Delay in China’s market reform is causing pain for the global economy
Rob Edens says without an honest effort to allow market forces to work in its domestic economy, Beijing’s bid to rebalance itself – such as by trying to achieve market economy status – simply worsens problems
Although China’s meteoric rise through the global economic system, largely fuelled by manufacturing, has been nothing short of a modern wonder, Beijing currently finds itself in a delicate position at the tip of an arc where reliance upon traditional means of production can no longer guarantee future growth. Consequently, bigwigs are engaged in a painful struggle to steer the economy away from its reliance upon manufacturing by counterbalancing it with services and consumption.
As part of this rebalance, China is pursuing a multi-tiered strategy. On one hand, Beijing is attempting to address the structural imbalances that led to a bubble effect within several of its manufacturing industries. On the other, it is actively seeking a seat at the table where global norms and mechanisms are decided: achieving reserve status for the renminbi, for example. By lobbying to secure the all-important market economy status, China hopes to do just that.
Will this strategy succeed or backfire spectacularly?
However, will this strategy succeed or backfire spectacularly?
Witness the theatrics accompanying Beijing’s application for market economy status. If granted, it would reduce China’s barriers to trade and potentially force open the floodgates to Chinese exports. The US has been solidly opposed to granting the status from day one, but the issue has been more polarised in Europe. Certain northern European nations have been openly courting Chinese investment whereas nations in the south, especially Italy, have proven more reticent. However, the fact that China’s increased presence in Europe will challenge the local labour markets is something that north and south agree upon.
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Current issues go back to Beijing’s desire to postpone its economic rebalance away from manufacturing. In the wake of the 2008 global recession, the Chinese state embarked on a programme of easy loans and government subsidies as part of its US$586 billion stimulus. The programme churned out double-digit growth before turning into a surplus-creating bubble that subsequently caused painful problems for the global economy. Take steel, for example. Exports of the resulting surplus have caused global steel prices to plunge, forcing a number of plants in Europe to cease operations. And steel is by no means an isolated example: experts predict that Chinese dumping of goods resulting from overcapacity and enabled by awarding it market economy status could lead to European job cuts in the millions, a massive number for a continent battling with record levels of unemployment.