Home » Opinion » Chinese Views
We're in choppy economic waters
By Ni Tao |
August 17, 2011, Wednesday
|
Print Edition
Print Edition
EDITOR'S NOTE:
Will downgrading the US credit rating from AAA to AA+ affect the world's confidence in the superpower? Why is there a sharp contrast in the transatlantic responses to China's economic clout? Is the current financial crisis the death knell for laissez-faire free markets?
Answering such questions is the province of international relations expert Michael Cox, codirector of the London School of Economics (LSE)'s IDEAS Center.
Professor Cox spoke to Shanghai Daily reporter Ni Tao about these questions last Saturday, after he gave a speech at the Shanghai office of EBF International, an educational service provider. Shanghai Daily condensed his answers. This is the first of three articles.
Q: The gridlock and squabbling in the US Congress over the US debt ceiling has put the world economy at risk. Will the stalemate further erode US leadership in global finance?
A: It doesn't help and the domestic US political deadlock is a problem. But it's not just a question of domestic political deadlock but that the Republican Party has shifted dramatically to the right because of the Tea Party efforts. And they obviously regard President Obama as being a president not in the mainstream, as being socialist or even worse.
So there's a huge ideological divide as well as a political gridlock. And you add to them the economic crisis, you are bound to have problems. I don't think political gridlock is a fundamental problem that really generated the crisis now. That's a symptom of the problem, not the cause of it. The deeper cause is that the American economy is not growing much. And we have a crisis in Europe.
If you take US and the European Union economies together, you've got nearly half of the world economy. This all goes back not to the gridlock, but to the financial crisis in 2007. It was more than a mortgage crisis, mortgage is only one part of it. It was a debt crisis with roots in borrowing too much money. There are global imbalances. There are serious problems to do with very rapid public expenditures.
To put it simply, I think what caused the crisis is that we've been through 15 years of credit boom in the West and at the end of the day, as we know, anything that goes up will come down.
Standard & Poor's downgraded US ratings from AAAs to AA+ and it has never done so before to the US. Unprecedented. And what it's telling us is that the market is deeply worried. Will you lend money to someone who will not pay it back? And if you will, you'll have to increase the interest rate as the risk is getting higher.
So we are in very dangerous economic territories. But this all goes back to 2007, and before back to the great credit boom at the end of the Cold War, when we all thought free markets would win the world and gave credit to everybody.
Q: Europe seems to welcome Chinese investment and bailout of its public debts. American politicians worry China owns too much of their debts. Is Europe's receptiveness to China born partly of weakness and US misgivings about China a result of, say, relative strength?
A: There is weakness in Europe at the moment and the weakness is debt.
Clearly a number of European governments are very happy to court China, which has a lot of surplus money to buy some of their debts. And that's in China's interest too. European countries are the biggest foreign investors in China. The European market is huge for Chinese goods.
Hundreds of thousands of Chinese students study in Europe, particularly in the UK. Europe is very welcoming toward Chinese investment, Chinese loans and Chinese goods, in the same way the Chinese welcome Europe. So I don't think Europe really has a huge issue of weakness. Quite the opposite. All the discussion and the atmosphere in Europe are very positive toward China.
So you are asking a question essentially about the US. This is a mystery sometimes to me. To me it seems so obvious that China is always in the world economy. You have to be very odd not to see it. The reality is that without China, over the last three or four years, there is a great possibility we would have a much more dangerous economic situation in the West.
Chinese demand for more goods and raw materials has been the great boost in the world economy, for which we should say "Thank you, China." You talk to German car makers, particularly Mercedes whose luxury cars are being snapped up by super-rich Chinese, they will say "Thank you, China."
I'm a bit of an expert on French wine and I know China is buying 30 percent of the great Bordeaux wine, the best wine. So look, I mean, be real. China's demand for everybody's goods, high-quality materials is hugely important. Moreover, China's role in terms of reduction of poverty is critically important too.
This is why I find America a little bit of a mystery on this one. Bashing China is a political game. There may be legitimate criticisms of China, and China should be confident enough to take criticism.
