Creditors Will Not Wake Up To The Fact That China Is Still Not "Fat".

Julius Caesar, written by Savon (Shakespeare), wants to be surrounded by fat and fat people, because lean and hungry people are more dangerous than Julius.

If the same rule applies to international relations, the rest of the world should welcome a message last week: that is, according to nominal gross domestic product (GDP), China has surpassed Japan to become the world's second largest economy.

Unfortunately, nominal GDP does not well reflect the internal truth of a free and contented country.

Per capita income is a relatively better indicator although it may not be perfect.

So, given that China's per capita income of $3678 is not as high as 1/10 of Japan's, the turning point may not give much comfort to Kaiser, because although China's growth rate has been phenomenal in recent years, it is still a very poor country.

A disturbing historical fact is that major power shifts in the global economy are dangerous.

They are often accompanied by extreme financial turmoil, exchange rate turbulence and trade friction.

This is because the new show of ambition is usually a creditor with trade protectionism, unwilling to shoulder the international responsibility commensurate with its economic strength.

Think about the pformation from British hegemony to American Hegemony after World War I.

Since 1918, although the war debt has been collected from the allies, the United States has rejected the "

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The second example is the post-war Japan.

Japan's economic growth is export oriented and has been undervalued by Japanese yen and export subsidies.

As long as Japan is not an economic power, this model will still work.

By the end of the 60s, however, Japan had been among the second largest economies in the world.

It also has huge trade surplus with the United States.

The efforts of the international community to resolve the imbalance and stability in the Reagan era (Reagan era) were overestimated by the dollar, resulting in unexpected consequences. In particular, Japan's intervention in the yen against the US dollar, like the Fed's support for the pound in 1927, also contributed to the formation of the bubble.

After the bubble was pierced, Japan plunged into a 20 year economic stagnation.

China's challenges facing the US are also export oriented, and China's current account surplus is the biggest contributory factor for Eurasian savings.

Excessive savings lead to credit bubbles and global imbalances. These are the factors behind the financial crisis.

Despite China's success, its economic model has led to wasteful overinvestment and has not enjoyed enough benefits for the people. The share of private consumption in GDP among the Chinese people is the lowest in Asia.

In a country where the economy is growing at a two digit rate, the annual growth rate of employment is only 1% in the region, and the real return on savings is negative.

Like Japan's heyday, the quality of life of Chinese people is even worse than that of per capita income. Pollution, adulterated food and bad employment environment pose many threats to health.

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What the world economy needs is that the debtor countries and the creditor nations will re balance their economies.

Debtor countries need to sort out their balance sheets. Creditors need to increase domestic consumption, allow their currencies to appreciate and reduce their dependence on exports.

This will also bring benefits to China, because China's economy is in an unbalanced state.

It can not prevent inflation, asset price bubbles and many other problems while maintaining low exchange rates.

However, the obstacles faced by reform are enormous.

Dumas said that the key to the rebalancing efforts to increase consumption may be that the government loosens its control over its citizens, which is unlikely to happen.

In addition, powerful groups will lobby the government not to implement such reforms, especially inefficient producers.

Cheap yuan allows these producers to make profits without much effort, and their economic survival still depends on the continued undervaluation of the renminbi.

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Therefore, there is a policy stalemate in China.

How can the world escape the dreadful economic consequences of the Chinese model? One way of doing so may be to deal with the past: the United States is loosening fiscal and monetary policies to cope with the coming economic slowdown, at the expense of high debt and subsequent credit crunch.

Another way is that fiscal conservatives in the United States prevent the budget from loosening, but maintain a loose monetary policy.

This will cause the US current account deficit to shrink sooner rather than later.

No matter what way it is adopted, the risk of China's protectionist rebound will increase.

In any scenario, the global creditor nations will eventually see that their main markets are drying up.

The main difference lies in the difference of time.

Perhaps, you will ask, when will these creditor states wake up?