The giant fiscal stimulus and bank lending spree that China launched two years ago saved the world from recession. What can Beijing do for a follow-up act?
Internationally, the success of the unprecedented pump-priming has accelerated a shift in economic influence that has put Beijing front and center of policymaking, as this week's summit of the G-20 major economies in Seoul is likely to show.
Domestically, the 4 trillion yuan package announced on November 9, 2008, put a floor under an economy that was in free fall due to the global financial crisis. More than 20 million migrant workers who lost their jobs were quickly absorbed as the government started an array of public works projects.
Two years on, China can boast, among other things, the world's biggest high-speed rail network, which is doing wonders for the country's reputation.
"China's self-confidence got a big boost from the fiscal program which goes beyond the immediate economic effects," said Jonathan Fenby, head of China research at Trusted Sources, an emerging markets consultancy.
Fenby said the tangible results of the spending splurge can only increase China's pride in its ability to raise its game.
"One cannot help making comparisons with infrastructure in the U.S. and U.K.," he said. "I am sure the Chinese do."
Success, however, heightens expectations.
China, now the world's second-largest economy, is under pressure to shoulder more responsibility for everything from curtailing carbon emissions to reducing global economic imbalances.
Beijing's response to date has been to toss the ball back into the court of developed countries, particularly the United States, which it holds responsible for the world's economic woes.
"We came through the financial crisis test very well. We got full marks, 100 percent, but we're being criticized by those who failed to pass the exam," said Li Daokui, an economics professor who advises China's central bank.
Chinese leaders for decades have deliberately kept a low foreign policy profile to concentrate on maintaining economic growth and political stability at home.
But Elizabeth Economy, director for Asia Studies at the Council on Foreign Relations in New York, argues that China has come to realize that achieving those goals today requires actively managing events beyond its borders.
In the financial sphere, for example, China has successfully pushed for greater power at the International Monetary Fund (IMF), becoming its third-biggest shareholder.
"China is transforming the world as it transforms itself. Never mind notions of a responsible stakeholder; China has become a revolutionary power," Economy writes in the latest edition of Foreign Affairs.
Revolutionary is an evocative word. But is it too strong to describe the impact that China's economic rise, sustained by the two-year fiscal program, is having on the rest of the world?
According to the IMF, the global economy grew just 0.19 percent last year, measured in terms of purchasing power parity.
China, expanding nearly 10 times faster, contributed 1.19 percentage points to that growth.
In short, it really did save the world from recession.
And that is without accounting for knock-on effects, such as bolstered business confidence, higher commodity prices and lower global interest rates, that researchers trace back to China.
"Clearly it made a significant contribution. It's there in the numbers. But beyond the arithmetic impact, if you take into account spillover effects, the contribution is even larger," said Vivek Arora, assistant director of the IMF's Asia-Pacific Department.
BRAZIL, GERMANY GIVE THANKS
Looking at it in another way, China contributed a whopping 46 percent of global domestic demand in 2009, more than double the average of 22 percent from 2000-2009, according to Goldman Sachs.
"Suffice it to say, without the support of the infrastructure package, China's growth would have been much smaller and the global contraction substantially larger," said Ivailo Izvorski, lead Asia-Pacific economist for the World Bank.
(At market exchange rates, world gross domestic product shrank 5.46 percent in 2009, despite a positive contribution from China of 0.76 percentage point, according to the IMF.)
On top of China's 9.1 percent GDP growth last year, Yolanda Fernandez-Lommen with the Asian Development Bank in Beijing stresses the role Beijing played in shoring up financial stability during the crisis.
Beijing has purchased $50 billion of IMF bonds, established $95 billion in bilateral currency swaps with a clutch of countries and provided a third of the funds for a regional financial fall-back mechanism, she noted.
Exporters of natural resources, from Australia to Africa and Latin America, have been stand-out beneficiaries of the stimulus.
China's share of global demand for industrial commodities jumped to 46 percent in 2009 from 31 percent in 2008, Richard Cookson and Alexander Godwin at Citi Private Bank said in a report. In 1999, the figure was just 7 percent.
"China's development boosts commodity prices and maintains demand in a context where demand has decreased in our traditional major markets in Europe and Japan," said Clodoaldo Hugueney, Brazil's ambassador to Beijing.
But the benefits of the stimulus are not limited to emerging markets. Germany is enjoying a mini-boom in large part due to insatiable Chinese demand for the high-end machinery, chemicals and cars it manufactures.
China's total imports in the first nine months were $300 billion more than in the same period last year.
"At the current pace, in another 12-18 months, German trade with China could be as big as German trade with France," said Jim O'Neill, chairman of Goldman Sachs Asset Management.
"If you are doing business in Munich, what is happening in China is more important than what is happening in the rest of Europe — and possibly in the rest of Germany," O'Neill told Reuters during a visit to Beijing.
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