As the last decade slips away, it is easy to remember it economically as one that began with the dotcom boom and ended with the “Great Implosion” that left nations struggling with the most painful recession in the postwar period.
However, a deeper shift has been going on — the rise of China and other key economies grouped under the banner of “emerging.” Indeed, the growing political and economic muscle of China was highlighted by its recent intransigence at the Copenhagen climate talks, where it refused to be forced into any binding agreement to reduce its emissions.
While many economists have grown used to the idea that the US economy — still the world’s biggest — is the locomotive of the global economy, it is China, helped by a huge fiscal stimulus from Beijing last year, which is roaring ahead and helping to drag the rest of Asia and countries such as Germany, which exports a lot of machine tools to China, out of recession too.
PHOTO: REUTERS
China is one of the key reasons the world did not experience an even worse year than it actually did.
China is not alone; other Asian countries that are booming include Thailand, South Korea, Malaysia and Taiwan. In terms of sheer size and importance, key emerging economies now include Brazil, Russia and India. Together with China, these are known as the BRICs, a term coined by Jim O’Neill at Goldman Sachs early in the Noughties to denote their growing economic importance.
Their rising power stands in sharp contrast to struggling European economies such as Portugal, Ireland, Greece and Spain, known collectively, if unkindly, as the PIGS. (The list is often extended to include Italy, but PIIGS makes for an untidy acronym.)
The BRICs now account for 15 percent of the global economy, more than half the size of the US. As O’Neill points out, China has overtaken Germany to become the world’s third-biggest economy and is likely to move into second place, ahead of Japan, over the next year or so.
By 2030 it is likely to have eclipsed the US as the world’s top economy. Brazil will overtake France and the UK to become the world’s fifth-biggest economy by 2025 at the latest. Along with India and Russia, it has overtaken or is about to overtake Canada, a member of the G7 leading economies. No wonder the G20, which includes the BRICs, has been recognized as the primary forum for global economic discussions.
All the BRICs are set to grow strongly. Goldman also lays to rest the myth that Americans are the world’s “consumers of last resort,” forecasting that the BRICs, rather than simply being huge exporters, are likely to account for almost half of global consumption growth this year.
“We expect income per capita to continue to rise in the BRICs and spending power to shift from the richest countries towards a growing middle-income bloc, comprising emerging markets in general and the BRICs in particular,” it says.
While most of the impact of emerging economies is benign, however, that cannot be said for China.
Some economists say its emergence on to the world stage brought with it a key reason for the global economic meltdown between 2007 and last year. For similar reasons, its successful integration into the global economy will likely define the success of the new decade.
Holding down its exchange rate to make its exports cheaper meant China built up huge current account surpluses, which it reinvested in the government bonds of countries such as the US, helping to push down long-term interest rates and pump up the US economy, sucking in even more Chinese imports.
The flip side of its surpluses were current account deficits in many Western countries, in particular the UK and the US. Cheap Chinese goods kept Western shoppers buying and inflation low, letting central banks such as the US Federal Reserve and the Bank of England hold interest rates low, thus pumping up the prices of assets such as shares and housing.
This cheap, plentiful credit is blamed by many for ultimately leading to the peddling by banks of sub-prime mortgages and derivatives based on them, all of which collapsed with devastating results.
In his recently published book The Trouble with Markets, veteran economist Roger Bootle says that a rebalancing of the global economy, with countries such as the UK and the US reducing their current account deficits and China shrinking its surplus, will be key to a successful next decade. The alternative — protectionism and trade wars — could be disastrous.
“China is sitting on a time bomb,” he said. “Choosing to run a huge surplus means other countries have to run huge deficits.
Unless China acts to boost consumption and reduce its reliance on a large trade surplus, the West will achieve the latter for China by imposing protectionist measures and the Chinese will be left trying to achieve the former in an atmosphere of deep economic and political crisis.”
Chinese leaders have been browbeaten about the value of their currency for several years and in 2005 decided to let it rise in value. Results so far have been mixed at best.
Over the past 10 months, for example, it has fallen by 14 percent against the euro. Its trade-weighted value is now back to its 2002 level.
The value of the yuan will be arguably the most important thing to watch over the next decade.
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
TRANSFORMATION: Taiwan is now home to the largest Google hardware research and development center outside of the US, thanks to the nation’s economic policies President Tsai Ing-wen (蔡英文) yesterday attended an event marking the opening of Google’s second hardware research and development (R&D) office in Taiwan, which was held at New Taipei City’s Banciao District (板橋). This signals Taiwan’s transformation into the world’s largest Google hardware research and development center outside of the US, validating the nation’s economic policy in the past eight years, she said. The “five plus two” innovative industries policy, “six core strategic industries” initiative and infrastructure projects have grown the national industry and established resilient supply chains that withstood the COVID-19 pandemic, Tsai said. Taiwan has improved investment conditions of the domestic economy
Sales in the retail, and food and beverage sectors last month continued to rise, increasing 0.7 percent and 13.6 percent respectively from a year earlier, setting record highs for the month of March, the Ministry of Economic Affairs said yesterday. Sales in the wholesale sector also grew last month by 4.6 annually, mainly due to the business opportunities for emerging applications related to artificial intelligence (AI) and high-performance computing technologies, the ministry said in a report. The ministry forecast that retail, and food and beverage sales this month would retain their growth momentum as the former would benefit from Tomb Sweeping Day