Thursday, September 17, 2009

Is Global Power Still Shifting to the East?

Since the collapse of Lehman Brothers one year ago, the idea that the centre of global power is shifting eastwards has gained currency. Central to this story has been the rise of China, a result both its decades of spectacular economic growth, and a sense that the People’s Republic has weathered the current crisis better than most.

But over recent weeks, the mood in developed economies has improved. The latest figures indicate that the days of recession may be fading away. Tim Geithner has suggested it might be time to start removing some of the governments’ financial props for private enterprises. Stock markets have risen, an indication of improved sentiment, or maybe even another asset bubble. And rather than fundamental reforms to capitalist economies, at best there has been some tinkering around the edges. We might be forgiven for dismissing the crisis of the last couple of years as no more than a blip, and the latest developments as an indication of a return to the previous normality.

Does this renewed optimism suggest talk of economic power shifting east was premature? Probably not. In China’s case at least, the last year or so has seen important changes in the reality and perceptions of its role in the global economy, which have implications for the global balance of power.

Firstly, China’s own confidence of its international role relative to others has received a boost. This has resulted partly from the entreaties of western commentators and politicians for China to do something to help save the global economy, even if realistically these have overstated China’s influence. The forthcoming 60th anniversary of the establishment of the People’s Republic of China will be a good opportunity to gauge exactly how the current leadership sees China’s global role.

Secondly, much of the angst over shifts in global economic power was fed by a sense of despair, or even decline, in developed economies. Even if this despair is passing, one effect of the crisis has been to erode the moral authority of the US and others to advise China on its development path.

Thirdly, the crisis has highlighted to the leadership in Beijing the extent of China’s interdependence with the global economy, and particularly its previous dependence on exports to the US and Europe. However the crisis has reinforced the desire in China to boost its domestic drivers of growth, although global economic forces also constrain Beijing’s room for manoeuvre. Premier Wen Jiabao’s speech to last week’s World Economic Forum meeting in northeast China outlined the extent to which the Chinese stimulus package was focused on expanding domestic demand, as well as meeting wider political objectives of improving standards of living across the country.

Crucially too, China’s economy appears to have pulled through the crisis in reasonable shape. The shock to its economy was real, and there remains plenty of uncertainty over the sustainability of this year’s stimulus-induced growth. But the historical precedents, such as the recovery from the Asian Financial Crisis of the late 1990s, point Beijing’s way.

Where does this leave the question of shifts in global power? It suggests that the continued emergence of a stronger and more confident China has been hastened by the crisis, and that the evolving relationship between China and the global economy will increasingly be informed by China’s interests.

However, it is also important to recall that shifts in global power could take a number of different forms. While some emphasize the rise of China, others (though not the Chinese government) preserve a role for the still-dominant US by talking up a “G2” which would see Washington and Beijing join hands to lead the world. There has also been talk about a broader re-emergence of East Asia as the centre of the world economy, or even an Asian century (brushing under the carpet the diversity and complexities in Asia, however you define it).

Other emerging and developed economies will also compete for influence as shifts in global economic and political power play out over the coming years. This helps highlight that there is nothing inevitable about changing patterns of power: there is no “when China rules the world”. But current evidence suggests the drift eastwards will be with us for a while yet.

Opinion Asia by Tim Summers. Tim Summers, a former British diplomat is a researcher at the Centre for East Asian Studies, The Chinese University of Hong Kong.

1 comment:

  1. The current stock market rally in the U.S. is a sucker's rally. The market distortions resulting from the 12 year bubble (1995-2007) have yet to self-correct. Housing prices have yet to return to their historic norms, as measured by the Shiller index. Foreclosures are still increasing and commercial real estate still remains way over-valued.

    Much of the current "improvements" in the economy are due to government-induced keynesian stimulus. It does not represent creation of real value.

    I do not expect any recovery until early next year, then a very slow recovery. The U.S. will have sub-normal growth for the next 5 years as things still shake out.

    Do realize there is that huge collection of ship moored just off of Singapore. This indicates the true state of the global recovery.

    The talking head you see on our news channels are full of it, as they always have been. It was delusion that created our bubbles in the first place and it is delusion to believe that we could recover so quickly from a bubble that, in terms of indebtedness, was larger per capta than Japan's bubble of the 80's.