But there are differences between just criticism and the fact that some in America find China a particular problem.
(To be continued.)
Will downgrading the US credit rating from AAA to AA+ affect the world's confidence in the superpower? Why is there a sharp contrast in the transatlantic responses to China's economic clout? Is the current financial crisis the death knell for laissez-faire free markets?
Answering such questions is the province of international relations expert Michael Cox, codirector of the London School of Economics (LSE)'s IDEAS Center.
Professor Cox spoke to Shanghai Daily reporter Ni Tao about these questions last Saturday, after he gave a speech at the Shanghai office of EBF International, an educational service provider. Shanghai Daily condensed his answers. This is the first of three articles.
Q: The gridlock and squabbling in the US Congress over the US debt ceiling has put the world economy at risk. Will the stalemate further erode US leadership in global finance?
A: It doesn't help and the domestic US political deadlock is a problem. But it's not just a question of domestic political deadlock but that the Republican Party has shifted dramatically to the right because of the Tea Party efforts. And they obviously regard President Obama as being a president not in the mainstream, as being socialist or even worse.
So there's a huge ideological divide as well as a political gridlock. And you add to them the economic crisis, you are bound to have problems. I don't think political gridlock is a fundamental problem that really generated the crisis now. That's a symptom of the problem, not the cause of it. The deeper cause is that the American economy is not growing much. And we have a crisis in Europe.
If you take US and the European Union economies together, you've got nearly half of the world economy. This all goes back not to the gridlock, but to the financial crisis in 2007. It was more than a mortgage crisis, mortgage is only one part of it. It was a debt crisis with roots in borrowing too much money. There are global imbalances. There are serious problems to do with very rapid public expenditures.
To put it simply, I think what caused the crisis is that we've been through 15 years of credit boom in the West and at the end of the day, as we know, anything that goes up will come down.
Standard & Poor's downgraded US ratings from AAAs to AA+ and it has never done so before to the US. Unprecedented. And what it's telling us is that the market is deeply worried. Will you lend money to someone who will not pay it back? And if you will, you'll have to increase the interest rate as the risk is getting higher.
So we are in very dangerous economic territories. But this all goes back to 2007, and before back to the great credit boom at the end of the Cold War, when we all thought free markets would win the world and gave credit to everybody.
Q: Europe seems to welcome Chinese investment and bailout of its public debts. American politicians worry China owns too much of their debts. Is Europe's receptiveness to China born partly of weakness and US misgivings about China a result of, say, relative strength?
A: There is weakness in Europe at the moment and the weakness is debt.
Clearly a number of European governments are very happy to court China, which has a lot of surplus money to buy some of their debts. And that's in China's interest too. European countries are the biggest foreign investors in China. The European market is huge for Chinese goods.
Hundreds of thousands of Chinese students study in Europe, particularly in the UK. Europe is very welcoming toward Chinese investment, Chinese loans and Chinese goods, in the same way the Chinese welcome Europe. So I don't think Europe really has a huge issue of weakness. Quite the opposite. All the discussion and the atmosphere in Europe are very positive toward China.
So you are asking a question essentially about the US. This is a mystery sometimes to me. To me it seems so obvious that China is always in the world economy. You have to be very odd not to see it. The reality is that without China, over the last three or four years, there is a great possibility we would have a much more dangerous economic situation in the West.
Chinese demand for more goods and raw materials has been the great boost in the world economy, for which we should say "Thank you, China." You talk to German car makers, particularly Mercedes whose luxury cars are being snapped up by super-rich Chinese, they will say "Thank you, China."
I'm a bit of an expert on French wine and I know China is buying 30 percent of the great Bordeaux wine, the best wine. So look, I mean, be real. China's demand for everybody's goods, high-quality materials is hugely important. Moreover, China's role in terms of reduction of poverty is critically important too.
This is why I find America a little bit of a mystery on this one. Bashing China is a political game. There may be legitimate criticisms of China, and China should be confident enough to take criticism.
But there are differences between just criticism and the fact that some in America find China a particular problem.
(To be continued.)
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
