One of the most peculiar facts about China, is that for decades it’s been wearing two hats. One of ideology fully contradicts to the other of economy. China has declared communism ideology long ago, but in fact practices semi-colonial capitalism.
At first, some economists thought that China’s path is a good alternative to classical capitalism of Europe. But then it became clear that China’s success was based on its export orientation. China has become a world supplier of everything one can imagine. The consumption was growing, thus, China’s economy was growing as well.
Long ago, Adam Smith saw the end of capitalism in itself. Sooner or later consumption has to stop growing. As for now, China cannot fuel its export growth. Some even say, that globalization has ended, and the world will have to change.
Alternative Economic Steps for China
One of the most famous alternatives for China was developing its national market, to switch to domestic consumption and develop it. But that would mean a new economic functions complex creation. The USSR history proved it would take many years and hard work. But Chinese people have already started to live better, they are just not ready to put themselves to bother of that kind.
Yuan has recently become a reserve currency, creating at least two possible paths for China (the third one can only be spoken about in whisper).
3 Possible Choices
The US Path
Following the American model means making Yuan a world currency. The US Dollar was made a world currency in 1944 on the famous United Nations Monetary and Financial Conference (UNMFC). Up to this moment, we’ve been living by the Bretton Woods system. To become what it is, the US Dollar made a long way through two world wars, and they made it rise. After the first World War Dollar has risen but it was not enough, so that the second World War had to happen. The question is if China is ready to start a war to make Yuan the world currency.
Japan is famous for its economic growth miracle with its abrupt ending. At some point, it was even popular to discuss that Yen is a good alternative for Dollar. But everything was finished in 1985 in the hotel “Plaza” in New York (famous Plaza Accord) when Uncle Sam ordered to rise Yen’s course with respect to Dollar. And Japan had to obey. The next day there was no economic miracle any more. Formally, Yen is still a reserve currency. But Yuan’s value right now is much higher compared to Japanese Yen or even British Pound. Will China choose this path for development?
Some critics emphasize Japan’s economic failure. But they seize to see that as the result Japanese quality of living has risen dramatically, and industrialization was also very successful. Though current development rates tend to vanish, people living in Japan mostly don’t feel that on their living. And that is also very important, as no model exists in vacuum, but is applied upon real existing people.
Some Chinese insiders claim that this model is secretly discussed by authorities. It implies governmental monetary monopoly. In this case, Yuan will have to become strictly national again and not be used outside China any more. Neither for international settlements, nor as a world currency.
Why is it so important not to become the world currency? They say, that the only way for the national currency to become used all over the world is a negative balance of payments statement of the issuing country. That’s what we may observe on the USA example.