TIME weather

This Graphic Shows How Hurricane Katrina Changed New Orleans

How one of the nation's deadliest storms left an American city a different place

Correction appended

On Aug. 29, 2005, Hurricane Katrina hit New Orleans, after gaining strength in the warm waters of the Gulf of Mexico. Within days the city’s levees collapsed, tens of thousands were left stranded in their homes, and thousands more sought shelter at the city’s Superdome, where conditions rapidly deteriorated. Almost 2,000 people died in the storm, and hundreds of thousands were forced to relocate, some permanently.

Ten years on, New Orleans is a city still recovering, a place where the storm’s path still leaves a scar. The costliest hurricane on record dramatically changed the city’s demographics, neighborhoods, and economy. Below, this graphic helps illustrate how one of the nation’s deadliest hurricanes forever altered an American city.

Katrina3

Correction: This graphic originally misstated the costs of various hurricanes. They are in the billions of dollars.

Read next: New Orleans, Here & Now

TIME politics

Hamilton Is the Broadway Hip-Hop Musical Every Political Leader Should See

Painting of Alexander Hamilton (1757-1804), American politician, by John Trumbull.
DeAgostini/Getty Images Painting of Alexander Hamilton (1757-1804), American politician, by John Trumbull.

It reminds us once again of the power of reason and of words in the political realm

What do the new Broadway hip-hop musical “Hamilton” and Europe’s debt crisis have in common? A great deal, actually.

“Hamilton,” which opened on Aug. 6, celebrates the life and public career of one of our nation’s greatest statesmen, Alexander Hamilton, our first Secretary of the Treasury under President George Washington and the lead author of the most important and influential commentary on the Constitution, The Federalist.

European leaders such as German Chancellor Angela Merkel and Greek Prime Minster Alexis Tsipras, who squared off recently over the latter’s desperate need for another bailout, should book front-row seats, because “Hamilton” has important lessons for them about debt and government.

Hamilton’s stroke of genius

Hamilton was instrumental in transforming the United States into a true nation, in particular by his policies and actions as treasury secretary, and the musical conveys the scope and drama of his achievement.

One of Hamilton’s most brilliant and successful policies was to have the federal government assume the Revolutionary War debts of the states, which it did in 1790.

Hamilton recognized that the United States would be better able than individual states to make regular payments on those debts and ultimately to retire them. Further, he recognized that the government could use the debt as a means to stimulate economic growth, bolster the strength of the new nation’s currency and shore up its honor in the community of nations – by showing that the U.S. would meet its obligations.

One key insight also drove Hamilton’s policy. He saw that consolidating state debts into a single national pool would require a single national policy. No longer would the United States be plagued by divergent or conflicting state policies. Hamilton ensured that his plan would promote national unity.

To this day, scholars of American constitutional and legal history like us, who try hard to maintain their objectivity in interpreting the past, find it difficult not to admire Hamilton’s constitutional, legal, economic and political creativity. And rarely have Hamilton and his policies seemed more relevant than today, particularly for Europe as it struggles to prevent Greece’s debt crisis from ripping apart the eurozone and potentially the European Union.

A clash of nations

In this crisis, we see individual European nations clashing with one another.

Germany and its supporters have insisted on imposing strict austerity measures on Greece in exchange for a third bailout needed to prevent the collapse of the Greek economy – even at the price of stripping Greece of its sovereign power to determine the structure and workings of its economy and society.

Some even charge Merkel with seeking to turn Greece into a colonial satellite by means of Germany’s economic clout, as it did with its military might during World War II.

Nor have Greece’s political leaders played innocent roles. By holding a referendum on the E.U.’s proposed bailout for Greece, Tsipras and his government sought to blackmail Merkel into abandoning her demands for austerity by asking for reparations for the Nazis’ occupation of Greece and implying current leaders are bent on ignoring Greek democracy and the democratically expressed wishes of the Greek people.

Tsipras refused to follow the consensus-building rules by which the E.U. has governed itself. In our view, his embrace of populist, hardball politics has done serious harm to the mechanisms of European governance, risking destroying them.

Preventing destructive political conflicts

In the 1790s, by contrast, the federal government’s assumption of state debts under Hamilton’s guidance prevented similar destructive political conflicts in the early United States.

When Hamilton proposed his plan to bolster the nation’s public credit, he did so within the context of a constitutional system in which there was a general government, at least arguably supreme in certain spheres of activity over the states. In addition, it was within the context of a union that many Americans saw as necessary to their new independence and ability to create a nation and maintain their liberties.

Vigorous, contentious debates within Congress and the public could thus unfold without threatening to burst the Union or the Constitution – even though some states, which had already paid their Revolutionary War debts, resented that the federal government would relieve other states of their burdens.

