China to Become the World's Largest Importer by 2014

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Helen H. Wang, Contributor Author, consultant and expert on China's middle class >

We have heard a lot about China becoming the world’s largest this and that. In 2009, when the world was in recession, China leapfrogged the U.S. to become the world’s largest auto market. In 2010, China overtook Germany as the world’s largest exporter. This year, China is likely to surpass Japan to become the world’s largest luxury goods market.

So, it shouldn’t be a surprise when The Economist predicts that China will become the world’s largest importer by 2014. Yet, many skeptics still doubt China’s potential to be a stronghold of the world economy.

Last month, I was on BBC World News to discuss the eurozone debt crisis and whether Chinese consumers can make a difference in the world economy.  My discussion partner Johathon Holslag from the Brussels Institute of Contemporary China Studies argued that Chinese consumption is still far below its production, and people should not be over optimistic about China rescuing the world economy. See the discussion video below:



Yes, official statistics show that consumption is only 34 percent of China’s GDP (compared to 70 percent in the U.S.). While the West’s economy is imbalanced with over-spending, the Chinese economy is imbalanced with under-consumption. However, this dynamic is changing. When I travel in China, I can clearly see the consumption boom in China’s large and small cities. Retail has been growing like a wildfire in recent years.



While it is not China’s role to save the world economy, it is in China’s best interest to balance its own economy toward domestic consumption. In so doing, China serves as a counter-balance of over-spending Western economies.  China may not want to bail out Italy or Greece, but China can provide opportunities for these troubled economies to get their own house in order.

As matter of fact, China has already helped. The Chinese middle class is creating enormous opportunities for Western companies selling into China. Europe’s exports to China have been growing steadily. Many Western brands are doing extremely well in China.

For example, Chinese consumers prefer to pay a premium price for furniture that is made in Italy. The UK-listed retailer Burberry has opened 60 stores in China and plans to have 100 stores in the near future. Western automakers, from Volkswagen to Bentley to General Motors, are enjoying huge success in China.

In the coming years, China’s economy may slow down a little, but will still grow at least at 7 or 8 percent. There are plenty of opportunities for Western companies to take advantage of China’s growing middle class. For companies that want to export to China, here are a few useful tips:

• Check out your local Chamber of Commerce or Export Assistance Center and familiarize yourselves with legal and regulatory issues in China. These facilities also have a lot of resources and services that can help you develop China market entry strategies and find the right business partners.
• Consider rebranding or repositioning your products in China. Remember, what works in your native country may not work in China. You really need to learn about Chinese culture, understand Chinese consumers, and adapt your products and services to the China market.
• For smaller brands, e-commerce is a great way to break into the China market without significant upfront cost. China’s ecommerce has been growing at 60 percent each year in recent years. More than 100 million Chinese shopped online last year. And China’s Internet users are expected to reach 750 million in 2015.

According to Credit Suisse, China will become the largest consumer market in the world by 2020. In the past, all the predictions about China have proved to be on the conservative side. With all its problems and potential crises, China somehow has managed to astonish the world again and again.

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Can EU solve its own debt crisis?

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EU can solve its own crisis, no need for China to step in

By TEE LIN SAY linsay@thestar.com.my

SERI KEMBANGAN: China does not need to help in the eurozone debt crisis because Europe has enough money to solve the problem on its own, said Standard Chartered head of research (east global research) Nicholas Kwan.



“It is now politics that is getting in the way,” he said at a discussion on “Building Financial Hubs Rethinking the World of Money” at the 3rd World Chinese Economic Forum.

Kwan said people must not be misled to think that with China stepping in, the eurozone problem could be solved. Europe's economy is US$14 trillion (RM42 trillion), while China's US$3.26 trillion (RM9.78 trillion) in foreign reserves is only a quarter of that figure.

“To ask China to help would be to give China some limelight. Even if China were to help, they cannot expect China to help in a big way. If Germany is not interested to help, then why should China?”

Kwan said China had spent too much money investing, particularly in US treasuries, which were yielding a very low interest rate.

“I don't think China can cut down anytime soon in US treasuries, but they can do some passive diversification. Moving forward, they can reduce the proportion of new investments in the treasuries,” he said.

Kwan said that one good thing about the financial crisis was that every economy had a share in it. In the case of China, it had invested too much US dollars to a single huge borrower. “As everyone is affected, everybody has an interest for the world to recover,” he said.

IHS senior director and Asia-Pacific chief economist Rajiv Biswas said that growth for Europe in the medium term would be constrained at less than 2% but, at the same time, would not be negative.

