Two more pieces of economic news underline the continuing shift in the balance of world economic power away from North America and Europe. China has just supplanted Germany as the world’s leading exporting country and by book value, four of the top five global banks are now Chinese, with the fifth largest being from Brazil.
It can and indeed is being argued that these latest bank rankings merely represent a temporary change in the traditional US-dominated league tables, after two years of blood-letting among Western financial institutions. It is further asserted that the largely state-owned Chinese banking system cannot be compared with its free market counterparts in areas such as transparency, risk provisioning and efficiency.
Even if such claims are true, the reality is that the Chinese banking system is still standing, because it did not become involved in the derivatives trading frenzy that was ended by the collapse of sub-prime mortgage securities. It is also patently wrong to sneer at the state-ownership of most Chinese financial institutions, since due to their lunacy and incompetence many of their Western rivals are now owned by their governments as well.
The criticism that Chinese banking is not developed is also quite wrong. When the British returned Hong Kong, they also handed over cohorts of banking and trading talent, which was quickly absorbed into mainland banking. The Chinese government may indeed try to keep a tight rein on its banks, but then there are many Western taxpayers who now wish their own governments had been half as strict.
China’s eclipsing of Germany as the world’s top exporter, is also being dismissed on the basis that Germany has specialized in high-value, low-volume engineering goods, while China has become the world’s preferred manufacturing base for millions of low-value, high-volume items. This is no longer absolutely correct. Beijing’s huge manufacturing base has adapted itself swiftly to the more advanced and complex production of high-quality and high-value goods. It has become for instance the world’s largest producer both of wind turbines and solar panels. Chinese auto sales now dwarf those in the US. They doubled last year to more than a million vehicles a month. This demonstrates the strength of the country’s vast domestic market, to which manufacturers turned last year as export orders nosedived.
As Western economies recover, the world is going to look rather different to its leading banks and manufacturers. Chinese capital has begun to follow Chinese goods into its global markets, buying up for instance automotive and natural resource companies. Therefore as the country exposes itself to more global risk than a simple export order turndown, it should be seeking to play a bigger role than at present in international regulation and accounting standards.
At the moment it is not. Is this a further reflection of its established reluctance to accept outside rules and monitoring? If so there is a problem. China is simply too big and too important not to play a key role in reordering the world’s financial affairs.
