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China In Transition: Implications for Asia- Economic Dimension

ABSTRACT In the early part, the paper goes over five generations of changes in the political leadership in the People’s Republic of China (PRC). It details the nature of developments especially in the emergence of diversity within the governing classes and notes that the single party authoritarian has been giving way to a collective form of leadership which reflects changes in leadership, especially in terms of sociological and professional backgrounds. There is greater institutionalization of power structure to accommodate diverse interests.

It is under such conditions that Mr. Xi Jinping took over as the President and, despite earlier struggles, he has been able to consolidate his leadership. This is reflected in the composition of the Politburo Standing Committee (PCB). The PCB represents “elites” and “populists” and there is hope that there will be balance in policy formulation.

When Xi took over, the question was whether he would be able to continue the reform process which has had a set back during the earlier decade. There were long and continuing debates among analysts and China watchers. The paper goes over these debates and reports and takes the view that the current leadership is committed to reforms and would be able to push them through. Xi has chosen technocrats with competence and long experience to advise him. Details of the new structure at the PCB and official levels are provided.

The paper also proved a detailed background to the “rebalancing” efforts by the PRC authorities to which the Xi administration is also committed. The nature of imbalances created in China’s economy and society has been described at length. It also refers to several reports and studies undertaken by leading global agencies like the World Bank, ECB, Eurasia Group, etc. Rebalancing is necessary not only to sustain China’s longer term growth but also to ensure its sustainability.

The Third Plenum of the 18th Congress assumes importance in this process of pursuing reforms and also rebalancing. Broad details of the preparatory work undertaken to finalize the draft policy statement for the Standing Committee are given.

A brief analysis of the Communique issued after the Third Plenum is made along with an idea of global response to the new policy. Though the document is high in rhetoric, it is low in details and these are yet to be given by the Chinese authorities. Several groups have been formed to implement the reform programs and Xi himself takes over the leading group. There are interlocking arrangements both to work out the nitty-gritties and to implement them. These give hope that there is political will and the Xi government means business. In all these, the primacy of the Party in policy formulation is ensured. It is unlikely that radical or sudden changes will take place. Given the Chinese way, it is likely to be gradual, incremental and experimental China has commenced rebalancing some years ago and its approach is to reduce dependence on investment and exports as hitherto. It has to turn inwards and depend on domestic demand for growth. This policy, in the long run, will have adverse on the exports of Asian neighbours and others in Latin America and Africa and on the prices of commodities, minerals and metals which marked global trade in the last decade before the great crisis. This may lead to newer trading agreement, FTA and groupings. China may cease to be the Asian hub of manufacturing. ——— For more than two years, debates and research in the U.S. and Europe were centered over leadership transition in China, especially on how smooth the transition would be and how well the new team would perform. The interest, or rather anxiety, over these issues stems from the crucial position China occupies in the global polity and economy. What the world witnessed was the rise of a fifth generation of leaders.

The first generation was led by Mao Zedong. Deng Xiaoping took over during the second. Jian Zemin followed in the third and Hu Jintao represented the fourth and has paved the way for the fifth generation of leaders under Xi Jinping. Leadership changes and styles have been studied closely by an army of Sinologists. During the past six decades, there have been phenomenal changes within China and in the global scenario. From around 1979, China’s leaders steered through a ‘modernization’ or ‘marketization’ process and China grew at a stellar rate of over 10 per cent for over two decades. It has come to occupy the second position in the global economy, next only to the U.S. The rise of China has been a source of admiration for many and fear or loathing for some. For China, it has indeed created problems both within and abroad. It is called upon to take on or assert its position in the global strategic framework and the financial (economic) architecture. It has been a long process and not easy.

Western China scholars have repeatedly express concerns over the authoritarian structure in China and the opacity surrounding the differences and tensions among its leaders. Their endeavor has beento contrast the Chinese mode with the smooth processes followed in democracies to bring about changes in leadership. China has not remained static. Five years ago, in one of his papers , Dr. Cheng Li, Fellow of Brookings Institution, wrote about the growing diversity in China and wondered whether “The emerging generation of Chinese leaders, known as the “fifth generation” is likely “to find the challenge of producing elite harmony and unity within the CPC more difficult than leaders of previous generations.” He observed three factors which might contribute to political challenges. The first was the move from single charismatic leadership to a collective form of leadership. Second was the changing nature of the elite from a largely homogeneous, in terms of sociological and professional backgrounds, to wider and disparate streams. The earlier generation consisted of “old guard” with revolutionary background (the ideologues!) and the new ones from varying professional classes. Indeed, the fifth generation is the most diversified in composition. The last is the context or the glaring reality which faces the fifth generation. There is growing unrest within the country and the People’s Republic of China (PRC) confronts unstable and increasingly complicated external environment.

