China's future is everyone's future

Rest of world needs to reach the same level of understanding to share stability and prosperity

On Aug 11, global financial markets were stunned when the People's Bank of China, the central bank, announced without warning that the yuan would be allowed to find its own market level against the dollar and other major currencies. The yuan, which since 2012 had strengthened against the US dollar, fell by more than 3 percent during the course of several days, before stabilizing.

Financial reporting around the world was full of the event. Most commentators believed that a fall in the yuan's value, which could help promote Chinese exports, displayed the government's desperation to stop the slide in its economy.

For them, it was a sign of how bad things were getting in China as the government tried to shift demand from investment spending to consumption, allowing the economy to slow in the process. Markets slid around the world in response to lower expectations of Chinese growth, with the Dow Jones and European stock indices each falling by nearly 10 percent in August.

A few weeks later, we can see more clearly that the real importance of China's currency announcement is to underline China's enormous significance in the daily lives of people around the world. The only other factor today with a comparable market influence to China's currency readjustment is the US Federal Reserve's decision on when to raise interest rates. This in turn will have a knock-on effect around the world because of the dollar's role as the world currency.

In fact, China's global economic importance today may even be greater than that of the US, because the Chinese economy is more open to world trade. China's twin roles, as the global processing center for exports to the developed world, and as the major world buyer of most types of commodities, from copper and cotton to oil and iron ore, give it great economic significance.

In 2014, the combined total of Chinese imports and exports was 41 percent of the Chinese economy. The comparable 2014 figure for the US was 30 percent.

One thing we learned from the strong market reaction to China's currency announcement was that what happens in China really does matter to everyone else. We live in an increasingly interdependent and interrelated world.

This effect is magnified every day by constant technological improvements which bring people closer together. We see this today in the unexpected arrival of refugees in Europe, in huge numbers, from North Africa and the Middle East, particularly from Syria. In such an interconnected world, a growing China will affect lives in the West more and more, and vice versa.

Yet most people who were born before 1985 still live in the relatively unconnected world of 20 or 30 years ago, when the Internet was unknown, and smartphones and low-cost international air travel were unthought of. Since 2000, Chinese real estate has risen in value by a factor of 5 or 10 times in many cities. As a result of this, and the success of the Chinese economy, in a few years, a whole generation based in eastern and parts of central China has progressed from humble economic circumstances to affluence.