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China in 2009

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Wallpaper China in 2009

As we look back on everything that happened this year, I decided to look at more than just naval shipbuilding and military/civilian aviation, but also the financial and economical engine that is China. Many people waited for the Beijing Olympics to be China's crowing moment or coming out party. In many ways, 2008 was a milestone year when one considers the major snow storm that crippled the country, the Tibet riot, the Sichuan Earthquake and the Beijing Olympics. However, this year has turned out to be the true coming out party for China. Due to the fall of Western financial institutions (especially in New York and London) and our current economic downturn, the world has been increasingly relying on China to be the knight in shining armour. In many ways, the increased power and expectations have come way too much and way too fast for China.

The Obama administration has basically annointed China as its equal this past year and the idea of G-2 have been raised everywhere. China has been asked to be a responsible stakeholder in issues like climate change, fighting global imbalances, Iran, North Korea and currency manipulation. In many of these cases, China has reacted and handled itself in ways that counter the views of Western countries. For years, China had followed the strategy laid out by Deng Xiaoping in growing quietly and minding its own business. There were a few bumps along the way, but China basically stayed out of major international affairs all the way through Jiang Zemin's run as the paramount leader. Their foreign and domestic policy could be summed up as: make a lot of money for Chinese people, being ambivalent about everyone else, advance the country scientifically/technologically and do this with as little noise as possible. By the time, Hu came to power, China had just joined WTO and started to run large trading surplus against USA. Hu moved away from a US-centric foreign policy and started this process of securing natural resources all around the developing world (even in the Americas). By 2005-2006, it was clear that China had expanded (and was on such a trajectory) so much in political influence that it could no longer hide in international affairs as just another developing nation. Starting from George Bush's second term, you really started to see US engagement in trying to make China into a "responsible stakeholder". Armed with this new attention and expectations, China really was unprepared for the extra responsibility. It was still trying to just remain in the background and become stronger economically. Even though China has opened up a little bit in the recent year and tried to take on more responsibility, it still values its own priorities above all else. In one sense, it still wants to be treated with the same leniency that other developing countries are treated with. At the same time, it also wants to be respected as a country with long history, rich culture and prospering society. But more than anything, China still does not look at itself as a superpower (it ranked itself 7th in national strength in a recent study), even though most people around the world think that way. I think that most Chinese people still do not comprehend the kind of impact that their country and its growth is having on the rest of the world. I will just try to go through some points on how this year has really seen the emergence of China.

Politically, this was a huge breakout year for China. Hilary Clinton made a visit to China in February and basically pleaded to the Chinese gov't to buy more treasury bonds. When they had the strategic dialog in the middle of the year, Obama stated clearly that all of the issues that we are facing need both countries to work together to resolve. And finally when he visited last month, it also appeared that he was bowing down to the Chinese. Because Obama has somewhat of a reputation of being soft amongst foreign policy hawks, I'd like to say that he gave the elevated status due to the practical situation rather than "the left being weak to the commies". During Bush's second term, he grew to become more and more friendly toward the Chinese administration. In many ways, George Bush was possibly the most China-friendly president in the US history and Obama has carried on that trend. I think both presidents did the most pragmatic approach possible. They realized that China was influential in way too many places around the world (especially pariah nations) to not cooperate over the major geopolitical issues. They also realized that China is America's banker and believe that America needs China's savings to get out of this financial mess. They have lamented that China has not acted to its responsibility on issues like Iran, Sudan and North Korea. I think they would be find it hard to get cooperation from China. When China was still clear the weaker partner in the relationship, it could claim that it was not influential enough and did not have the luxury as a developing country to influence other developing countries. Now that China is more of an equal in the relationship, it could afford to resist US pressure to press further on these troubled states. China still does not feel like enough of a world leader to take positions that are more positive for all of humanity. It would like to continue policies that will help feed natural resources to its rapidly growing economy. By now, everyone can see the kind of influence that China has over African countries, several South American countries, ASEAN countries and the countries along the String of Pearls. G-7 is no longer the policy making organization that it used to be, because China is not in there. Even so, China is trying really hard to stop the idea of G-2 while promoting G-20 + BRIC, because it really does not want the responsibility/pressure of being a super power.

