Robert Gottliebsen: how China will soon rule our world


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Robert Gottliebsen: how China will soon rule our world


By Robert Gottliebsen
Business Spectator

As China’s President Hu Jintao leaves Washington, it is important to go behind the specific issues that were discussed to the more important historic event we are seeing unfold.

It was once true that global changes of the guard took place over a long period of time – the rise and fall of the Roman and Ottoman empires, for instance. However, we saw with the British Empire a rapid decline in Britain’s economic and defence superiority triggered by the Second World War.

In that case the Americans took over from the British and it was a smooth transition. Most importantly, the Americans were ready to take the leadership.

For most of the 21st Century we have been forecasting that in a couple of decades China would take the economic superpower baton from the US, though it would be a very long time before the US lost military superiority.

But the global financial crisis has suddenly catapulted China into global economic superiority. The Chinese military build up and America’s concentration of air defence spending on the disastrous Joint Strike Fighter development, plus China’s access to the superior Russian aircraft developments, means that before the decade is out China may have both global economic and defence superiority.

As it is, China’s economic ascendency means that there can be no agreement on any major issue, whether it be climate change, nuclear arms, Iran, Korea, the value of the US dollar, and so on, without China’s agreement. But this has all happened much faster than anyone planned and China faces many internal difficulties – coming to grips with global economic superiority is itself a challenge.

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Secondly, last night I returned from South Africa where – apart from the football World Cup – the main conversation point was the rise of China in Africa. They realise the baton has passed. The American consulate general office has a very prominent place in Johannesburg, but it is a monument to a past era.

So, today I want to look at the global implications of this passing of the baton and tomorrow I will look further to what it means for Australia.

The US gave away its economic superpower status when it transferred its manufacturing capacity to China, ran huge deficits mainly funded by China and then finally decimated its banking system by concentrating its corporate strategies on short term profitability (sub-prime funding, etc) rather than making sensible long-term decisions.

The first repercussion of the baton change is that the US democratic/capitalistic model which we have assumed to be the best way to generate wealth and human well-being is not admired by China.

They have watched in amazement as under this system the US dismantled its manufacturing ability and US and European banks threatened the solvency of their nations simply to achieve executive bonuses and short-term shareholder return. They also watched Americans become more and more dependent on Chinese capital. No one can be sure how China will develop politically, but it certainly will not be the American model.

Accordingly, China as new economic superpower is not interested in being lectured by the US or anyone else.

The Grattan Institute’s Saul Eslake says that right now it makes sense for China to allow its currency to float upwards because currently it too low and the current system, whereby it buys US dollars and then prints its own currency, is causing too many local distortions. But China does not want to be shown to be forced to do anything and significantly President Obama did not lecture the Chinese, realising it would be counterproductive.

Doubtless China is manipulating the US dollar, but the Americans have given the Chinese the power to interfere in its currency by running up enormous government deficits. The Chinese are always on the look out to use their leverage.

Many African dictators rose to power with Chinese support. It’s now pay-back time. China is getting the inside running on many African resource developments and in some cases have been allowed to bring in their own labour (rather than just management) to undertake the development.

For the US it is too late, so if America tries to regain its superpower status by taking economic measures against China, the Americans will be the main sufferers and the world will be a much less prosperous place.

China has its own set of internal problems and is divided over whether the old export model remains the right course or whether more effort should be spent lifting living standards in Western China.

It’s important for Australia that the transfer of power be smooth and that China resolve these difficulties.


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