China Wave: 21 Trillion Ripples

Aug 4, 2015 by

Tom Watkins

Tom Watkins –

The China wave will continue to roll across the globe crashing on far away shores as the 21st century unfolds. Individuals, states, and nations can do nothing and be swamped or learn to surf and ride the wave.

China is poised to unleash up to $21 trillion (yes, that is trillion, with a “T”) to be invested outside their borders as the Communist government relaxes capital-flow regulations. This significant amount of investable cash is a result of Chinese citizens’ penchant for saving compared to the American habit of borrowing and spending. Clearly, this amount will ebb and flow as China’s stock market adjusts, the housing bubble bursts, and the communist leaders adjust policies to maintain their “mandate from heaven.”

China’s leadership plans to scale back their role of investment in the domestic economy, and create a national avalanche of capital-seeking safe harbors. Nations and states that are ready for international investment will reap the benefits of the average Chinese citizen’s penchant for saving.

There is a global cottage industry of sorts popping up, comprised of bankers, economists, and “old China hands,” all attempting to predict how large of a net money exporter China will be. Yet, with a bucket of $21 trillion, even a small percentage unleashed on global markets will provide a surge in global economic activity.

Certainly, the recent plummet of the stock market makes policymakers skittish and may hijack the originally planned policymaking. About $3 trillion in value has evaporated since the Chinese stock market peaked in mid-June.

China’s opaque governance and financial system make predictions cloudy at best. Clearly, outsiders have learned not to be overly confident in their ability to predict where China is going. Yet, they should also not doubt the current leaders’ ability to steer the country boldly and confidently into the future.

The Warning 

The Economist asserts that China has already edged out the West as the investment kingpin in the developing world, in economic terms.

There are already signs of a Chinese spending spree as Chinese buyers have topped Canadians to rank as the biggest foreign purchasers of U.S. homes by sales and dollar volume in the year through March, accounting for more than a quarter of all international spending.

Napoleon Bonaparte warned the world centuries ago, “China is a sleeping giant. Let her sleep, for when she wakes she will shake the world.” China has begun the shift from a large net importer of capital to one of the world’s largest exporters of capital. As Napoleon warned us, this will cause another rattle across the globe. China could easily assume the role of financier to the world with pots of money seeking investment opportunities.

Bloomberg News reports Charles Li, chief executive officer of Hong Kong Exchanges & Clearing Ltd., saying, “Eventually, there will be “fund outflows of historic proportions, driven by China’s needs to deploy and diversify its national wealth to the global markets.”

In an interview with Voice Of America, Jerome Cohen, a professor at New York University, said China is facing a lot of international economic challenges, but he said the U.S. should not underestimate Chinese leaders’ creativity and dynamism in meeting them.

Clearly China’s challenges on a number of fronts are daunting.

The World Bank, echoing private sector analysts in a recent report, has urged the Chinese communist government to address wasteful investment, over-indebtedness and weak regulation of its shadow banking system pointing out failure to do so could “deflect the economic trajectory.”

Perhaps showing the power of the Chinese economy, the World Bank quickly removed this harsh portion of their report after being criticized by top government officials saying, “The section had not been adequately reviewed.”

America Benefits From Chinese Investment

How can a city like Detroit, fresh from bankruptcy, and the state of Michigan, still shaking off the collapse of the auto industry and the Great Recession, tap the China gold mountain to fund large-scale infrastructure projects such as rebuilding cities, mass transit, road and bridge repair through lowering long-term building and borrowing costs via Chinese investment?

A new report by Rhodium Group, in partnership with the National Committee on U.S.-China Relations, for the first time details Chinese commercial investment in the U.S. at the congressional district level. The study shows that Chinese companies are now operating in 340 of 435 U.S. congressional districts, employing more than 80,000 Americans. Chinese companies also spend hundreds of millions of dollars annually on research and development activities and create linkages which can help foster U.S. exports of goods and services.

The Rhodium Group reminds us Foreign Direct Investment (FDI) is a vital component of the U.S. economy today, and has been throughout our nation’s history. Investors from abroad are a source of growth, employment, competitiveness, and innovation, and their presence is living proof of America’s commitment to openness, market competition, and putting the interests of consumers above the welfare of corporations.

One American State’s Effort to Build Economic Bridges

Michigan’s business-friendly Governor—Rick Snyder—has traveled to China four times, with a fifth trip planned for later this summer. He hopes to continue to build the “win-win” relationships with China that grow jobs. He is not interested in using China for division and subtraction – but for addition and multiplication of jobs and investment opportunities. As he likes to say: “Michigan is two beautiful peninsulas – we are not an island, we are open for business and warmly welcome you.”

Governor Snyder is seeking FDI for Michigan and wants to export agricultural products, technology know-how, and other goods and services around the globe. He understands that Michigan, fresh off a recession, with its major city having recently emerged from bankruptcy, needs to compete in the hyper-competitive, global, technology-driven, knowledge economy where ideas and jobs can and do move across the world effortlessly. Governor Snyder grasps that doing business with China is not the equivalent of a one-night stand — it takes time to develop the “guanxi”/relationships necessary to seal deals.

According to Michael A. Finney, the former President and CEO of the Michigan Economic Development Corporation (MEDC), “Michigan’s business community now includes more than 50 major Chinese companies that have invested over $1 billion in our state and growing.”

At a meeting in Detroit, Chinese Consul General Zhao Weiping said, “Michigan has many ingredients: economic, social, cultural and educational that make it attractive to Chinese investors and, I suspect as the relationship matures, the investments and job creation will only continue to grow.”

China is proving that the old saying remains true: “the only constant in the world today is change.”

China Spreads Its Wings

After decades—if not centuries—of looking inward, the Chinese are spreading their dragon wings. Xi Jinping, China’s President and Communist Party leader, speaks of, “The China Dream, The People’s Dream.” Part of this dream entails expanding its economic reach and soft power to every corner of the globe.

China is seeking to reestablish its historical economic and global prominence on the world stage. She has held a position of economic superiority 18 of the previous 20 centuries. Napoleon is rolling over in his grave thinking there is little doubt that China is wide awake. Thoughtful global leaders are implementing strategies on how to ride the Chinese wave without ending up on the rocks.

 

Source: China Wave: 21 Trillion RipplesCHINA US Focus | CHINA US Focus

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