Cheng Li contrasted the pessimistic scenario with an optimistic counter scenario. He felt that the power struggle was unlikely as the fifth generation leaders realize that they are all “in the same boat” and it is in their interest to demonstrate political solidarity when facing enormous economic and socio-political challenges. “The diverse demographic and political backgrounds of this generation of leadership can also be seen as a positive development to the extent that this diversity contributes to political pluralism in the country.” He posited that the collective leadership could provide a basis for power sharing through checks and balances among political camps and “also entails a more dynamic and institutionalized decision making process through which political leaders come to represent various social and geographic constituencies and thus develop better policies to meet new and complicated socio-economic environments.” In retrospect, this assessment isprescient. The new leadership represents various contending interests and groups. It is well known that despite the show of unity at the end of the 18th Congress, it was preceded by months of intense factional struggles, highlighted by the purging of former Chongqing party secretary Bo Xilai, who was a contender for the Politburo Standing Committee (PCB). As the World Socialist Web site put it, “This infighting was driven by differences over a further wave of pro-market manufacturing, and how to respond to the tightening geo-strategic encirclement by US imperialism through Obama administration’s “pivot” to Asia.” At the end, all the factions agreed over leadership. Xi is firmly in the saddle and has since been able to assert his leadership. And yet, it may not be assumed that all the factions toe his line.

It is widely accepted that leadership is no longer monolithic though China is a one-party state. Within China’s leadership there are two informal but well recognized coalitions: the “elitist coalition,” which emerged during the era of former President Jiang Zemin, and the “populist coalition,” once headed by former President Hu. The two top leaders, President Xi and Prime Minister Li Keqiang, now head these coalitions. The two coalitions represent different socioeconomic and geographical constituencies and differ in their expertise, credentials and experience. Top leaders in the elitist coalition are “princelings” from families of veteran revolutionaries and high ranking officials. The elitist coalition generally represents the interests of business elites, especially the state-owned enterprises (SOEs), and the vast majority of the emerging middle class. Over years, it could sneak into higher echelons through the emergence of philosophies like “three represents.”

On the other hand, populist coalition’s leading figures come from less-privileged families and acquired their experience in less-developed inland provinces. They emergedthe hard way from lower ranks and generally voice the concerns of the vulnerable social groups such as farmers, migrant workers, and the urban poor. The Politburo Standing Committee (PCB) determines the pace and direction of next reform, as also the sociopolitical changes for the country. In the latest leadership changeover, only one of the seven top leaders in the PSC-Prime Minister Li- represents the populist coalition. The other six are the protégés of Jiang. It is assessed that the dominance of elitists on the PSC reduces the chance for policy deadlock as a result of factional fighting. This has given Xi tremendous power to carry out his policy objectives. Four princeling leaders in the PSC – Xi, Zhang Dejiang, Yu Zhengsheng and Wang Qishan- have decades of experience and have led China’s major cities and provinces. They are highly competent in economic and financial affairs. Some China analysts suggest that due their ‘princely’ background, they command more political capital and resources than their predecessors- Hu and Prime Minister Wen Jiabao- in terms of running the Chinese economy and coordinating various government agencies. Xi himself gained experience by running Fujian, Zhejiang and Shanghai, the three economically advanced regions. He has the requisite clout to promote private sector, foreign investment, trade and the liberalization of the financial sector. Wang Qishan is another experienced hand and is reputed to be the most competent policy maker in economic and financial affairs among the Chinese leaders. She was the principal convener in the Sino-US Strategic and Economic Dialogue (SEC). SEC has been instrumental in shaping China/US economic relations in recent years. She has handled several crises in the past such as the Asian Financial Crisis of 1997-98, the SARS of 2003 and is currently serving as the anti-corruption Czar. Wang will promote continued development of foreign investment and trade, the liberalization of the financial system, fiscal control and tax revenue reforms. Broadly, the members of the PSC are interested in economic reform and will steer future reforms. One criticism against them is that they are conservatives on political reforms.

