How a Chinese market will change the world

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The Independent Online
EVER QUICK with the tren chant one-liner, Charles DeGaulle once remarked that 'when China awakens, the world will tremble'. Now, after intermittent decades of deep sleep, the Asian giant is awakening - and the world is indeed trembling.

This is very apparent in the foreign and trade ministries of the Group of Seven industrialised nations. Although not physically present at the world's negotiating tables, China's impact is felt as its economic status escalates. The evidence mounts, in the economics departments of the OECD and the World Bank, that China is at the centre of a dynamic 'fourth growth pole', which includes Hong Kong and Taiwan. Increasingly, countries in this Chinese Economic Area function as a single player poised for international stardom by 2002 as a rival to the US economy.

The implications of the emergence of this fourth growth pole are enormous. The Chinese economic zone is running countercyclically to the tripolar economies of Europe, Japan and North America. Growth has averaged in excess of 7 to 8 per cent since 1962, and this trend is expected to continue or even accelerate over the next decade.

The GDP of this China zone, valued at national prices, is expected to surpass that of the United Kingdom, Italy and France by 2002 and to be three or four times the size of India and the former Soviet Union. Judged by a different measure - the United Nations' standard international price comparison - the Chinese economic area could overtake Germany and Japan by the end of the next decade.

China's export record explains much of its remarkable growth. Since 1980, it has been exporting at twice the rate of growth of world trade in a dramatic rebound from the suppression of the Maoist era. Booming foreign investment supported this trend, fuelled in large part by Hong Kong entrepreneurs who began shifting manufacturing production in the mid-1980s. Others in search of cheap, skilled labour followed, from Taiwan, South Korea, Thailand and Malaysia. New projections by the World Bank indicate that over the next three years, imports into this Chinese zone will grow by dollars 100bn - more, in absolute terms, than Japan.

Although few in the G-7 world like to think of China as a powerful economic locomotive, the record on this is now clear. The Chinese zone is raising the growth potential of its key trading partners. Malaysia, now widely regarded as a newly industrialised country (NIC), currently exports 6.3 per cent of its GDP to China; Korea and other Asean countries export 3 per cent, Chile 1.8 per cent and Japan 1.3 per cent. Ten other countries export more than 1 per cent of GDP into the Chinese zone.

Of course it helps that China is uniqely placed within Asia, the world's most populous and fastest- growing economic area. However, Asian countries have been the first to feel China's bite as jobs in higher- wage Taiwan, Korea and Hong Kong are increasingly at risk. Since shifting from exports of primary products in the 1980s, China has begun producing goods long sourced in Asia, notably tennis shoes, toys and clothing. There have been ripples throughout Asia as Thailand and Malaysia most notably, have adjusted by shifting more of their production into heavy industry and high technology.

EVENTUALLY the ripples will widen to the industrialised world. As yet, there is little evidence that Western jobs have been put at risk. But over time, if these growth rates continue and China's economic power strengthens even more, industrialised countries also face significant adjustments. China's move into other labour-intensive industries where it has comparative advantage - furniture, plastics, basic tools, electrical equipment - will accelerate the shift in the developed world to cutting-edge technologies and higher value-added jobs. It could be a painful shift.

There is little doubt over China's growing economic might but much conjecture over its actual state of development judged by per capita income. GDP projections for the Chinese zone, based on per capita income estimates using measures of purchasing power, vary widely. The World Bank put per capita income at dollars 1,950 in 1990, some academics found it even lower at dollars 1,300, while another highly publicised study co- authored by Lawrence Summers, now undersecretary-international of the US Treasury, placed it as high as dollars 2,200. Under the Summers- Heston methodology, China's GDP would overtake the US in 2002 by about 10 per cent. This is a highly controversial conclusion.

What is safer to predict is that China will be in an aggressive state of development for some time to come and thus will be both a source of global growth and the cause of dramatic adjustment.

It is quite likely that, over the next decade, the world economy will have to respond to the emergence of the China zone much as it did to that of Japan several decades earlier. This argues strongly for including China in the club of nations rather than continuing to isolate it from important negotiating tables.

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