This was the year that China really became the financial power of the world. Jim Rogers has repeatedly said in the past that power moves to where money is. If that's the case, then the growing accumulation of China's foreign reserve point to a lot of good days ahead. We have seen USA asking China to continue to buy Treasury Bonds. We have seen IMF selling bonds to China. We have seen countries all around the world asking China for money. G-20 replaced G-8 in determining policies to get out of this worldwide economic downturn, because it needed China's deep pockets. For its domestic economy, China was able to put in a more effective stimulus program without adding much public sector debts (although some would argue for the hidden bank debts). We have seen China buying up resources around the world. After all, why would anyone want to sit on fiat currencies when the central bankers around the world cannot control themselves from printing more money? China dramatically expanded its holding of gold bullion and will probably continue to buy. It continued to acquire mines across the world including the much talked about attempt by Chinalco to increase its stakes in Rio Tinto. When the prices of oil, iron ore, copper, silver and other natural resources dropped, China moved in to buy them at rock bottom prices to creater larger strategic reserves. Australia basically avoided a major recession due to the continued China demand for its iron ore and other resources. Perhaps the most interesting part of China's buying spree is that it has moved beyond foreign debts and natural resources. As companies around the world started to collapse under the tough economic conditions, Chinese companies have started to acquire foreign companies, their branding and their production process. In this past year, the successful bids by Chinese companies for Hummer, Volvo and Saab made headlines. However, there are also many other stories of Chinese companies acquiring Western know-hows + branding at rock bottom prices. More than anything, this economic downturn has shown the importantce of being financially sound. As this downturn continues in the next couple of years, I think Jim Rogers' prediction will show to be really accurate.

For the past 25 years, people have talked about the potential of 1.4 billion people and the huge market created by the growing middle class in the country. Due to the increased savings and declining purchasing power around the world, consumption was down in most other countries causing a collapse in world trade. After a slow 4th quarter in 2008 and early 2009, consumption in China really took off this year with the help of some stimulus policies by the government. The Chinese market finally exceeded the US market in several industry and somewhat feeled the void left by export markets for domestic manufacturers. 2009 could also be remembered as the first year that China's auto market exceeded that of US. While most automakers around the world were suffering due to declining sales in most countries, Chinese automakers were really thriving. BYD, Chery and Geely all had massive growth in sales due in large part to the lower tax for small cars. As a result of this, these automakers now have the capital to really acquire oversea assets, expand capacity, develop newer models and produce higher quality cars for the more mature EU and US markets. In a sign of times, SAIC became the majority stakeholder in its joint venture with GM and will also be producing their joint venture car Wuling for export in India. BYD has made a lot of news for its plans to bring affordable hybrid/electric car models to America and also supplying batteries for Volkswagon. The improved fortune for domestic automakers is part of China's progression of moving up in value chain and becoming an even stronger manufacturing engine. 2009 was a terrible year for shipbuilders around the world, but China managed to move past South Korea for the first time in terms of orders taken and order backlog. In a few years, China will officially become the world's largest shipbuilder. Green industry is another area that recent government policy has really helped. The Chinese solar module industry have became the largest in the world (accounting for 1/3 of photovoltaic cells production). It is now exporting 99% of its production and is causing huge fall in solar module prices by basically swamping the market. China's wind turbine industry is also now the largest producer in the world thanks to the huge wind power expansion in the country + exporting to foreign markets (like the recent A-Power deal in Texas). Even in fields like civilian aviation, trains and nuclear power, you can see that China is slowly entering these markets and moving up the value chain. Due to the fact that China is the only country in the world that is actually having this massive nuclear power expansio and high speed rail expansion, advanced multi-national corporations are forced to provide more know-hows + local manufacturing in order to win those contracts. In the long run, China will probably end up becoming a competitor to them in this area. In the mean time, Airbus, Westinghouse, Alstom and Bombardier can remain highly profitable despite the declining orders around the world. In some ways, you can already see that China is moving up in this field with their nuclear power, airliner and railway exports to developing countries while still buying the latest technology from the west. And really, we can go through a bunch of other domestic industries, but I see a very methodical approach in using domestic market to extract technology and developing local industries. China is getting wealthier, so it can no longer rely on selling cheap clothing, toys and furnitures to walmart to expand. It is moving up in the value chain in manufacturing for both its domestic market and export markets.

I will have a separate ntry on the military growth, since that is the area that I follow the most. Needless to say, there were a lot of headlines this year with the carrier program, the next generation fighter program, the large transport program and the ASBM program.

As I review all that has happened in this past year, I can say for certainty that this was one of the most significant years since the market reforms started. After a revision of its 2008 GDP numbers, it looks like China became the 2nd largest economy in the world this past year. In terms of purchasing power, it reached the position quite a while ago. The financial crisis has only shown the world how influential China has become in the recent years. If 2009 was any indication, China has officially risen to super power status on the world stage. There are a lot of anger toward China around the world, because it's manufacturing strength has crippled many economies around the world. At the same time, it also remains important, because it has now become the largest market in the world for many industries. Regardless, China's emergence has changed the dynamics of the world. Policies are no longer determined by 7 large Western economies, but need the inclusion of the other countries in G-20. The question is how will China react in the coming years as it is expected to do more for the international community. Like? China in 2009 for wallpaper? Shar this image to China in 2009 for your friend.

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