Commutalist :The Communist-Capitalist

The reasons why I think the Chinese empire will rule the world ousting American hegemony. The whole world has already accepted that China is emerging as one of the next world´s power. After 60 years with the communist in the power the last week celebration was “an extravaganza showing off a rapidly growing arsenal of sophisticated made-in-China weaponry. It was also intended to show the Communist Party’s own strength at a time of global economic crisis” The Economist said in (Art.1).

But this hegemony not only affects the military field, in the economic context is clear that China is no longer an underdog power “Today, a socialist China geared to modernization, the world and the future has stood rock-firm in the east of the world,” Mr. Hu said in a brief speech (Art. 2).

Right now China is projected to overtake Japan soon and have the second largest economy in the world. (Art.3) As it is show in the IMF graph, China´s GDP evolution over the past three decades has been spectacular.

One of the key to this tremendous growth has been its currency; the Yuan is today a possible successor to the dollar´s hegemony. According to recent reports, China is trying to internationalize its currency with a series of maneuvers to ensure that the Yuan will become the main currency in the world. Some analysts believe that in 2012 $2 trillion of trade flows can be resolved by the “Redback”. An example of this appears in the Times article “China is using a $50 billion bond deal with the International Monetary Fund (IMF) to expand the global reach and influence of its currency in what analysts say could be a potentially huge development in Beijing’s campaign to internationalize the “redback” (Art.4).

But the problem to the Yuan’s development is that Chinese government policy restricts the Yuan from trading freely and being fully convertible. But this step must be taken with caution because, as Alan Greenspan said in a letter to the US Senate “…step to allow a currency to float freely, could cause an outflow of deposits from Chinese banks, destabilizing the system and would present a risk to the global economic outlook," he warned.

To finish this new entry in Financial Raindrops, there are a number of difficult structural problems in the Chinese economy that will need to be dealt with in order for growth to be sustainable and for China to achieve its potential. Starting by reforms in the banking and state companies system will have to be combined with measures to tackle unemployment or poverty that still remains widespread.

China also needs to decrease its exposure to dollar assets by shifting their reserves from long-term to shorter term in U.S. Bonds. That will give them more flexibility and be more dependent on themselves. As we can see in the table below, China is the United States’ largest creditor by far.

But what really impresses me is the growth that China has experienced over the last decade. It was unthinkable that a Communist government could achieve and maintain power for 60 years supported by an almost dictatorial-government control, a large population with the lowest labor in the world and an army to prove their greatness.

Sources:

(Art.1) http://www.economist.com/opinion/displaystory.cfm?story_id=14569466

(Art.2) http://www.nytimes.com/2009/10/02/world/asia/02china.html?_r=1

(Art.3) http://www.nytimes.com/2009/10/02/business/economy/02yen.html

(Art.4) http://business.timesonline.co.uk/tol/business/economics/article6822804.ece

www.businessweek.com/globalbiz/content/may2009/gb20090522_665312.htm

www.nuwireinvestor.com/articles/what-happens-if-the-yuan-replaces-the-dollar-as-the-53636.aspx

www.washingtonpost.com/wpdyn/content/article/2009/03/13/AR2009031300703.html?hpid=topnews

and daily press.