Rajix expected moderately positive growth in the United States, with gross domestic product (GDP) expanding at an average of 2% over the next decade.

He said that much of China was moving in the middle-income group. “A large share of GDP to consumption will increase as a result of this. Moving forward, domestic consumption in China will become a lot more important,” he said.

Kwan added that previously, if growth in the United States and Europe were to stop, other economies would follow suit. However, this has now changed, especially in Asia and China, as the emerging economies are now able to create markets among themselves.



“While Asia would still be affected by the slowdown in the West, now they can offset some of the growth that is missing,” he said.

Tembusu Partners Pte Ltd chairman Andy Lim said the four sectors he liked in China were healthcare, resources, clean technology and education.

“When we invest in China, we never ask them to show us their books. We know it is of no use. What we first do is to spend time getting to know these entrepreneurs in the first 12 months. Secondly, we talk to their peers.

“Then thirdly and very importantly, we need to know what the entrepreneur's relationship with the local authorities are. This makes a huge difference to the bottomline. Finally, we look at their books,” said Lim.

Maybank Investment Bank Bhd director and head of dealing, equities, Lok Eng Hong said Malaysia recently made it as China's top 10 investment destinations. The top few destinations were Hong Kong, the United States, South Korea and Australia.

Chinese President Hu delivers speech at G20 Summit

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In French resort city of Cannes, Chinese President Hu Jintao has delivered a speech at the G20 Summit. He pointed out that some major economies are experiencing an economic slowdown, and some countries are facing acute sovereign debt problems. Hu called for greater attention and more concerted efforts to solve these problems.

In his speech, Hu Jintao pointed out that the world economy is facing instability and uncertainty and encountering growing risks and challenges. As the premier forum for international economic cooperation, the G20 must work to address the key problems, boost market confidence, defuse risks and meet challenges, and promote global economic growth and financial stability.

Hu also made five specific proposals. First, ensuring growth while paying attention to balance. He called on different countries to introduce new and strong measures to ensure that the fiscal and monetary policies are fully implemented and that funding is channeled into the real economy to boost production and employment.

Second, he urged pursuit of a win-win outcome through cooperation. Hu said world leaders should strengthen unity and send a strong signal of cooperation to the world so as to boost the confidence of the international community in global economic recovery and development.

Third, improve governance in the course of reform. Hu proposed that the world should advance the reform of the international monetary system in a steady manner and oppose trade and investment protectionism in order to build a fair, equitable and non-discriminatory international trading system.

Hu’s fourth proposal was to strive for progress through innovation. He urged innovative thinking, a system and mode for advancing economic and social development and to bring into full play the basic role of the market in resources allocation while avoiding blind pursuit of profit and malicious competition.

Finally, he called on promoting common prosperity through development. He said that as a developing country, China stands ready to promote mutual assistance with other developing countries and will work with them to advance durable peace and common prosperity.

To further help the least developed countries in their development endeavor, China will, in the context of South-South cooperation, give zero-tariff treatment to 97 percent of tariffed items exported to China from the least developed countries that have diplomatic ties with China.

This year marks the tenth anniversary of China’s accession to the WTO. In the past decade, China’s economy has made significant advances and its contributions to world economic growth. On the other hand, China is confronted with quite a few challenges in its efforts to maintain steady and fast growth. Hu said he was convinced that, through hard work and with the understanding and support of the international community, China’s economy has bright prospects. And continued steady and fast economic growth in China will serve the interest of global economic growth.

Hu calls for joint efforts to promote growth, financial stability
Chinese President Hu Jintao on Thursday urged the world's major economies to work together to promote growth and financial stability. "It is imperative that we stand on a higher plane, transcend differences on specific issues, move beyond short-term considerations, and jointly seek ways to overcome the crisis and sustain development," Hu told the Group of 20 (G20) summit here. <Full Story>

China makes more contributions to world economic growth: Hu
Chinese President Hu Jintao said Thursday that his country is making more contributions to world economic growth as its economy has made strides in the past decade. <Full story>

China pledges more help to other developing countries
Chinese President Hu Jintao said Thursday that his country will provide more help to other developing countries. <Full story>

Chinese President Hu's speech at G20 Summit in Cannes

China's Hu Says Europe Can Solve Crisis On Its Own


(RTTNews) - Chinese President Hu Jintao said on Thursday that Europe has the absolute "wisdom and ability" to solve its debt problems. 

After meeting French President Nicolas Sarkozy at Cannes ahead of the G20 meeting, he said that recent reform package agreed upon by EU leaders during last week's summit demonstrated Europe's determination and will to end the crisis.