Another important development is that, at the official level, Xi has managed to assemble a capable team to implement monetary and fiscal policy reforms. It includes experienced technocrats like Zhou Xiaochuan, Lou Jiwei and Liu He. Dr. Zhou is the legendary central bank chief who has led the People’s Bank of China since 2002. He was given extension of two more years last year. He has skilfully met the challenges to China’s exchange rate policies from the U.S., IMF, etc. His efforts to internationalize the Yuan have received global recognition. He played a major role in reforming and cleaning the banking system in China. Lou who has been appointed as the finance minister is associated with economic reforms since the 1990s. He has the reputation of being one of the most powerful fund managers in the world when he held charge of China Investment Corporation which handled China’s sovereign wealth fund. Liu is associated with the National Development and Reform Commission (NDRC) and will take on as the Director of the Office of the Central Leading Group on Financial and Economic Affairs. He has been associated with the planning process for long years. He is regarded as the most influential economist of his generation. He was associated in the preparation of the World Bank Report published in 2012 and which provided a blueprint for China’s growth until 2030.

This team of technocrats would ensure continuation of reforms. It was also expected to accelerate reforms and, in its efforts, the teamwill have the support of the PSC. There was hope that the new leadership under Xi will be able to undertake a comprehensive economic reform agenda that will include financial liberalization, central-local tax reform, and pricing reform, greater incentives for private sector development, deregulation, SOE reform and policies governing rural-urban migration. How did the process progress? The reports are mixed.

In his first speech as the CPC leader, Xi appealed to Chinese nationalism. “Our responsibility now is to rally and leadthe entire party and the people of all ethnic groups in China in taking over the relay baton passed on to us by history, and in making continued efforts to achieve the great revival of the Chinese nation,” he said. In a televised interview on 15 November, Xi exhorted, “Our party faces many severe challenges and there are many pressing problems within the party that need to be resolved” and added that the new leadership must, “effectively deal with the prominent issues within the party and earnestly improve the party’s work style and maintain close ties with the people.” Commenting on the speech and the problems confronting the new leadership, one commentator wrote in the Financial Times that incoming administration would not have the luxury of the favourable forces which Hu had. He went on to add, “Hu Jintao administration, despite overseeing what was perhaps the greatest period of prosperity in centuries, did not seriously attempt to enact economic and political reforms that could have put the country on a more sustainable path.”

Ever since the new leadership took over, the question raised was whether Xi and his team would be able to carry through the reforms. Opinion varied from those who were hopeful to those deeply skeptical. Mr. Louis Kujis, one of the old China hands who worked in the World Bank gave his assessment in November 2012. He felt Xi “may take a more comprehensive approach to reform and do more to rebalance the Chinese economy. But it is important not to overplay the impact of new leaders. Gone are China’s strongmen, Mao Zedong and Deng Xiaoping. Leadership is now collective, headed by the party’s all-powerful Politburo Standing Committee.” He also referred to the fact that China’s economic plan for 2011-15 would continue to serve as an important reference point much in the same way reforms were championed by Hu and Premier Wen Jiabo and the new leaders will continue to remain under their influence. His own expectation was that the new leaders will maintain pro-growth policies through measures such as infrastructure and relaxed monetary conditions and not go further.

Xi and Li Keqiang made repeated statements on the need to continue with reforms to promote growth and rebalance the economy. These were covered in extenso in papers like Xinhua, China Daily, People’s Daily, South ChinaMorning Post, etc. Xi undertook a tour to Guangdong Province which was seen as a self-conscious imitation of Deng’s Southern tour in 1992. As People’s Daily said, “Xi’s latest southern tour is widely seen as a signal of the new leadership’s determination to firmly deepen reform.” Li in a statement said, “We do not blindly pursue gross domestic product growth and it is very likely that our development will go through a period of moderate growth rate that can hardly stay in double digits.” Prof. Michael Pettis, a well-known China economist based in Beijing University, analyzed these statements and concluded, “The good news is that the current leadership seems very clear about the need to implement reforms and also understands that this is going to be a politically a difficult process.”

As reports drawn from Chinese press indicate, there is a lot of soul searching among academics and economists over rising imbalances and inequalities. On 12 December 2012 the China Academy of Social Sciences (CASS), a ministry level institute that advises the State Council, narrated in a report that the structural imbalance in the country’s growth model had worsened over the past decade or more. Data released in the third week of January by China’s National Bureau of Statistics (NBS) were equally disturbing. The report suggested that the Gini coefficient for 2012 was 0.474. Over the course of the past nine years, China consistently had a Gini value of over 0.4 peaking in 2008 at 0.491. According to NBS, the value was consistently decreasing over the past five years. The social impact of this development was clear. While China’s rapid economic development lifted much of its population out of poverty and into the middle class, it had pushed one class of people to lower income levels generating class tensions and threatening the country’s social and economic stability. China was witnessing the rise of billionaires alongside mass poverty and deprivation. Hot money flows and capital flights had become rampant.

