China’s economic impact
By Shahid Javed Burki
Tuesday, 28 Jul, 2009


CHINA’S economy is being restructured in several different ways. Some of these are visible; some are more difficult to discern. How this happens will have great consequences for the rest of the developing world, especially for a country such as Pakistan.

Today I will focus on three aspects of this change: one, China’s likely role in the evolving global economic order; two, the revival of the country’s economy at a rate not anticipated by most China experts; three, the process of urbanisation in the country and how that might impact on the structure of the economy.

For the last several months, China is playing an active role in several different forums. These include the G20, the G8+G5 and the Shanghai Cooperation Organisation. For several reasons these organisations are unlikely to be the real driving forces in the global economic system. The G20 was being built on top of a system that had creaky foundations. The focus remained on the US and Western Europe. The latter in particular is no longer the most vibrant part of the global economy.

There may not, after all, be such a widening of influence and reshaping of the global economy as was believed would be the case only a few months ago. G8+G5 has demonstrated its inability to take important decisions on global economic matters. The SCO is an Asian organisation that can’t work for the entire world. What is likely to emerge is G2, a formal or informal arrangement between the US and China. The slow move towards multipolarism may be pre-empted by the continuing strength of the economy of the US and the rise of China.

There is now consensus among policy analysts the world over that China is well on its way to becoming a power house in the global economy. Even if it does not become the world’s largest economy in three to four decades, as some believe it might, it will certainly be the second largest after the US.

The fact that the country’s economy has begun to recover at a faster pace than was expected in the spring of 2009 is a testimony to its strength. This may happen while the rich countries are finding it difficult to shake off their economic malaise. When the global economy was in a deep recession Chinese dependence on the markets in developed countries was expected to hurt it badly. That did not happen. The World Bank has now forecast China’s growth rate at 7.2 per cent in 2009. While this is a long way down from the 11.9 per cent in 2007, it is still remarkable, given the sluggishness in other parts of the world.

China is likely to achieve this impressive rate of growth in spite of a fall in the rate of export growth from 20 per cent in 2007 to eight per cent in 2008 and to a forecast of minus 10 per cent in 2009. The country, it appears, is no longer that dependent on exports for growth as was believed before the present crisis hit the globe. It may lead the emerging economies towards ‘decoupling’, a concept according to which these economies are no longer very dependent on the world’s rich nations. How will this new China affect the global economy and its political system?

The current thinking in the US emanating from a number of policy institutions on both coasts of the country sees the coming global arrangement from the bipolar perspective, in part because such a system is familiar to policymakers as well as policy analysts. This is one reason why the administration of President George W. Bush paid so much attention to cultivating a new relationship with India. There is a simple idea behind this. Developing India as a counterweight to China will further America’s interests in Asia.

Among the features that will mark China’s rise, several have no historical precedent. Take for instance the pattern of urbanisation in the country. China’s urban future will be shaped all along the country’s east coast, from Dalian in the northeast to Guangzhou in the southeast. Within the next few decades, we will probably see 500 million people living in this narrow strip of land with a combined income of $10tr and income per capita of $20,000. The concentration of such a large number of people with high incomes in a narrow strip of land will have enormous consequences for China’s own economic growth pattern as well as on the global economy.

For instance, China is unlikely to concentrate on the development of land-intensive economic activities. This doesn’t only mean a move away from agriculture but also from the land-intensive patterns of manufacturing. China’s economy in terms of space use will go vertical and this will mean moving away from economic activities that need a great deal of ‘flat space’ towards those that can be carried out in high-rise factories.

What this implies is the shift not only from agriculture but also from traditional manufacturing. China will concentrate more and more on knowledge-intensive production systems. In fact it is encouraging this move by investing large amounts of public resources into developing the needed human resources.

What does all this suggest for Pakistan? Some conclusions are obvious. Islamabad must cultivate a close economic relationship with China and it should be based on a carefully worked out strategy. Pakistan can support China’s development as a country with a high population density along the country’s east coast by getting engaged in the provision of goods and commodities that will be needed. Pakistan could also concentrate on the activities that China will not be able to do on its own. That would mean highly linked industrial sectors, with Pakistan supplying parts and components to the Chinese industry. What is needed is a relationship based on careful thought and planning.