Thursday, July 15, 2010

A Picture of China and the Future

One should read the article by Gillian Tett in the Financial Times this morning. The title in the print copy is “Asia Pulls Strings Behind Scenes as Eurozone does Bank Test U-turn,” ( The article presents a vivid picture of the world of the future, something people are going to have to get used to.

The scene: the meeting of the G-20 in Busan, South Korea, June 4-5, 2010.

The subject matter: whether or not the eurozone governments should publish the results of the stress tests being performed on the largest banks within the region.

The result: the “eurozone governments performed a U-turn, by finally agreeing to publish the results of such tests.”

The reasons given: one argument was that lobbying had taken place inside the European Central Bank and this caused the change; another argument was that United States Treasury Secretary Tim Geithner persuaded his eurozone counterparts to alter their position.

Tett reports, however, that it was the “powerful Asian investment groups and government officials” that won the day. These officials “expressed alarm about Europe’s financial woes” and indicated that future purchases of eurozone bonds might be substantially reduced until more information was available to them on the health of Europe’s banks.

“That, in turn, sparked a sudden change of heart among officials in places such as Germany and Spain.”

This is important!

It is important because this is, more and more, the way that the world is moving.

Note, this encounter took place at the G-20, not the G-8. The smaller group is fading into the shadows because it does not include the emerging nations that are becoming relatively more important in the economic and financial affairs of the world. It is less easy for the United States to dominate the larger group and there is no history of total United States dominance in this group as there is in the smaller group.

Second, the emerging nations included in the G-20 have substantial amounts of wealth and their economies are in better condition than are those of their western counterparts. These nations are becoming more comfortable with the power they possess.

In one sense, events could not have broken more favorably for these emerging nations than they did. Before 2008 the question always seemed to be “When would China and the other emerging nations catch up with the United States and Europe in terms of economic power? These nations were coming along, but a productive and growing United States would be hard to catch. People thought that it would be the 2020s or the 2030s before the relative gaps would close significantly enough to alter political relationships.

The Great Recession changed all that! The United States and Europe have had lots of problems to deal with. And, not only was their economic strength tested, but their focus was diverted away from the improving performance of the emerging nations. And, these economies apparently will remain weak for an extended period of time. China, and the other BRIC nations…and a few more…have been testing the waters, standing up to the “big guy” or “big guys” and testing just how far they can push the envelope.

The result is that the leaders of these emerging nations, political and business, are taking a more aggressive stance in almost every area of concern. And, by-and-large, the United States and Europe and the UK are having to take it. They are just not in a position to put up much of a fight.

Third, the competition taking place in the world is not just between the United States (and Europe) and each BRIC country. Competition is also becoming quite fierce between these countries. (Note another article in today’s Financial Times about South Asia. The subheading states that “India’s failure to match its economic clout with local influence has heightened Delhi’s concern over losing out to China in what is set to be a long-running battle for ascendancy.” (

But don’t leave out Russia and Brazil. Each of these countries, in its own way, is gaining relative to the United States, but also is engaged in competition with China…and India.

And what about Japan? And, Canada? Then there are several other players in the world.

What did we just see in the newspapers? Pictures of BP president Tony Hayward meeting with the president of Azerbaijani. BP has turned to the middle east to either raise additional capital or sell assets. But, Citigroup did that along with a dozen or more other major corporations from the west.

Countries not only have to be concerned about their position relative to the United States (and Europe) they have to consider how they stand relative to a dozen or more other nations in the world. This is not an environment in which these nations can “stand down.” They must be strong and competitive against all comers.

So, things are changing. Ms. Tett’s article just points to the fact that the influence of China is growing along with their confidence. This is also being seen in the behavior of the leaders of other nations, like the connections Brazilian President Lula da Silva is making with the leaders of countries that are not necessarily friends of the United States, like Venezuela and Iran.

This situation is not likely to change unless these emerging nations plunge into a Great Recession and have to re-focus their efforts on re-building their economies and restoring their financial wealth.

Also, as Ms. Tett implies, China and the other emerging nations are still testing the waters. “There is little sign those investors are being ‘intimidating’.” Yet, they are in the process of finding out how far they can go. But, this process will continue and that is why examples like the one presented in her article are a harbinger of the future. Tomorrow, these investors might by “intimidating”!

Economic and financial wealth is spreading throughout the world. Influence and power follows economic and financial wealth. In the emerging competition taking place in the world between the United States and other countries and within the other countries themselves, it is hoped that the competition does not boil over into wars, either trade wars or fighting wars.

Unfortunately, these wars have not been avoided in the past. The question is, what kind of world can the United States and the other emerging nations create that will allow economic and financial competition to take place within and between nations without the competition deteriorating into trade wars or fighting wars?

The signs of the future competitive world are there. How the world works out this future is the big issue.

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