When China Rules the World

The potential volume of Chinese overseas investment, as China ’s capital account is steadily opened and the movement of capital liberalized, is huge, especially given the level of China ’s savings. In 2007 China had $4,800 billion in household and corporate savings, equivalent to about 160 per cent of its GDP. On the assumption that savings grow at 10 per cent per annum, China will have in the region of $17,700 billion in savings by 2020, by which time China should have an open capital account. If just 5 per cent of savings leaves the country in 2020, that would equal $885 billion in outward investments. If outflows reach 10 per cent of savings, $1,700 billion would go abroad. [1265] To provide some kind of perspective, in 2001 US invisible exports totalled $451.5 billion. At the time of writing, Chinese overseas investment is still, in historical terms, in its infancy, but it is growing extremely rapidly: China ’s overseas investment reached over $50 billion in 2008, with an annual average growth rate of 60 per cent between 2001 and 2006. [1266] A hint of what the future might hold was provided by the investments made by Chinese banks in Western financial institutions, which, in late 2007, found themselves seriously short of capital as a result of the credit squeeze which began in August of that year. By the end of 2007 Chinese financial institutions owned 20 per cent of Standard Bank, 9.9 per cent of Morgan Stanley, 10 per cent of Blackstone, and 2.6 per cent of Barclays. [1267] This, however, proved to be the high-water mark, as the Chinese government, increasingly aware of the depth of the American financial crisis, advised its banks to desist from becoming involved in rescue packages for beleaguered American and European banks.

Figure 46. World’s biggest companies by market capitalization, 28 August 2007, $bn (Chinese companies in bold).

There is plenty of evidence that China is steadily climbing the technological and scientific ladder. At present it is still a largely imitative rather than innovative economy, but the volume of serious scientific research is rising rapidly, as is expenditure on research and development. China is already the fifth leading nation in terms of its share of the world’s leading scientific publications and it is particularly strong in certain key areas like nanotechnol ogy. [1268] In 2006, according to the OECD, China overtook Japan to become the world’s second largest R & D investor after the US. [1269] With 6.5 million undergraduates and 0.5 million postgraduates studying science, engineering and medicine, China already has the world’s largest scientific workforce. [1270] In 2003 and 2005 it successfully carried out two manned space missions, [1271] while in 2007 it managed to destroy one of its own satellites with a ballistic missile, thereby announcing its intention of competing with the United States for military supremacy in space. [1272] In due course, it seems highly likely that China will emerge as a major global force in science and technology.