by 
Chinese President Hu Jintao presides over a country still shrouded in mystery as far as the outside world is concerned. Poverty resides side-by-side with extreme wealth, the downtrodden with extremely powerful party bosses, and multinational businesses with mom-and-pop vendors, artisans, and factory laborers. You can find enough to both celebrate and mourn in China.
The country's economy, for instance, roared to a 10.5 percent expansion in 2010 and is projected to do even better this year -- hence efforts to stem inflation and curb over-enthusiastic business lending by financial institutions. Yes, that's correct. While politicians and small business owners in the US and Europe are begging banks to start lending again, China is instead tightening lending requirements and repeatedly raising borrowing rates and bank capital reserves. Reports indicate bank lending in China soared to between $146 billion and $220 billion in January alone.
The total of new loans in 2010 was estimated to be approximately $1 trillion, down from $1.4 trillion in 2009. The double-digit economic expansion China rang up in 2010 built on top of the sizzling 9.2 percent growth from 2009. (Click here for additional information on China's GDP. Also see China: Lending Restrictions and Beijing's Predicament for information on how China's surging growth is becoming a problem for the country's economic regulators.)
That China is in an enviable position in the comity of nations is not in doubt. The country's external debt as a percentage of gross national income (GNI) is 8.7 percent, according to the World Bank, which interestingly does not offer similar data for the major developed nations, including France, the UK, the US, and Japan. I am still trying to find out why this information is not available for these countries.
Also, China is now the world's second-largest economy and its growth trajectory could push it pass the US to make it the No. 1 global economic power in two to three decades, according to some estimate. By the way, countries with high national debt and falling assets prefer to cite gross domestic product (GDP) rather than GNI, because the comparisons are more favorable.
As President Hu wraps up his days-long visit to the US, it's important to focus not just on how far China has come in improving its national fortune and opportunities for its citizens, local businesses, and the world, but also ponder how far it can still go. Obviously, China can still do better on a wide range of subjects and issues, including its human rights record and improving and opening up the political system to full citizen participation.
On the economic front, China's rise to the No. 2 position offers both opportunities and challenges. How China tends its economic growth will affect, not just the country and its citizens, but also the entire globe. What this means is that Hu and other Chinese leaders would have to pay even closer attention to the country's obligations to trading partners, other countries, and general citizens of the world.
China has received much from everyone, including the international community that poured billions in investment into the country and helped lift its economy from the depths of poverty, but also from its own citizens who similarly poured their sweat into making this a better country than it was a mere 20 years ago.
High-tech companies played and are playing a major role in China's development. The industry supply chain is now anchored in China, and whatever happens to the country will help or hurt high-tech firms globally. That's why we cannot afford to stay silent on how China evolves.
Already, we are seeing tantalizing glimpses of what China can become, but we've also seen its government in less flattering light, in how citizens were on occasion poorly treated and businesses -- local and international -- sometimes inadequately represented or supported with the legal framework and other infrastructure they need to be their best.
China can overcome all these teething problems as its global status improves. In my opinion, the country's finest hour is ahead, but first, the leaders must steer it successfully through a terrain filled with difficult social, political, and economic challenges. Countries that helped China develop its economy must insist the country fulfill its obligations, not just to itself and its citizens, but also to the entire world.
I agree that China is going to have to review some of its policies in order to keep up with the growth. Much like the U.S. China is now being looked upon as a globally financial superpower. If China's economy was to take a serious downturn the results would be felt worldwide.
As an employee of a large international company, I have watched my company make extensive growth in China and the Asian market. We have expanded with a new production plant in China to help with the growth. We are banking on large growth in the Asian market. By expanding overseas, this also helps global customers receive their products quicker and saves on transportation costs.
China has many skeptics. There are many people out there that feel not only is China growing at such a fast rate, they have concerns over their communist ties. I feel that China needs to step forward and show the world that they are serious about being relied upon in the global economy. By reviewing some of their political standings and helping foreign companies gain ground in China, they can gain even more trust from global investors.
China has a bright future ahead. If they can continue their economic growth, they will not have to worry about a shortage of companies or their money gaining a permanent home in China.
Great analysis on how companies can look at China as an opportunity rather than a competitor or a black hole for jobs. It's true there will have to be changes, and there are areas that China can be more open in, such as less control of the media and information coming out of China. But there have been announcements this week–a big one from GE–in which partnership with China netted US jobs. Your are right–China's leaders have the chance to inspire not just their own citizens but the world's as well.
