Platt Perspective on Business and Technology

China and our increasingly interconnected global economy – 1

Posted in macroeconomics by Timothy Platt on February 14, 2012

This is my first posting to a new series on China and its fiscal policies and economy, and it is in many respects a direct continuation of a 24 part series that I posted to over the course of more than a year: The China Conundrum and its Implications for International Cyber-Security (available at Ubiquitous Computing and Communications – everywhere all the time, as postings 69 and loosely following.) The central focus of that series was on how China and its central government view information and information sharing, and both within China itself and between its citizens and the outside world – and about what it does in seeking to manage this. In the course of this ongoing, extended discussion I outlined a number of factors and circumstances that go into shaping this, and both for how China’s leadership sees its world, and in influencing how it would respond to it.

I decided to in effect carve out a separate discussion, connected to that with a more economics orientation, placing this new series in my Macroeconomics and Business directory and here it is.

• China is currently viewed as an economic powerhouse, and as one of the countries to look to as a 21st century ascending power, and in many respects that is a valid way to view the country.
• On a strictly economic basis, the Chinese government holds some $4.2 trillion in foreign currency cash reserves with just over $2 trillion of that in US dollars and $1.2 trillion of it is Euros. So they are a major player in the global economy and are in a position to provide stability for many countries currently facing even severe economic challenge. And this puts them in a position of very genuine influence and strength.
• Their gross national product and positive trade balance indicate real strength too.
• But I turn back to the issues and challenges that I wrote of in my China Conundrum series and to the fact that as a country, they face severe internal issues, some of which are going to become very severe in impact and in just the next few years. This includes their demographics time bomb that is getting ready to explode on them. This includes their growing problems of governmental and (semi-)private sector corruption and the growing unrest they face from that. This includes their developing environmental crises, and the impact of this being seen within China as more of a direct problem for their large have-not classes than it is for their wealthy, connected, haves. And the divide between have and have-not in China keeps on growing.

What would happen if China’s economy were to slow down from its rapid growth rate of recent years? How will the challenges that I wrote of in my earlier China Conundrum series impact on their economy and their capacity to maintain an improving standard of living for their citizens? And as a third question that would relate to this, I toss in a wildcard: the upcoming November 2012 changes in leadership in China from their Politburo Standing Committee on down. What might this mean for China and for the rest of the world, and particularly for the Chinese and global economies? And here, and certainly within China itself, the hopes and expectations of those who see themselves as have-nots and left out will go a long way towards determining the outcomes that China’s new leadership can achieve. If they see this new leadership as betraying them from not adequately addressing the have/have-not divide, their unrest will only grow and I cite my Posting 23 in the Conundrum series for some background on that point.

I do not anticipate writing a long series on this set of issues but they are important and globally. I add that I am not an economist per se or an adherent of any particular economic dogma. So I will be looking at and discussing economics issues in this series from a perhaps less traveled perspective.

I am going to post in my next installment for this series on China’s current economy and on its industrial position and trade balance strength, building a foundation for installments to follow. You can find this and related postings at Macroeconomics and Business.

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