Chinese Economic Geography

By: CaraTan   Date: 10 August 2009

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CaraTan

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Rome, Italy, 10 August 2009.The third installment of our series on Economic Geography looks at the emerging super power, China.

 


China

China does not have the abundance of blessing that the US has, but it is not the black hole that Russia can be either. Although it does contain natural resources and good fertile land, particularly in the south west, it also has large areas of both desert and frozen steppes. For five thousand years it has maintained a unified and independent status through skillful political and military organisation built around a strong center, which currently sits in geographically poor Beijing.

 

As part of its economic stimulus efforts to counteract the global recession, China is mandating its banks (in which the government is usually the largest shareholder) to make money widely available on easy terms. This has fuelled domestic demand and helped to maintain growth while exports have slowed. However there is a

large Chinese bubble being built up, and a lot of the loans currently being dished out will never be repaid.

Geographically, such lending from Beijing is both traditional and needed to maintain a unified nation. Beijing, in the north, has no meaningful seaport or natural resources. It is near the Yellow River, but that is hardly comparable to Shanghai's Yangtze or Guangzhou's / Hong Kong's Pearl River. It is far from the main centers of agriculture and manufacturing.It therefore needs to maintain control economically, through largess. Today, it does that with bank loans and state money is distributed to private, semi-private and local government entities,

Beijing has to invest in keeping the nation cohesive and together. It has excellent skills in mobilising large amounts of capital and human resources for mega projects. This both justifies its role, since the provinces could not do this alone, and keeps them dependent on ever more largess to employ their growing ranks of workers. Successful mega projects such as the Grand Canal that joins the Yellow and Yangtze, the Three Gorges Dam and the Beijing Olympics are sources of great national pride - and care expensive, ironically meaning Chinese has less real free capital than the US has.

So as these state-mandated loans are handed out, at 0 percent interest, expensive projects are started (like the canal), providing jobs and work for millions. But these projects often fail, and nobody is held accountable. And why should anyone care? Just get another loan and do it again.

This growth makes for some impressive figures, but it can't continue forever. So now it's apparent why that $2 trillion is in the US - the US dollar is stable and the returns are good. And the US is pretty happy to have this huge credit line, but that's another story.

Beijing's real fear is of exports dropping any more than they already have. There is a limit to how much capital they can pump into the economy. There are already thousands of acts of civil unrest every year, and unless they can continue to employ the twenty million or so new workers that join the economy every year, these could spiral out of control.

If the largess slows, rich provinces would then have less reason to pay the taxes that Beijing requires, and the ensuing political conflict could quickly lead to another feature of China's long history - factional fighting for control (or re-location) of the center.

Chen Xiulian, EconomyWatch.com  

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