Milken Institute
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China looks inward
By: Milken Institute
May 04, 2011
Is China really the next global empire? Does it even want to be? Moderator Zachary Karabell set the stage for this discussion at the 2011 Global Conference by comparing China's GDP per capita to that of the U.S. to show how far China still has to go. He said the government's next five-year plan concentrates on the domestic market, unlike in previous years.

Watch the full video for this fascinating, in-depth discussion. Here's a little taste:

John Micklethwait of The Economist said that global empires are a mixture of power and will. China thinks it has the power but says it doesn't want to project that power beyond the local level. He cited various statistics that demonstrated the potential for social unrest, one reason he thinks China is now turning inward. At the same time, China has 100,000 troops in a province bordering India, causing some jitters in the region. Should China be dragged into conflict, it could become an "accidental empire," Micklethwait said.

James Chanos of Kynikos Associates sees in China some parallels to 1980s Japan. Back then, Japan was building infrastructure projects that didn't generate enough revenue to pay off the debt incurred. If China falls into the same trap, the Chinese consumer would need to take the economic reins, he said. But he suggested consumer buying power has been exaggerated, given that much of the urban population growth is due to poor rural migrants, and "the reality is the consumer has taken a back seat" to two banking crises since 1998. He expects China to continue looking inward for some time.

Charles Y.S. Liu of Hao Capital agreed that China's domestic focus will be prolonged and that a large portion of the population lives in poverty. However, he downplayed the idea of future economic difficulties. China has indeed accelerated investment in infrastructure as stimulus during the global downturn, thanks largely to urging from the West, Liu said. The projects were ones already approved and funded, but even if those projects failed to generate revenue, the Chinese government has "a lot of money," he said. China's budget is supported by thousands of state-run enterprises and has no property tax, sales tax or value-added tax, so its options to generate more revenue are wide open, he said.