“Today money is the last thing China needs”, one of TEMASEK , Singapore sovereign fund top official said recently. TEMASEK decided to select amount of 2,5 bn S$ (1,9bn US$) to establish the Pavilion Capital in 2012 – separate investment fund investing primary in China. The other investment fund – Seatown Holdings has bought last year the stake of Bank of America in China Construction Bank.
Pavilion Capital is likely to focus on investing in smaller enterprises in China thus following the preferences of Chinese internal economic policy revealed by president Hu Jintao in his new year’s address to the nation.
Actually, Chinese internal policy aims towards spending money. The authorities recently raised the official poverty line up to more 2US$ per day, that covers more than 200million people with special benefits and at the end of last year, local governments were offered generous gifts in cash to increase their social and infrastructure projects. Private small and medium enterprises are to be government special concern during next five year plan.
Prudent decisions and cautious movements this is the major challenge for newly coming team of Chinese rulers. They would probably not welcome very warmly frequent comments and prognoses stating how quickly China will become the first in the world –that means will overpass the United States..
The Economist on line latest issue (Dec 31.2011) follows some surveys and quotes impressive digits. Commonly known is that China was the biggest steel consumer in the world in 1990 already. It became the first in mobile phone users in 2001, biggest copper consumer and beer consumer in 2002, biggest owner of foreign assets in 2003 (today China has over 2trln US$ net external assets while USA has 2,5trln debts) and became biggest exporter in 2007. Unfortunately it became as well the biggest producer of CO2 emission in 2006 (not per capita though). In 2010 the manufacturing output, energy consumption and car sales in China were in front of any other country. There are also well justified prognoses for the future. Imports and GDP in PPP is expected to reach the top in 2016, stock market capitalization in 2020, consumer spending in 2023 and, last but not least, defence spending, that is nowadays five times smaller than this of USA, will be equal in 2025. Thus as some prophets say will be the year when China overpass the USA. Doubtfully however China will keep up the pace of defence spending considering that USA substantial funds in this area go for maintaining forces and bases outside the country.
What really matters here is that China is becoming the power in education and science, generally in innovation. Measured as a number of patents granted to residents some estimate that there are more patents granted in China then in USA in 2011. (Of course that is rather simplistic measure and quality may be questioned, the thing is however that there are rapid improvements.) The World Competitiveness Report ranks China as 31 (USA 51st out of 142 countries) on the quality of its mathematics and science education.
There are powerful forces and lobbies pushing strongly the idea of “becoming reach”. Very good illustration may be the building of bank in Shenyang in the shape of old Chinese coin.
There is still a problem to predict the rise of GDP per capita – nowadays in USA it is four times bigger and demography is a crucial determining factor. The other is regional and class differentiation. Is there any reason to be happy that China has got more billionaires than America? There are very poor people and regions in China and this is the very crucial problem for the authorities. That is why major worries for new government is not when and by what China will become the first in the world. It is really how to harmoniously develop the country and face internal problems. Becoming major world power requires more engagements in international affairs and global economy (for example currency problems). These are the issues that probably China will do very cautiously, step by step and with its usual method of trial and errors.