Adam Smith Institute

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Friend or foe?

1899
friend-or-foe

They are neither our enemy nor our friend. These were the stern words of Barack Obama when asked about his attitude towards China. His view reflects wider opinion in the West; namely that the economic rise of China can only spell decline for America, Western Europe and the like. However, China's new economic status, symbolised recently by the splendour of the opening ceremony of the Olympics, isn't something to be dreaded.

In fact, the West has already benefited- the last decade of notable economic growth has been a consequence of cheaper consumer goods produced in China. Seeing the words Made in China‚ on what we buy is not the sign of unhealthy dependence, but evidence of the gains that can be realised from world trade. China is simply producing what it has the comparative advantage in.

With this new wealth expect China to become a nation of consumers: consumers who will buy goods from all over the world. The West will have a whole new market to exploit. A Chinese middle-class will drive German cars, drink French wine, watch Japanese TVs, holiday in Britain and rely on American commodities.

Furthermore, China will invest. Financial institutions that desperately need to raise money will have China as a source- the China Development Bank recently bought a stake in Barclays. Stocks, bonds, shares and other financial instruments will find capital in China.

This is a success story for China and the rest of the world. The benefits of capitalism and globalisation have helped us and will continue to do so. If only the West could be more optimistic.