Political leaders were becoming more and more worried about the unsustainability of the model of development adopted by them. For long, indeed too long, the authorities relied on investment and exports to drive the economy. It served China well for some years and led to extra-ordinary growth. National savings, bank deposits in particular, were diverted to finance investment. In greater measure this was facilitated by the high rate of national savings (households) and the absence of alternative investment opportunities forthe public. Accelerated public investment in infrastructure made China an attractive location for foreign investment. Large supply chains were established and an increasinglylarge part of Asian trade flows had turned into intra-company transactions of multinational corporations. Big ticket retailers like Wal-Mart and many other companies could outsource products from China and flood the western markets. This was also facilitated, in part, by China’s currency policy and led to “currency wars” with the US.

The currency war was ultimately won by China and, during recent years, there isa better appreciationof China’s exchange rate policy and how it was integrated with the policies of economic growth and stability. During the years of currency wars, the argument advanced, mostly by US economists and the IMF, was that China’s Yuan rate policy resulted in global imbalances. Fortunately, this was given up when it was recognizedthat other factors like the ‘twin deficits’ of the US, itseasy money policies, especially the QEs, etc. could create imbalances. Though the attack on China’s currency policy and the charge of imbalances was given up, it led to rethinking among the China intelligentsia, especially the government, of the sustainability of the development model pursued by them. Many economists like Easwar Prasad, Kujis, Michael Pettis, etc. provided theoretical constructs to suggest how the modeldistorted the economy and the social fabric and was indeed unsustainable. They argued that the lower (fixed) rate for Yuan tended to depress wages and subsidize exporters. In fact, top leadership began to describe the economy as “uncoordinated, unsteady, unbalanced and unsustainable.”

They commenced their attempts to rebalance the economy way back in 2002. The endeavor of the global community, especially the West, was to ensure China’s integration with the global economy as a stabilizing partner and not as one generating imbalances. The European Central Bank (ECB) wrote in one of its papers , “The sustainability of China’s economic growth is a key element of the global outlook. There is a widespread consensus, including in China, that the producer-biased growth model which still prevails in the country is unsustainable in the long run.” “It is widely acknowledged that failure to implement more ambitious economic reforms would involve a tail risk scenario of sluggish output performance, widespread corporate defaults, systemic banking stress and social unrest.” Easwar Prasad drew attention to depressed wage levels and income disparities brought about by the export promotion policies under devalued Yuan. As described by Nicholas Lardy and Nicholas Borst in a Peterson Institute Policy Brief , “Rebalancing entails large changes in fundamental economic policies, such as removing lingering price controls and opening up a closed financial system. It will also bring about a shift away from the economic winners of the past decade, namely manufacturers and property developers, towards private consumers and the service sector.”

As explained earlier, the Chinese authorities began to rebalance in 2002. The eleventh five year plan was one of the attempts and greater emphasis was laid in the 12th Plan for the years 2011-15 to which Xi and Li are committed. Many studies suggested that rebalancing was already taking place. A paper by Yiping Huang gave an assessment. In an article in the Wall Street Journal, Easwar Prasad said, “New data suggest that it is time to revise the view that China’s growth is driven largely by exports and investment. Private and government consumption together accounted for more than half of output growth signaling a big shift in the composition of domestic demand. Physical capital investment, the main driver of growth over the previous decade, is no longer the dominant contributor to growth. As for exports, shrinking trade balance has in fact dragged down growth in these past two years.”

Another significant step taken by the Chinese government in pursuance of their rebalancing efforts was to work on research study jointly with the World Bank. In November 2010, it was decided that the Development Research Center (DRC) of the State Council and the World Bank would work jointly on a report. This was published under the title: “China 2030: Building a Modern and Harmonious and Creative High Income Society.” It raised two questions: can China’s growth rate still be among the highest in the world even if it slows from its current pace? And can it maintain this rapid rate with little disruption to the world, the environment and the fabric of its own society? The report gave out a blueprint for rebalancing in the future. The message or the warning given in the Report was that unless China put through substantial reforms, it would end up with a “middle income country trap” with stagnation and no further growth. There were many elements in the Report which were controversial and did not find favour among sections intellectuals and the public. But the report is evidence that China is serious in its efforts to find ways of rebalancing the economy for longer term stability and equity.

