Tag Archive | "economy"

Chinese urban center

Critical Analysis: China’s ‘Rebalancing’ Through Urbanization

Chinese officials recently announced their intention to move 250 million rural residents into cities over the next decade in an effort to reform China’s economy. The goal is to create a new class of urban consumers and increase demand domestically, thereby making economic growth more sustainable. The policy follows in the footsteps of previous actions by the Chinese government to expropriate farmers’ land for development while providing little to no compensation. This mass urbanization could prove to be similarly controversial.

Chinese urban center

A Chinese man in the shadow of the future for rural peasants (Reuters)

China’s economic success in sustaining economic growth through the last decade has been based primarily on exports. It accomplished this by a combination of low wages, currency controls, and investment in manufacturing, in turn becoming the world’s largest exporter in 2010. Recent forecasts have predicted that China’s growth will slow in the next few years, prompting officials to seek a more sustainable economic strategy, termed ‘rebalancing’. Urbanization, or relocating peasants to urban centers, is a highlight of the new strategy. The idea is that by providing rural farmers with apartments in cities, they will find better paying jobs and become a new consumer class, thereby increasing domestic demand and allowing China to be less dependent on exports. The plan is not without its drawbacks.

Problems have already arisen in this process. Jobs are not readily available for the unskilled peasant class, forcing laborers to take jobs significant distances from their subsidized housing. Urban living also has a higher price tag than a rural lifestyle, requiring a substantial portion of income for utilities and basic necessities like heat and electricity. Of course, farmers have no leverage in this process as urban land is owned by the government and rural by local farmers collectively. Without sufficient property rights, farmers are dependent on the meager subsidies provided by the government once moved into the city, while the market value for land is not truly reflected in the costs for development, leading to inefficiencies in land use and availability.

The last time China attempted economic engineering of this scale was in 1957 with Mao Zedong’s Great Leap Forward. Rural peasants were responsible for providing the food supply for the country’s rapid modernization as well as laboring in heavy industry like iron and steel in backyard furnaces. The result was the largest famine death toll in world history. While technology and improved planning would hopefully prevent a recurrence of famine, there are nonetheless several flaws in China’s urbanization plan. The most glaring is that consumption growth follows an increase in disposable income, which will not occur if wages continue to be suppressed by maintaining a surplus of unskilled labor in the market. Unemployment could lead to discontent and, in turn, a more organized opposition to the Communist parties as farmers are already the most vocal opponents to government actions. Additionally, emphasizing consumption rather than investment in innovation or technology will limit the future growth of the economy.

There is little doubt that China’s economic strategy must adapt to a more sustainable model, although it is yet to be seen whether urbanization will result in continued subsistent existence for peasants or a new era of prosperity. Along with environmental concerns and an aging population, China has its work cut out for it.

Alex Milgroom is a rising 3L at the University of Denver and the Online Editor-in-Chief of the Denver Journal of International Law and Policy.

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G20 Finance Ministers Meet in Mexico (HispanicBusiness.com)

Critical Analysis: Mexico’s G20 Meeting

G20 Finance Ministers Meet in Mexico (HispanicBusiness.com)

Amidst the Presidential election turmoil in the United States, there was another type of turmoil in Mexico City this past weekend, where  the Finance Ministers of the G20 met to discuss the world’s economy and how to address the current financial challenges.  Topics at the meeting included Japan’s currency issues, the U.S. “fiscal cliff,” and the European Union’s tensions between promoting job growth and austerity.

Even countries that have weathered the financial storm fairly well are starting to encounter economic issues that need to be addressed by the G20.  For example, when the strength of the euro declined, investors flocked to the Japanese yen, impacting Japan’s export market.  The relative strength of the yen has led to a decline in Japan’s previously strong automobile and electronics export industries.  Japan now faces a trade deficit for the first in years.  Japan Finance Minister raised Japan’s currency concerns at the G20 meeting, noting, “There weren’t any particular objections and I took that as showing other countries understand our concerns on currencies.”

Another major topic of discussion was the U.S. fiscal cliff, which several G20 policymakers see as the biggest short-term threat to global growth.  Although no one had a specific solution for the United States, there was agreement that the U.S. should “carefully calibrate the pace of fiscal tightening to ensure that public finances are placed on a sustainable long-run path while avoiding a sharp fiscal contraction in 2013.” 

Meanwhile, German Finance Minister Wolfgang Schaeuble continued to insist that Greece and other weaker members of the euro zone swallow austerity medicine even as their economies sink deeper into recession.  Greek Prime Minister Antonis Samaras warns that if parliament does not approve a new round of austerity measures, Greece could be forced out of the euro.

Despite the urgency of these economic issues, little progress was made at the G20 meeting last weekend.  The lack of progress may have been due not only to differing opinions, but also from fatigue from meeting just a couple of weeks earlier at the IMF’s annual meetings, and the absences of some significant players, such as U.S. Treasury Secretary Tim Geithner and European Central Bank president, Mario Draghi.

There may be one step forward from the meeting, however, as the Financial Stability board has requested the endorsement of the G20 Finance Ministers for the draft Charter for the Regulatory Oversight Committee of the Global LEI System.  Part of the mission of the Financial Stability Board is to “coordinate at the international level the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies.”  Under the proposed Charter, the Regulatory Oversight Committee would be responsible for governance of the Global Legal Entity Identifier System, which provides identifying information on legal entities who are parties to financial transactions throughout the world, hopefully creating more stability and transparency in the global economy.  Although this may be a small step for a big problem, possibly getting an endorsement by the G20 and FSB for the Regulatory Oversight Committee Charter could be the one tangible step forward that came from this G20 meeting.

Katelin Knox is a 2L and a staff editor on the Denver Journal of International Law and Policy.

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