China's decisive role in the world economy
Updated 18:56, 01-Feb-2023
Paulo Nogueira Batista Jr.
China's decisive role in the world economy

China's decisive role in the world economy.mp3


Editor's note: Decision Makers is a global platform for decision makers to share their insights on events shaping today's world. Paulo Nogueira Batista Jr., a Brazilian economist, is the former Vice President of the New Development Bank (NDB) and former Executive Director for Brazil and other countries in the International Monetary Fund (IMF). The article reflects the author's opinions and not necessarily the views of CGTN.  

China has a substantial and increasing role in global economic matters. Yet, there is a tendency in certain influential circles in the West to understate China's relative weight and economic performance.

Everything that happens in China is of widespread interest to all other countries. China is first in terms of population. It has the third largest territory (after Russia and Canada). And it has become the world's largest economy, overtaking that of the United States.

This last point is disputed. Western analysts and media try to stick to comparing the relative size of different economies by using market exchange rate-based gross domestic products (GDP). However, GDP based on purchasing power parity (PPP) is a preferable approach, since the frequent large fluctuations in market exchange rates lead to wide changes in GDP figures are measured in U.S. dollars that do not reflect actual economic changes.

Moreover, market-based exchange rates are only relevant for internationally traded goods. Non-traded goods and services tend to be cheaper in the emerging market and developing countries, such as China, leading to an underestimation of their relative economic size when market exchange rate-based GDP figures are used.

Be as it may, whether number one or number two, China's weight is increasing on almost continuous basis. Human beings being what they are, this has led to envy, fears and attempts to contain China's economic rise.

We even see attempts to isolate China. This is futile, since China has replaced the U.S. as the dominant trading partner to the vast majority of countries, even in South America. For Brazil, China has emerged as the largest export market since 2009. Last year, it accounted for 27 percent of Brazil's total foreign sales. China's economy is crucial for Brazil, especially for our agricultural and mineral sectors.

Thus, in Brazil, as in many other countries, there was much concern over China's economic slowdown in 2022. In the developed West, however, some Schadenfreude became apparent – irrational of course, given that China's lower GDP growth had harmed their economies as well.

Americans and Europeans could take comfort that China, in terms of development level, lags well behind the advanced countries of Europe and North America. China's GDP-PPP per capita corresponded to around 28 percent of that of the U.S. in 2021. But they are still worried. I lived in Washington D.C., as Executive Director for Brazil and other nations in the IMF, when China overtook the U.S. in terms of GDP-PPP. Apparently, many Americans were upset over the loss of their long-standing number one position. They try, together with other developed nations, to conceal this new reality by insisting on the use of GDP measured in market exchange rates.

A view of the Longtan Container Terminal of Nanjing Port in Nanjing, Jiangsu Province, May 6, 2022. /Xinhua
A view of the Longtan Container Terminal of Nanjing Port in Nanjing, Jiangsu Province, May 6, 2022. /Xinhua

A view of the Longtan Container Terminal of Nanjing Port in Nanjing, Jiangsu Province, May 6, 2022. /Xinhua

Not only, by the way, in comparisons of the relative economic size of countries, but also in negotiations of IMF quotas and voting power and similar issues in other multilateral financial institutions. The developed West hangs on to an institutional predominance that no longer reflects the realities of a multipolar world. One single figure suffices to make this point: Only 14 percent of the world's population are living in advanced countries. Moreover, an increasing share of the population of the U.S. and Europe comes from the developing nations of Latin America, Africa and Asia – despite fierce resistance to immigration.

The ill will of many U.S. economists or U.S.-trained economists towards China is perceptible, since the 1990s. How many times over the years did one read or listen to dire predictions of a sharp slowdown, recession and even economic collapse? China disappointed these doomsayers. They may yet get it right one day, in the same way that a broken clock is correct twice a day. But it doesn't look like they will be more successful in the forthcoming years.

With the relaxation of COVID restrictions, the Chinese economy is expected to recover in 2023 and 2024. Fears that a wave of infections could derail the economy seem to have been overblown. The IMF foresees that China will grow around 4.4 percent this year, and this projection could be on the low side.

Economic predictions are fragile. As an old saying goes in Wall Street: "If you have to forecast, forecast often." Accordingly, growth projections for China were often revised upwards during 2022. In 2023, China seems to have recovered its economic dynamism. Over the longer run, we can expect China to continue to expand its share of world GDP.

Nevertheless, China should not let success lead to hubris. When living in Shanghai, as Vice President of the Bank that the BRICS created, I was impressed by a statement made by the spokeswoman of China's Foreign Ministry Hua Chunying during her visit to Washington. In response to questions about China assuming political or economic leadership in international affairs, she said: "The word 'duty' is more accurate than 'leadership,' a duty to jointly solve various problems facing the world."

China, as well as the other BRICS countries, should show the world that we are not in the business of proclaiming ourselves global or even regional leaders and will, on the contrary, be humble in our relations with all countries, be they small or large, poor or rich. Other emerging market and developing countries will thus perceive the rise of China and the other BRICS member states as a qualitative change for the benefit of everyone.

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