Geopolitics

Background

The Chinese economy is often referred to as the fastest growing in the world. Between 1990 and 2004, the annual growth was 10% per year. (1) In the historic context, this has been a long, ongoing process starting with the centrally planned economy under Mao Zedong. Reforms in the direction of a free market system were made by Deng Xiaoping in the 1980s and 1990s. The economy has experienced continued liberalization until today, and this process is likely to continue. China today has several autonomous regions, including Hong Kong (under the “one country, two systems” parole), which its Five Year Guidelines, plans for the economy, does not include nor mention. The plan for 2006-2010 focuses mainly on

“securing economic growth and economic structure, urbanizing the population, conserving energy and national resources, encouraging sound environmental practices, and improving education” (2).

China and the US
One cannot fully understand the Chinese economy without taking a look at the United States. China is the major holder of American public debt, with Japan close behind. The value of the US Treasury owned by the People’s Republic of China is 884 billion dollars (September 2010), or 21.9 percent of foreign ownership (3). Meanwhile, the Chinese full foreign debt is “just” 387 billion dollars, as reported by China Daily. (4) The American foreign debt is 10 times greater than the Chinese – and it is partly in the hands of the second. USA was the epicentrum of the recent financial crisis, and will give China an edge in the race for economic leadership. It will also, however, affect the economic growth there. The interdependency of the two countries is complex and will remain for many years. Economic movement in one country will affect the other one.
An article from early 2009 in New York Times (5):

China’s leadership is likely to avoid any complete halt to purchases of Treasuries for fear of appearing to be torpedoing American chances for an economic recovery at a vulnerable time, said Paul Tang, the chief economist at the Bank of East Asia here. “This is a political decision,” he said. “This is not purely an investment decision.”

Undervalued currency?
The question of whether the Yuan is undervalued or not is the source of many disputes and discussion. According to BBC, Chinese Premier Wen Jiabao rejected criticism that China is keeping its currency undervalued in order to boost exports as recent as March this year (6). However, in September (also according to BBC) the US Treasury Secretary, Timothy Geithner, claimed that China's currency is significantly undervalued (7). It is in China’s interest to keep the currency undervalued, in order to boost its swelling export economy, so that it can get enough money to build its own inner market, and achieve what we believe to be one of China’s major economic goals: to become as independent of the outside world as possible. Their inner market is currently growing fast (8). It could also be noted that, as reported by The Economist, the Yuan is severely undervalued according to the Big Mac Index. (9)

Environmental initiatives
The failure at COP15 was due to the unwillingness of USA and China to step up to the responsibility and measures that need to be taken. China has, however, set its own target: to decrease their discharge of major pollutants by 10 percent over the course of five years (10). This is, of course, not enough, and even though China has ambitious goals concerning energy efficiency, it will not be enough with a GDP planned to grow by 7.5% per year (10).

China has been increasing trade with and investment in Africa (11). We believe this to be a project with two goals for China: To strengthen their economic growth through trade, as well as gaining influence on the continent – in the manner of the super power China is likely to become in the imminent future.

Conclusion
China today is dependent on the outside world for its economic growth. The strict ruling of the government keeps the nation together in a period of swift progress. Foreign investment and the relations with the United States suggest that the nation, which is highly dependent on the outside world today, will succeed in their ambitions of becoming a super power with a large inner market.

Olof Nordin (article)
Fredrik Eriksson (research, article)
Peshwas Farik Saadon (research)

(1): http://en.wikipedia.org/wiki/Economy_of_the_People's_Republic_of_China#2000.E2.80.93present

(2): Summary by http://en.wikipedia.org/wiki/11th_Five-Year_Economic_Program
Original source: http://english.gov.cn/2006-03/06/content_219504.htm

(3): http://www.treas.gov/tic/mfh.txt

(4): http://www.chinadaily.com.cn/bizchina/2010-01/07/content_9280570.htm

(5): http://www.nytimes.com/2009/01/08/business/worldbusiness/08yuan.html?pagewanted=2

(6): http://news.bbc.co.uk/2/hi/8566597.stm

(7): http://www.bbc.co.uk/news/business-11328532

(8): http://www.nytimes.com/2010/06/25/world/asia/25china.html?_r=2

(9): http://www.economist.com/node/17257797?story_id=17257797

(10): http://english.gov.cn/2006-03/06/content_219504.htm

(11): http://news.bbc.co.uk/2/hi/africa/7086777.stm