China's economic power
August 6, 2010
China's fall from and subsequent rise to economic power is a story of extremes. In 1820 the Middle Kingdom accounted for 30 percent of the world's economic product. By 1978 its share had been reduced to just 5 percent. Three decades after Deng Xiaoping opened his nation's doors to the global economy, China has become the world's third-largest economy and its largest exporter.
And China is financing its sprint to the top with swelling foreign currency coffers. An annual 10 percent growth rate coupled with an export surplus of $200 billion (151 billion euros) has allowed the Bank of China to rack up a staggering $2.4 trillion in foreign currency reserves, a significant portion of which is invested in US treasury bonds.
While the financial meltdown in the United States has driven much of the world into a deep recession, China has emerged relatively unscathed and is now using its abundant cash - $50 billion in 2009 - to buy natural resources in the developing world as well as potentially lucrative, but currently ailing Western brands.
China's relationship with Africa has turned into a strategic partnership, demonstrated by a 2006 summit held in Beijing between numerous African countries and China. The Chinese government, through the use of sovereign wealth funds and other state-affiliated instruments, is buying raw materials from desperately poor countries - which are often ruled by autocratic regimes - and offering to build infrastructure in exchange.
And Latin America has also begun to pique China's interest. In 2009, China was the 29th largest investor in Brazil's economy. This year it is on its way to claim the top spot. China is currently helping to develop the oil and manufacturing potential of Latin America's largest and most populous country.
But China is no longer simply buying raw materials from developing nations to fire its manufacture of cheap goods back home. It is now seeking to make the leap into the higher-end markets traditionally dominated by Western brands.
The Chinese automaker Geely recently bought Sweden's Volvo from its US-owner Ford for $1,5 billion. That is less than a quarter of what Ford paid for the brand 10 years ago. China will not just acquire the brand, but also the technical know-how imbedded within Volvo.
As the global economy falters, China continues to grow and is rapidly reclaiming its place as an economic great power.
Author: Matthias von Hein (sk)
Editor: Rob Mudge