Golez: Global trade is China's strength. It is also China's weak under belly. China cannot afford to risk any conflict that could result in the disruption of its economic advance. If China misbehaves geopolitically, like what Russia did in Crimea, China could face economic sanctions which severely slow down or even halt its GDP growth.
The economic sanctions against Russia hit hard: "Recent data confirm Russia’s entry into recession, with GDP growth of -2.2% for the first quarter of 2015, as compared to the first quarter of 2014. Recent forecasts suggest a fall in real GDP in the order of 3%-3.5% for 2015, and growth of around zero for 2016."
Here's a write up on the serious damage caused by the economic sanctions against Russia:
"When Russia illegally annexed Crimea and started interfering in Eastern Ukraine, the West responded with economic sanctions. In July 2014, sanctions were enacted in a coordinated manner by the European Union, the United States, Canada, and other Allies and partners.
"These sanctions were further strengthened in September 2014. EU sanctions, which had been due to lapse in July 2015, have been extended to January 2016. The US and Canadian sanctions are open-ended.
"There are three types of economic sanctions. The first restricts access to Western financial markets and services for designated Russian state-owned enterprises in the banking, energy, and defence sectors. The second places an embargo on exports to Russia of designated high-technology oil exploration and production equipment. The third is an embargo on exports to Russia of designated military and dual-use goods.
"The justification for these Western sanctions is internationally well-understood. But to muddy the waters, Russia imposed a ban on food imports from Western nations in August 2014. That ban remains in place.
"After around a year of these sanctions and measures, what impacts can we see on both the Russian and European economies?
"For the Russian economy, the sanctions are generally assessed to have helped exacerbate the macroeconomic challenges it was already facing, notably the rapid and pronounced fall in oil prices that started in the last months of 2014.
"Recent data confirm Russia’s entry into recession, with GDP growth of -2.2% for the first quarter of 2015, as compared to the first quarter of 2014
"Furthermore, the combined effect of these sanctions and of the fall in oil prices caused significant downward pressure on the value of the Rouble and increased capital flight.
"At the same time, the sanctions on access to financing forced the Russian state to use part of its foreign exchange reserves to shore up the sanctioned entities.
"These developments forced the hand of the Central Bank of Russia, which abruptly ceased to defend the value of the Rouble and hike interest rates in December 2014.
"Russia’s ban on Western food imports had a compounding effect on this challenging picture, as it led to higher food prices and hence to further inflation. This was in addition to the effect of the fall in the value of the Rouble, which had already raised the price of imported goods and services in Roubles.
"Recent data confirm Russia’s entry into recession, with GDP growth of -2.2% for the first quarter of 2015, as compared to the first quarter of 2014. Recent forecasts suggest a fall in real GDP in the order of 3%-3.5% for 2015, and growth of around zero for 2016."
http://www.nato.int/docu/review/2015/Russia/sanctions-after-crimea-have-they-worked/EN/index.htm
Global trade has made peace important to China, academic argues. news.com.au.
OCTOBER 31, 20164:30PM
WHILE things continue to heat up in the South China Sea, one academic has highlighted exactly what China has to lose from annoying its neighbours.
Dr Xiang Bing, the founding dean of the Cheung Kong Graduate School of Business in Beijing, China, said China had been globalised and peace had been indispensable for China’s economic progress since 1978.
“China is more dependent on global trade today and has every incentive to ensure free navigation,” he said.
“I would like to think China has no incentive or motivation to disrupt the safe passage of sea lanes and to pick a fight with any country. To commit a ‘crime’, you need some incentives.”
To highlight what’s at stake for China, Dr Xiang pointed out the country’s reliance on global trade.
Prior to 2012, more than 50 per cent of China’s exports were generated by foreign companies based in China.
While this dropped slightly in 2012, foreign invested companies in China still contributed 49.7 per cent of its total exports.
Dr Xiang also pointed out that Japanese companies had invested $527 billion (US$400 billion) in China in the past 10 years or so.
“For me, that’s a sign of economic openness,” Dr Xiang told the Sydney China Business Forum last week.
“You go to China and you see American companies doing well, the Europeans doing well and Australians doing well.”
He pointed out that the South Korean company, Samsung had racked up $39 billion (US$30 billion) in exports from China. “China’s economy has been globalised,” he said.
In 2008, Dr Xiang said trade made up 70 per cent of China’s GDP. While this had declined to 41 per cent in 2015, it was still higher than in the US (28 per cent) and Japan (37 per cent).
While there were some limitations to the economic model that China had created, Dr Xiang it had been very successful.
Chinese cars wait for export at a port in Dalian, Liaoning province. The government’s plans to boost exports come as April showed a worse-than-expected 1.8 per cent decline in exports and a 10.9 per cent drop in imports. Picture: VCG via Getty ImagesSource:Getty Images
“By 2049, China’s GDP per capital may reach half of the US GDP per capita,” he said.
“So peace has been important for China,” he said. “Peace will be more important for China because China is more dependent on global trade.”
He also noted the role of social media in constraining the Chinese government.
“It’s not a perfect substitution for rule of law but definitely it has a huge impact,” he said.
It was now possible for posts to reach 500,000 people easily through using apps like WeChat, even if the government decided to delete posts it didn’t like.
“So social media has a huge impact on how government functions.”
Dr Xiang said while there were still many differences between China and the US, including their political systems and ideologies, China was embracing new liberalism, a new wave of globalisation and social media.
“They are three major forces sweeping the global economy the past 20 years.”
With so many technologies now disrupting economies around the world, Dr Xiang he thought this could turn out to be one of the best times in human history.
“This could be the beginning of the new renaissance ... I hope so, for the future.”
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