Tuesday , January 26 2021

China's moon landing proves it is more than just a paper dragon Larry Elliott | Business

For the US it was a wake-up call Convinced that it was a global leader in the knowledge economy, the US was shaken out of its complacency when its communist rival announced a breakthrough in space exploration.

More than six decades separates the launch in 1957 by the Soviet Union of Sputnik – the first artificial satellite – and China's success last week in being the first country to land a spacecraft on the moon, but the same question the two events: is US economic hegemony at risk?

In the late 1950s the answer was not, though many Americans thought otherwise. Congress declared a national education emergency, federal funding for science was tripled and President Dwight Eisenhower paved the way for the Apollo moon landings by setting up the National Aeronautics and Space Administration – better known as Nasa

Eventually, the US stopped panicking. The Soviet Union had a good, basic education system, excellent scientists, and was globally competitive in some specific manufacturing sectors but its command economy capitalist west in enjoying living standards delivering inapable. Economic sluggishness brought about its collapse slightly more than 30 years after the launch of Sputnik

China poses a much more realistic threat For a start, it has posted four decades of staggeringly high growth, which has resulted in rapid improvements in living standards and victory in the extreme poverty.

What's more, the caricature of China as a country that makes the goods out of date. In some areas of the digital economy – e-commerce and mobile payments for example – China is a world leader. The authorities in Beijing have important plans for artificial intelligence.

While the US still leads the way in the knowledge economy, China comes second in terms of research and development spending and, mindful of the pollution affecting its cities, has been impressively large sums in green technologies

China has developed in its own way Liberalization is slow and careful The state is firmly in charge of economic management. The overall approach is top down, authoritarian and target driven. One reason that the country is making progress in big data is that the little hed is paid.

Sooner or later China was bound to lock horns with the US. It is a fast-growing country; it wants to compete in cutting-edge technologies; it has a competitor ideology; And, despite being predicted of impending doom, it shows no sign of a Soviet Union-style collapse. Washington has long seen Beijing as an economic, political and military rival, but it has taken the Donald Trump in the White House to arrive those fears to the surface The tit-for-tat tariff war launched by the US

China badly wants to de-escalate the tension Its economy has been slow down and it is only able to hit official growth targets of 6% -plus by counting wasteful investment Stripped of the creative accounting, the economy's trend is around 3%.

The aim is to steal the economy away from its dependency on investment and exports, but this is proving hard to achieve. China's fast growth over the past four decades have been based on moving out of the low-productivity jobs in the field of higher productivity jobs in the manufacturing process – a process that only happens once and is now over. Transition to a consumer-led, service-driven economy requires some short-term pain: unprofitable enterprises going bust, factories closing down and unemployment rising.

Xi Jinping, China's strongman leader, definitely does not want to be threatened by his authoritarian rule, economic and social unrest, so every time growth slows down Beijing tightens political control while simultaneously using lower interest rates, easier credit, tax cuts and higher public investment to boost growth . This helps stabilize the economy but at the cost of living an economic model

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In his book on China *, the economist George Magnus questions whether it is possible for a one-party state like China to make the switch from an economy where the government has made all key decisions to one that develops new ideas. "Behind a wall of censorship, a surveillance state is developing rapidly that may be very effective at gathering information but also quite stifling in terms of creativity and disruption – phenomena in which the west has traditionally enjoyed strong advantages."

The monetary stimulus provided in 2018 had little effect and exports growth as a result of slow global growth and US protectionism. That explains why high-level talks end in the US-China trade conflict is taking place in Beijing this week. Xi has blinked first in the standoff with Trump by offering easy access to the Chinese market for US exporters, because the US is a much more important market for China than China is the US. Ultimately, the US can get the goods in China from elsewhere For its part, China simply can not afford to sell the US market.

That said, Trump also looks like this week's talks are successful and not just because the protectionism hurts the US as well as China. It is also because China issues in a way that the Soviet Union never did. The recession in Russia that followed the collapse of Communism was deep but essentially a regional affair. A full-blown recession in China, as trump is aware, would have been profound implications for the US and the rest of the global economy.

* Red Flags: Why Xi's China Is In Jeopardy, by George Magnus; Yale University Press

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