Niall Ferguson spoke on Fareed Zakaria's GPS on CNN today about the sole economy that supports globalization of most of the 21st Century, Chi-merica. The essence of this idea is that, the Chinese and American economies work in a symbiotic way, in that China provides the savings to America, which continues to spend on the Chinese exports. He argues that for the most part of the 21st Century, this symbiotic super-economy works perfectly, and can continue to work in the future, only if China decides to stay open to the world economy. If China decides to withdraw the support of American consumption, and focus on its own resources and domestic market, not only would the American economy have a very difficult time surviving the current economic recession, but globalization would instantly collapse. He suggests that from the historic point of view, China has the record of isolating itself, so another retreat is still possible. In the end, he suggests that China could withdraw at the cost of the continue functioning of world economy, or it could continue to bear the costs of American way of consumption through maintaining a high rate of saving and sacrificing the living standard of its people.
I am dubious about his proposition. On one hand, it seems he compliments China for its status as a "responsible" world power, but also suggests that China, according to record, can be very unpredictable and irresponsible. On the other hand, Ferguson seems to be rather selfish to suggest that living standards of the Chinese people could be sacrificed in order to support the lavish life-style of the Americans. Whether or not China would retreat from the global market is not a question to me, as someone who's familiar with the current political atmosphere in the country. After all, China will pay a huge price for retreating, as great as sending the country into turmoil, that the CCP cannot tolerate.
The question here, to me, is rather the simple dichotomy Ferguson proposes. To me, it's not about one way or the other, but rather the pragmatic approach of keeping the American economy afloat while proactively expanding domestic market. As James Fallows at The Atlantic explained, what kept American economy working now, is not the savings of the Chinese people, but the Chinese Government's mandatory 50% savings from export profits, collected by the Central Bank. As long as the state keeps intervening through tight monetary policies, China will have to invest its surplus in the world market, in which American market is still considered the best option.
However, this level of state intervention doesn't prevent its people from improving their living standard by spending. True that the average savings rate in China is the highest in the world, but that's not a healthy or sustainable trend either. It's only when people spend responsibly can the consumer market be developed and sustained. And it is exactly what China has been asking its people to do. In a recent editorial on an official newspaper, the author argues that responsible spending by Chinese consumers should be seen as a "strategic" move to keep China strong. In other words, for China to be a responsible player in the world economy does not mean that China has to continue its export-oriented development path. While China can continue to support American consumers by lending American government money, it should also seek to start building it's domestic consumer market. This is not only a sensible way to survive the world economic downturn, but also a responsible move to improve the national living standard by a responsible leadership. The rights of the Chinese people to enjoy a higher living standard should not be sacrificed.
