What about China? (part one)

The passage of power in China has been completed with all the usual ceremonies and stuff, a well-oiled transition after six months of subterranean war between all the faction of Politburo. For Mr. Li Keqiang, the new premier, and for Mr. Xi Jinping, the new president, it’s time to set the course for their country and to face all the major issues that clouds China’s horizon.

In 2013 it looks like that all the problems from the past are now unavoidable. It’s a strange paradox, China has never been that important in the world, nor that rich, and it’s still not enough to solve its internal and external issues. Its weight of the world’s economy is so big that even little changes can be lethal for the international markets, not to mention foreign policy.

Li Keqiang

Li Keqiang

Follow the money”, this is the main rule to follow in an investigation. And money could be a real problem for China. The artificial exchange rate set for renminbi it’s still a huge factor for the country’s growth but now we’re on the edge of a little economic war about rates. Japan’s new government is maneuvering about the Yen’s value, US dollar is maintained weak to help America’s recovery and the Eurozone is on a deep depression. Time to reset the clock and set up a real policy about international rates before being forced to do so by the markets.

Again, it’s about money on the internal side when it comes to salary levels and the need for adding welfare on the state budgets. The traditional family system is coming down for the population ageing and in  the most part of the country there is no welfare at all. It will cost billion upon billion every year, with the need to shift the focus from military expenditures to public health systems and such. Entry-level salaries are far too low to sustain an internal economy and the overpopulation of the coastal zones set an enormous pressure on all public services. The biggest fear for the central government is inflation, a factor that can easily go out-of-control.

Xi Jinping

Xi Jinping

It’s still the money that matters for the huge investments that China set up for its oil/gas needs. Billions upon billions to modernize russian structures in Siberia and to build more pipelines to drive south as many oil barrels as possible, hoping for the best for the development of more oil and gas field in the areas near the north pole. The energy needs of China already put in place trade agreements with Kazakhstan and Turkmenstan, not to mention the long relationship with Iran. State-owned companies are buying exploration rights worldwide while looking for easy prey on the same market (do you remember Repsol?).

Then you have to consider debts. Yes, debts. As a country China got a huge surplus every year in its commercial balance but a number of regional administration got a burden of billions in debt, due to infrastructures projects and industry-related developments. There’s a power struggle inside the state administration in order to overcome this kind of situations but a large chunk of this bad debts are in foreign hands, that’s a nasty problem to be solved.

So for Mr. Li Keqiang and Mr. Xi Jinping there is a lot of work to be done, time will tell where their efforts will be directed.

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