Similarly there was another report by the EURASIA Group outlining the problems Beijing will have to overcome in making the transition. As Evan Feigenbaum of the Council for Foreign Relations put it, “All these reports make one common argument in particular: that China’s growth model is no longer sustainable ad the country’s savvy leaders know it. Beijing is committed, at least in principle, to rebalancing China’s economy because its capital intensive, export-oriented approach is delivering diminishing returns and threatens to become a major political vulnerability for the government.” The larger question is: Can the leadership overcome the entrenched constituencies that will fight hard to block them? What will be shape of reforms under the new leadership?

All attention turned to the Third Plenum of the 18th Congress. The brouhaha surrounding the plenum in the Chinese press was unprecedented. The preparatory work was elaborate and significant and suggested seriousness in policy making. The proposed reforms were expected to revitalize the world’s second largest economy. Liu He who heads the party’s Central Leading Group on Financial and Economic Affairs was given the task of preparing a seven point blueprint for the Third Plenum. Yi Gang, deputy governor of the PBoC was asked to advise on a financial system which would be ‘inclusive.’ Wu Xiaoling, a former deputy governor, was entrusted with financial reforms. Other areas such as reducing inequality, pricing, urbanization including “hukou” system, etc. were entrusted to experts or technocrats.

Much publicity was given to the preparatory work being done for the Third Plenum. The leaders repeatedly explained that the proposed reforms would be “unprecedented” and “comprehensively deepening.” There was wide publicity to create a halo around the Third plenum as a historical event to bring about reforms. It was endowed with symbolism and compared with the Third Plenum under Deng’s leadership which opened up China’s economy to integrate it with global trading system.. In practical terms there were seven working groups which worked out various important areas. These were to provide inputs for the draft policy statement to be submitted to the Politburo Standing Committee (PCB). The Third Plenum was scheduled to be held from 9 to 12 November, 2013. Ahead of the meeting, the Development Research center of the State Council, a Chinese government think tank, highlighted eight key reform areas to be considered in the policy statement. These were wide ranging and, by any test, daunting and based on DRC’s “383 Project.” The “383 Project” was shorthand for three themes, eight key reform areas, and three correlated reform combinations. The three key themes were: Improve the market system; transform the role of government; and build an innovative corporate structure. The key reform areas were: Government, State monopoly sectors, land ownership ad administration, financial sector, tax system, management of state assets, innovation and further opening up of the economy. The other areas seek to enhance competition, deepen social security reform and finally, to deepen land reform. Liu He, one of the co-authors of the report, is a key economic adviser to President Xi and that should lend respectability to the program! When the report was published on 30 October in Global Times, many think tanks supported DRC’s proposals. There were many others who were critical. Some attacked it as a mimic of World Bank’s Report:“China 2030.” It was argued that the document reflected a minority view within the political establishment which was pro-reform in its mind set. They felt thatit did not take into account the views (contrarian!) of China’s broader public as evinced in internet and social media. After the conclusion of the Third Plenum, a Communique was issued on November 12, 2013. It is a dense document which is high on rhetoric and low on specifics. One has to wade through long paragraphs of ideological verbiage and it is difficult to get an idea of the specifics on the proposedreforms. Within days after the Plenum, US Treasury Secretary Jacob Lew met President Xi Jinping and wished to ascertain details on how the Chinese government planned to liberalize its economy. After meeting Xi, he said, “I think there is going to continue to be progress, but the question is on how his government plans to liberalize the world’s second-largest economy.”

Since then there have been assessments by several other economists and analysts. Financial Times (November 12) took the view that China keeps the state in the driving seat while pledging ‘decisive’ reform. “The overall goal is to complete and develop the socialist system with Chinese characteristics and push forward the modernization of governing system and governing ability.” As the FT put it, “the jargon-laced communique….. seemed to rule out any reduction in the power of the state-owned sector.” While details of the reform agenda are awaited, it is clear that there may be greater reliance on market forces in promoting growth, allocating resources, pricing, etc. It is easier to set them in broad statements or generalities, but the real test is how they will be implemented. It is very likely that, in keeping with China’s past, the reforms will be incremental, experimental and done in stages.

