China's rising economic power will enable it to play greater global role
2011-12-21 16:14:48
China is climbing up the ranks as an economic superpower, with analysts predicting that it could become the world's number one economy by 2020.
And as its economy continues to expand, it is starting to play a greater role on the world stage.
It's begun flexing its muscles at global agencies such as International Monetary Fund.
Developed economies like Europe have been turning to China for help with their debt crisis.
Still some analysts say it is important that China does not over-stretch itself.
China's growing dominance on the global stage has become ever more clear ever since it overtook Japan as the world's number two economy.
And although it is ranked below the US, China is America's biggest foreign creditor, holding more than US$1 trillion in US government debt.
China also has the world's largest foreign exchange reserves, estimated at US$3.2 trillion and that has attracted other developed economies to knock on its doors for help.
Europe has been trying to court China to buy more of European government debt to help with the eurozone crisis.
And although China has yet to warm to the idea, analysts say it does face a dilemma.
As Europe is China's biggest trading partner, a serious recession there would hurt the Chinese economy.
Mingchun Sun, Greater China Chief Economist, Daiwa Capital Markets, said: "1 percent, 2 percent recession - that's not something that worries China or the Chinese government very much. What the Chinese government is really worry about is if there is a Lehman-type crisis. If you get financial institutions in trouble in Europe, in other places in the world, then we are going to see a drastic change in global growth."
But analysts say until the Eurozone comes up with a more concrete plan, China is likely to view bailing out the EU as too big a risk.
Mingchun Sun said: "China is still a developing economy. GDP per capita is only US$5,000. But the countries in trouble in Europe are having $30,000, US$40,000 GDP per capita."
If they lose money in this bail-out effort, it is going to be very difficult for Chinese policymakers to explain to the public.
Meanwhile, China is also taking steps to open up its financial market and widen the use of its currency although some say, it will still take years to achieve full yuan convertibility.
Kelvin Lau, Regional Economist, Standard Chartered Bank, said: "If we're talking about a 'completely open without an restrictions' sort of capital account, then we could be talking about many many years, at least more than a decade. But then if we're talking about having selective opening up in a wide-range of capital account items, that could happen earlier. Just like with the development of the offshore Renminbi market in Hong Kong."
As for the question whether China will one day overtake the US to become the world's largest economy, analysts say it's a likely scenario, and could happen by 2020.