No way past China for struggling Western economies

By Andreas Landwehr Feb 1, 2012, 2:07 GMT

Beijing - China has been increasing its influence in world affairs during the international economic crisis, helped by the strong growth that has proved an important engine for the flagging global economy.

The heavily indebted members of the European Union, together with the architects of the euro bailout scheme, are competing for a share of the billions of dollars which the world's second-largest economy has accumulated in its foreign exchange reserves.

When German Chancellor Angela Merkel visits Beijing this week, she is expected to call not only for more trust in Europe, but also for more Chinese investment in Germany.

The Asian economic powerhouse has needed to assume more political responsibility as its economic influence grows.

There is no international crisis that does not require input from China, be it: the nuclear dispute with or oil boycott against Iran; the nuclear arsenal of North Korea; or finding ways to deal with the repressive regime of President Bashar al-Assad in Syria.

In recent years, China has also become an important player in the G20 - the group of 20 leading industrial nations and emerging economies.

The chief economist with the World Bank, Justin Yifu Lin, is Chinese, as is Min Zhu, deputy managing director of the International Monetary Fund (IMF).

An increase in China's voting rights at the IMF means it is now the third most powerful member in the organization, behind the United States and Japan.

Alongside Beijing's increasing influence comes a growing dependence on the world economy and free trade, with China's central bank policy adviser, Li Daokui, drawing attention to growing trade tensions between the US and China at the World Economic Forum in Davos.

'If trade tensions grow, I am afraid that this will further dim the already gloomy economic outlook,' he said.

In exchange for its economic help to Europe, China would like the EU to recognize it as a full market economy, which Beijing expects would help it dismantle protectionist barriers.

The government in Beijing is also looking for the US and EU to lift their embargo on arms sales to China, imposed after the Tiananmen Square crackdown in 1989.

The heavily indebted US government is in a complicated position, since China is the largest foreign buyer of American government bonds.

US Secretary of State Hillary Clinton revealed her country's anxiety over China's growing economic power and control on US finances by asking Australia's then prime minister Kevin Rudd in 2009: 'How do you deal toughly with your banker?'

Germany's continued economic well-being is also closely linked to good relations with China. The world's most populous country is now the second most important trading partner for Europe's largest economy.

The German economy certainly would not have weathered the global crisis as well as it has if exports to China had not increased by a massive 44 per cent in 2010, followed by a 22-per-cent increase in the first three quarters of 2011.

The Chinese economy may have cooled due to the difficult international trading conditions. But it is still growing at an impressive 9.2 per cent. And China is now the largest automobile market in the world.

Many multinationals want to increase their research presence in China, with plans to expand existing facilities or to open new ones there.

'Innovation and research is not an island that we can keep to ourselves forever,' said the chairman of a major German-based international firm.

He said competing against China would be tough, but that Western economies should not resign themselves to failure.

'It must be fair competition,' he added.

The US Ambassador to Beijing, Gary Locke, has openly expressed concern about China's economic and monetary policy, and about the way the country is going about securing access to raw materials in Africa, Latin America and Asia.

'As President (Barack) Obama clearly said just a few months ago, China must play by the international rules, the international trading system from which they've benefited so much,' Locke said in an interview with the American National Public Radio (NPR).