China’s Recent Past
China is the most populous country in the world, and the second largest in land mass. It is home to one of the world’s oldest civilizations and has been a global presence for two millennia. A single-party socialist state, the country became relevant in the late 1970s when President Xiaoping ushered in economic reforms that spurred major industry growth. These reforms contributed to an average growth rate of 8 percent per year since – an amazing feat for a country that used to be one of the world’s poorest.
Presently China is a hub for manufacturing and is the largest manufacturing economy in the world, as well as the largest exporter of goods. China’s economy is heavily staked in the public sector and not the private sector, mostly due to historical and political factors. In 2010, China became the only Asian nation to have a GDP above the $10 trillion mark – matched only by the United States and the European Union.
Of course there’s more to China than just its strong economy, with its authoritarianism and censorship a major elements of how the country is perceived globally.
In 1989, the Communist Party was dealt a severe blow when student-led protests erupted at Tiananmen Square. The military and government lost face and average Chinese complained openly about the Party. Today, the Communist Party has reestablished their popularity through overwhelming economic growth and reviving Chinese nationalism. By leveraging the market and stoking nationalist ideas, the government has simply adapted its methods for modern times.
Is Economic Growth Finally Stalling?
At the beginning of 2016, Chinese stocks plunged by 7 percent and trading was halted for the day after just 29 minutes. This circuit breaker system was created last year to reduce volatility in China’s markets, but had not been used until this year. Because the country and its economy are considered a reliable source of growth, the world is worried about the implications of these dips in the market. However, The effect on the rest of the world is moderate, as there is not much foreign investment in China to cause a major problem. In fact, foreign investors own only 2 percent of shares.
International investors are worried about the health of China’s economy and if its currency can stand up to more devaluation. China claims its growth is still at 6.8 percent in the last quarter of 2015, but many global investors are quick to point out that 6.8 is the lowest rate since 2009. Because China is a relatively closed society and market, some Western financial bodies believe these growth rates could be inflated. Furthermore, when China devalues its currency, it may be helpful to exporters but it also causes companies and individuals to move their money out of the country.
George Soros, a U.S. billionaire investor, warned that there could be another financial crisis in 2016 that rivals the depression of 2008. He claims that China has a severe adjustment problem, which will amount to a crisis and create challenges that led to the conditions faced by the world in 2008. Many critics point to President Xi Jinping’s mismanagement of the economy and its currency. In January he created two new sets of rules for the Chinese stock market and devalued the currency, both resulting in problems for the country.
China – A Quiet but Influential Player in the Middle East
President Xi Jinping has also been in the news recently for his major investments in the Middle East. While visiting last week, he announced that China will invest $79 billion in the region. It is clear China is aiming to boost its economic ties and power in the oil-rich area. Although President Xi has not been a prominent player in the Middle East in the past, investments in the region are crucial to his new foreign policy initiative called “One Belt One Road.” Many say this new effort is a revival of the ancient Silk Road trade routes.
The timing of Mr. Xi’s visit was risky because of increased tensions between Iran and Saudi Arabia. However, the lifting of sanctions on Iran allowed the Chinese president to visit both countries without upsetting Western powers. This all circles back to China’s constant goal of presenting itself as a “non-interfering champion of peace.” Senior-level ministers in the Chinese government claim that economic development in the Middle East is the way out of conflict in the region, and hope that increased investment will cause the conflict to dissipate.
Ultimately, China will have a hard time keeping out of the conflict. In Syria, it claims to be assisting both sides, but by vetoing UN resolutions for intervention, it moves slightly in favor of the Syrian government. Also, there are an increasing number of Chinese citizens living in the Middle East and one man was executed by the Islamic State in November.
It is also important to note that while China has not used its military to intervene in foreign conflicts, its potential for military engagement should not be ignored. While their military is not nearly as technologically advanced as the US, particularly in regards to its naval capabilities, it has almost double the military personnel as the US and is investing heavily in drone technology and modernization – which could enable a shift in tactics with little advance notice.
China – The Voice of Reason with North Korea?
It seems changes are on the horizon for many of China’s relationships. In the past, North Korea and China enjoyed close relations, but that has decreased in the last few years. China is becoming increasingly concerned with North Korea’s nuclear weapons program and its meddling with Chinese fishing boats. Individual Chinese opinions towards North Korea seem to be disappearing as well, with only 20% of Chinese people viewing North Korean influence as positive.
Recently the United States has threatened increased sanctions against North Korea that China may not like. The U.S. is pushing these sanctions in an effort to gain China’s support in curbing North Korea’s nuclear ambitions. American diplomats say China should use its economic leverage over North Korea to try and put an end to its growing nuclear weapons program.
As a global leader, these changes in China will have a wide reach. Although its growth may be slowing, China is still a leading economy and going stagnant is not the same as suffering a depression. New efforts in the Middle East and potential assistance in managing North Korea’s nuclear goals could have consequences for the United States – both positive and negative.
To keep up to date on what is going on in China, check out the Clements Risk Assessment China Country Guide.
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