Guest Post: Welcome To The Future

Submitted by NJBDeflator

Welcome To The Future

In May I wrote:

"The world econo-politocal paradigm is shifting, and it is shifting very rapidly due to the dire implications of a decade-long international financial crisis.  We can no longer rely on what were sound economics to lower unemployment and dissolve developed nation hunger problems.  We are entering the age of a world government, and an age of sovereign financial engineering, because these are the luxuries that political evolution have granted us.  It is already clear that the US Federal Reserve, the ECB, and the IMF have been running the world economy over the past decade (Greenspan's low rates brought us in, Bernanke/ECB/IMF are working to get us out), but what is not so clear, is what their role will be in the coming years." [May 19, 2012]
In the US and Europe we have slowly come to the realization that traditional accommodative economic policies leave, and have left, the real economy limp.  Wildly divided governments don't help, but beyond the fact that western decision making bodies are polarized, it is abundantly clear that the panacea for the global economy is not even on the table right now.  The western world has been thrown into a bout of sovereign game theory, and by the constructs of game theory itself, one country will "win," while everyone else will lose to varying degrees.  But that we are such a highly integrated global economy--the reason the whole world is heading towards recession right now--means that a solution must incorporate every economy around the world.  The current game Europe is playing is bound to fail because if one country gets their way, others lose by definition.
There is an exception to this paradigm, though.  And yes, you guessed it: it's China.
GDP growth rates since 1990.  Source: World Bank via Google graphs.  
Over the past two decades international GDP growth rates have essentially been flat, while that of China has nearly doubled.  Global growth rates (sans Greece) took a nose dive in 2008 and rebounded in 2009; China's remained steady at 10%.  Following the rebound in 2010, global GDP growth rates  started falling rapidly, with many (European periphery) heading into recession territory.  China is slowing at a much more controlled pace, and China's 2012Q2 GDP growth numbers came in at 7.6%, which is right in line with analysts' expectations and quells the notion of a Chinese "hard landing."
Unemployment paints a similar picture.
Unemployment rates since 1990.  Source: World Bank via Google graphs.
There are many reasons for China's economic resilience: rapid urbanization, accelerated growth from foreign inflows that befall all emerging economies, and a strong export sector, to name a few.  What seems to be the over-arching reason for China's strong ascent, though, is its government intervention: China's hybrid of proactive fiscal stimulus peppered with a rate cut and liquidity injection here and there has proven to be a winning combination for the world's second largest economy.  This government intervention--which harkens back to the interventionist days of Mao--is very appropriate for China.  Still classified by the CIA's World Factbook as a communist state, such government intervention is to be expected of China.  What is odd, though, is that no one really plays the communist card when it comes to the Chinese economy.  Americans are quick to the draw when a story of Chinese censorship hits international news wires, but withhold such judgement when it comes to economics.  I think this is because China's big government is frankly working.  They have taken their communist nature and applied it in the most pro-business, pro-economy, and pro-development way.  This is why Americans can't say the c-word when it comes to the Chinese economy; we are jealous of the Chinese story, so much so that we fear the Chinese yuan overtaking the US dollar as the global reserve currency.  China recently opening swap lines with BRICs and other trading partners ($100billion with Australia) does nothing to abate these fears and further illustrates a strong Chinese economy in years to come.
China is defining 21st century sovereign financial engineering, and it is working.  Granted stories of extreme excess production of Chinese airports, apartment buildings, and shopping malls abound the media, but something tells me that China has an answer for that.  If China is able to successfully engineer their way out of this financial crisis, we will see other sovereigns begin to engineer their economies (though it will never be called such a thing).  
As a global economy we have clearly hit some sort of economic wall.  The western world is trying to drill through it; China decided to build a ladder.