China’s Relative Financial Clout
November 2022
Note: An understanding of the relative financial strength of countries is necessary for understanding the nature of inter-actions, which took place among the Presidents/ Prime Ministers of G-20 countries.
On October 1, 1949, when communists under Mao Zedong defeated Chiang Kai-shek and took over China, it had the distinction of being the country with the largest population in the world. But it was as poor as India, another country, with a large population.
To wean China away from USSR, President Nixon visited China on February 21, 1972. Henry Kissinger, Nixon’s National Security Advisor worked to make it possible for China to access the western technologies and gradually open the US markets for Chinese goods. By 1985, the US business leaders realized that China offered cheap and non-unionized labor.
Over the next two decades, business leaders of the west, transferred most of the world’s manufacturing to China and the whole of the world came to depend on China for all its needs. For manufacturing products for the whole of the world, the raw materials were supplied by the rest of the world to China.
When Xi Jinping took over as the President, he realized that even though China’s per capita income was $5,523 in 2021, which does not place in among the rich western countries, it has a huge financial clout as the sole supplier of manufactured goods to the whole of the world and as the sole purchaser of the raw materials of many countries.
Moreover, as a communist country, the Government of China is rich and powerful whereas the governments of the democratic west are weighed down by the needs of their citizens. As an example, UK had a per capita income of $47,334 in 2021. But UK has had a change of three Prime Ministers during the last 4 years since UK government is unable to control inflation and meet the expectations of its people. Hence Every Prime Minister in UK has to use its treasury to satisfy the requirements of its citizens. Hence, UK is unable to convert its financial strength into a political tool for meeting its foreign policy objectives, as much as China is able to do.