According to a statement from the Ministry of Foreign Affairs, Hu said that he expects the implementation of the reforms to solve all the difficulties currently facing the region, and help in its economic recovery.

by RTT Staff Writer

Related articles

• Eurozone seeks bailout funds from China Oct 29, 2011
• Q&A: Why China won't ride to Europe's rescue (cnn.com)
• China to Possibly Aid Europe and Invest in Financial Bailout (prweb.com)
• We can't cure Europe's malaise, says China (independent.co.uk) 

Towards a multi-polar international monetary system

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THINK ASIAN By ANDREW SHANG

IMF cannot create sufficient credit to help resolve growing financial crises 

MOST people think of the international monetary system as an architecturally designed system made in Bretton Woods at the end of the Second World War. This may be true for the international financial institutions like the International Monetary Fund or the World Bank, but the existing system is a messy legacy of rules, regulations and foreign exchange systems and institutions that facilitate trade and payments between countries.

Unlike a national monetary system, where there is one currency issued by the national central bank and national agencies responsible for financial stability, there is currently no global central bank, no global financial regulator and no global finance ministry. In short, we have global financial markets, but no global mechanism to deal with periodic crises, except through the (sporadic) consensus views of national policy-makers.

This was not a problem when the United States was the dominant power in the 1950s and 1960s. But this changed when the United States dropped the link to gold in 1971. From then on, the international monetary system was largely driven by decisions between the United States and Europe, which collectively owned the majority of the voting power in the IMF. Needless to say, the emerging markets had little say, since they were the major beneficiaries of aid and funding from the IMF and the World Bank.

In 1975, the Group of Six (G6) formally came into being, comprising the United States, UK, France, Germany, Japan, Italy, with Canada being added to form G7 the next year. Basically G7 leaders met regularly and decided most of the decisions for the international monetary system. The G7 accounted for roughly half of world GDP, but essentially ran the global financial system.

The grouping was only widened in 1997 when the heads of the United Nations, World Bank, IMF and WTO were invited to join the regular G7 meetings. In 1998, Russia was added to form G8, but with the outbreak of the Asian crisis, the need for more global representation let to the formation of G20 in 1999. The G20 collectively account for 80% of world GDP and two-thirds of the world population.



The reason why the international monetary system is not functioning smoothly is that decision-making lies in the hands of sovereign nations, not the global institutions. A unipolar system is alright as long as the dominant power is stable. This is not necessarily true in a multipolar system, because even obvious decisions cannot have consensus, because of different national interests.

If we keep on thinking about reforming the international monetary system in national terms, can we arrive at a more effective system in promoting global trade and payments and maintaining global financial stability?
For example, the debate over the role of the US dollar and the emergence of the renminbi is seen as threats to the status quo. This is understandable, but money and finance are not ends in themselves, but means to an end of global prosperity and stability.

The real question is what is the global financial system supposed to do, and what is the best way to achieve it?

In the immediate post-war period, there was a shortage of US dollars. Hence, the IMF was created to provide liquidity and foreign exchange reserves for the post-war reconstruction. The United States ran current account surpluses, held most of the world's gold reserves and everyone wanted dollars. Today, because of the Triffin Dilemma, the continuous US current account deficits gave rise to the Global Imbalance, thought to be the cause of the current crisis.

One theory goes something like this. East Asia went into crisis in the 1990s, built up large foreign exchange reserves and current account surpluses and these surplus savings reduced global interest rates and caused the advanced markets to lose monetary control. However, that is not the complete story. There is increasing awareness that the global shadow banking credit was pumping out leveraged liquidity that may have caused national monetary policies to lose effectiveness.

In other words, instead of shortage of global liquidity, we have too much liquidity sloshing around global financial markets, so much so that most central banks are debating how to prevent such liquidity creating asset bubbles, banking crises or over-appreciation of the exchange rate that haunted Japan and East Asia. You either deal with this through self-insurance, building up large exchange reserves, or you allow the IMF to become the provider of liquidity when you need it.

Most countries do not like IMF imposing stiff conditions and they discovered quickly that the IMF has no teeth when you are not a borrower.

This is the real dilemma of the current international monetary system. Do we seriously want a global institution to re-balance the global economy through carrots and sticks? If so, each nation would have to give up sovereign power to the IMF.

Currently, the IMF cannot fulfill the disciplinary role against the large shareholders nor can it create credit sufficiently to help resolve the growing financial crises. IMF resources are roughly US$400bil and it would have to be increased by a factor of five, before you have enough resources to deal with the European debt crisis. No single country nor group of countries can deal with such exponential growth of the global financial system, last measured as US$250 trillion in conventional financial assets and US$600 trillion in nominal value of derivatives.

