social, economic and environmental thinking for a rebalancing world

It seems that the kind of rebalancing that we will see is going to be political rather than the consensual economic kind favoured by developed nations.

China appears to be is in no mood to allow its currency to appreciate and help bankrupt developed economies by stimulating domestic demand,  and that 2010 will be another year of export-led growth evidenced by the recently signed free trade agreement with ASEAN countries which will further lessen the importance of the US market for China.  For James Kynge of FTChina Confidential, Beijing will be…

less inclined to do Washington’s bidding on trade issues ranging from allowing the renminbi to appreciate to the further liberalisation of its foreign investment environment

More of the same

Last year China became Brazil’s largest export market with 13% of all of Brazil’s exports China-bound. Brazil can stick to its tried and tested model of food and resources exports and go along with China, as long as China can keep up its phenomenal run.

Poltically there is little Western government’s can do apart from making loud noises to make China look closer at stimulating domestic demand. As China pushes ahead with its  de-facto development policy, taking Brazil and others along with it, the US and Europe will be further pushed to one side in 2010,  deepening the shift in power witnessed at the G20 and COP-15 meetings last year.

Backyard foes

Brazil, a democracy with elections this year, needs to tread carefully and not trample over Western sensibilities too much (their markets will recover- just not in 2010). So perhaps more visits of Iran’s Mahmoud Ahmadinejad and fiery campaign trail rhetoric are not such if it wants to avoid setting off alarm bells at the HQ of that all important seal of approval market sentiment. It is fair to predict that spooked analysts, uncertain of the new terrain, will be eager to pick up on loose language from both main candidates in the  Presidential race. Note to said analysts: Venezuela and Brazil are not the same countries.

While the strength of the real is making conditions tough for exporters, continued buoyant domestic demand is changing the face and shape of the Brazilian economy. Its predominantly urban, consumption hungry ‘new middle classes’ are driving this change.

Change is coming, but not this year

In the future, Brazil’s exporters will welcome the real depreciating over the coming year, alongside the recovery of developed markets. But for now, Brazil doesn’t need the remnimbi to appreciate – it wants to maintain the status quo.

Economically, China – set to overtake Germany as the World’s largest exporter – wants growth to become more robust the World over (including the US and Europe) before it thinks about appreciation (or tries to sell it domestically according to Andy Rothman CSLA’s chief China economist).

This continuing shift in political power, rooted in economic strength – however strange and new it, at times, seems – is what needs to come before a global economic rebalancing agenda will emerge that is realistic and achievable.

More on China’s exports at The Economist: China’s export prospects Fear of the Dragon

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