Eyes On.... CHINA in the Global Economy
Student Text Page No. 1: "The Global Stage"

Evening in Shanghai... The young Brazilian architect has just spent a day sketching this city's lovely sites — the Jade Buddha Temple, the teahouse floating on a pond, the China pavilion erected for Expo 2010.... Now he stands gazing at skyscrapers across the Huangpu River. Among them: the new World Financial Center.

For global economists, Shanghai's World Financial Center is more than an example of award-winning architecture. It's a symbol of China's emergence as a powerful economy. As recently as 1979, it was one of the world's poorest. But in that year, China's leaders launched a series of long-range "modernization" plans. They began by expanding the nation's capacity to produce and export goods. And their plans succeeded. By the 1990s, China's gross domestic product (GDP) was growing at about 10 percent yearly.

Economic vigor. Seeing this growth, global investors poured billions of dollars into new factories and office buildings in China's expanding cities. China's global trade expanded. By 2008, the People's Republic of China (PRC) ranked second only to the USA in exports — and in the purchasing power of its GDP. China was now financially secure, too. Its national debt equaled just 16 percent of its GDP. And it owned the world's largest amount of foreign exchange (forex) reserves — including gold, U.S. dollars, and other currencies (euros, for example) that are most often used in world trade. Like other nations, China acquires such reserves as a hedge against a financial crisis.

Global crisis. In 2008, such a crisis did erupt. Several insurers and banks in the USA found that bundles of high-risk mortgage loans in which they had heavily invested were worthless. Some banks could not deal with this emergency, and the U.S. government bailed them out. But fearing sudden losses of their own, banks in other parts of the world started cutting back on loans. Credit dried up, businesses failed, millions lost jobs, trade plunged. China's export industry slumped, too. But the PRC set up a huge stimulus fund to stabilize its economy and to help people find new jobs. (So did the USA.)

New voice... China's economy revived quickly. But its leaders pondered: Couldn't that crisis have been prevented by the world's global financial system? Did the system itself need reform? That "system" is actually the set of rules by which nations conduct trade and settle debts under the guidance of such organizations as the International Monetary Fund. But the IMF was founded by Western nations decades ago, and it still reflected their priorities. Emerging "big" economies in other parts of the world — Brazil, Russia, India, South Africa, and China (the "G5") — had gained almost no voice in IMF decision-making.
        China's leaders decided to speak out. Addressing a world conference of government officials and business executives in January 2009, Premier Wen Jiabao urged them to establish a "sound and stable" world economic order. He challenged them to guard against financial risks, to "strengthen financial ... regulation," and to be sure that developing countries have a "greater say and representation" in the process. His words triggered a global dialogue.

Re-Focus! In some matters — air-traffic safety, for example — most nations accept the need for international regulation. But would they accept it in financial matters? At a series of meetings in 2009, leaders of the world's 20 major economies (the "G20") seemed to say "Yes." Their pledge? To build a new "Framework for Strong, Sustainable ... Growth" for all nations. In helping to shape that framework, China (the world's fastest-growing economy) and the USA (the biggest) might prove to be very smart "architects"! As China's Premier Wen once observed: "A fall in the pit, a gain in your wit...."