Nice article Bolaji,
I agree with you that chinas finest hour is ahead but I am not sure if things will change drastically in future. China will continue to be communist country with still shrouded in mystery. It did little to stop the IP infringment in china, it did little to stop the human right violation (remained absent for Nobel peace ceremony and forced its alliest to remain absent), artificially kept the Yuan valuation low, so many cyber attatcks on other nations, list goes on. I dont know what will be the fallout on world politics if china becomes No 1 economy and I dont think any country has any say in chinas policy matters because they simply wont listen to anyone.
“While politicians and small business owners in the US and Europe are begging banks to start lending again, China is instead tightening lending requirements and repeatedly raising borrowing rates and bank capital reserves.”
I do agree that the effective economic policies by the Chinese government is one of the major reasons behind the rapid growth in the economy. However, is the policy by Chinese government to tighten the lending to businesses a good one? Is it because of this policy that the economy has maintained a consistent growth, or is the policy coming in the way of a much higher growth? Would love to read experts' comments on this.
Taimoor,
The Chinese are tightening because they have no choice.China today is saddled with Double Digit Inflation and Asset Bubbles(especially in real estate);all because of Cheap Credit and Easy Money.If the Authorities don't rein in either of these two monsters today,the crash down the line will be extremely,extremely terrible[There is a strong possibility that it will make the Great Recession in the US feel like a walk in the park).
Regards
Ashish.
Bolaji, I had to check out your statement that the World Bank does not offer data on external debt as of percentage of GNI for developed nations and sure enough you are correct, which I also found interesting. Anyway, since I already dug up the info, I figured I would share what the World Bank does offer on the other nations (years 2005-2009, but you can get data for 20 years). Sorry for the long post.
Source: The World Bank
External debt stocks (% of GNI)
Country Name
2005
2006
2007
2008
2009
Afghanistan
11.32
19.38
19.62
Albania
24.02
25.98
25.93
30.38
40.25
Algeria
17.35
5.08
4.32
3.43
3.83
American Samoa
Andorra
Angola
44.44
23.87
22.81
21.48
28.21
Antigua and Barbuda
Argentina
70.76
55.47
45.63
37.01
40.13
Armenia
36.60
30.36
30.55
27.49
55.29
Aruba
Australia
Austria
Azerbaijan
17.61
14.13
12.85
10.53
12.09
Bahamas, The
Bahrain
Bangladesh
28.99
30.38
28.96
26.43
23.97
Barbados
Belarus
15.67
14.53
23.05
20.51
35.56
Belgium
Belize
101.11
95.22
97.03
89.44
Benin
36.15
13.90
14.11
13.75
16.15
Bermuda
Bhutan
81.90
81.45
65.10
56.82
57.65
Bolivia
62.91
46.84
39.53
34.26
34.46
Bosnia and Herzegovina
54.85
56.53
56.11
43.47
54.59
Botswana
4.75
3.65
3.55
3.29
14.15
Brazil
21.57
18.02
17.65
16.29
17.90
Brunei Darussalam
Bulgaria
57.58
68.16
86.71
84.02
90.37
Burkina Faso
36.86
19.50
21.47
21.21
22.89
Burundi
170.29
155.14
149.47
123.92
38.91
Cambodia
58.21
50.65
45.47
42.59
45.04
Cameroon
45.10
18.32
14.88
12.20
13.62
Canada
Cape Verde
49.21
49.12
44.35
42.08
47.18
Cayman Islands
Central African Republic
75.66
68.58
56.66
48.59
19.97
Chad
35.74
33.31
30.94
26.12
28.63
Channel Islands
Chile
42.17
37.43
38.74
40.84
46.72
China
12.52
11.91
10.58
8.29
8.68
Colombia
27.11
24.31
21.85
19.98
23.61
Comoros
75.87
73.51
62.49
53.09
50.97
Congo, Dem. Rep.
156.82
138.07
128.46
117.31
121.42
Congo, Rep.
152.39
128.55
112.02
77.28
83.77
Costa Rica
33.79
32.07
32.98
31.75
28.07
Cote d'Ivoire
76.15
76.94
73.31
56.00
53.00
Croatia
Cuba
Cyprus
Czech Republic
Denmark
Djibouti
52.43
52.91
70.18
63.84
67.18
Dominica
101.28
84.30
89.17
84.02
69.95
Dominican Republic
22.04
25.09
25.85
23.15
24.61
Ecuador
49.13
43.44
40.66
32.69
23.27
Egypt, Arab Rep.
