China is often perceived by public opinion’s collective imagination on both sides of the Atlantic as a country that steals industry and employment from Europe and the United States, increases unemployment, is the cause of increased oil and wheat prices, as well as the slow erosion of declining affluence in the West. And where that not enough, the country also excels in sports. This perception is also the result of political exploitation that has often played on fears of a “yellow invasion” to win votes (in Italy the barbs from the Northern League-Tremonti axis are a perfect example of this). But this is not the case, or at least it is only a small part of the truth, except for sports for which the Olympic results leave no doubts. It takes little, just one or two simple economic considerations, to prove that China is also a resource for the West. It has been a resource for the past five years and will be one even more during the next five years.

Let us begin with the future. For western economies the real godsend is the crisis affecting Beijing. The closing down a few weeks ago of the Smart Union Group, one of the largest toy manufacturers in the East, was the signal, almost like the fall of Lehman Brothers had been for the American financial system. Economic data recently published confirms the crisis. Industrial production in what is now “the world’s factory” is slowing down and is now lower than ever in the past seven years. In October exports fell by eight points compared to a rise in the month of July and this consequently affected the GDP, seeing that during the third quarter of 2008 it increased “only” by 9%, compared to + 12% the previous year. These are growth figures that Europe and the United States dream of, but in spite of that, the Chinese government is ready to intervene to support the real economy. This will happen thanks to an impressive 586 billion dollar plan for public expenditure to support consumption, helping small and medium-size business, the construction of public works and helping exports.

It is precisely this maxi-stimulus for internal demand that provides a great opportunity for western economies. American and European companies will be able to participate in these mega state contracts, just as they must start to consider the Chinese market as an outlet for their own products. “What happened in the first years of this century should happen again over the next few year, albeit in a different way” explains Stefano Chiarlone, author of the book “L’economia della China. Dalla pianificazione al mercato” (Carocci) and an economist at the Unicredit Research and Strategy Department . “We will see quite a few European companies building roads, bridges and railroads in China. Between 1998 and 2003 Beijing also grew thanks to the impulse provided by public investments, all to the advantage of foreign companies specialised in the investment sector. Italy too has exported industrial machinery with reasonable success.” One must also bear in mind how any eventual rise in pro-capite income, especially in large cities such as Beijing or Shanghai, could result in a more sophisticated consumption of products with a higher added value, such as for example luxury and technological goods. In this case western companies would also be privileged.

Passing from the future to the recent past, the result does not change. Over the past five years the invasion of Chinese products has helped rather than damaged our economies. “At least up to mid 2007 widely consumed Chinese products such as t-shirts and toys, partly contributed to keeping inflation down in Europe” emphasises Chiarlone. “The other side of the coin is that they obliged business without great specialisation and a low added value, to reinvent themselves so as not to vanish.” This certainly applied to Italy and it was also thanks to this impulse that the classical textile industry started to produce better quality and more expensive clothes instead of medium to low quality ones. This happened to many other companies that successfully reinvented themselves. Data on Italian exports proves this. For some time now there has been a gap in the traditional sectors between the value of exports, which increased, and quantity which instead remained steady or declined. In other words, Italy exports less but better. This however confirms one of the clichés on China, and hence that its appearance has however resulted in greater employment in the West. “The real question we should ask ourselves is another. Would the companies that vanished due to Chinese competition have lasted overtime without the Beijing factor? I believe that a re-organisational process would have taken place anyway, perhaps later and to a smaller extent, but it would have happened in any case.”

But is all that come from the land of dragons really gold? Are there negative aspects resulting from China’s appearance on the international markets in the last ten years? “Mainly the fact that China is in partly responsible, together with the United States for the financial bubble that burst last summer and that is now affecting the real economy,” says Chiarlone. Broadly speaking the vicious circle that resulted is the following. During these years Beijing has kept the yuan very weak, which led to a great boom in exports. The large surplus provided the Chinese with a great deal of cash, which was invested in large amounts of United States government securities. In other words the Americans have indebted themselves with the Chinese so as to buy their goods. In this manner China has contributed to keeping interest rates down in the USA and therefore encourage the excess in cash that triggered the vortex of creative finance and subprime mortgages. Hence the crisis partly originated in Beijing. Ironically, it is precisely in Beijing that an economic comeback could begin, on condition that the Chinese government’s plan for stimulating domestic demand spreads its beneficial effects also to Europe and the USA. China is closer than it has ever been before.

Translation by Francesca Simmons