The Big Question for China as Global Growth Slows

The Big Question for China as Global Growth Slows


Part 1

The investing world awoke from America’s debt-ceiling nightmare this week only to realize that global growth is hitting the brakes all around the planet—including China.

“China is not collapsing, [but] it’s notably slowing,” Harvard economist Kenneth Rogoff told NPR. “and it’s being affected by the rest of the world. All these things connect, so we’re seeing all the major regions of the world slow down. It’s not clear where growth is going to come from in the coming quarters.”

The connectedness of the major economies has been a given for some time, but as new global heavyweights—especially China—grow ever-bigger muscles to flex, it’s important to examine how they see their place in this more closely tethered together world.

For example, there are two interesting things to note about the news that China is negotiating with the Iranians to pay its oil bills by way of barter trade instead of in dollars, the currency of the global oil market. One is that Beijing seems in no mood to oppose the sanctions Washington has imposed on business with Iran. The other is that Beijing is eager to find a way around those sanctions to keep the flow of Iranian oil coming its way.

We are not talking about taxi fare: China’s oil imports from Iran have jumped 49 percent so far this year, according to The Financial Times. At this point Beijing may owe Tehran as much as $30 billion for oil already delivered, and the Chinese proposal is to pay this off with everything from toy exports to huge infrastructure projects (not excluding the oil sector).

We will have to see what cash-short Iranians think of this idea. But a larger question arises from China’s uncharacteristically bashful approach to sanctions declared by the U.S.: Just how much do the Chinese, or anyone else in Asia, want to throw their weight around now that they are gaining some? How much do Asians want to assume any kind of global leadership role?

Listen carefully and you get back ambivalence on all sides as to these questions. With debt approaching 90 percent of gross domestic product in the advanced countries as a whole, a noted study suggests, Europe, the U.S., and Japan are doomed to growth rates of 2 percent as “the new normal.”  Thank goodness for India and China, the line goes, the global locomotives pulling us along with growth of four or five times that rate annually.

The favored statistics in this train of thought were established several years ago by an economist named Angus Maddison,  and it is newly fashionable to cite them (not least among Asians). In 1820, China and India accounted for 49 percent of global GDP between them; this compared with Western Europe’s 23 percent share and a 1.8 percent share for the (very young) U.S. Only in the late–19th and 20th centuries did the tables turn. All we’re witnessing now is a return to the world as it was not so long ago.

On the other hand, many in the West fret about China’s immense ($1.5 trillion) holdings in U.S. government debt. The familiar question is political, and it was put well enough by Secretary of State Hillary Clinton some months ago: “How do you talk tough to your bankers?” she wanted to know.

And what about India, well on the way to becoming a (nuclear-armed) “superpower” in its own right, not least by way of its vast and influential diaspora of executives, bankers, financiers, and industrialists?

It’s time to put these questions into perspective. The Maddison figures are eye-opening for anyone in need of an historical corrective, but Asians have neither the ambition nor to capacity to assume a leadership role that would even remotely resemble the West’s predominance since the Industrial Revolution began a century and a half ago

As to the “will to power,” Asians are far advanced in adapting to diplomatic, trade, economic, linguistic, and legal standards developed by the advanced countries and now institutionalized in any number of international agencies. Where Western democratic norms are not established (as they are in India) or not even on the official docket (as in China), they are fated to prevail over time. Eastern traditions, fair enough, are destined to influence global norms over time, but they are highly unlikely ever to predominate what is fast becoming a global culture.

Ramachandra Guha , a prominent historian in Calcutta, said it very simply in a recent opinion piece concerning his own country: India is simply too chaotic and corrupt to enter the ring as a superpower. “Rectifying this,” Guha concluded, “is now India’s defining challenge.” One of Guha’s best-known lectures, it is worth adding, is entitled “Ten Reasons Why India Will Not and Must Not Become a Superpower.”

In other words, India is too busy at home to get caught up in questions of global leadership, and this truth applies in China in spades. From Beijing’s perspective, holding all those Treasury bills constitutes no kind of political thrill. That portfolio is simply another foreign-exchange asset that is starting to look shaky, and the Chinese must now worry about it (along with the rest of us).

This leads to the question of capabilities. Asians are reaching a crucial moment in their development, and it is likely to preoccupy them at least as much as their struggle toward modest prosperity has to date. Economists call it the “middle-income trap.” What it comes to is simply explained: A nation reaches a level of economic achievement and then goes flaccid, stagnating on a plateau from which it cannot climb any higher.

At the annual meeting of the Asian Development Bank a few months ago, Rajat Nag, the ADB’s managing director-general, challenged all thoughts of an “Asian century”  a voluminous report entitled Asia 2050: Realizing the Asian Century. The middle-income trap looms large for much of the region, he asserted, primarily due to vast income and geographic disparities, sharp competition for natural resources, environmental problems, and a range of social and political challenges that varies from country to country.

Think again about the nation now trying to barter through its oil bills with the Iranians. Is that a country ambitious to exercise its power and preferences in the way the West has long assumed to be its birthright? Or are the Chinese, more realistically, simply trying to keep the household books in order and stay warm and working in years to come?

We have a template for all that this column is suggesting about Asia’s reticence in a global context. Twenty years ago Japan had a chance to leap onto center stage but choose to remain in the wings, making itself the priority rather than global leadership. China is full of imaginative thinkers and ideas, but it is nothing if not a faithful follower of the Japanese model.

More on global growth:

Oil Prices Fall on Global Demand Panic
Brazilian Stocks Drop Third Day as Global Growth Concerns Mount
Gold at Record as Focus Shifts to Growth Worry