33.83
28.38
25.92
20.35
17.64
El Salvador
52.63
52.76
48.07
46.86
54.26
Equatorial Guinea
Eritrea
62.35
61.69
63.00
58.57
Estonia
Ethiopia
50.60
15.06
13.65
11.10
17.63
Faeroe Islands
Fiji
6.09
11.88
10.51
10.72
14.21
Finland
France
French Polynesia
Gabon
50.30
52.99
28.33
17.58
22.31
Gambia, The
160.24
158.40
121.76
57.81
75.35
Georgia
29.48
24.90
22.25
26.76
40.03
Germany
Ghana
63.57
25.28
30.15
30.06
37.34
Gibraltar
Greece
Greenland
Grenada
77.29
91.89
92.51
82.76
91.95
Guam
Guatemala
40.86
41.14
43.21
38.43
38.78
Guinea
108.90
118.81
80.89
88.59
48.31
Guinea-Bissau
349.49
336.70
289.36
243.11
253.22
Guyana
151.16
139.49
70.77
72.41
Haiti
Honduras
56.19
40.55
27.56
25.61
25.91
Hong Kong SAR, China
Hungary
Iceland
India
14.46
16.81
16.52
18.58
18.22
Indonesia
49.40
35.91
32.31
29.70
30.21
Iran, Islamic Rep.
11.61
8.84
7.45
4.16
4.09
Iraq
Ireland
Isle of Man
Israel
Italy
Jamaica
62.34
70.85
86.89
74.03
77.75
Japan
Jordan
59.03
52.24
47.00
29.68
28.27
Kazakhstan
84.54
101.25
104.11
94.20
112.96
Kenya
34.28
29.07
27.09
24.39
26.47
Kiribati
Korea, Dem. Rep.
Korea, Rep.
Kosovo
6.42
Kuwait
Kyrgyz Republic
85.48
85.19
66.77
48.95
65.76
Lao PDR
110.06
101.88
105.84
93.78
95.51
Latvia
Lebanon
107.62
110.98
99.36
81.54
70.69
Lesotho
39.40
34.25
32.46
33.68
33.21
Liberia
939.73
937.19
668.88
465.00
257.46
Libya
Liechtenstein
Lithuania
45.08
63.41
78.50
69.72
85.25
Luxembourg
Macao SAR, China
Macedonia, FYR
51.61
51.65
53.43
49.74
62.17
Madagascar
70.43
27.44
23.44
22.16
Malawi
113.14
27.91
23.46
23.84
24.75
Malaysia
39.52
36.25
33.84
30.92
35.80
Maldives
53.99
55.59
62.31
59.24
59.98
Mali
63.94
29.99
27.88
24.36
29.65
Malta
Marshall Islands
Mauritania
121.40
58.43
62.01
55.63
66.60
Mauritius
12.36
9.48
8.52
6.60
8.36
Dave, Thanks. You just dug up the evidence of what's ailing many Western countries: debts. Politicians and economists in the West will tell you they prefer to use GDP rather than GNI but the comparisons are always unfavorable when you are saddled down with too much debt. In the case of the United States, national debt is expected to reach $14 trillion this year! That's not something you want to trumpet.
The numbers can be calculated, though. US gross national income in 201 was estimated at $14.1 trillion, according to the World Bank and GDP at $14.7 trillion, according to the CIA World Fact Book. If total debt rise as expected to $14 trillion, that would put it at 95.9 percent of GDP! The CIA World Fact Book put US public debt as percentage of GDP at 59 percent (estimated) in 2010.
There is no doubt that China's finest hour lies ahead but China still needs to improve in its relations with various countries.
I note particularly China's is adopting a very stubborn or arrogant approach in its response to critics who feel that China in its pursuit of being the no1 global economic superpower is undermining its international obligations.
What is of most concern is China refusing to take heed to any advice concerning their policies, a point raised by Anandvy. China is already demonstrating that once in power, it would do whatever it likes and there is nothing anyone can do about it. I have my concerns for the future.
China's socio-economic condition will continue like this: the rich gets alot more richer and the poor gets extremely poor. The standard of living cannot be worse for those poor folks who barely make $5 a month in the village. Then there will be so many societal problem with this bigger and bigger status gap. More crime will occur as a result.
This is exactly the opposite of what the country has set out to achieve in the earlier communism centuries. During those times the government arrests the capitalist and all their family members (such as landlords or business owners) for claiming that they exploit the lower class. And today that is what's happening. It's rather sad.
Bolaji:
Thank you for the article and your raising our awareness of the double standards of the West. A GNI of 95.9 percent or even the “politically correct” 59 percent for the United States is nothing good to write about. How are the mighty falling? The sad part is the deep hole the US is because of an unncessary war in IRAQ and over stretched military that is policing the world at the expense of the citizens.
Chinas future is scary to contemplate. The unpredictability of the Chinese leadership is always a concern, but we should be really concerned when China gets absolute power as the # 1 economic power.
Anna, I share your concerns. We should not be too naive, especially in light of the practices used in the past.