Wednesday, 14 September 2011
The China Syndrome
In the film The China Syndrome the plot worries about a meltdown at a Nuclear plant - one caused by a systems failure that causes an unstoppable chain of events leading to a meltdown and explosion.
Today, in a world of Global Economics, a different China syndrome is unfolding as this FT article shows:
“Countries should fulfil their responsibilities and put their own houses in order,” Mr Wen said. “Developed countries must take responsible fiscal and monetary policies. What is most important now is to prevent further spread of the sovereign debt crisis in Europe.”
Mr Wen has been begged by Italy and others to help them out of their Sovereign debt crisis. China is seeking to use it muscle to obtain better terms for its WTO membership in return. Also though, China needs to worry about the collapse of the West. Much like the Greece/Germany stand-off, the debtors have a good hand to play as well as the creditors. If China allows a series of defaults in the West then much of its export driven surplus will come to an end.
Moreover, with poor domestic demand, China will soon collapse into major recession. Especially as a Euro failure will also cause a US recession due to its banking exposure and already weak outlook. Interestingly, the real pain will be felt by those who export the most - China, US and Germany and least felt by those countries who import the most - their standards of living will drop as imports become expensive, but this will balance out as the glut of global exports works it way through.
To stop this chain of events from causing a global meltdown there is an answer, China and Germany need to rescue the debtor countries before their export markets collapse. Time is fast running out for them to do this as they prevaricate when faced with the need to abandon their mercantilist policies that have served them so well over the past decade.