Napoleon once stated that one should be wary of China,” for when she wakes, she will shake the world”. One can not argue the fact that China is now viewed in the eyes of American media, who in some circles have been have noted to have a more introverted view of political events, as a legitimate rival in the contemporary multipolar world. Harold James has stated some key reasons why the recent economic depression may do for China what the Great Depression of the 1930s did for the United States.

As excerpted from Foreign Policy.com:

China is one of the few economies still growing in 2009, though most economists have reduced their estimates of growth rates. China and the United States are the only countries that are large enough, and have sufficiently well-ordered government finances, to launch major efforts at fiscal stimulation.

The initial stages of the credit crunch in 2007 were managed so apparently painlessly because sovereign wealth funds (SWFs) from the Middle East, but above all from China, were willing to step in and recapitalize the debt of U.S. and European institutions. Between November 2007 and March 2008, the SWFs provided $41 billion of the $105 billion injected into major financial institutions. Had this process continued, the events of 2008 would have included problems with U.S. real estate and a severe stock market decline, but no meltdown of financial institutions.

But after March 2008, the availability of funds to prop up the global financial system shriveled up. The pivotal moment in today’s events came when the state-owned China Investment Corp. (CIC) was unwilling to go further in its exploration of buying Lehman Brothers. CIC’s turning back will be held up in the future as a moment when history could have shifted in a different direction.

The Chinese model of capitalism is very different than that of the United States, and even before the economic crisis, there were two alternative models. The first was the rural, family, and small-business-based boom of the 1980s. But by the 1990s, some of the private-sector growth was being choked off by a rival vision of economic growth built around prestige projects and the large, state-owned enterprise sector. Consider Shanghai, which impressed many commentators as the most modern city in the world: Analysts of the Chinese economy have suggested it is one of the least entrepreneurial cities in China. Yasheng Huang, in his book Capitalism with Chinese Characteristics, described it as “a classic industrial-policy state.” The new stimulus package is likely to push the balance of Chinese development more decisively in this latter direction, toward state capitalism.

….the world may be asked to transition from an American to a Chinese model of capitalism, and as in the 1930s, that won’t be an easy switch for any of us.