Articles from 2017
Articles from 2016
Articles from 2015
Articles from 2014
Articles from 2013
Articles from 2012
Articles from 2011
Articles from 2010
Articles from 2009
Articles from 2008

Who needs the West?


‘Guinea’s military leaders agree a huge mining and oil deal with China’, reads a recent website headline.

It didn’t get much coverage: certainly not in the international consumer press. After all, media proprietors may have concluded, not so many readers will be interested in what’s happening in Guinea – or even know where it is. Give them news about a big US or European international deal affecting jobs and that’s much more likely to sell newspapers.

But the disclosure that a Chinese company will invest more than USD 7 billion into Guinean infrastructure and, in return, become a ‘strategic partner’ in all mining projects in the mineral-rich West African nation (Guinea is thought to have the world’s largest reserves of the aluminium ore, bauxite) is just another example of how the formerly-titled ‘emerging markets’ such as China are establishing trade ties in potentially lucrative environments such as Guinea – and how ‘emerging’ nations are doing business between each other, without dependence on any Western influences.

Western analysts may decry the Guinean deal while the legitimacy of Guinea’s government remains in question (a little-known Army captain seized power in December 2008). But, as Guinea’s mines minister Mahmoud Thiam says: “We’re putting down foundations.” It’s reported that the ‘foundations’ involve building ports, railway lines, power plants, low-cost housing and a new government centre in the capital, Conakry.

The same Chinese investor – officially undisclosed but reported to be the Hong Kong-registered China International Fund Limited, established in 2003 – has also ‘laid foundations’ in Angola. Its mission statement includes: “To sincerely share experiences and achievements of China’s economic reforms with developing countries.”

 It’s far from the only Chinese investor growing trade ties in Africa. China is now Africa’s second biggest trading partner, behind the US. Almost all of China’s imports, worth USD 56 billion in 2008, come from the oil-rich nations of Angola, Equatorial Guinea, Nigeria, the Republic of Congo and Sudan (according to the US’ Council on Foreign Relations).

And at a high-profile, China-Africa summit in Egypt in November, Chinese premier Wen Jiabao promised USD 10 billion in loans to the African continent for infrastructure and social programmes: double those pledged at a similar summit in 2006. 

He also announced that China’s direct investment in Africa, excluding the financial sector, rose by 79% to USD 920 million in the first half of 2009. 

Now let’s consider Venezuela, with its love-hate relationship with the US, leader of the Western nations. (Venezuela depends on the US as a trading partner, but President Hugo Chávez has frequently demonstrated his lack of trust in the US administration). 
Recently, Venezuela announced a USD 16 billion investment deal with China for oil exploration over three years in the Orinoco river, one of the longest rivers in South America (76% is in Venezuela, the rest in Colombia).

The move comes shortly after Venezuela signed a similar agreement with Russia, estimated to be worth USD 20 billion. President Chávez – who says the deals will boost oil production in Venezuela by about 900,000 barrels a day – often talks about a ‘muti-polar world’ in which Latin American countries are less dependent on Washington.

Again, Western analysts have been dubious – pointing out that the US is still the mainstay of the Venezuelan energy industry. 
But are Western nations at risk of complacency as they downplay economic influences beyond their reach, especially while the West struggles to shake off the shackles of what its politicians continue to call the ‘global’ economic downturn? 
Still ‘global’ – really? While the US pokes its head just above the recession parapet, and the UK stutters in and out of recession towards recovery, the economies of China and India have been growing in 2009 by rather more than was previously thought, according to the Asian Development Bank (ADB).

Government spending in developing Asian economies has enhanced the region’s growth prospects, it says (they renewed confidence quickly by pumping money directly into jobs, rather than into banks as in the West).

The ADB now expects China to grow by 8.2% in 2009, up from an earlier forecast of 7%. India’s forecast has been raised from 5% to 6%. The ADB has also raised its growth forecasts for Asian economies as a whole to 3.9% in 2009, from its previous forecast of 3.4%; and its 2010 forecast to 6.4% from its previous estimate of 6% – figures Western governments can only dream about. 
Meanwhile, among the so-called ‘advanced industrialised economies’, the UK has been printing money and issuing sovereign debt like there’s no tomorrow, leaving it with at least a year or two of public service cutbacks and low GDP growth. The US has a budget deficit equal to an eye-watering 14% of GDP, a level unmatched since the Second World War. Even the mighty German economy has endured a GDP contraction of 13%.

Western economists, who have argued that so-called ‘emerging markets’ will be sucked into the ‘global’ downturn, are themselves now emerging red-faced. Latest projections from the International Monetary Fund (IMF) are that emerging markets, as a whole, will grow by about 5% in 2010, while the developed economies, as a whole, could still be contracting into 2010 after a 4% shrink in 2009.

The reality, says the IMF, is that emerging ‘giants’ have massive domestic markets and are now doing a bigger share of their growth business with each other, rather than with the West. The recent expansion of intra-Asian trade is another ‘unsung story’ of the credit crunch.

Facts back up the assertion: at the time of writing, Brazil’s biggest trading partner is China, rather than the US; every one of the world’s top 10 performing stock indices is based in an emerging market economy; the Chinese stock market has grown by 88% in 2009; and Indian stocks have gained almost 70% during 2009.

But, argue Western analysts, such asset values have risen too fast and are liable to tumble…

Maybe that’s so, but analysts have trouble denying that these nations’ economies are in far better financial state than the Western economies they once admired. Bank bailouts and recession-fighting measures mean the average sovereign debt burden of the G7 nations will explode to 114% by 2014, according to the IMF – more than triple the projected sovereign debt ratio in the main ‘emerging markets’.

So could it be that the shift of economic power to the East, forecast for some while, is now upon us? And the West is poorly placed to respond? As reported in one of the leading Western daily newspapers towards the end of 2009: “There’s a swagger on the streets of Shanghai.”

 

.