Daily Update: China, Russia: Diverging Economic Paths of Power

Let's see now. The Russian economic development and trade minister, Elvira S. Nabiullina, predicted growth of 2 to 4 percent a year, while the Russian government predicts a 2.2 percent contraction. We would bet on the latter as it is hard to imagine how Russia can grow when so much of the world is in recession, and when Russia's economic model is currently focused on commodities.

The positive factor seems to be, according to the N.Y. Times, that Russian officials know this, and want to use this period of difficulty to make structural changes to the economy by broadening it.  In rewriting their budget to reflect $45 oil, it would seem they are at least trying to maintain a clear head and firm grasp. It's always mildly disturbing when governments create budgets based on the most optimistic set of numbers that require every good thing to happen at exactly the same time. We don't expect Russia to come out of this without considerable unrest, but they seem to be clear about the challenges.

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Meanwhile, our friends in China are making rumblings about currencies, no doubt taking a certain glee in having an opportunity--validated by reality--to hit hit the United States back in the same manner that we badger them. Except, of course, that China has a bit more wisdom on its side when making points about the United States economy and currency.

In a paper released Monday, Zhou Xiaochuan, governor of the People’s Bank of China, said a new currency reserve system controlled by the International Monetary Fund could prove more stable and economically viable.

A new system is necessary, he said, because the global economic crisis has revealed the “inherent vulnerabilities and systemic risks in the existing international monetary system.”

While few analysts believe that the dollar will be replaced as the world’s dominant foreign exchange reserve anytime soon, the proposal suggests that China is preparing to assume a more influential role in the world. Russia recently made a similar proposal.

(N.Y .Times)

Every time we read something about China we are reminded of one particular friend who contains such an irrational non-love for that nation, induced by a fear that China wants to become a bit more powerful and poses a threat to the United States. We tend to think that most countries are working under the same principals (as in, wanting more power, becoming greater threat) so fixations on China (via say, not shopping at Walmart, home of many Chinese goods) are less productive than fixating on the United States and its flaws. We can only fully control what we do here in the United States, and changing oneself to meet challenges is always the tough option; it's much easier to point the finger that way and complain. And as can be seen, on currencies at least, China is now pointing back at us.