UNDERNEWS

Undernews is the online report of the Progressive Review, edited by Sam Smith, who has covered Washington during all or part of one quarter of America's presidencies and edited alternative journals since 1964. The Review has been on the web since 1995. See main page for full contents

May 6, 2009

AS AMERICA SHRINKS, CHINA GROWS

Dilip Hiro, Tom Dispatch - In the midst of the worst economic crisis since the Great Depression, a new world order is emerging -- with its center gravitating towards China. The statistics speak for themselves. The International Monetary Fund predicts the world's gross domestic product will shrink by an alarming 1.3% this year. Yet, defying this global trend, China expects an annual economic growth rate of 6.5% to 8.5%. During the first quarter of 2009, the world's leading stock markets combined fell by 4.5%. In contrast, the Shanghai stock exchange index leapt by a whopping 38%. In March, car sales in China hit a record 1.1 million, surpassing the U.S. for the third month in a row.

Recognizing that its time has indeed come, Beijing has decided to play an active, interventionist role in the international financial arena. Backed by China's $2 trillion in foreign exchange reserves, its industrialists have gone on a global buying spree in Africa and Latin America, as well as in neighboring Russia and Kazakhstan, to lock up future energy supplies for its ravenous economy. At home, the government is investing heavily not only in major infrastructure, but also in its much neglected social safety net, its health care system, and long overlooked rural development projects -- partly to bridge the increasingly wide gap between rural and urban living standards. . .

What is the secret of China's continuing success in the worst of times? As a start, its banking system -- state-controlled and flush with cash -- has opened its lending spigots to the full, while bank credit in the U.S. and the European Union still remains clogged up, if not choked off. Therefore, consumer spending and capital investment have risen sharply. . .

While China's Communist leaders have responded with a familiar range of fiscal and monetary tools like adjusting interest rates and money supply, they have achieved the desired results faster than their capitalist counterparts. This is primarily because of the state-controlled banking system where, for instance, government-owned banks act as depositories for the compulsory savings of all employees.

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