Issue link: https://read.dmtmag.com/i/65232
China's Engagement with the World PRESIDENT'S POST I recently attended a conference on China and its engagement with the world. It was organized by the Center for Hemispheric Policy, a Univer- sity of Miami think tank. Since China's infl uence and importance in our line of business continue to increase at a fast pace, I would like to refl ect and share my thoughts that may be useful, especially if your company trades with China. China's infl uence in the world economy was insignifi cant until the mid-1980s. At that time, eco- nomic reforms initiated at the end of the 1970s had begun to generate signifi cant and steady growth in investment, manufacturing, consumption and standard of living. Close to 300 million people have been liſt ed out of poverty in the last 30 years. To put it in perspective, that is an average of 10 million people, equivalent to the size of New York City, every year. Since the wide ranging reforms of the 1980s and beyond, many scholars assert that China today can be defi ned as the leading example of State Capitalism. During the past 25 years, China's economy has grown at an average rate of 10% per year, the high- est growth rate in the world. China's total trade last year reached $3 trillion, making China the world's second largest trading nation aſt er the United States. Such high growth is necessary for China to create approximately 15 million jobs needed annually to employ new entrants into the job market. China's foreign trade during this period has grown faster than its GDP, establishing an export-led economy. China's growth comes as a result of huge state investment in infrastructure and heavy industry, resulting in a large appetite for minerals and metals and creating a boom in countries rich with natu- ral resources. Fueled by the impressive economic growth, Chinese demand for natural resources pushed the price of commodities to record high lev- els, a situation that has greatly benefi ted commod- ity-rich countries, in particular: Australia, Brazil, Canada, Chile, Russia and OPEC states. Chinese foreign investment has become a notable factor in the world economy and will continue to be for the foreseeable future. Australia continues to be by far the biggest recipient of Chi- 6 Roger Teran IDA President 2012 nese investment. Although the Western Hemisphere continues to draw the most attention from Chinese companies, Chinese investment in the United States continues to underperform relative to the size of the U.S. economy and growth in other major markets, in particular Canada and Latin America. For the past two years, there has been a rush of Chinese direct investment into South America, topped by Brazil. Energy leads as the most important sector, followed by metals such as iron ore and copper. During the fi rst half of 2010, China became the largest buyer of Brazilian exports, and the number two source of Brazilian imports behind the United States. During the past decade, bilateral trade between China and Latin America expanded around 20 times, from approximately $10 billion in 2001 to about $200 bil- lion last year. Not all is clear sky for China as it faces some big challenges in the future, including an aging popu- lation, rising wealth inequality, and an economy dependent on rapid export growth. Exports showed weakness during the fi nancial crisis, and have continued to expand at a lower growth rate due to slower growth – and thus, demand – in the U.S., and the debt crisis in the European Union, the largest export market for China. In order for China to continue with its past trajectory, it must shiſt from an export-led econ- omy to a more balanced economy by stimulating its domestic consumption. To do so, it must loosen its currency exchange control, which would have the eff ect of increasing the value of its currency (RMB) vis-à-vis other world currencies, in partic- ular the U.S. dollar and the euro. Th is action would contain domestic infl ation by making import goods more accessible to Chinese consumers and would increase the standard of living of millions of IDA UNIVERSAL May-June 2012