The history of China is both fascinating and complex.

Its culture has been described as both peaceful and warlike. From this civil war the People's Republic of China (PRC) emerged. However, this was the beginning of another period of isolation where China attempted to revitalize itself. Under Mao, China was successful in becoming self-sufficient in nearly all resources and technologies. However, it was twenty to thirty years behind modern technical standards. Following Mao's death in 1976, the new leader, Deng Xiaoping, commenced a series of reforms that radically changed China. Deng encouraged international trade and allowed foreign capital investment. The result has been China's phenomenal entry into world markets and a booming economy. The specific aim of these policies was to obtain large foreign exchange earnings, which would allow China to both modernize and become more independent.
The Chinese economy, in a state of autarky since the days of Mao Zedong experienced some radical transformations after Deng Xiaoping took over in 1978. From being an excessively centrally planned economy it matured to a more open economy from his time and is now the growth engine for the world economy for the past ten years.

Economic reforms started in China in the 70s and 80s with the initial focus on collectivizing agricultural activities in the country. The leaders of the Chinese economy, at that point in time, were trying to change the center of agriculture from farming to household activities. The reforms also extended to the liberalization of prices, in a gradual manner. The process of fiscal decentralization soon followed.

The economic reforms that were introduced by Deng Xiaoping in the late seventies have transformed the Chinese economy and produced a period of spectacular growth. China's Gross Domestic Product (GDP) grew at an average rate of 9.3%between years 1979 - 1993. It has also improved its status as a trading nation, rising to eleventh position from number thirty-seven in ten years. Another important fact is that China has accumulated a large foreign currency reserve and is second in the world to Japan. China has also taken advantage of foreign investment and is also rated second in the world, after the US. It is important to realize that the above figures do not include any contribution from Hong Kong, which China regained as a possession in July 1997. While China's performance has been impressive, it also has the potential to maintain this growth. It has a massive population, which represents not only a large domestic market but also a cheap labor source of some eight hundred million people. It is also a country that is blessed with vast natural resources. It is expected that China will become the world's largest economy. The economic and military transformation of China is well underway. It is critical that the West not be naive to its intentions. With its ambitions concerning territorial claims, the challenges it will

face providing for its population and the insecure and suspicious nature of its communist government, Canada and the West face a potentially serious threat from China in the future.

China already has the biggest economy after the United States and most analysts predict China will become the largest economy in the world this century. China grew at a rapid pace as a result of these reforms and opened its economy to the world for trade and direct foreign investment. Chinese (and German) people work very hard and save half their salary. For the last 25 years, the UK, Ireland, and Club Med have imported the savings of these exporters to fund our lifestyle, while working less. The narrative of the financial crisis of 2008 typically begins with the U.S. housing market. Overeager lending and borrowing led to a large housing bubble, and the bad debt from these loans was then securitized and spread throughout the financial system. Profligate lending a macro-economic factor occurred throughout all markets in the United States. The greater availability of mortgage funding predictably led to greater demand for housing, as people who could not have previously qualified for credit received loans (subprime borrowers) and others qualified for loans far larger than they could have secured in the past (prime borrowers). When over-stretched, subprime and prime borrowers were unable to make their mortgage payments, the delinquency and foreclosure rates could not be absorbed by the lenders (and those which held or bought the "toxic" paper). This undermined the mortgage market, leading to the failures of firms like Bear Stearns and Lehman Brothers and the virtual failures of Fannie Mae and Freddie Mac. In this era of interconnected markets, this unprecedented reversal reverberated around the world.

Many financial institutions lent money to consumers for purchasing houses that the borrowers could not repay. These included people with low incomes, insecure employment and poor credit histories. The lenders made commission and fees from lending the money. The more money they lent these 'subprime' consumers and house buyers the more commissions and fees they made. The risks were taken by the actual providers of the capital and funds for lending. The lenders at first were happy to lend the money to these subprime house buyers as the interest rates charged on the home mortgages were high. Everyone seemed to win. The financial firms lending earned significant fees and commissions. The lenders received a high rate of interest on the loans. The house buyers could be sure that the value of the house would increase and when they went to sell it they could pay off the loan. In late 2007 the number of house buyers unable to pay their loans increased rapidly. This affected the mortgage lending market. Very quickly lenders stopped lending for house purchases.

The prices of houses started to fall as new buyers could not access home loans. Financial institutions began to make losses. This led to a panic as people withdrew their funds from financial institutions. A number of very large investment banks on Wall Street failed. Lehmann Brothers, one of the largest investment banks, became bankrupt. In a short time the credit markets, where businesses borrow to fund investment and business expansion, seized up and it was difficult to borrow funds. Business could not raise loans for investment and working capital. Many businesses had also borrowed heavily and had large debts (highly geared or leveraged). Many of these businesses also began to fail and unemployment began to rise rapidly. This rise in unemployment caused more and more consumers and mortgage holders to be unable to pay their house mortgages causing more consumer and personal bankruptcies and more 'subprime' mortgage losses. This impacted on financial institutions around the world. The subsequent downturn in the US economy, coupled with the word wide credit squeeze, created the Global Financial Crisis (GFC) and the global recession, dubbed the great recession by the head of the IMF, Dominic Strauss-Kahn, in March 2009. Since the economic downturn began in 2007 and into 2010, the world is experiencing a credit crisis. Declining values in real estate, record high foreclosure rates and default rates on loans are responsible for the credit crisis, which is making it harder for businesses to obtain the loans and credit to grow and expand. The global credit crunch has caused business owners and managers to make management decisions that cut costs but maintain operational productivity. Most businesses are experiencing a lack of cash flow from business operations. Some businesses had to cut back on their employees because of budget cuts, so one of the major fallouts from the credit crisis is employee layoffs. The volume of layoffs at one time has caused some of the highest unemployment rates the world has seen since the United States went through the recessionary period during the 1980s. In general, the credit crisis has caused businesses to have to operate in a realm they have not had to operate in before. The direct effect is that businesses have become more flexible in order to keep business operations afloat until the crisis ends. Flexible measures include closing one or two additional days per week and working out payment arrangements with customers.

Globalization has been perhaps the key event in the world economy in the past two decades. During this gradual process, several emerging countries have gained in economic importance and have begun to influence economic developments in other countries. This development has been dominated especially by the growing Chinese economy, supported by its export expansion into and investment from developed countries. Within a just a few years, China has become an important source of growth for the global economy. More recently, China has been followed by India and possibly also

by some other smaller emerging economies in Asia. Not surprisingly, growth in China has changed the distribution of economic activities across the world. It seems that countries with tighter economic ties with China and India also have higher dynamic correlation with these economies. This is especially true for long-term developments In sum, a special position of the emerging Asian giants is confirmed in the business cycles of the world economy. De-spite the increased trade links between the countries; both China and India behave quite differently from the rest of the world economy.