Tar Heel Business

China has been making headlines recently in many aspects of global policy.  Whether it has been demanding more IMF voting power or berating the dollar’s reserve currency status, China is aggressively asserting itself in an attempt to gain more global clout.

China makes a strong case for its new international presence, as it claims its massive reserves and importance to the world economy warrant more say in a decision-making process typically dominated by Western powers.  While traditional authorities like the United States and the United Kingdom are in an all out battle against depression, China is still growing at a reasonable rate and has the cash to make acquisitions of firms and assets that are extremely undervalued due to derelict market conditions.

When making this argument, China also points to its sheer size, and with approximately 1.3 billion citizens, this girth is hard to ignore.  Many of these people save a large proportion of their income rather than spend and stimulate the economy, and China realizes that reducing this saving rate in addition to encouraging subsistence farmers to move to cities for different occupations would be a powerful driver to domestic demand.  Currently, China produces goods with the purpose of exporting them to richer countries, but if it could stimulate local demand then China would have a huge supply of new customers for its goods.

While China’s bulk is certainly the foundation for its great potential, this great strength could potentially become an enormous liability in the future.  Despite China’s successes, there is still great unrest among its workers who do not enjoy a satisfactory standard of life.  China’s healthcare system remains light years behind the developed world, and if China wants to have the influence of a developed country then it must act like an advanced nation and reform its social aid.

The costs of these advancements will not come cheaply, especially since the standard for government assistance to the needy is currently being raised to new heights by the Obama administration.  Transfer payments are a big deadweight on developed countries, especially in Europe, and while it has been proven that they are often times economically inefficient, these measures help ensure the stability of a society by providing the people who cannot help themselves with aid to make the best of their lives.  In China, a country where countless numbers of people would be eligible for such aid, making such reforms would certainly be a short run damper on economic growth.

Human rights activists will be sure to pester countries like China as they gain stature in the world economy.  China has been able to fend off issues such as global warming by claiming that such regulations would damper its developing economy, but by making the claim it is now a force in the global market China is opening itself up to more complaints about its inaction.

With great power comes great responsibility, and while China seems ready to wield the staff of authority, it is far behind in addressing basic issues within its own borders that are necessary to resolve before it can be taken seriously as a global power.

-Brian Stockton