Why China Is Nervous About Its Role in the World

Srinivas_K

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Why China Is Nervous About Its Role in the World

China's fear of closer ties between the U.S. and India may indicate growing economic problems at home

In the wake of President Obama's historic trip to India, China issued an unsolicited and perplexing statement downplaying the relevance of the visit. As the White House pointed out in response, the only thing significant about China's statement was the fact that the Asian nation felt the need to make it in the first place.

The rivalry between China and India for economic power and strategic control in Asia is longstanding and is likely to continue into the foreseeable future. But China's taunt is not necessarily a sign of its hostility towards India but an inadvertent admission of its declining supremacy in the region.

China, once an accepted economic and military juggernaut and the darling of investors the world over, is now facing both economic and strategic challenges which could slow down its progress.

First, China's economy seems to be shrinking. With industrial activity trending down and interest rate cuts yet to produce results, it's looking likely that China's meteoric economic rise may have peaked and, according to a report from the Conference Board, could lead to a 4% GDP growth rate in the future, which is considerably lower than in previous decades. Further problems plaguing China include a debt overhang, a real estate bubble, lack of competition, and an old-world industrial economy instead of a more modern information economy such as that of the U.S.

In addition, India's economic growth is predicted to outpace China's by 2016, according to the International Monetary Fund, a fact that doesn't bode well for China's dominance of Asia. That's not to say that China will cease to be an economic power but that it may not be able to exert the same clout on the world stage that it once did.

Another major shift could be in China's ability to use the specter of its military might to secure favorable trade terms with other nations. That specter, even as it grows, could be undermined by higher defense spending by India and Japan (aided by the U.S.), who are eager to contain China. At the same time, China can't bank on Russia for support since the latter is facing its own crisis from low oil prices and economic sanctions. This could leave China isolated and weaken its position with trading partners.

Finally, there is the democracy factor. The recent protests in Hong Kong were an indication of the tenuousness of China's draconian control over its people, and possibly of political upheaval to come.

In economic terms, this means that although China has done a fairly good job of balancing free market principles with state run control, the desire of citizens for democracy could force China to relax regulatory control over businesses, embrace labor reform, and truly open its markets in the not-too-distant future. That's good news for investors but depends heavily on the reaction of the Chinese government, whose response to pro-democracy forces could be unpredictable and severe. Also, a sudden rise in labor costs due to free market forces could in itself disrupt the economic ecosystem in China, and have a negative impact on both domestic and foreign companies that rely on the labor pool.

Given this context, it becomes easier to understand just why China is nervous about closer ties developing between the world's two largest democracies, the U.S. and India, and why global investors should be wary of the Chinese economic miracle. For sure, China will continue to be an influential player and has demonstrated resilience in the face of difficulties before, but investors looking to make money from the region should still temper their enthusiasm with a realistic assessment of where the nation is now.

Sanjay Sanghoee is a business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, at hedge fund Ramius Capital, and has an MBA from Columbia Business School.

Why China Is Nervous About Its Role in the World - TIME
 

sorcerer

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But China's taunt is not necessarily a sign of its hostility towards India but an inadvertent admission of its declining supremacy in the region.
Very well said. This is the face they are trying to blur with their posturing.
 

no smoking

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Maybe our Indian friends should learn to separate what is the fact and what is the prediction.
 

sorcerer

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The chinese should learn that predictions are based on facts and not farts!

Prediction by seperating facts is called :bs:

Oh..I get it..China has facts and then wet dreams.(What else can we call predictions without facts to support it?)
 

redragon

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Capability of imagination is always the strong suit of Indian, because they are free to think. :rofl:
 

no smoking

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The chinese should learn that predictions are based on facts and not farts!

Prediction by seperating facts is called :bs:

Oh..I get it..China has facts and then wet dreams.(What else can we call predictions without facts to support it?)
Oh, of course, India is the world second largest economy;
and of course, India is currently the world fastest growing economy;
And...wait, are you living on the earth?
 

prohumanity

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Firstly, the name of this thread is misleading because it makes an assumption that China is nervous about its role. China is not at all nervous about its role. According to top Chinese leader , China wants to promote peace, harmony and coexistence with all nations and wants friendly relations with India.
Chinese leaders are concerned that western paid media is trying to create rift and enmity between China and India for its vested , economic and hegemonistic reasons. Successfully pitting 1.25 billion Indians against 1.3 billion Chinese can be a master stroke which gtreatly help continue western domination and hegemony for many more decades. Therefore, you see many hatemongers and fear mongers on these boards and a lot of venom in west financed media outlets.
By the way, No Smokinig, it's true that India is second fastest growing large economy and 4th largest economy among all nations of the world. ( USA, China, Japan and India in that order) (I have checked the data from reliable source)
 
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sorcerer

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Oh, of course, India is the world second largest economy;
and of course, India is currently the world fastest growing economy;
And...wait, are you living on the earth?
- Feb. 2 -- The latest round of data released by China indicates the manufacturing sector is, in fact, shrinking. Bloomberg's David Ingles reports on "First Up."
China's Economy Slowing Down `Sharply,' Shen Says - Bloomberg Business
IMF: India Will Be Fastest Growing Major Economy by 2016

The International Monetary Fund predicted India's GDP growth will overtake China's in two years.
IMF: India Will Be Fastest Growing Major Economy by 2016 | The Diplomat

China's aging population poses problems for economy and tradition
Besides the issue of looking after China's elderly, the booming economy may experience a tumble brought on by an uncommonly high number of working-age people -- ironically the same factor that spurred the economic boom in the first place. By 2030, after this working sector has aged, there will be 2 working age people for every citizen over 60 compared to 6 for every 60-and-up 12 years ago.
China's aging population poses problems for economy and tradition: Shanghaiist
China's New Leaders Face an Economic Turning Point
A growing body of academic studies warns that economic growth in China might slow substantially in the years and decades to come. One crucial reason is that, in the past, it has been driven disproportionately by workers moving from farms to factories. That method of raising productivity may now be largely exhausted -- because most of the workers who could successfully make the transition already have.
China's New Leaders Face an Economic Turning Point - Bloomberg Business
Beyond social impacts, population aging affects economic performance, and it does not bode well for China's international competitiveness. It leads to a drop in the proportion of the productive labor force, which in turn raises the average wage level, making China less competitive in labor-intensive industries. In years past, China was able to rely on almost unlimited low-cost labor in achieving its double-digit economic growth. However, if China is approaching its Lewis turning point, a point at which China would move from a vast supply of low-cost workers to a labor shortage economy, it could quickly lose its competitive edge to other emerging economies that still enjoy significant demographic dividends. Indeed, according to an OECD report, China will be surpassed by both India and Indonesia in terms of economic growth rate after 2020.
Population Aging in China: A Mixed Blessing | The Diplomat
Yeah, Greetings earthling.... Iam living on earth next to a slowing economy called China!
 

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