The global financial markets were agog last week at the news of China’s decision to modify its long established monetary policy. According to the People’s Bank of China, the government intends to relax its peg of the yuan to the U.S. dollar and gradually permit the value of its renminbi currency to fluctuate in value.
Some pundits scoffed at the gradual nature of this implementation period, noting with skepticism that the policy declaration could simply represent a public relations gesture in advance of the world’s G-20 meeting in Toronto. They noted, with some justification, that a vague promise to implement a gradual change of policy can hardly be considered an iron-clad commitment.
Nevertheless, when viewed in context with other economic circumstances that are now impacting China, it becomes easier to assert that this policy declaration is no mere public relations ploy. Instead, it may represent a clear indicator that China itself is rapidly evolving from an emerging third world economy into a maturing modern economy.
Centuries vs. Decades
You may, of course, be startled by the speed of China’s economic evolution. After all, the United States needed two full centuries to progress through its period of mass industrialization, beginning with the development of water powered textile mills in New England and extending through the emergence of today’s digital information economy. And even Japan needed 130 years to evolve from the closed Shogun society that confronted American Commodore Matthew Perry in 1853, to the economic marvel that challenged the United States for global dominance in the 1980s.
China, in contrast, waited until 1972 to first welcome an American President on an official state visit to Beijing, and then waited another seven years to first make a reciprocal visit to Washington DC. Although its economic modernization program did not begin to produce noteworthy advances in standards of living until the following decade, it is today the world’s third largest economy, and is projected by many to overtake Japan and the United States as well.
Nevertheless, its Gross Domestic Product per capita continues to trail the G.D.P. levels found in most of the mature western economies. And Chinese representatives themselves acknowledge that the nation is still climbing the global technology ladder. So even though China’s rise into the Top Three global economies was accomplished in a very brief period of time, is it reasonable to now consider the colossus a truly mature economy?
The Cost of Success
One of the unpleasant side effects of achieving success in any field is the cost burden that inevitably follows it. Newly elected heads of state, for instance, often complain about being placed in protective bubbles that isolate them from their own electorates. And sports stars similarly complain that huge compensation contracts create unattainable expectations of future glory that result in fan backlashes.
Likewise, the success of any national economy inevitably gives rise to serious problems. Some geographic regions may grow more affluent than others, leading to internal strife and disruptive population migrations. Labor leaders may square off against their corporate managers to secure higher wages and better working conditions. And citizens, confident in their abilities to secure the basic necessities of life, turn their attentions to cultural issues such as education, the environment, and national pride.
America, for instance, was overwhelmed by such challenges after achieving its position of economic dominance in the twentieth century. Its civil rights and labor movements, the migration of northerners into the Sun Belt region, and the launch of Earth Day, the Women’s Rights movement, and even its Race to the Moon can be understood in terms of managing the costs of economic success. But can China’s recent decision about currency valuation be perceived in similar terms?
Maturing if Not Already Mature
China has certainly experienced many similar events and conditions. The concentration of wealth in its eastern cities, for instance, has led to wide scale migrations of rural residents in search of employment opportunities. And labor unrest has occurred as well, with automobile factories shutting down over wage disputes, and with highly publicized employee suicides plaguing an electronics component manufacturer.
For the past decade, though, there have been no major public uprisings on the mainland in support of human rights or environmental protections. Nevertheless, such protests have indeed occurred in Hong Kong. Furthermore, China has invested billions in an Olympic Games, a World Expo, a Moon Landing program, and other projects that have been designed to foster a sense of national pride.
Despite its stature as the third largest economy in the world, China’s relatively low levels of per capita income and technological sophistication may indeed signify that it is not yet a fully mature economy. Nevertheless, if not yet fully mature, China’s economy is certainly rapidly maturing, and thus its decision to permit its currency to float may simply represent an inevitable step in the direction of maturity.