In These New Times

This article gives an excellent overview of both China’s global strategy and systemic conflicts with the Western model. The authors correctly, in my view, identify the relationship of the financial system to the state as being at the heart of these systemic differences:

“To take one specific example, in Western economic thought, banks are seen as intermediaries between borrowers and lenders. Traditionally in Asia, however, banks are seen as instruments of state-directed growth and industrialization which take deposits and then use the savings through preferential allocation of credit to drive development in predetermined priority sectors of the economy.17 China’s People’s Bank, Ministry of Finance, and major policy banks, such as the China Development Bank and the State Export-Import Bank, have worked with their southern counterparts on how to become “responsible borrowers,” and how to identify and structure revenue and surplus-generating projects so that a stable supply of funds is available to repay loans.18 Chinese experiences on public financial and fiscal management are a core component in the curriculum of this government-to-government training.”

They also show great prescience in identifying the policy shift now crystalising out of Obama’s “pivot to Asia”:

 “China, however, should be mindful that, just as it can hedge, so can the West and its likely Asian partners such as India and Japan. A reversion to an old- fashioned “balance-of-power” scenario would be unfortunate for all, especially if absent effective coordination mechanisms between the paramount powers.”

They could have added South America, South Africa, Australia and the UK as being drawn into an anti-China reaction or , at least, being strongly pressured in that direction.

Gregory Chin and Ramesh Thakur

October, 2010

Read study in full