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An Insecure West

August 25, 2010

That China had become the second largest economy in the world overtaking Japan, was big news. The biggest economy in the world remains the United States of America. If we take European Union as a whole then that perhaps is the largest economy in the world. But, then there are always different methods of calculating the size of any economy and with different currencies with different purchasing power in their respective lands, there can never be a foolproof way of looking at the economic strength of different major economies.

It is true that China has done exceedingly well. One barometer of development and success is the car sales in any country. One reason for the revival of General Motors has been the huge boost they have got from sales in China. It is also true that parts of China, especially the eastern coastal region has seen a boom in recent years. Shanghai, Canton, Guangdong and other towns are modern metropolis with impressive skyscrapers and neon lights. Hong Kong is not the only shimmering land not too far where the Chinese looked at with envy. If anything, Hong Kong is trying to emulate her brethren across the seas in China.

With this economic boom has come a prosperity that has catapulted the country to greater heights. China has perhaps the largest foreign exchange reserve in the world at nearly $2 trillion. That is a lot of money. China is using it wisely in trying to build infrastructure and buying assets abroad. They have invested heavily in oil and gas in the Middle East and in Africa. In fact, Africa has seen investment from China at a scale that has made them a player even in the politics of the Dark Continent.

The strength of China is the expansion at a break neck pace in the field of manufacturing. That is their forte and they are doing that very well. A disciplined work force that is ready to work long hours on repetitive jobs, there has been an explosion of manufacturing units across the various Special Economic Zones that have been created to facilitate Chinese and overseas investors in setting up such units. With a 1.2 billion strong population, cheap labor and an efficient infrastructure, China has come a long way. Experts are saying that if everything goes well for China and it continues to grow at 8-9% per annum then by 2025 China may overtake the US as the largest economy in the world. Sounds worrying, right? Wrong. This may or may not happen. And even if China were to become a major economy, it will still not be a threat to the West. The reasons are obvious. The facts are there. It is just that the West is constantly on the lookout for adversaries, real or perceived. They had the Soviet Union not too long ago and they need someone else to be wary of now. So China with its huge army, ICBM’s, nuclear powered submarines and a thriving economy is the obvious ‘enemy’.

Predictably, they have tried to prop up India as a counter weight to China. It is true that India is doing pretty well too. It is also true that India will do well in the years to come. India’s democratic and institutional setup is a good framework to build the nation on. But does India really compete with China or for that matter any other country in the world? The answer is NO! India has teeming millions living in stark poverty, as does China. Both China and India may have seen some relative prosperity in the recent years, but to say that the west should be wary of China and needs to prop up India to ‘counter’ China is not really beneficial, either to the West or India and this definitely should not be a worry to China.

The facts are there for all to see. Name me one Chinese brand that is a world beater? I cannot think of any. True, Apple is getting its products manufactured in China. The Chinese are piggy riding on the success of Apple phones, and notebooks. But do we know how much Apple is paying the Chinese manufacturer per piece? How much then does Steve Jobs’s company then sells the same phones and notebooks for around the world. Who is winning here, the Chinese manufacturer or Apple – US? What is true for Apple is true for Nike, Adidas, Siemens, and a whole host of European, American and Japanese companies. Many companies have seen their balance sheet in the black because of the cheap manufacturing costs that allowed them to compete globally. This has seen a quantum jump in profits of many a conglomerates in the west and in Japan.

Yes, China has acquired the technology to manufacture these goods and this was something that was inevitable if China was to become the manufacturing hub. Those wary of China say that technology has a tendency to ‘fly’. Yes, indeed it does. But that does not mean that the host country, in this case China will beat the nations that gave them the technology in the first place. There is something called R&D – research and development. How much is the west spending on R&D and how much are the Chinese? Where are the world’s intellectual property rights concentrated – Europe and the US! It is true that the Chinese have manufactured fighter jets that are basically clones of Lockheed Martin, Boeing, MIG and  Sukhoi products. But does the west and Russia really think that these cloned jets can compete with the real stuff. The science and technology of the west is eons ahead of what the Chinese have. They are trying to make up for this deficit by copying western products, but that does not make them a competitor or a threat to the west.

