the visible hand

it is the theory which decides what can be observed – einstein

Is China ready to assume leadership of the globalized economy?

Posted by ecoshift on September 29, 2008

Interesting perspective on the current crisis…

Taipei Times – archives
Is China ready to assume leadership of the globalized economy?
By Harold James
Monday, Sep 29, 2008, Page 9

Worried investors and policymakers are becoming obsessed with Great Depression analogies. But the lesson of 1931 is only in part financial or economic. The 1931 crisis was so big and so destructive because it was a financial drama that played out on a geo-political stage.

Two surprising conclusions are emerging in today’s discussions, but only one has been fully digested. First, big public sector action is needed. Second, such action is complicated because in a globalized world the need for assistance spans borders.

In the similar circumstances of a financial meltdown in 1931, there were also only a limited number of governments that could be effective. The old economic superpower, the UK, was too exhausted and strained to help anyone else. World’s reserves were massively accumulated in the US.

China is the US of this century. The initial stages of the credit crunch last year were managed so apparently painlessly because sovereign wealth funds (SWF) from the Middle East, but above all from China, were willing to step in and recapitalize the debt of US and European institutions. The pivotal moment in today’s events came when the Chinese SWF China Investment Co (CIC) was unwilling to go further in its exploration of buying Lehman Brothers. CIC’s turning back will be held up in the future as a moment when history could have turned in a different direction.

We are about to see what stake China really has in the survival of the globalized world economy. As in 1931, the political arguments are all against such an operation. Only the far-sighted will see that the case for a rescue is compelling.


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