[First published in my school editorial, One Voice]
The Middle Kingdom has, for the last few decades, dominated the center of many budding and puzzled minds, enshrouded in an amalgamation of mystery, awe, and fear. Fledging teenagers (like myself) struggle to comprehend and keep up with the workings of the economic giant, for it has certainly fulfilled (or is fast fulfilling) the prophecy of its name. With a World Bank report suggesting that it may surpass the United States this year as the world’s largest economy, China has truly been thrust (rather unwillingly) into the limelight.
Misconceptions about China abound. Many experts have spent years researching the behemoth, and yet can hardly begin to comprehend the vast workings and cogwheels that chug and sputter to run the country. Articles speaking of China’s GDP (and other honestly completely bamboozling variables of Chinese macroeconomics) proliferate rapidly with China’s rise. If so, what new light could I shed on such a topic? I cannot pretend to know much about China (even having spent the first 12 years of my life in Shanghai), but all I can to do is attempt to translate the information I’ve read, and convey the complexity of the Middle Kingdom through the lens of a 17-year-old.
1) China is rising. Undoubtedly.
It doesn’t take an economist to tell you that. GDP and economic development aside, the evidence is right in front of our eyes. Back in the financial crisis of 2008, I came back to Singapore for the summer holidays and returned to Shanghai a month later only to find a spanking new hospital right outside my house. Whilst the West was (and arguably still is) suffering the consequences of the 2008 crisis, China was forging ahead, making astonishing (albeit frightening) economic and social progress.
Forget Facebook, Amazon, and Ebay. These American companies are constantly on the forefront of our minds (abashedly I while away quite a lot of my time on these sites!), but their Chinese counterparts will soon overcast them. Chinese tech giant Alibaba already produces more sales and net income than Amazon and EBay combined (and yet many Americans have yet to hear of Alibaba). Waves of Chinese companies like Alibaba are going public, not only within China (which, by the way, has become the leading issuer of IPOs in terms of total value, overtaking the U.S in recent years), but also in the U.S and all over the world.
2) China is not only China. China is the world.
Go anywhere in the world and you’ll find that Chinese people have established themselves there. Clearly, the Chinese populate most of Asia (especially in a place like Singapore, where over 70% of us are ethnically Chinese). Not only that, but hundreds of thousands of Chinese workers (not only blue-collar workers, but university graduates with illustrious degrees from the world’s top universities) now sweep through the streets of San Francisco, the oil wells of Africa, and the iron mines of Latin America. The Great Chinese Migration, which started out as an outpouring of rural Chinese into Chinese cities, has now spilled over to the rest of the world – this is, truly, the epitome of globalization.
3) China is not too big to fail.
But then again, with all the praise over the astounding achievements of the Middle Kingdom, skepticism over China’s ability to keep up with this booming trend has dampened the country’s spectacular rise. Just a month ago, China witnessed an unprecedented event – its first domestic corporate bond default (which, in plain words, is a bad thing). Shanghai Chaori Solar Energy, Shanzi Haixin Iron and Steel group Co., Ltd., both defaulted on bank loans.
We have to understand that the Chinese government has long funded key economic enterprises through policy banks such as China Exim and China Development Bank. Practically unlimited funds offered by these banks have long supported high rates of investment, but they may be reaching their limit. Rather akin to us as sheltered children – just as we have lived off the pocket money offered to us by our parents, Chinese companies have been living on the funds offered by Chinese banks. As we reach adulthood and the flow of pocket money stops, the same thing is happening to Chinese companies. These banks have been fuelled by the vast pool of Chinese savers (Chinese people save over 40% of their earnings, the highest rate of savings in the world), who have been losing money on their deposits, as interest rates are often lower than the rate of inflation. Now with Chinese industries like steel suffering from overcapacity, and with borrowers (Chinese enterprises) unable to pay (or borrow to pay) their interest, the Chinese boom may have reached its brink.
The world is anxious about China. We are anxious about China. The world is much too interconnected for us to be ignorant of and disinterested in its circumstances. What I have outlined in the last 700 words or so is barely the tip of the iceberg.
For after all, even this keyboard I’m furiously typing away on is Made in China.
(References and further reading: China’s Silent Army, by Jan Pablo Cardenal and Heriberto Araújo; and China’s Ticking Debt Bomb, Online: Knowledge@Wharton)
Just stepped down a few months back from my role as editor of our school editorial, One Voice. This is my first article as a normal writer!