"The SOCIALIST system will eventually replace the CAPITALIST system; this is an objective law independent of human will. No matter how hard the reactionaries try to prevent the advance of the wheel of history, sooner or later revolution will take place and will surely triumph."
- excerpt from Mao Zedong's speech at the joint meeting of the Supreme Soviet of the USSR in celebration of the 40th anniversary of the Bolshevik Revolution (November 6th, 1957).
[In order to achieve brevity in this series and focus primarily on the factors that I believe should inspire Africa's policies and handling of economic issues regarding China, I will skip the details of the fundamental ideologies and flash-points in the history of the People's Republic of China (PRC), but will make references to what I consider relevant to the current discourse]
In the first part of this series, I laid a general background describing the 'special' connection between the United States and China. The excerpt above, adapted from Chairman Mao's speech in the former Soviet Union, is very informative for our current economic epoch. It provides a necessary perspective into the unfolding relationship between the US, representing much of the developed world and China and how the dealings between the world's bastion of free markets and the increasingly prosperous socialists will form the framework which Africa might be forced to operate within over the next couple of decades.
As has been echoed from the political standpoint by the former US Secretary of State, Henry Kissinger and the private sector angle by Martin Sorrell, CEO of WPP Group, China is only a ‘returning’ world power. This is a view held by many. My opinion is that China is returning as a more open society compared to her pre-20th century status as a relatively isolated, self-sufficient economy. I believe that China’s isolation could be attributed to the fact that the characteristically high, internal economic activities could sustain the nation and maintaining little or no contact with the West (mainly the British) assuaged her fears about imperialism which was sweeping across the entire world during the era. The infamous Opium Wars represented the first, concerted steps in the introduction of the Chinese economy to the world (it goes the other way too).
With economic strength comes higher negotiating power and prestige in the arena of international politics. Needless to say, China currently possesses such capacity and resources in great proportions. However, China had previously assumed a back-seat position as the rest of the moved on, mainly due to the tightly-controlled economy and late catch-up to the digital directions of the world. China has managed her finances well over the decades, growing her economy from single to double digit growth rates by the mid-2000s as the graphical illustration below shows*.
While the rest of the world, especially the capitalist pack, throttled on, inventing ever-more complex financial debt instruments and subjecting their economies to series of booms and bursts, China for a large part of the two decades maintained a relatively silent, closed economy (only joining the World Trade Organization in 2001) and relying heavily on her power of exports. China's fixed exchange rate has helped her maintain competition in the international market for her cheap exports. By this I mean that China's exchange rate (to the US Dollar) is not left to float; with China's large pool of foreign exchange reserves, efforts are continually made to sell the yuan (or officially the Renminbi) while racking up greenbacks. Of course, the higher the supply of yuan in the Chinese economy, the lower the value and the less amount of goods a Chinese can purchase (and managing inflation becomes a challenge as a result).
I consider it pertinent to state that China has attained her current status without adopting the innovation ideologies of capitalism and will, if she ever had any doubts before the credit crunch of 2007-2008 (till date), stick to her reformed socialism (with Chinese characteristics) principles. One could argue against Chairman Mao's statement, arming himself with the reality of the collapse of the Soviet Union in 1991, highlighting that we are inherently limited in our grasp of what the future holds. On the other hand, the same debater would be defenceless in the face of the current phase of the evolution of the global financial system. Yes, I consider it an evolution because since the Great Depression, the global financial order has witnessed various boom and burst cycles typified by credit expansion, miscalculation of risk, relaxation of lending rules and credit rating agencies, bubble growth, more credit expansion, bubble burst, higher regulation and the cycle repeats itself.
It is also important to note that China's current position in the global marketplace was engendered to a large degree by the United States' consumer-driven economy. As the US and the rest of the developed world maintained the running of the capitalist engine, China grew and expanded with the free-market ideology as the main catalyst (even though de-localized). The capitalist system (with all its benefits and flaws) has abetted and proven 'successful' the socialist system (with Chinese characteristics).
to be continued...
* Source: TradingEconomics.com, The World Bank Group.