Lessons for Europe

Did Hamilton and other founding fathers of the United States behave better than Europeans today?

To be sure, political leaders at all times and in all places will do what they must to please supporters and constituents who place their selfish fears and interests ahead of the need to maintain rational government. By contrast with most of his contemporaries, Hamilton’s defiant candor, which sometimes amounted to tactlessness, often made him and his policies more enemies than friends.

Even so, Hamilton understood, as did most politicians of his time, that the way to avoid irrational politics was to create governmental structures for a federal republic that channeled decision-making in productive directions.

In helping to create the first system of national politics, Hamilton and other founding fathers devised a system that forced voters who wanted to make effective and constructive political choices to unite behind centrist candidates and to make binary choices between partisan alternatives.

A case in point is the election of 1800, when voters rejected many of Hamilton’s domestic and foreign policies, elected his archrival Thomas Jefferson to the presidency and gave the Jeffersonian Republicans control of Congress. This result testifies further to the wisdom of the system that Hamilton helped create in Philadelphia in 1787. That system often showed its ability to contain and damp down heated disagreement over major policy issues.

Indeed, one aspect of the 1800 election that showed the Constitution’s strength and resiliency was the peaceful transfer of power from the Federalists to the Republicans, when President John Adams stepped down from office after losing, making way for Jefferson to become the third president. Behind the scenes, Hamilton urged his fellow Federalists not to block Jefferson’s election, though he admitted his dislike of Jefferson and his political views.

An end to blackmail and conquest

The Greek debt crisis is only the latest problem demonstrating the need to create European political structures that can prevent games of blackmail and conquest and give citizens the political power to attain the economy and society they desire.

Europeans themselves are aware of the need for such strengthening and reform. As the European Commission’s 2015 report “Completing Europe’s Economic and Monetary Union” (EMU) notes:

A complete EMU is not an end in itself. It is a means to create a better and fairer life for all citizens, to prepare the Union for future global challenges and to enable each of its members to prosper.

Hamilton’s career, and the American founding experience in general, offer insight as to how those structures might be built.

Statesmen such as the late Jean Monnet – considered the founding father of the European Union – and modern scholars such as British political philosopher Larry Siedentop have often invoked the American example as a model for a United States of Europe, or of a European Union beyond what we see today.

While recognizing that ethnicity, religion and national heritage may serve as barriers to such a union, these scholars and statesmen have argued for a rational recognition among Europeans of their many shared interests. That step would help to replace self-interested and bitter squabbling among nation-states with a rational means of controlling nationalist resentments, emotions and suspicions.

In the U.S. founding era (comprising the years from the 1760s through the 1830s), even though the early states had few sensible reasons to remain separate and many good reasons to coalesce, suspicions, jealousies and resentments comparable to those plaguing Europe today reigned.

These suspicions and resentments, and Americans’ fears of a too-powerful general government, were so strong that, during the framing of the U.S. Constitution in 1787, the delegates to the Federal Convention specifically crossed out the words “nation” or “national” from the working draft. Even so, they created a government strong enough to protect national interests while checked and balanced enough to safeguard democratic governance and individual rights.

Lessons for the U.S.

Not only Europeans could learn a thing or two about rational political decision-making from the new musical “Hamilton.” Americans, also plagued today by a vicious, bitter, either/or form of political conflict, could benefit from the lessons of Hamilton and the other founding fathers.

Those who see “Hamilton” will gain a renewed appreciation for the need to preserve rationality in American politics. The musical’s presentation of complex and difficult policy disputes between Hamilton and Jefferson as well-staged, well-written rap battles shows how words and arguments matter. The show’s author, Lin-Manuel Miranda, recognizes the power of words not only in his use of hip-hop and rap forms but in his close attention to getting the substance of his rap lyrics right.

The play is pervaded by one great insight: the power of language and reason. That power not only enables Miranda’s Hamilton to transcend his humble roots and vault into political leadership of the Revolution and of the creation of an American constitutional republic, it also enables all the founding fathers who appear in the show – Hamilton, Washington, Jefferson, Madison and Burr – to order the American political world with words.

“Hamilton” reminds us once again of the power of reason and of words in the political realm, and of the need for reason to anchor that political world and to direct its course.

Perhaps “Hamilton” might persuade Americans who see it, whether conservative or progressive, of the foolishness of hardball politics and of the need to nurture institutions that promote compromise and to accept it as a legitimate means of getting political things done.

It may convince people that their leaders cannot satisfy every interest demanding satisfaction, and it also may emphasize the need to show respect to their opponents as well as to the values by which those opponents live.

This article originally appeared on The ConversationThe Conversation

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME Economy

Asia’s Richest Man Lost Billions in Monday’s Collapse

And you thought your 401(k) looked bad

The Chinese stock market experienced its biggest slump in eight years on Monday, and the market took several of the world’s billionaires down with it.

