It was first decade of 21st century, when Europe and US were leading world with their robust financial health and open market economy seen as ideal for future of developing countries. China, a developing country, also emerged as the fastest growing large size economy and become the export hub for the world with 30% increase in exports every year.
Almost every time, increase in export brings positive story but unrealistic increase in growth of export ratio to GDP also had some negative consequences on China. China’s export increased from 18% to 36% of GDP, doubled the size in just a decade. Chinese economy developed an imbalance between local economy and exports. China became heavily dependent on exports consequently on global events outside China. Local market of China could have come to rescue but was not growing at pace as exports and gap was increasing every quarter. In addition, Chinese people were saving a large % of GDP which even increased by 15% in same decade that impacted local investments. There was a risk of deflation in the economy.
To keep the growth floating in troubled times, Chinese built infrastructure and residential area but was not able to create a matching demand. In the hope of coming out the mess and to learn financial management from western countries and financial institutions, China started BOAO Forum ( A Chinese version of Davos ) and invited top leaders from financial sectors. These leaders welcomed by Chinese higher ups and consulted on economy. China established China Investment Corporation to invest in western companies and also opened up for investment from foreign countries.
Then comes global crisis in 2008 which estimated about 2 trillion dollars loss for the world. It broke the backbone of western economies and so the trust in western financial institution and it’s leaders. All that boasting about superior economy and management shattered in the matter of months. Even Chinese investment in western countries was criticized in China as bad move.
But this event turned the table for Chinese, due to recession western companies lined up for Chinese investment with no strings attached in contrast to the scenario just few months back, some countries also asked for financial help and a bigger line of credit. Looking at global mess, Chinese quickly changed their posture as now they don’t have to learn anything from west, rather west should learn financial management from them and termed financial consultation meetings as ‘lip service’.
Since then, China never looked back and increased it’s financial dominance by investing aggressively in western companies. Chinese central bank announced for an alternative to US dollars. China also increased funding of IMF, Asian Monetary Fund and even a bigger credit line for Russia, and some African countries.
As an outcome, Chinese economic dominance enabled diplomatic, strategic and political dominance which is now much more visible.