Book Preview: China and the Credit Crisis

Cover courtesy John Wiley & Sons (Asia) Pte Ltd.

Cover courtesy John Wiley & Sons (Asia) Pte Ltd.

China and the Credit Crisis: The Emergence of a New World Order
Author: Giles Chance
Publisher: John Wiley & Sons (Asia) Pte Ltd
ISBN: 978-0-470-82507-5
Paperback
228 pages
Release Date: March 2010

 

Set for release next March, China and the Credit Crisis: The Emergence of a New World Order (John Wiley & Sons (Asia) Pte Ltd) is the first book to examine the important part played by China in the run-up to the crisis and to discuss in detail the implications of China’s sudden elevation to a position of global leadership. Written by veteran China consultant and visiting Peking University professor Giles Chance, China and the Credit Crisis looks important developments like China’s ascention to the WTO in 2001 and the economic boom (and eventual bust) that followed in the global economy, to investigate important questions such as: Did China cause the credit crisis?

Chance’s book offers the valuable insight gained from 20 years of business experience on the ground in China, looking into China’s transformation into the largest financier of the developed world, one whose cheap exports brought lower prices to Western consumers and larger profits to multinationals, while massive Chinese buying of commodities promoted strong growth in many commodity-rich but less-developed countries. However, leading up to, and in the wake of, the global economic crisis of 2008, as China and the Credit Crisis details, China’s emergence helped create the conditions for the debt excesses which caused the crash. As Chance suggests, if financial policymakers had better understood the nature and effects of China’s rapid ascendance, more responsible and appropriate policies could have been put in place to mitigate — and possibly avoid — the crisis. Throughout the book, Chance analyzes China’s new role with respect to changes in global governance, the future role of the dollar, and the country’s relations with the United States, Asia and the emerging world.

China and the Credit Crisis is available for pre-order on the Wiley & Sons website.

Excerpt:

The World has Changed

 

In the spring of 1999 I was teaching 54 Chinese graduate students at the Peking University business school in Beijing. Against the background of the NATO bombing of Serbia, on Friday May 7 a NATO aircraft bombed and destroyed the Chinese consulate in Belgrade, killing three Chinese nationals. The Chinese suspected the bombing was deliberate, and immediately complained strongly to the United States. My next class fell in the morning of the following day. Only a handful of students showed up. The rest were demonstrating outside the United States Embassy in Beijing. They stayed there for nearly a week, hurling stones through the Embassy windows, while the Ambassador James Sasser sat inside.

It now seems highly likely that the NATO bombing of the Chinese consulate was deliberate, and it appears that NATO felt itself not only justified but safe in taking a highly aggressive action against Chinese interests, extending even to loss of Chinese life. In October 1999 a report in a British newspaper confirmed that NATO had deliberately bombed the Chinese consulate in Belgrade, after discovering that the building was being used to rebroadcast Serbian army communications. According to senior military and intelligence sources in Europe and the United States, the Chinese embassy was removed from a list of prohibited targets after NATO electronic intelligence detected the emanation from the embassy of military messages to Milosevic’s forces. The story at the time, that NATO had confused the coordinates of the consulate’s locations, appears to have been a fabrication.

At the end of May 1999, an article written by Stephen Yates, an analyst at the conservative US think-tank The Heritage Foundation, illustrated how conservative American sentiment stood towards China at the time. It commented:

Although the bombing [of the Chinese consulate] was a tragedy, the United States should not overreact to China’s stage-managed protests. These protests call into question the overly optimistic objective of establishing a ‘‘constructive strategic partnership’’ with China. The US relationship with China needs to be placed on firmer ground with more realistic expectations and a greater appreciation of US long-range interests in Asia.

Two years later, in April 2001, a US surveillance plane monitoring China’s coastline collided with one of two Chinese J-8 fighters that had been shadowing it, killing the Chinese pilot and forcing the US aircraft to make an emergency landing on Hainan Island, at the southernmost point of China’s mainland. Although the US aircraft was apparently operating just outside Chinese airspace, the incident was only resolved, and the aircraft’s 24 crew released, after President George W Bush had written a letter to his opposite number, President Jiang Zemin, apologizing for the incident.

 

A Permanent Shift of Power and Influence

China’s position in the world has changed dramatically since 2001, and it will go on changing. This book is about a permanent shift of economic power and influence towards Asia, in particular towards China. Nearly eight years after the Hainan incident, in February 2009, Hillary Clinton, recently sworn in as the new US Secretary of State, made her first overseas visit. Not to Canada, or to Europe, but to Asia. This made her the first new Secretary of State since Dean Acheson, nearly 60 years before, to start an inaugural overseas trip in a westerly, rather than easterly or northerly, direction. With Tokyo, Seoul, and Beijing on her itinerary, she left China till last. In deference to the long-standing US alliances with Japan and South Korea, she could not have visited Beijing first.

But there was no doubt that the China leg of her visit was the most important. A contemporary editorial commenting on the trip, which appeared in The Times of London, stated:

On almost every global issue, China’s policies are crucial. A Chinese veto on sanctions against Sudan or Zimbabwe sabotages hopes for tougher United Nations action on Darfur or Robert Mugabe. As the world’s third largest economy and largest carbon emitter, China holds the key on climate change. On energy security, nuclear proliferation in Iran and North Korea or the junta in Burma, no co-ordinated action is possible without China.

Hillary Clinton’s public address in Beijing reflected these realities. ‘‘The opportunities for us to work together are unmatched anywhere in the world,’’ she said in her speech. At their first meeting on the edge of the G20 London summit in April 2009, Presidents Hu Jintao and Barack Obama followed up Hillary Clinton’s visit with an agreement for the US and China to hold a strategic and economic dialogue, to be led by the President’s most senior lieutenants—Secretary of State Hillary Clinton and Treasury Secretary Tim Geithner. The dialogue would be based on the bilateral discussions covering economic and trade matters which had been set up by GeorgeWBush in 2006. However, in President Obama’s words, the US–China dialogue would be broadened out to ‘‘help set the stage for how the world deals with a whole host of challenges,’’ signaling a significant upgrading and extending of the US relationship with China. President Hu’s comment on the initiative was equally positive, but carried a subtly different message:

Good relations with the United States are not only in the interest of the two peoples, but also beneficial to the peace, stability and prosperity of the Asia–Pacific region, and the world at large.

Even at this early stage in the new American President’s term, Hu wanted to highlight China’s relationship with the United States as a key link between the rich world and poorer, developing countries—a link which only China, itself a developing country, could make, and an important source of China’s future global influence.

The tectonic plates which underlie the global architecture of power and influence started shifting some time ago. The premise of this book is that the global financial crisis was a major tremor which accelerated this global shift in power and influence, away from the developed world led by the US, towards Asia and the developing world. This book’s purpose is to show how China’s emergence contributed to the crisis, and as far as it is possible to tell at this early stage, what some of the major consequences of the shift could be for key aspects of international relations, and for the Chinese themselves. When we hear the President of Brazil, Luiz Inacio Lula da Silva, blaming the financial crisis on ‘‘white people with blue eyes,’’ we know that already we are traveling through landscape that we in developed Western countries may not recognize.8 The need to take stock of where we are going has become pressing. Soon the landscape passing outside our window will become strange and unfamiliar. This book is intended to help us give some thought to where we are headed.

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