Tuesday, October 8, 2013

Democracy, the lack of it, and fiscal policy

The Asia-Pacific Economic Cooperation summit (APEC) reached the world’s headlines last week for a negative reason – Barack Obama was unable to attend the gathering in Indonesia due to his involvement in attempting to resolve the problem in the US Congress that has partially shut down the US government, and the possibility that in nine days’ time, on October 17th, the USA could be in a position where it will have to default on its debt obligations.

The absence of the US president placed the limelight firmly on that other behemoth of global economics, China. The summit provided an opportunity for Mr. Xi, the Chinese leader, to emphasise Chinese determination to properly deal with its economic adjustment from unsustainable annual growth rates approaching or exceeding 10% to something that could allow for prosperity but with more reasonable levels of GDP appreciation. He talked of a “Soft landing” for the Chinese economy. Remember that concept? It had a lot of currency in the West prior to the financial meltdown that followed the liquidation of Lehman Brothers.

China has one characteristic that should allow it to go at least some way to achieve its aim in this direction. Its economy, along with all other aspects of government, is centrally controlled and the idea of democratic power, of the sort that appears to have paralysed the US Congress, is an unknown entity in this nation of 1.2 Billion people. While that form of rule holds little attraction to those of us who value representative parliamentary government it should, at least in the short term, be some comfort to the two Western-style countries in the region that rely heavily on trade with China, Australia and New Zealand, not to mention the rest of us.

Their currencies will tell the story.


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