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SANDERS: China, India not immune to economic undertow

- The Washington Times - Sunday, June 19, 2011

ANALYSIS/OPINION:

The globalized economy's undertow is ripping all around the world.

Even the economic optimists' two darlings, China and India, are now troubled. Seen as the world's growth machine, along with a now-overheated Brazil, in a period of advanced economies' stagnation, their downturns produce a universally grim world outlook.

India, the world's most populous country with its stable, veteran private sector and representative government, seemed poised to challenge China. But inflation threatens. Prime Minister Manmohan Singh, a graduate of Soviet-style Indian planning, has his foot on the brake and gas pedal at the same time. Reserve Bank of India rates have driven lending for preferred firms to 13 percent and notorious paper-shuffling babus(clerks) hobble initiative, sending Indian coal companies, for example, despite some of the world's largest reserves, chasing projects from Australia to North America. A spate of influence-peddling scandals further cloud the scene.

New Delhi's geopolitical rival, China, has turned its back on its 25-year strategy to prevent destabilization of one-party dictatorships. With incipient inflation, the country's communist leadership enters a generational succession next year, trimming the sails of its investment-led growth.

Widespread civil violence — despite enormous expenditures for the most elaborate high-tech suppression machine in the history of authoritarianism — jeopardizes any new initiatives.

In fact, all of the Chinese boom's contradictory chickens simultaneously are coming home to roost:

• The vast expansion of infrastructure has created a real estate bubble, including, literally, empty new cities.

• There's growing resentment over second-class citizenship and lack of services among the more than 200 million migrant laborers from rural areas who stampeded to coastal cities seeking employment.

• Declining foreign markets, skyrocketing imported commodity prices (ironically, brought on in part by speculation on "unlimited" Chinese demand), wage pressures, competition from export-led cheap-wage producers, monumental corruption — all of it now threatens the "Chinese model."

• A combination of nonconvertibility and hot money chasing an undervalued yuan demonstrates how empty talk of it as an international reserve currency is. Beijing's capacity for foot-in-mouth disease is epitomized in its increasing hoard of dollars and Treasury debt (again on the upswing), while officials continuously, publicly denigrate the dollar.

So much for "the emerging markets."

Turning to the developed world, there, too, crises are escalating.

A bureaucratic hassle over the euro, with divergent views in Berlin, Paris, Brussels and Frankfurt, is turning into a dragged-out effort to save the 17 European Union members' common currency.

Meanwhile, other integration efforts — a free labor market and common defense and foreign policy — are faltering. A Greek default could produce a European banking crisis (even contagion for North America).

In other words, a fiscal and monetary crisis is turning into a major political upheaval threatening accepted European patterns.

A half-baked intervention in Libya, dragging in NATO and the U.S., was announced in idealistic terms by Europe's leaders. But it encapsulates European concerns — unlike the increasingly hot American debate over the Obama administration's opting for "a war of choice."

For Europe, Libya is linked directly to falling birthrates and need for imported labor and unemployed North African and Middle Eastern youth almost literally swimming the Mediterranean at a time when Muslim immigrant assimilation is increasingly questioned.

Europe faces, too, the fact that the world's window to the U.S. consumer maw, which fueled the post-World War II economy with unlimited markets and revolutionary technology, now has a "closed for repairs" sign — with no reopening time indicated.

Whatever happens after decades of drunken sailor's spending, there will be no substantial U.S. economic strategy in place until after November 2012.

Current Washington debate, if it can be dignified with that title, over raising the debt limit and reducing government spending, is simply a foretaste of the pain necessary to get the U.S. economy — perhaps now sliding into a double-dip recession — back to its historic, miraculous production of jobs and expanding markets.

It's going to be a long, hot summer and a grim fall — despite the American sideshow of political shenanigans with the curtain only temporarily coming down on the first (Weiner) scene.

Sol Sanders, veteran foreign correspondent and analyst, writes weekly on the convergence of politics, business and economics. He can be reached at sol.sanders@cox.net. He also blogs at http://yeoldecrabb.wordpress.com.

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