The new world order? Or not
Loading Map
Washington DC,
District of Columbia,
United States
Wednesday, June 4, 2008
We all know the US economy is in recession, and that the slowdown in the US has a flowon effect elsewhere around the globe. Though some countries are more immune from this downturn, having spread their exports around the globe, rather than focusing on the key US market.
Admittedly in the past, such a sneeze in the US would cause a cold in the rest of the world, so to speak. But now emerging economies such as China and India are more buffered against such downturns, largely due to their own internal growth.
This has led to some commentators claiming there is a new world order, with China and India the new superpowers. This, in my opinion, is crap.
China, through keeping its currency low against the really low US dollar, has provided incentives for exporting. It is still the cheap factory for the world. But now, in the last year, inflation has risen. Sure, China might be enjoying 10% a year growth, but with basic prices increasing by 50%, it erodes away much of the gains China is making.
Some people also wrongly assume that because China has grown around 10% per year for the last dozen or so years, that it will continue to grow at such a pace. But as anyone who has observed financial markets, past gains are never indications of future performance.
Another wrong assumption is that economic size means political power. Just because China is huge, or because India has so many people, doesn't translate into political power.
Also, people assume that because China is growing and other countries in North America and Europe aren't, that somehow we'll be overtaken by China. I'll tell you this: China has a long way to go. Sure it has some glitsy cities like Shanghai, and large manufacturing areas, but is still stuck in being a peasant economy, and it has millions and millions of people who live just above the poverty line. Culturally it has a long way to go, in the way it treats people, animals, etc (I know this sounds patronizing).
Another assumption is that Europe and the US will just sit and wait for China and India to overtake it. Their economies are more mature, and a lot more innovative. China, is poor for innovation, unless you count copying CDs and ideas and making crappy imitations 'innovative'. It's education system and political system encourages comformity.
The key things for this decade and beyond are energy/fuel and water. So while China, Russia, Brazil and India are all growing, they will face new limits on resources. Not just oil and petrol. If people in those countries believe they one day will enjoy the US lifestyle with house, car, swimming pool, there is a simple truth: this planet ain't big enough.
And for countries like China, where the stockmarket is overpriced (because interest rates are so low, every man and his dog has put money in the share market), there are so many emerging internal problems, particulary over the distribution of wealth, that in the future China might have to deal with a whole lot of middle class who have lost their savings on the sharemarket. Then you have a recipe for a revolution.
