China's lethal weapon

The "Financial Times" magazine surprised its readers by declaring that the Chinese economy will be ranked first in the world, starting from the end of this year. If it is believed that this event will not be before the year 2019, the weakness of the yuan may be behind the acceleration of this occurrence. It is well known in the economy that countries tend to weaken their currencies, especially in recessionary economic cycles, in order to stimulate external demand by exporting to other countries.
In China, with the tremendous growth that this economic power is experiencing, the exchange rate of the yuan should have been higher than it is in terms of the currency reflecting the national wealth. Here lies the secret of the Chinese economic policy, which secured global markets through a weak yuan. How have governments managed to keep the yuan's exchange rate low?
China is the second largest economy in the world in terms of the size of the economy, with a gross domestic product of 9761 billion dollars behind the United States of America (16,720 billion dollars). This economic capacity was acquired by China as a result of the socio-economic model it adopted in the seventies of the last century, which contains continuous interference by the government with a liberal whiff in the economy.
This model allowed the Chinese economy to grow by 10% since the eighties of the last century and until the emergence of the global financial crisis in 2008. What is striking about this is the lack of vulnerability of this model to global financial and economic shocks in the short term.
In the period extending over the first ten years of the current century, China's participation in the growth of the global economy amounted to the equivalent of a third (Absolute Value) in parallel with the great poverty of the Chinese people and the confinement of wealth to a limited class of businessmen who live in large cities (Shanghai, Hong Kong , And Macau). This poverty is characterized by a GDP of approximately $ 10,000 per capita, a small number relative to the size of the Chinese economy.

The structure of the Chinese economy is divided into agriculture with 10% of the GDP, industry with 47% and the rest to the service sector. Agriculture occupies the first place in terms of manpower, with 34% of the total workforce. As for the industry that produces half of the GDP, it employs the equivalent of 30% of the total labor force. This indicates the extent of China's high production efficiency.
But what is striking in the Chinese economy is the surplus in the trade balance, which brings into the treasury huge funds that allowed China to have a high margin of movement on the financial level, with currency reserves exceeding $ 3800 billion at the beginning of this year. This has led to the expansion of unconventional and unregulated finance (Shadow Banking), which is currently estimated at $ 5,000 billion.
If the public sector still dominates the economy, the growth of the private sector has a fundamental role in Chinese growth and pushing the Chinese economy to massively integrate into the global economy.

Monetary policy in the service of the economy

China has adopted a fierce monetary policy based on the weakening of the yuan, in order to ensure that production is discharged abroad. The interest in the external market comes from the premise that the huge internal market (1.35 billion people) contains a high percentage of poverty. Even if the percentage of the population living below the poverty line is 6%, the large part of the Chinese people is not far from this line nor His financial capabilities allow him to buy internal production, which means that internal demand is weak relative to external demand.

The Chinese monetary policy is divided into several axes, all of which aim to weaken the yuan:

1 - The policy of the Chinese central bank which is based on printing the yuan in a large scale justified by the huge population.

2 - The interest rates imposed by the Chinese Central Bank and which Chinese banks are absolutely obligated to (currently 6%).

3 - Buying large American Treasury bonds (750 billion dollars), which means an organic link between the US dollar and its Chinese counterpart. In other words, every weakness in the US dollar is reflected in the yuan as a result of the huge portfolio of US assets carried by China. This is unconventional and Japan tried to do it, but it did not succeed as well as China because of the lack of cash that it has.

This monetary policy has been subjected to a lot of criticism from economically developed countries and those in the process of growth, and most of the time led to a currency war, but China has proven its enormous ability in this game, supported by the financial surplus that it used as a lethal weapon against the United States. America in the first place and against European countries and Japan in the second degree.

Qualitative economic shift

China is expected to witness high growth rates as a result of the development of internal demand, which is currently in a deep dormant state of the state of poverty in which the Chinese people live, but that 1.35 billion people consume in the Western manner, which means that the Chinese production machine will not be able to meet their needs. With this in mind, many international companies have opened branches in China, taking advantage of the low structural cost of production, in the hope that the yellow genie will one day wake up.
Under pressure from the International Monetary Fund, China set out to start building electrical plants in the whole country. This comes from the premise that electricity is an essential element in social development, which will push many Chinese to join the labor market, and thus increase their consumption capacity.
China has drawn up a strategic plan based on building more than 400 nuclear plants for the production of electricity, in addition to the many existing ones that have re-operated using coal that China has in abundance.

And in Lebanon
It is clear that the absence of any economic plan for the advancement of the Lebanese economy is a flaw when we see the Chinese plans that are trying to ensure the continuity and sustainability of the growth of the economy. Hence, we encourage the Lebanese government to follow the socio-economic model that gives the state a basic role in economic policies and at the same time leaves room for the liberal spirit that will form the basis of economic growth.