Will China have enough strength to save the world economy?
As soon as the words about the new economic crisis reach the ears of the people, most of them immediately draw attention to the growing economy of China with the words: “These Chinese know how to work - they care nothing about the crisis!”. Of course, no one doubts the working capacity of Chinese citizens, but in the words that the Chinese economy is able to withstand any crisis, there is a share of guile. We will try to answer the question of why such an efficient financial system, which the Celestial Empire has built in recent years, is not a guarantor of not only the global economy, but also the Chinese one.
“The economic security pillow of China”, which is about 3 trillions of dollars, is not at all a means that can protect the Chinese from any blow. The fact of the matter is that these reserves are largely composed of so-called risky assets, the main ones being the United States ’buybacks of China. The direct debts of Americans alone are hanging on China for more than 1,1 billion dollars. It turns out that the “pillow” of the Chinese economy, but the gas that can fill it in the event of an accident is not enough in it.
At the same time, at first glance, a reasonable question arises among people who do not fully understand the economic conjuncture of the modern market: “Why does China not get rid of US debt securities and does not choose its own yuan as a basis?” And here everything is not so simple. China to a large extent depends on the West, because the level of purchasing power of an ordinary Chinese citizen is much lower in relation to the American, Japanese or European. This is expressed by the fact that, despite the seemingly cloudless life in China, the level of income in the country cannot be called high. In China, there are hundreds of billionaires, but in this country with a huge number of inhabitants, tens of millions of people balance on the brink of survival. For greater persuasiveness, the Russian example can also be cited, when the country is in decent 6-th place in the world in terms of total income, but in terms of income per capita it occupies a very modest 53 -th place. China, holding the second place in terms of total income, barely makes it to the first hundred in income per average citizen. This is the arithmetic that translates global figures into quite tangible - personal ones.
In this regard, China is simply vital trade with foreign partners, the main ones of which are the United States and the European Union. Otherwise, an incredible amount of goods will accumulate in Chinese warehouses (from paper clips to cars) that the Chinese themselves will simply not afford to buy. But the waves of crisis do not allow neither Europeans nor Americans to keep their buying activity at a constant level.
Statistics on trade transactions in the United States showed that the average American began to spend on goods and services on average 10% less than he spent before the crisis. In Europe, the situation with the level of purchases is about the same, while in Japan, demand fell even more. It turns out that China began to buy fewer goods and services produced by it. The economy of the Middle Kingdom already at the described stage felt a serious blow. The downturn in the area of trade between China and other countries forced the CCP to inject funds domestically, and using dollar equivalents.
This, in turn, annoys China’s economic partners, since non-Chinese products on the Chinese market have a close to minimal chance of being sold. Why? Because the cost of Chinese goods due to the undervalued yuan often differs significantly from the value of Western goods.
Global analytical agencies say that by this, China itself is heating up its financial system, and it also prevents the global economy from recovering from the crisis. At the same time, the Chinese leadership is not in a hurry to “let go” the yuan, fearing for the influx of foreign goods into the country. The Chinese authorities can only partially be understood: they are afraid of competition, but today it is simply impossible to live without competition in the economic world. Enough to go back to the vast expanses of our country, to understand that the lack of competition often becomes the cause of unreasonable price increases. Everyone understands that in a country that is a leader in oil production, gasoline cannot cost more than it does in countries where this oil is exported. However, the cost of gasoline in Russia due to the policy of monopolism is exactly that. China is now proceeding on the same principle, when the intoxication from the successful supply of everything and everyone abroad in recent years can never subside. Meanwhile, the world is already looking for new roads for the development of the global economy.
If today China has allowed its national currency to stand in one row with the dollar and the euro, if this country decided to diversify its reserves, investing them not only in foreign debt obligations, but also in the development of the average Chinese, then the Middle Kingdom could be considered as real the locomotive of the modern financial system. Hopefully, at the next meeting of the BRICS countries, China will decide on the use of the floating exchange rate of the yuan, and hence on increasing competition in the markets within the country. In order to fulfill its global ambitions, China’s economy needs change.
- Alexey Volodin
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