China is a developing nation like India and has millions living in extreme poverty. Poverty is an issue that is a real challenge both for China and India. Mainland China is a stark contrast to the eastern parts where there has been a boom. To China’s credit they are trying hard to give the west sleepless nights. They should be safe in the knowledge that they do not need to do much to give the west sleepless nights. West has sleep disorder as it is!!

I see the rise of China, India, Brazil, South Africa, Malaysia, Indonesia, Vietnam and other nations as something that is a positive development for humanity. My hunch is that this boom in developing countries will benefit the west in ways that they cannot imagine. The entrepreneurial instincts of the west are so well honed that they pounce on any opportunity to expand business. With a global boom, west stands to gain substantially from the rise in standards of living of these developing nations. Western corporations have already started moving East and try and en–cash on this opportunity that is staring at them. I see prosperity all around, and I do not see the demise of the west. Yes, the West may not be able to call the shots as they used to not too long ago, but then they will have to live with the fact that Asians and South Americans and Africans are going to compete with them as equals.

There is this other little niggle that I find a bit of a drag. Most of these developing countries (perhaps with India and Brazil as exceptions) do not have the kind of political stability that the West enjoys. That could bring them down and may restrict their growth.

The Chinese have this one thing going for them that gives them an edge and perhaps makes them a player on the international stage – China is a part of the Security Council. I wonder whether the west could legitimately blow the Chinese bugle were China not a part of the Security Council. That position on the world’s high table means that no major decision can be taken without the approval of Beijing. That makes them indispensable for West’s ambitions, and perhaps more of an irritant. The West cannot wish them away. So they create a Frankenstein where there is none.

I must admit that the Chinese have become a tad ambitious. I mean, how can Beijing question the acceptance of the US Dollar as the world’s favored currency? That most nations tend to keep their reserves in US Dollars is entirely their own choice. It is a matter of faith. There are some countries that keep a percentage of their foreign exchange in Euros too, and that includes China. The Chinese are now saying that they will create a fund in Chinese Yuan. Best of luck to them, but does the Chinese Yuan have the same credibility as the US Dollar? Communist China fails to understand that the world market plays on sentiments and the feeling is that the US Dollar is the safest currency. It is the strength of the economy that gives the US Dollar the edge. The fundamentals of the US economy are strong and that is not going to change anytime in the future. Countries like China, Brazil, India and others have a long way to go before we can even think of matching the west. And one of the basic strengths of the US and Europe is their system of education and research. If at all the developing countries aspire to reach western levels of lifestyle we must aspire for a more comprehensive education policy with emphasis both on basic and higher education. Research in basic sciences cannot be ignored either. China and India have miles to go – as they say.

The bottom line is that none of these developing nations is going to seriously challenge the west in the foreseeable future. As said earlier, the rise in standards of living in Asia, South America and Africa should be something that should mean greater prosperity for the west as the western conglomerates will thrive on this new market that they will milk for all it is worth. West will see a rise in its fortunes in the near future (next 10-15 years) like humanity has never seen before. Here is going to be a boom in the world economy like mankind has never experienced before and the west will be the primary beneficiary. If they would rather the rest of the world remains impoverished if that means foregoing greater prosperity in the west, then it is another story. But that does not seem to be the case. China would do well to look inwards and try and rectify the anomalies in their system as must India where the dysfunctional growth means that a good percentage of the population does not benefit from the recent prosperity. There is no competition between the West and China. If the west still wants to lose its sleep over something that they should in fact be celebrating, well, then it’s their choice.

Addendum: Now there is an American politician who claims that China is planning to take over the US. She says that she has the details and that the blue print of Chinese intentions is rather alarming. Washington Post reports this as follows:

Republican Senate nominee Christine O’Donnell of Delaware said in a 2006 debate that China was plotting to take over America and claimed to have classified information about the country that she couldn’t divulge.

What could be more hilarious. Americans have this propensity of playing good guys vs. bad guys where they obviously are the good guys. This is mirrored in their cinema and in their literature. They sell this image rather well across the world. It helps that they have the support of Europe and they combine together to create monsters where there are none. O’Donnell obviously understand the American mind very well to have come up with this yarn. Remember this is a politician speaking. I would take such claims more seriously had some one from the Pentagon or one of the secret services gone on record with such claims. Be as it may, the media picks up such frivolous stories seriously too!

Following is the link to this ludicrous story by Ms. O’Donnell:

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