The ‘dragon’ and the ‘elephant’ and global imbalances
This highly skewed economic development, with wealth concentrated in fairly small areas of the world, seems now to be gradually but steadily transforming. By 2007 the Chinese and Indian economies together were close to the size (measured in gross national income (GNI) at market prices; see Table 11.1) of the Japanese economy, while already being substantially larger if measured at purchasing power parity (PPP) prices. By 2010 the Chinese economy has become larger in size than the Japanese economy, becoming the second largest economy in the world.3 Of course, with regards to per capita incomes there are still huge inequalities, but if only taking the total size of these economies, the highly unbalanced world economy has indeed been changing. Over the past two decades this was particularly influenced by the developments in international trade until the global crisis started, in which particularly China has become an important new player. Furthermore, China has become a formidable player in international political relations on the world scene, and is an exponent of ‘soft power’ (de Haan 2009). This chapter analyses the growing importance of Asia in the world economy as follows. In the second section, we will show that the rapid growth of the economies of Central, East, South and South-East Asia, leads to at least a partial redressing of the existing structural imbalance of the world economy. It also briefly looks at how the global crisis influences China and India, and how a resumption of rapid growth in these countries might ‘pull’ the world economy out of the recent deep recession. In the third section, the spatial shifts in international trade are addressed, which has seen a transformation in particular since the late 1990s, from a predominance of intra-high-income country trade towards a growing role of trade originating from low-and medium-income countries. This is primarily caused by rapidly expanding merchandize trade of China (Acharya 2009; Dollar 2009). In this section also the influence of the increased appetite for hydrocarbons and metals by the rapidly growing developing economies of Asia, in particular China and India, is discussed. In the fourth section, we will analyse global financial imbalances that have emerged, in particular the current divide between current account (CA)-deficit and CA-surplus countries, with a growing concentration of international reserves in the hands of some of the Asian economies (such as China and Japan), and look at its effects, and what influence the global economic crisis has in this respect. In the concluding section it will be stressed that the growth of China and to a lesser extent of India is influencing existing and new global imbalances. It will be concluded that there is an important negative impact for the much slower growing (and often resource-poor) rest of the developing world, in particular with regards to the inverse flow of finance (from fast-growing China to slowgrowing US), the availability of FDI, its overall significance for development finance and the rising energy prices caused by rapidly growing additional demand for carbohydrates and bio-fuels by China and India.