[Viewpoint] Ignore the China naysayersDespite the global economic crisis, there are Korean products that are enjoying unexpected popularity, especially in China.
We all know about the brisk sales of Samsung and LG appliances and Hyundai automobiles. To encourage consumers to replace old products with new models, the Chinese government is providing handsome subsidies for automobile and home appliance purchases to rural families. Korea is benefitting from the subsidy program - but if you visit China, you will find it’s not the only place where there’s money to be made.
SK Energy in China has sold more than 10 million tons of high-end asphalt, enough to pave a four-lane road that could go around the earth three times. The total length of China’s highways is about 60,000 kilometers (37,000 miles), about half that of the United States. In the first half of 2009 alone, China placed orders to build 111 highways that will add up to 12,000 kilometers. Part of this is thanks to the Chinese government’s enormous economic stimulus package. SK is even considering moving its asphalt business division to China.
While China was growing rapidly over the last three decades, Western experts were focused on predicting when China would fall. They are still making forecasts on when China’s soar will turn sour.
If you look through dusty glasses, the world will seem hazy. The three largest banks in the world by market capitalization had long been Citigroup, Bank of America and HSBC, but this year, China’s ICBC, China Construction Bank and the Bank of China were ranked at the top. As the banking giants in the United States and Europe sank, Chinese banks filled the top spots. A hero is born in troubled times, and a business tycoon is born in a bad economy. That saying is certainly true in Beijing.
China surprised the world with an economic stimulus budget worth 4 trillion yuan ($586 billion) in November 2008. The world was struck again when statistics showed that Chinese banks had released 7.4 trillion yuan in the first half of 2009 alone.
However, there is no need to be alarmed. China’s finances are unexpectedly solid, even running a fiscal surplus two years ago. China has been faithful to the classic economic rule that finance should not reign over but instead should support the real economy. Chinese banks maintain their loan-deposit ratio below the conservative 80 percent standard. More than half of the loans went into state-run corporations through state-run banks and a majority went to social overhead capital.
China’s increasingly sophisticated strategy has impressed the world as well. China’s foreign currency reserves exceed $2 trillion. The country has been pressured to revalue its currency. One should be cautious when buying U.S. Treasury bonds in bulk because the United States is increasing its issuance of bank notes. This is a particular problem for China, which holds about 7 percent of all U.S. Treasury bonds.
So instead it is seeking to secure valuable raw materials. With its dollar reserves, China is stocking up on petroleum and rare metals from around the world. It is buying insurance to hedge against inflation and a weak dollar while dodging the pressure to revalue the yuan. It is a highly sophisticated move by a veteran player.
Of course, China has its own problems. As the size of its economy grows, it is no longer free of the law of large numbers. It will be challenging for China to continue to pull off miraculous 10 percent economic growth for much longer. Exports have decreased by more than 15 percent compared to the same period last year, and trade friction against China has doubled. Equipment investment, which has been growing by 25 percent annually, is a burden as well. You never know when the excess equipment will turn into a threat. Intensive lending to inefficient state-run companies might turn into bad debt. Still ambiguous laws and a confusing legal system encourage a short-sighted perspective, and as a result entrepreneurs work aggressively to turn out a profit as soon as possible.
However, one thing is undeniable. When other economies are cornered by the downside risk of a double dip and unemployment, China is concerned with an excessive economic boom and asset bubble. It is obvious who is happier. China certainly is better off. China has overcome the earthquake in Sichuan Province and minority uprisings without much trouble. The ominous predictions of the Western media have been proven wrong.
Maybe the biggest misconception is to think that China is only growing economically. These days, Chinese President Hu Jintao frequently mentions harmony. Harmony is the essence of Confucianism. The birthday of Confucius has been elevated to a national celebration attended by Communist Party high officials. China’s politics and its society are changing as quickly as its economy. Today when I step into the streets of China I see a land full of energy and a people unshaken.
*The writer is an editorial writer at the JoongAng Ilbo.
by Lee Cheol-ho
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