total value to $12bn.

This is one of the Chavez government's many alternatives to conventional financing by the IMF and World Bank. These funds are designed to finance development projects without the burden of high interest rates and without dictating economic policies by the lender.

It is also a mechanism to break the circle of speculation in the energy market which Chavez believes is based on "capitalist principles" and he calls as "unfair and greedy".

The fund has been used to finance many projects in Venezuela so far. In one project in the state of Monagas in eastern Venezuela, the fund is financing a pilot project to increase chicken production in the country using Argentinian know-how.

It has also been used to finance a nationwide railway network that is being built in a partnership with other countries.

Ideology and strategy

When Chavez came to power 10 years ago, trade with China had peaked under $200mn but since then it has jumped to nearly $10bn.

It is no surprise then that Chinese officials say that Venezuela has now become the biggest recipient of its investments in Latin America.

While the Chinese community has existed here for decades, the presence of Chinese companies is increasing and being felt in several sectors of the economy: housing, agriculture, industry. The relationship serves China's commercial interests.

But for Venezuela, it serves ideological and strategic purposes.

Since becoming president, Chavez has travelled to China six times, making him its most frequent visitor among Latin American leaders.

He says the growing ties with Beijing are part of his stated aim to build a new multi-polar model of international relations "to break" US hegemony.

He has also embarked on a programme of cultural and scientific exchange with China.

By having Venezuelans study and benefit from Chinese technological expertise, Chavez is hoping to create a strategic partnership which merges China's socio-economic experiment with Latin American socialism.


Anonymous said...

Great article. China has been around a long time, seen many empires rise and fall, it is no surprise that it would wait to see what everyone else does wrong to rule the world in the long run. Oh i clicked all your google ads do you think you could take care of mine at my site thanks, could use the help...

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