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Overdrive
Ramping up its export juggernaut and taking full advantage of WTO entry, China’s economy in the first decade of the new millennium was “boom with no bust.” The information revolution fed more growth, as hundreds of millions of Chinese came online. But the Internet also became a forum for discontent, and the new leadership team of Hu Jintao and Wen Jiabao acknowledged growing environmental and social justice concerns with their call for a more harmonious society. Then, as the credit crisis in the US spread into a global economic crisis, China’s export-dependent growth appeared in jeopardy, and fears of a Chinese crash surfaced. But, as in 1998, China weathered the storm, and emerged in 2010 as the world’s largest exporter, largest foreign creditor, and fastest growing major economy, poised to soon surpass Japan and eventually eclipse the United States as the biggest economy on the planet. |
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US-China Symbiosis Fed the BoomPeriod: Overdrive (2000s)
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Click to expand What happened after 2001, and the big surprise, if I may so, is that the world economic growth was based on this extraordinary symbiotic relationship between China and the United States. The US was able to sustain high growth, with the exception of the post-September 11 recession, which was short and shallow recession. But, it was highly leveraged growth, and now, with the hindsight, we can say that this growth was fueled by very, very lax monetary policy, low interest rates, an almost irresponsible abundance of credit, a lot of debt, a highly leveraged economy, and cheap consumer goods provided by China, together with the financing for these imports of Made-in-China goods. So, China began accumulating huge trade surpluses, with the US even more than with the European Union. The trade surpluses became important with the European Union only later on, but with the US, almost immediately. At the same time, these surpluses were recycled through the reinvestment of currency reserves into US dollar-denominated securities, mainly Treasury bonds. So, this was rather extraordinary. You don’t find in world economic history a precedent of the most advanced and richest economy running a structural deficit and becoming a structural net importer of capital from an emerging country. This is a very, very strange situation. Britain, at the apex of its empire, was a net exporter of capital. Britain was a net investor in the rest of the world. So, it is a very, very exceptional situation, and this was certainly one of the recipes of the boom.
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