Samah El-Shahat, Al Jazeera’s resident economist: “China puts people before banks”
There has been a lot of talk about China saving the world in the “Western” press. I think China increasing internal consumptions is going to dampen the U.S. trade deficit with her, and beyond continuing to help pull along other developing countries who were already reliant on her in the past, China is not going to be able to fix the mess that exists in the developed countries in the near future. She continues to loan to the U.S., but that’s only a measure to avoid collapse of the USD – which is the interest of both countries.
Samah El-Shahat, an Al Jazeera resident economist wrote, China puts people before banks. It amazes me that the financial industry in the U.S. is essentially allowed a free pass on the destruction of so much of its citizens wealth. Could we agree the Chinese government is perhaps doing something savvy for its people?
Samah El-Shahat, Al Jazeera’s resident economist, writes a regular column analysing key elements that have contributed to the global financial downturn and its impact across the world.
China hasn’t allowed its banking sector to become so powerful
The one question that isn’t going away this global recession, is whether China can save the world.
But before we go running to Beijing, hat in hand, demanding assistance or else, there are some home truths that need to be considered first.
China is a developing country, with a per capita income of $4,000, which is much closer to those of African economies than to the US per capita income at $39,000, and $33,000 in Europe.
China has 130 million people who still live in absolute poverty, and even electricity hasn’t made it every household yet.
So why should China be asked to save anyone but itself right now?
China: Special Report
In fact, as Michael Pettis, a professor at Peking University’s Guanghua School of Management says, China’s consumption was about the equivalent of France’s last year, but no one is calling on Paris to save the world.
The crisis, though, has exposed and clearly magnified the fault lines in China’s emerging economy of 1.3 billion people.
The Asian giant needs to nurture its own domestic demand, so that when the export market goes sick, like it has in this Great Recession, it doesn’t drag China down with it.
But making her people spend more than they save is harder said than done. After all, less than a generation ago the Chinese were so poor that hunger was the accepted norm in their daily lives.
Tiger has risen
Speak to Chinese officials in their late 40s onward and they will tell you that thinking about food was a major preoccupation as they were growing up – it was so scarce and many had to collect food coupons.
Yes, this Asian tiger has risen despite a recent past of malnutrition. So getting the Chinese to move away from the “survivors'” mentality of savers to one of spenders will not be easy.
Economists believe it takes a whole generation before people can change their ways and habits. But such a change can be overwhelmingly helped by the establishment of social welfare and safety nets such as health care provision, and other forms of social security.
This might encourage the Chinese to loosen their purse strings.
So why do we assume China can save the global economy?
Is this not a warped sense of economic prioritising to ask a developing country with pressing economic and social problems of its own to come in and sacrifice herself for the rest of the world?
Lending the US
This could have something to do with China’s $2tn in denominated securities, and bonds it has acquired from the US. It is after all the US’s biggest lender.
Yet, take that two trillion-dollar sum and divide it by 1.3 billion – the Chinese population – and I assure you not much would be left for your average Chinese citizen.
However, I feel this basic misunderstanding of China and her position in the world, has to do with our negative bias toward that country – we are much tougher and harder when it comes to the way we report our economic stories on China.
We are not telling enough stories of how we can in fact learn from China, particularly in the way its keeps the power of its banks in check.
Something we have been unable to do.
China is the one leading economy where the divide – the disconnect between its financial sector and the world normal Chinese people and their businesses inhabit – doesn’t exist.
Both worlds are booming again and this is due to the way the government handled its banks.
China hasn’t allowed its banking sector to become so powerful, so influential, and so big that it can call the shots or highjack the bailout.
In simple terms, the government preferred to answer to its people and put their interests first before that of any vested interest or group.
And that is why Chinese banks are lending to the people and their businesses in record numbers. Why don’t we hear more about that in the media?
In the UK and US, the financial sector is booming, while the world of normal people seems to be going from bad to worse, unemployment is high, businesses are folding and house foreclosures are still taking place.
Wall Street and Main Street might as well be existing on different planets.
And this is in large part because banks are still not lending money to the people.
In the UK and US, banks have captured all the money from the taxpayers and the cheap money from quantitative easing from central banks.
They are using it to shore up, and clean up their balance sheets rather than lend it to the people.
The money has been hijacked by the banks, and our governments are doing absolutely nothing about that. In fact, they have been complicit in allowing this to happen.
I asked Costas Lapavitas from the School of Oriental and African Studies (SOAS) whether governments had put the interests of banks before the interests of their wider populations.
“Yes I think you can say that. I think governments will probably come out and say that we helped rescue the banks, and we prevented generalised collapse. And to a certain extent that is true of course,” he said.
“However there were so many ways in which banks could have been rescued and this particular way has been done in such a way that the banks have no incentive to change the ways they operate … It is as if the banks have written the policies that the state adopted.”
Interests of shareholders
The US and British governments have allowed banks to solve their own crises in the interests of their own mangers, and shareholders – they are after all private business.
Governments should have made it conditional for banks to lend to us, before they are given access to so much of our money and the Federal Reserve’s cheap credit.
So the Western hemisphere is suffering the consequences of government failure, while the Asian Giant is celebrating government getting it right.
Funny, how our seemingly democratic governments have been taken over by vested interests.
So, lay off China. It is the one country that is putting the interests of its people above that of the banks.
And in these pressing times I say Hallelujah to that.
Samah El-Shahat also presents Al Jazeera’s People & Power programme.
The views expressed in the above column are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.
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