Divergence grows between China and the West - part I

The measure will inevitably decrease domestic demand. To offset the adverse impact, expect the government to increase subsidies to the urban pool and to farmers whose livelihoods depend upon tractors and other motor vehicles. As China begins to even out the economic imbalance between investment and consumption, public finance is on the verge of being drastically changed in such a way that consumers pay less tax.

Tough choices are being made. Exceptional political and economic manoeuvring is required to prevent social unrest and financial dilemmas that could easily result in internal turmoil, rendering China powerless to take on any international leadership role and most likely worsening the worldwide crisis.

The recent incident concerning Beijing’s abrupt cancellation of the EU-China Summit due to President Nicolas Sarkozy’s meeting with the Dalai Lama can be seen by China’s Western counterparts as an overreaction. Yet perhaps China’s concerns over social issues inflicted by potential economic deceleration are far greater than the outside world comprehends. Therefore, Beijing resorts to using a rising nationalism, not just conventional countercyclical measures, to achieve challenging goals.

China has demonstrated its willingness to help other regional economies that could be vulnerable to financial shock; for example, China and South Korea officially signed a bilateral swap agreement of 180 billion renminbi, intending to provide liquidity should either party be hurt by the global recession. Similar agreements between China and other regional economies will likely follow.

While China is keen on being a responsible global player, the government's priority is to look after its own people. Chinese officials feel the biggest contribution they can make to ensure a fast turnaround of the global economy is to sustain China's own growth - however they can. Conversely, the more they must field unreasonable demands from abroad, the less they feel they can focus on their job at hand. The world is probably not ready to pay the price should Chinese leaders fail.