When watching events around the world these days, it is easy to understand the impact of globalization. An elementary example such as Greece shows us how a country of secondary economic importance, and with a modest demographic base despite an ancient cultural history, has been able to plunge the whole of Europe and its 500 million inhabitants into uncertainty
The European crisis, exacerbated by a chronic inability to take decisive action, has in turn hampered the American recovery enough to elicit alarming criticism of European leaders by President Obama. The infighting and internal divisions in Europe could cost him the election this year. Until just a few days ago, the damage was limited to the US and Europe, and China, the world’s new economic MVP, seemed to be carrying on, unaffected and untouchable, in its development. Taking a closer look, however, reveals that things are not as they seem: globalization has struck there, too. April’s statistics show that the infection has suddenly reached the Middle Kingdom.
Exports are down sharply due to the significant drop in demand from Europe and the United States. Growth fell to just 4% in April after sustained double-digits, and the resulting slowdown in industrial activity has caused a decrease in energy consumption, starting with electricity, a more credible economic indicator than GDP statistics. Chinese authorities were forced to revise their economic predictions for the current year, although not by much. Estimating 7% growth, the traditionally cautious Chinese government still managed to predict one percentage point less than the World Bank. In any case, either number is still far less than the double-digits most people were accustomed to. More important to note is that Chinese authorities, predicting that the European and American crises will continue for some time, immediately went into action and rectified some of the most important goals and methods of their national economic policy.
Until recently, the prevailing strategy planned on sustaining the economy through export during the time it would take to build up internal demand, a project with long term goals. The plan was to have dedicated an ever-growing amount of resources to invigorate consumerism and the development of the social state, still weak in China’s peripheral provinces. Faced with April’s numbers, however, and the proven impossibility of weathering the crisis through stimulation of internal demand alone, authorities went back to encouraging investment with the typical rapidity of Chinese decision-making. Banks were immediately allowed to keep lower reserves, and were encouraged to provide more credit to small and medium enterprise and large public companies, while infrastructure projects were accelerated. Once again, investments will make up more than half of Chinese GDP. Greece’s beating wings, swept up by Europe and America, have caused the Chinese Dragon to change its tack as well. Last year it fought inflation that reached 6.5% in July, but now it is concentrating its energy on compensating for the drop of foreign demand due to a worldwide crisis that even Prime Minister Wen Jiabao has said is likely to last a long time.
The only aspect of (little) consolation is the fact that all media, politicians, and Chinese experts are focused on Europe. They talk about Greece and its 10 million inhabitants with more concern than that which the West holds for China, with its 1.3 billion citizens. But the Chinese do ask themselves, amid incredulity and curiosity, what exactly does Europe plan to do in the near future.
Beijing finds it incomprehensible that 25 top-level summits have not been enough to find a solution to the Greek problem. This incomprehension comes at great cost, as China looks more and more towards the Unites States and away from the European Union and the Euro, a currency that China had heavily sustained in the past as a counterweight to the power of the American dollar, a symbol of American global influence.
Globalization has brought its consequences to the entire world with an unprecedented swiftness, but China deserves recognition for the Great Wall they have maintained, with a financial system that is not only protected by deep institutional diversity, but by reserves so extensive as to shelter it from any speculative attack.