November 9, 2008
Ye Tan, senior financial columnist for Shanghai’s Meiri jingji xinwen [New Business daily], argues that policies that a “mercantilist” Obama is likely to pressure China to pursue are in fact in line with China’s own best interests.Ye Tan anticipates that, to maintain the interests of America’s middle and low income groups, Obama, under the screen of carrying out of fair trade, will bring in policies that in a sense are mercantilist in order to increase employment opportunities in the US. Her views are interesting and have been translated by David Kelly of the China Research Centre, University of Technology, Sydney.
Obama won the election to the cheers of the world, whose stock markets greeted the next man at the helm of the US government with a rise. Obama was welcome, not because he has demonstrated economic genius before even holding office, but because his “change” caters to just this sense of being tired to death of the past. People are fed up with a White House that speaks for Wall Street, fed up with all manner of financial derivatives, tired of incessant collapse and recession. The financial crisis swept from the US around the globe, lending global significance to this presidential election.
Obama will after coming to power do exactly the opposite of all the things people are sick of; in times of crisis state capitalism is widely adopted with the aim of placing an equitable capital market on the stage. It is hoped that Obama will promote small and medium enterprises and middle class development and consumption, and can reconstruct a more equitable economic order, so that confidence can be restored in American values.
Economic measures Obama may adopt include offering subsidies to companies that increase employment, low-and middle-class tax rebates, encouraging development of small and medium enterprises, strengthening supervision of Wall Street fat cats, setting up fair trade and imposing sanctions on countries that support their exports through “tariffs, subsidies, controlled exchange rates” and other such measures.
Spending billions of dollars to rebuild an aging infrastructure, and provide funds directly to those unable to pay their mortgages – the government projects Obama carries out will increase government debt; and ending the war in Iraq will not help reduce the deficit. With Obama’s rise to power, as with Roosevelt’s, the US will launch a government-led equitable market economy, reduce monopoly and profit, and curb the power of big businesses. We can conclude there will be two “slowdowns”:
First, the pace of global financial capitalism will slow down; second, the pace of global economic integration driven by large enterprises will slow down. For China, there are two aspects to be noted, the first being new energy and the other domestic demand. Economic growth depends in the final analysis on raising the productivity of firms; following network scientific technology, increased productivity in the world economy will mainly be in the field of new energy sources. Both the introduction of carbon trading and new energy projects at home and abroad show that global capital will continue to concentrate in the field of new energy. Obama agreed to a limited exploitation of offshore oil, but to focus on new technologies; he proposes to invest $US150 billion into funding alternative energy research in the next 10 years while also offering tax concessions to firms that engage in this type of research.
The biggest bottleneck to be experienced in the future development of the global economy will be in energy: whoever scores points in the commercialization of new energy, will become a pole of the next round of economic growth. At present, various countries are vying to take the lead and it’s too early to conclude that China or Europe will replace the US; all depends on who wins the fight for new energy. If China wants to win in this fight, the best approach is to use market-oriented approach to encourage energy saving and new energy development, rather than ringing some changes on conceptual games like coal liquefaction.
To maintain the interests of America’s middle and low income groups, Obama, under the screen of carrying out of fair trade, will bring in policies that in a sense are mercantilist in order to increase employment opportunities in the US. On 29 October, Obama wrote to the Board of the National Textile Industry Organization that China must change its policies (including exchange rate policy) in order to reduce dependence on exports and rely more on growth in domestic demand. He added that “If elected, I will help ensure that Chinese imports will not be in violation of applicable laws and treaties. I support the demands of the Berry amendment that only textiles manufactured in the United States be procured by the Department of Defense. I also support putting the ‘yarn forward rule’ into free trade treaties.”
Obama has repeatedly recommended that China develop its domestic demand, and increase the proportion of GDP it accounts for. There is no doubt that this is in fact a demand that China reduce both the proportion of GDP accounted for by exports, and its exports to the United States, so as to improve the unemployment situation of America’s working class.
In the face of the global industrial structural adjustment triggered by the global financial crisis, China can no longer sustain an annual 20% growth in exports using an export-led policy but only by increasing government investment to address the urgency of the stalling economy, and absorb its excess productive capacity by expanding domestic demand. To respond to the stalling economy, China is expected to expand the scale of issuance of treasury bonds next year by at least 70%, in order to expand infrastructure construction and improvement of the social security system, to promote economic growth. China’s economy has grown over the past five years, with the tide of domestic investment, particularly in the heavy industry sector, posting great gains. But these investments have become burdensome in the economic decline cycle, and if domestic demand cannot be expanded, the investment will be like a tree without roots.
Vice Premier Li Keqiang said on 4 November that in order to enhance people’s consumption capacity and drive consumption, the government will increase supply of welfare housing and improve health care services, which will solve the worries about future on the part of low-and middle-class consumers. As a result, we may conclude that China’s economy is to enter a long phase of economic restructuring, in which it will shift from being investment and export led, to being investment and domestic demand led. This shows that the government and the market will not encourage a significant increase in asset prices; the latter will be in a long period of stocktaking.Author : Stanley Crossick