By Valentina Magri
European languages are no more rewarding than those from further afield.
At least, that’s the opinion of prime minister David Cameron, who said on his return from the trip to China: “By the time the children born today leave school, China is set to be the world’s largest economy. So it’s time to look beyond the traditional focus on French and German and get many more children learning Mandarin”.
The reason is simple: Britain must be linked to the world’s fast growing economies. So, let’s turn the focus to China’s economy, and how recent market-based reform towards capitalist structures offers lucrative avenues for future growth.
The Chinese fast-growing and competitive economy
The World Economic Forum’s Global Competiveness Report 2013 places Hong Kong in 7th place (it was 9th in 2012) ahead of the UK in 10th (it was 8th in 2012) and several other leading economies. Britain’s falling status is due to the macroeconomic environment, with a fiscal deficit above eight per cent and a public debt amounting to 90.3 per cent of GDP in 2012. Hong Kong, on the other hand, rose by two spots this year due to its infrastructure development, dynamic and efficient goods and labour markets.
There are other European countries apart from UK in the top ten of the WEF ratings, like Switzerland (1st), Germany (4th), the Netherlands (8th), but all of these countries have weak GDP growth. In 2012, Switzerland’s economy grew by a meagre one per cent, Germany’s by 0.7 per cent and the Netherlands retracted by one per cent, according to World Bank data.
Conversely, China enjoyed a big growth rate in 2012 of 7.8 per cent. Since 1978 (the date in which Deng Xiaoping introduced capitalist market principles), the average growth rate has been ten per cent and the economy grew by roughly 48 times. These figures have led to China becoming the second-largest economy in the world in terms of GDP, measured both in current prices (in US$) and aPPP (Purchasing Power Parity). This powerful economy is based on services (45.3 per cent) and on industries (44.6 per cent), both of which the UK has a long history with.
The large trading of the yuan
Another source of the Chinese economic power is the yuan. On December 3rd, Bloomberg reported that the Chinese currency surpassed the Euro as the second-most used trade-finance currency, according to the Society for Worldwide Interbank Financial Telecommunication. This amazing achievement is the result of the Chinese efforts to build a greater role for its currency in the global trade.
Indeed, the State is loosening its control on exchange rates and borrowing costs. The Governor of People’s Bank of China Yi Gang said in November it is no longer in the interest of the nation to keep on building up its foreign exchange reserves. This quarter, it has been announced that China will start directing currency trading between the yuan and both the Singapore dollar and the British pound. Moreover, the opening of Chinese capital markets increased the use of the yuan: in the first nine months of 2013, 17 per cent of China’s global trade was settled in the Chinese currency.
As far as Britain is concerned, China has approved an 80 billion yuan quota allowing investors in London to buy onshore assets and George Osborne said on October 15 that there will begin direct trading between England and China.
Waiting for the freedom
The biggest problem for China remains freedom, or a lack of. According to the Annual Report 2013 by Amnesty International there are still strong tensions between government and civil society. Activists and those who criticise the Communist Party are forced to escape or are punished using the judicial system, which can condemn people to the death penalty. Moreover, there is still repression towards Tibetan people and the cultural expressions of the inhabitants of the Xinjiang Uiguro Region. From an economic standpoint, even if the minimum pay is in force in China, migrants are excluded from this benefit.
Apart from these shortcomings, the Chinese Government has been introducing more economic freedom thanks to the Plenum of the Communist Party, which calls for a “decisive role” for the market in the allocation of resources within the economy. According to the China Economic Watch of the Peterson Institute for International Economics, the shift from a “fundamental” to a “decisive role” of the market “reflects a step forward in the continued reduction in the number of official price controls”. Zhang Ming, assistant manager of two research institutes of the Chinese social sciences Academy, says there three crucial changes underlying the market-based reform: a faster implementation of the reform in order to let markets determine the price of the production factors; the necessity to cease the monopoly of State-owned companies in some industries and a reduction of the State intervention, leaving room for the innovation of small and medium enterprises.
Thus, China is restructuring its economy in a more capitalistic direction. In the meantime, we can study Mandarin, as suggested Mr Cameron.