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When the US economy starts to turn around, so will the Chinese one, writes Ian Bremmer, an author and global chief economist at Eurasia Group.
“The Chinese economy will be a global financial system, with a lot of debt and a lot less investment,” he says.
The rise of China’s economy will not necessarily cause all of this.
China has been slowing down its economic growth and investing less, so that is not a big concern for Mr Bremmers team.
However, it is important to note that as the economy improves, the Chinese debt will become much less of a threat.
“If you want to be a growth driver, you have to start building more infrastructure and making sure the infrastructure is good,” Mr Bresler says.
“That will slow down the growth of debt in the long run.”
And while the Chinese economic boom is now in full swing, China’s long-term growth trajectory remains uncertain.
Chinese President Xi Jinping and other leaders are expected to address the US Congress this month about the future of China.
Some analysts believe the Chinese government may take the lead in stabilising the economy and encouraging growth, but the world is not yet ready to accept that China has the capacity to do this.
This week the IMF released a report predicting that the Chinese central bank would need to reduce its balance sheet by between 40 per cent and 80 per cent in the next decade to offset its current huge debt load.
In other words, it may take a while before the Chinese authorities can be convinced to let the economy run again.
However, if the Chinese people are still convinced that China can grow again, it will take less than a decade.
Image copyright Getty Images/AFP Image caption China’s GDP is growing faster than the US, Europe and Japan but it is slowing down Mr Breslers team has forecast that by 2030 the Chinese population will surpass the US and Europe’s population.
“There will be an enormous amount of new Chinese arrivals, people from China who have no roots in the country,” he adds.
“It will be like having a massive migration of people from the Philippines.
It is the Chinese generation that will make this the biggest transformation in China’s history. “
We are looking at this as a generational change.
It is the Chinese generation that will make this the biggest transformation in China’s history.
There are several different ways to interpret the changes.
First, if you are looking to China to grow and expand, it has a much bigger role to play than a generation or even a couple of decades ago,” Mr Bisler says, referring to the era when China was still a relatively small country.
Secondly, Mr Brelser says China will be the dominant player in the global economy for some time to come.
China will be able to use its huge economic resources to do many things, including helping to support the developing world.
“China’s role in the world economy is still very limited compared to its contribution to the global development and trade systems,” he explains.
“China has to find new ways to invest in new areas, especially in the technology sector, where it will be in a better position to compete and make a difference.”
China is currently the largest single trading partner of the United States.
Mr Bisler believes the US will be hit hard by the Chinese slowdown.
“If you look at the dollar value of Chinese exports and imports, the US is still the world’s largest export market, with around $3.6 trillion worth of goods and services from China,” he said.
What China needs to do to revive its economy is to make sure that it is also diversifying its economy, and to do that it will have to take steps to diversify its debt.
For example, if it wants to get the Chinese credit card system up and running again, China will need to diversification, which means it will need the US dollar as its international currency.
That means that China’s foreign exchange reserves will need be diversified and its currency will have a stronger role to take on other currencies.
It is also possible that China will simply get more aggressive in its pursuit of economic growth, as some of the Chinese leaders have suggested.
But if China is truly serious about diversifying, then it will also have to diversified its debt to prevent it from defaulting on its debt and becoming a global credit card for debtors.
So China will have the capacity in the medium and long term to stabilise its economy and provide a more stable financial system.
And if China can make the transition from a low-growth economy to one that is able to generate growth, that will be much more beneficial for the world.
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