Be wary of the rise and rise of China

Not even Germany’s largest producer of solar cells (Q-Cells) can compete with China. After announced a first-half operating loss of E47.6 million and laying off 500 workers, Q-Cell closed a plant, put a further 2,000 workers on short shifts and stepped up plans to establish a solar cell plant in Malaysia employing 2,000 workers. In addition, employment in Spain’s photovoltaic sector has declined from a peak of 41,700 early in 2008 to 13,900 in the 2009 (Dennis Shanahan, The Australian, August 28, 2009).

Do Western governments really believe they can retain their high standards of living and withstand political and economic competition from China based on recent policy trends?

Are Westerners to simply accept a further need for lower wages and tax rates to enhance our employment and investment opportunities while communist China benefits most?

While the inter-dependent relationship between the US and China persists for now with China willing to finance around $US2 trillion of US debt, nothing may prevent a US protectionist response should the US economy disintegrate further.

With the cost of the US social welfare system to increase further as many baby boomers retire, notwithstanding the possibility of extra resources to fund a universal US health care system, there is now much greater talk of new revenue sources that will probably include a value-added tax on goods and services at every stage of production up to the sale (Jeanne Sahadi, CNNMoney.com, August 27, 2009).

The fact is that immense resources and some protection may be needed to fund a variety of US policy needs with any future policy change likely to have enormous ramifications for all nations as the US remains the biggest economy in the world and largest source of capital.

While some Australians may look to a booming China to save its way of living, Australia should prepare for a different scenario if the more powerful and influential US is forced to make dramatic changes in order to uphold its own standard of living.

My gut feeling is that there will be considerable policy change in the near future as many democratic societies conclude that enough is enough; and much more will need to be done to temper a rising China whose national interest is very different to our own.