In sum, there are structural issues on the global system to be thought through, before you consider the technical question whether surplus country currencies like the renminbi should be included into the SDR basket of currencies as the global reserve currency.

The reality is that no country will forever be in surplus, and sooner or later, deficit countries will have to borrow from the international pool of savings.

In the absence of a coherent global consensus on what to do, muddling through from crisis to crisis seems to be the likely way forward.

In short, don't expect the dollar dominated system to change a lot unless there is another systems crash.
● Andrew Sheng is president of the Fung Global Institute.

Euro fallout is bad news for world economy

Image via Wikipedia

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Global Trends By Martin Khor

The IMF-World Bank meetings last week confirmed the global economy has entered the ‘danger zone’ of a new downturn and possibly recession. This time it could be more serious and prolonged than the 2008-2009 recession. 

THE last two weeks have seen a clear downward shift in expectations on the global economy. The dominant view now is that the world has slipped into stagnation that may well become a recession.

Warnings that the economy had entered a “danger zone” generated the gloomy mood at the annual Washington gathering of the International Monetary Fund and World Bank, as well as the G20 finance ministers’ meeting.

Prominent economists are predicting the new crisis will be more serious and prolonged than the 2008-09 recession.

If the United States and its sub-prime mortgage mess was the immediate cause of the last recession, the epicentre this time is the European debt crisis.

The eurozone’s GNP grew by only 0.2% in the second quarter, and the European Commission predicts the rates will be 0.2% and 0.1% in the third and fourth quarters.

As the domino effect of contagion hit one European country after another (rather like how Asian countries were affected in 1998-99), European leaders have scrambled for a solution.

But none has worked so far.

In the Greek debt tragedy, the government has had to announce one painful austerity measure after another, but its economic condition continues to worsen and the social protests and strikes indicate the approach of the political breaking point.



The costs of austerity are already being seen (by the public at least) to outweigh the benefits.

Several British newspapers last week reported a set of big measures to tackle the European crisis was reportedly being worked on by unnamed European officials.

The centrepiece is a Greek debt default with creditors repaid only 50%, and two measures to cushion that shock – an injection of fresh capital into European banks that would suffer big losses from the default, and the boosting of the European bailout fund from 400-plus billion euros to almost two trillion euros to enable hundreds of billions of euros in new credit to countries like Italy and Spain to prevent them from becoming new debt-crisis economies.

However, this leaked news of a big Plan B was not confirmed by any policy maker, so its status or even existence is unknown.

Instead, the news out of Washington last week was of continued paralysis in European policy.

Greece this week is facing a new crunch time – waiting to see if the European institutions and IMF will approve the next bailout instalment of US$8 billion to service loans that are coming due, and what would happen if they do not. Would it be time then to declare a default?

Meanwhile, the US has its own budget deficit tug-of-war between the President and Congress and between Republicans and Democrats.

What this means is that Europe and the US are not able to make use of the policies (massive increases in government spending, interest rate cuts and pumping of money into the economy) that pulled them quickly out from the last recession.

Moreover, the coordination of policy actions among developed countries (and several developing countries as well, that also undertook fiscal stimulus policies) that fought the last recession no longer seems to exist, at least for now.

Thus the new global slowdown or recession is likely to last longer than the short 2008-09 recession.

The developing countries should thus prepare to face serious problems that will soon land on them.

We can expect a sharp fall in their exports as demand declines in the major economies.

Commodity prices are expected to climb down; they have already started to do so.

There may be a reversal of capital flows, as foreign funds return to their countries of origin.

The currencies of several developing countries are already declining and it may be the start of sharper falls.

It’s beginning to look like 2008 all over again.

But this time the developing countries are starting this downturn in a weaker state than in 2008, since they have not yet fully recovered from the last shock.

And as the downturn proceeds, there will be fewer cushions to blunt the effects or to enable a rapid recovery.

It is also clear that there is an absence of a global economic governance system, in which the developing countries can also participate in.

All countries are affected when the global economy goes into a tail spin.

Once again, the developing countries are not responsible for the new downturn, but they will have to absorb the ill effects.

Yet there is no forum in which they can put forward their views on how to lessen the effects of the crisis on them and what the developed countries should do.

As the new crisis unfolds, there will be renewed calls for reforms to the international financial and economic system.

This time there should be a more serious reform process, otherwise more crises can only be expected in the future.