The organizational details suggest that the authorities could push the reforms faster.Six groups are groups are being formed to oversee and implement reforms. President Xi will be at the head of the new leading group for overall reform. This group will design a holistic plan; facilitate co-operation between different agencies involved; implement the plan as a whole; and monitor progress. It is at the implementation and coordinating stage that the vest interest will have their play. But with the kind of new panel of technocrats earlier detailed, there is hope of better management and performance. China’s bureaucratic maze is as complex as or perhaps more than many other countries. Despite all the facades of new arrangements through groups and task forces the aim is to defend or protect the primacy of the Party. There is an inter-locking discourse between members of Standing Committees and the Politburo of the CPC. Yin Yungong, an expert on socialist system at the Chinese Academy of Social Sciences, told Global Times, “One of the plenum’s key guiding principles is that the Party’s leadership and the socialist system couldn’t be changed, no matter how the reform is carried out.” The hope is that reform will be carried out but the cost of higher growth.

What will be the impact of reform on China’s growth? As explained earlier, the model of investment and export led growth has reached its limit and is giving lower (negative?) return. Export markets whether in the U.S. or elsewhere are shrinking in part due to protectionist measures and in part due to lack competitiveness vis-à-vis other entrants. Newer formations like regional trading arrangement, FTAs and similar blocs reduce the share of exports. In any case, China has to turn inwards and depend on domestic demand for future growth rather than on exports. The reform proposals will facilitate the rebalancing process. As Michael Pettis has explained, “These reforms .. will ensure that even as China’s economic productivity improves, its GDP growth numbers will drop as the reforms are implemented.” He feels that growth rates will drop by roughly one or two percentage points every year for the rest of this decade. However, implementing reforms will protect China from a hard landing. “It will however force much lower, albeit healthier, growth rates.” This will ensure longer term growth and sustainability.

In recent years, especially after the eruption of the global crisis, China’s growth rate had slowed. At the same time, Chinese leaders had shown readiness and the capacity to live with lower growth and the economy is also responding to the revised policies. According to NBS the economy was showing signs of stabilization of that growth for 2013 would be at the targeted level of 7.5%. “The economy is showing some signs of positive changes. Signs of growth, stabilization are becoming more obvious.” In later statements the Stat Council urged authorities “to ensure quality and steady growth.” More recent data were supplied on 5 March 2014 when China’s National People’s Congress began its session. Premier Le Keqiang set a growth target of “about 7.5%” the annual legislative session. He said, “We are at a critical juncture where our path upward is particularly steep. At the same time it should be noted that China has the foundation and conditions for maintaining a medium-high rate of growth for some time to come.”

Many economists, especially those in the World Bank, are wearing round to the view that slower growth now could fuel faster growth in the future provided the transition is not too abrupt and China’s leaders use the breather to create high quality jobs, carry out land and labor reforms and revamp fiscal policies that create distortions. Prof. Michael Spence, a Nobel Laureate and Professor at New York University, has been following China’s polices and economic trends and made the following observation: “With significant elements of the global economy and external demand facing headwinds, China’s acceptance (so far) of a growth slowdown, while its new engines kick in, is a good sign…It suggests that policymakers are playing for longer-run sustainable growth and have become warier of policies that, if used persistently, amount to a defective, unsustainable growth model.”

China rebalancing and turning inward to depend more on domestic demand to promote its growth will have far reaching changes in global trade and trade flows. After its accession to the WTO and during the years 2002-07, China’s exports grew 29% annually on average. It helped to promote global growth during those years. The beneficiaries were commodity exporters ranging from Latin America to Asia and Australia. Countries like Indonesia, Brazil and South Africa owe their rapid rise due to these exports. Recent collapse of commodity trade has created slower growth in those countries and also affected the value of their currencies. For the first time in history, China was able to build economic bridges with a string of Latin American countries displacing the dominance of America from the sub-continent. Another unique feature which had developed was that China had become the hub of Asian manufacture and more than 60% of the exports from China were final products sourced from Asian neighbours and assembled in China.

All these trading and commercial arrangements will have to be restructured and it is difficult to predict at this stage the patterns that would emerge in the coming years. China which remained an engine of growth for many of these countries may cease to play that role. The future may see the emergence of regional trading arrangements or groups having common purpose. Asian countries have every reason to worry about the Chinese colossus in transition.

(The writer Mr. K. Subramanian, is an Associate of the Chennai Centre for China Studies – C3S. The above is full text of his presentation on the subject at the C3S National Seminar on “China in Transition : Implication for Asia”, held in Chennai on 8, March 2014 Email:subrabhama@gmail.com)

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