China at Center Stage

China’s huge foreign reserves forced the G-20 Washington 2008 summit global crisis spotlight to be shined on Beijing to step up and take a bigger financial role in addressing the crisis. Because China holds the biggest inventory of foreign exchange reserves in the world, and because it looks to be one of the few major economies to show significant growth in the near future, it was urged to boost the resources of the International Monetary Fund. Pressure was brought to bear on China because Japan, which holds $1-trillion in foreign reserves ─ the second-largest cache of foreign reserves ─ pledged $100 billion in loans to the IMF.

The IMF, like the World Bank, is a relic of World War II, created at the Bretton Woods conference in 1944, as the foundation cornerstones of the postwar world financial system. I advocated their abolition along with the United Nations, or at the very least, their restructuring in my last book Custom Maid Knowledge, to give China and other developing countries greater say than the founding European nations and America now dependent on China have. That is the only way to avoid the widening fissures developing between the developed, developing and underdeveloped nations. To its credit, China demanded greater voting rights be assigned to it and other developing countries in the U.S.-dominated organization before committing to loan any funds to the IMF.

China announced at the opening of the summit that in addition to the $586-billion economic stimulus package it announced to bolster domestic demand and consumption, it had offered $500 million in financial aid to financially teetering Pakistan, calling it an urgent agreement based on the countries’ long-term friendly relations, and that it was prepared to do more once it had a say proportionate to its size and global financial clout. China also demanded the abolition of protectionist legislation in America and Europe which limit its export ability.

China wants the global trust and respect it thinks it justifiably deserves. It is frustrated and angry that despite all its economic progress, the developed world led by America, is denying it the proper place at the head of the table alongside America.

The reality is China cannot afford to follow in the financial footsteps of America and the Western world it leads. Furthermore, there is no domestic support for such action. China has been adversely affected by the Wall Street meltdown and needs to spend its reserves domestically to support its economy and create new jobs to replace the millions of factory jobs lost because of the global recession and loss of export orders.

China is already helping the global financial situation by holding onto U.S Treasury debt. China’s foreign reserves have already been invested ─ more than half in U.S. Treasury issues and other American bonds and much of the rest in euro-denominated assets ─ and it isn’t easy or practical to transfer hundreds of billions, or tens of billions of dollars without causing serious disruption to the currency market, which wouldn’t be in China’s self-interest either. If it sells the U.S. Treasuries it holds, global interest rates will go up and the dollar would collapse.

China’s New Deal

China’s announcement to pump $586-billion into infrastructure projects and other stimulus measures to bolster domestic demand and shore up its weakening economy five days ahead of the Washington global economic summit of the G-20 group of leaders, which gave global stock markets a limited boost, highlighted Beijing’s global financial muscle. It also put America on notice that China can contribute to global stability and that it wants to play a bigger role with America and Europe in running the world economy.

The limited time scheduled for the G-20 meeting, a White House dinner and less than a full day of meetings, makes comprehensive change unlikely and the embrace of China by America even more remote. The long overdue embrace must come sooner than later. That is a longer term goal for China.

The stimulus package amounts to one-sixth of China’s annual economic output. Not a concern for China with its $2 trillion in foreign reserves and a reported fiscal surplus of $175 billion in the first half of 2008.

China’s immediate main aim is to keep the Chinese economy from slowing down to much to fast in order to avoid social and political instability. Tens of thousands of Chinese factories have closed down as export orders evaporate. China’s phenomenal growth to date was based on exports and investment. China’s economic output grew by 11.9 percent in 2007, 9.7 percent in 2008, and is projected to drop to 8.5 percent or lower in 2009. Although such numbers are music to any U.S. politicians ears, few countries, China included, can absorb a three percentage point falls in annual growth without problems. The government hopes its stimulus package will stimulate consumer spending.

Household consumption made up more than half of China’s GDP in the 1980s. Today it contributes less than a third. Chinese household savings have been as high as a quarter of disposable income. Corporate and government savings have also soared. China has been saving close to 60 percent of GDP.

The two year stimulus package, which includes tax cuts, loosening of credit and government spending through 2010, includes construction of low-income housing, transportation systems, rural infrastructure, technological innovation and disaster relief in the hope it will stimulate consumer spending. China’s economic stimulus package also benefits U.S. multinationals doing business in China which will have a positive effect in America.

China has set the bar for America and other countries to follow. China’s New Deal FDR economic model to boost local and global economic stability is one America and the rest of the world should follow. The basic fundamental solution of today’s global financial crisis lies in the plugging of America’s deficits with China’s savings. Americans have to save more as Chinese spend more.

Revolutionary Change

America and the world it leads is ready for a revolutionary change. A fresh start. Watching the results of the 2008 presidential election with a full house of Americans, citizens and wannabes, silently riveted at the several TV screens at the Foreign Correspondents Club in Hong Kong, starting at 8am because of the 13 hour time difference, yell and applaud in sheer delight whenever another state and its electors were declared in Obama’s favor, there was no doubt in anyone’s mind that America and the world are ready for the long overdue dramatic change taking place.

The death on the eve of the 2008 presidential election of the woman who raised Obama, his white grandmother, was also the death knoll of lilly white bread American and European politics. Obama’s Kansas born and bred white mother and Kenyan black father were rebels with a cause. Any wonder Obama led a revolutionary change in American and global politics?

The historic 2008 presidential campaign and election was revolutionary not just because of the candidates color, age and sex, but the glaring absence of the incumbent president from the campaign trail, the fact that it was the longest, most expensive internet leveraged fund raising, managed news media with blogs, technologically driven grass roots voter registration drives, get out the vote campaigns and viral marketing with a record turnout of young non-white voters at the 300,000 voting booths across America, over four time zones that elected an African American ─ who is not a descendant of slaves ─ America’s 44th president.

Watching the 200,000 people from across America who had traveled to Chicago’s Grant Park to celebrate the historic revolutionary change party until the wee morning hours, I couldn’t help flash back to the thousands of people who came to Chicago in 1968 to demand revolutionary change of the Democratic Party at its convention that year at the height of the Vietnam War. It took 40 years, but America has finally acknowledged it is ready for change. Now the hard part. Meeting of expectations and making the necessary changes.