Fri, Sep 09, 2011 page8

• Is China holding back global recovery?

  • By Lai I-chung 賴怡忠
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  In the face of the US credit rating downgrade, the European sovereign debt crisis and the long-term Japanese economic downturn, the international community suspects that we are walking into a second recession.

  At the moment, many people believe that this would further highlight the importance of China. Indeed, China has become more important, but not as a savior. Rather, it might be the source of crisis. Even World Bank President Robert Zoellick said as much in his letter to the Wall Street Journal on Sept. 1.

  EXPORT-RELIANT

  China’s economic model is to earn foreign currency from exporting goods produced on license. As consumer demand in China’s primary export markets — Europe, the US and Japan — shrinks, the driving force behind Chinese economic growth slows down.

  To make up the shortfall, China needed to expand domestic demand, but was frustrated in these efforts because of bureaucratic corruption — the high-speed train crash in July serving as a case in point.

  There has also been severe inflationary pressure, exacerbated by Beijing’s insistence on its export-oriented policy of undervaluing the yuan. Beijing has no intention of dropping this policy, and this has suppressed domestic demand and accelerated inflationary pressure, widening income disparities and worsening other social problems.

  Zoellick believes that China has to push for structural reforms, including political reform, in order to handle its economic transformation. However, if its reforms fail, not only China but the whole world will suffer. A second recession is not impossible if Beijing does not change its export-reliant model.

  Zoellick’s remarks are not new. They echo global concerns about Chinese economic development over the past two or three years.

  Since 2009, the European, US, Japanese and South Korean chambers of commerce have repeatedly expressed concern about the problem, and the former two listed China as an unfriendly business area in their annual reports, accusing it of dumping overseas while closing its own market.

  The international community has been most critical of China’s “non-trade barriers.” Today, the anti-dumping war between China, the EU and the US is heating up and the issue of an undervalued yuan has also become a key problem in Sino-US relations.

  The prevailing trends for Taiwanese businesspeople manufacturing in China, then, would appear to be an appreciation of the yuan, inflation and labor cost hikes, all of which reduce the advantage of low labor costs.

  As the export market shrinks, a Chinese system that lacks transparency would give its domestic market to local businesses first. This is the reality of dealing with China, so these businessmen must proceed with caution.

  WORLD ALIGNMENT

  These difficulties suggest that Taiwan should align its Chinese business policy with the rest of the world’s and focus on resolving the structural obstacles.

  In other words, “walking toward China through the world” rather than President Ma Ying-jeou’s (馬英九) constant China-centric dream of strengthening cross-strait economic integration. Such integration might expose Taiwan to the greater risks of association with China and force Taiwan to become embroiled in China’s economic conflicts with other countries.

  Lai I-chung is an executive committee member of Taiwan Thinktank.

  Translated by Eddy Chang
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