In a rather ‘crowded’ little piece (meaning that there are a number of currents flowing through the article), Niall Ferguson of Harvard, Oxford and Hoover Institution fame, has declared ‘Chimerica’ at an end. As Niall points out in his article in the new journal Standpoint out of the UK, the growing financial crisis puts this most important driver of global growth at risk. Chimerica which has represented one-third of GDP and over the past 6 years 50% of global growth, is threatened by the credit and liquidity crisis of Wall Street.
Niall begins his declaration of Chimerca’s demise, a term he suggests was birthed by himself and German political scientist, Moritz Schularick with a trip through Chongqing Sichuan, China - arguably the largest city in the world - with a tale of enormous infrastructure building. This tale of Chongqing presumably is to highlight the Chinese government’s continuing flow, if not flood, of public expenditure especially in China’s west.
The Chongqing description is a reminder that public financing in China is a key component of economic growth, and presumably now a substitute and alternative to American export trade. It is also a warning that China and its economic planners pay scant attention to China’s environment. Niall compares the public infrastructure and the motivation behind this palnning is the worst excesses of Stalinism and Soviet industrialization with all its consequences.
Niall’s article chronicles the geopolitical consequences of the demise of Chimerica and more directly the financial meltdown in the United States. First he points out that high indebtedness and slow growth is the enemy of a reserve currency. He suggests the financial turmoil may well require years of workout and consigning therefore the US to sustained slow growth. With the alternative available - the euro - the United States may pay a much greater penalty than just slow growth.
With slower US growth and presumably sustained greater Chinese growth, the second geopolitical consequence, according to Ferguson will be a more rapid convergence between the US and China with China closing the GDP gap not in 2040, as predicted by Goldman Sachs in its report in 2003, but 2027.
And a further geopolitical consequence is the likely growing presence in the globe - Africa, Latin America and Asia - of China, and possibly some others, in search of secure commodity sources. With the growing demand on commodities - for sure oil - but also minerals and foodstuff - China will be out there as a new Great power presumably.
Niall leaves the reader to wonder whether the future of US-China relations will be troubled by Great power rivalry. Maybe, but maybe Chimerica is not a ‘chimera’ as Niall so cutely ends. Indeed China and America may not be as decoupled from the United States as Niall would like us to believe. The symbiotic closely coupled relationship of the two may be much tighter than suggested in this article. Niall may be ‘jumping the gun’ on China’s Great power status.