The emergence of China as a global
superpower occurred much faster than anyone
imagined. China is the new giant on the block,
with enormous resources at its disposal. An
exporting powerhouse, China displaced the United
States last year as the largest exporter to the
European Union.
Chinese exports to the EU
jumped 21% year on year in 2006, reaching 255
billion euros (US$336 billion), versus an 8%
year-on-year increase in US exports, which totaled
176 billion euros. Chinese exports continue to
expand aggressively, driving up
shipping prices around the
world. The Dry Freight Index on the Baltic
Exchange was up 41% year-to-date, with no end in
sight. The earnings from trade are becoming a
headache for the Chinese central bank.
International reserves recently passed the $1.3
trillion mark. China's current-account surplus is
expected to reach $400 billion this year -
representing 12.8% of gross domestic product
(GDP). The heady expansion of the Chinese economy
is putting it in a leadership position, allowing
it to move to center stage in the global arena.
China is having a positive effect on the
global economy, which in 2006 grew 5.4% year on
year. Developed countries expanded 3.1% year on
year, while non-Japan Asia grew more than twice as
much - expanding 7.9%. China's GDP growth was
10.7% year on year and India expanded 9.2%. The
Chinese effect on the developing world was
remarkable. The former member states of the Soviet
Union surged 7.7% year on year, sub-Sahara Africa
expanded 5.7% and Latin America grew 5.5%.
The commodity boom is changing the
economic landscape across the developing world.
The volume of global trade rose 9.2% year on year
in 2006, and emerging-market countries increased
their international reserves by $738 billion. This
explains the emerging-market boom. This is not a
fad or a reflection of global liquidity. The $256
billion of net private inflows into the emerging
markets reflect the credit strength of these
economies and their ability to grow.
At
the same time, the United States is withering away
under the weight of its enormous debt load and
various asset bubbles. The US economy grew an
anemic 1.3% year on year during the first quarter
of 2007. Unemployment is picking up and the dollar
is collapsing. The unemployment rate in the US
increased to 4.5% in April. Indeed, April saw the
weakest pace of job creation in two years. The
impact of the housing slowdown is starting to
appear in the employment data. The tightening of
lending standards is reducing the availability of
mortgages, forcing further slowdowns in the
construction sector.
The economic slowdown
in the US is accompanied by serious concerns about
the health of the financial sector. With more than
$700 trillion in derivative contracts floating in
the marketplace, and much of it tied to the
mortgage market, an accident is definitely on the
way. Some analysts attribute the steady rise in
gold prices to concerns about a looming crisis in
the US financial sector.
The changes in
the global economic order are also realigning the
planet's geopolitical structure. China is starting
to set the tempo in the international arena. It
has the indisputable lead in Africa, committing
$20 billion over the course of the next three
years to develop infrastructure and trade. It is
shepherding the reconciliation between North and
South Korea, easing tensions on its eastern flank.
The growing irrelevance of the
multilateral institutions, such as the World Bank,
International Monetary Fund and World Trade
Organization, is providing a greater opportunity
for China to exert a more prominent role without
appearing to be a usurper of power. Fortunately,
the changes are for the better, at least for most
emerging-market countries. China's insatiable
appetite for commodities is breathing new life
across the developing world.
Last of all,
China is providing a bonanza of cheap manufactured
goods to developing nations - fueling an
unprecedented consumer frenzy. The Chinese
behemoth is rapidly displacing the US as the
world's main source of capital, manufacturing and
commodity demand, leading to a decoupling of the
waning North American giant from the rest of the
marketplace.
(Copyright 2007 Walter T
Molano, The Emerging Market Adviser.)
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