Asia’s richest person, Wang Jianlin, lost $3.6 billion over the course of what some have called “Black Monday,” according to the Bloomberg Billionaires Index.

Wang lost about $2 billion from the tumble of Dalian Wanda Commerical Property, a subsidiary of the Dalian Wanda Group Corp. that he chairs. Declines in the value of Wanda Cinema Line also hit Wang, whose net worth stood at $31.2 billion at the end of the day. That’s $13 billion lower than his wealth in June, when Chinese stocks peaked, according to CNN.

Wang had plenty of company: the world’s richest 400 people lost a collective $124 billion in Monday’s market correction, according to the South China Morning Post. Bill Gates’ wealth fell $3.2 billion, the second-worst decline among the billionaires, as the Chinese] collapse sent ripple effects through stock markets around the globe. The Dow Jones Industrial Average closed down nearly 600 points, still an improvement over the 1,000-point drop it saw earlier Monday.

TIME Economy

The Stock Market Could Be Much Calmer Today

Global Markets Continue Last Week's Steep Decline
Spencer Platt—Getty Images A trader works on the floor of the New York Stock Exchange (NYSE) on August 24, 2015 in New York City.

Early indicators point towards a general rebound

China’s has carried on in freefall, but the rest of the world’s stock markets look in much better shape Tuesday, rebounding with vigor after Monday’s sharp declines.

The Shanghai and Shenzhen stock exchanges both lost over 7% earlier, as the government and central bank again decided against intervening during the trading day beyond a modest net injection of 30 billion yuan ($4.7 billion) into the money market. It was another matter after the close, however, as the People’s Bank of China cut its lending rate by another 0.25 percentage point and its reserve requirement rate by 0.50 percentage point, delivering the stimulus that many had hoped for in vain on Monday.

However, most other markets around the region all rose on the perception that Monday’s movement had been overdone, and on hopes that the very volatility caused by fears of the Federal Reserve’s first interest rate hike in nine years might be enough to force Janet Yellen & Co. to stay their hand for at least another month. Australia’s all-share ASX, rose 2.6%, while stock markets in India, Malaysia, Indonesia, South Korea and–most notably–Hong Kong all posted gains on the day.

In Europe, the rebound was even more vigorous, helped by a forecast-beating business survey in Germany that showed the Ifo confidence index at its highest in three months. Germany also confirmed economic growth at 0.4% in the second quarter, with an encouragingly strong performance from domestic consumption. That suggests that Europe’s economic engine may be more protected from the slowdown in China–one of its biggest export markets, accounting for 6% of the total–than it has been in recent downturns.

“German exports to China have already slowed down in the first half of the year, without derailing the German recovery,” said ING-Diba economist Carsten Brzeski. “The geographical diversification of German exporters should cushion any further weakening of Chinese demand.”

Altogether, it’s been the kind of morning where relief has been the dominant emotion. Market analysts are peeping out over the parapet and channelling Anchorman’s Ron Burgundy in their morning notes (“Well, that escalated quickly. Really, that got out of hand fast,” said Deutsche Bank’s Nick Lawson). But prices for stocks, emerging market currencies and commodities still remain largely below where they were on Friday night. Crude oil future are stuck below $40 a barrel despite a 1.4% gain overnight.

Even shares in BHP Billiton Plc [fortune-stock symbol=”BHP”], the world’s largest mining company and heavily exposed to Chinese demand for its commodities, have risen despite its second-quarter earnings falling short of expectations. That’s a measure of how overdone yesterday’s falls are now considered.

It may yet prove to be a fragile and short-lived peace. But the markets will take any peace they’re offered after Monday.

MONEY The Fed

What the Stock Market Turmoil Means for Interest Rates

Janet Yellen, chair of the U.S. Federal Reserve, speaks during her semiannual report on the economy to the Senate Banking Committee in Washington, D.C. on July 16, 2015.
Drew Angerer—Bloomberg via Getty Images Janet Yellen, chair of the U.S. Federal Reserve, speaks during her semiannual report on the economy to the Senate Banking Committee in Washington, D.C. on July 16, 2015.

The ongoing slide in the stock market hasn't just scared investors, it has made life more complicated for Fed chair Janet Yellen.

If you spent Monday staring at the ceiling and wondering what to do, you may have more in common with Federal Reserve Chair Janet Yellen than you think.

Yellen’s been pondering an interest-rate hike since she started her term as Fed chair, and, until recently, most pundits thought the Fed’s powerful Federal Open Market Committee would announce its first rate hike in six years at its Sept. 17th meeting.

But Monday’s sell-off in stocks and commodities — as well as the plunge in bond yields and renewed fears about the global economy — may push back the Fed’s first rate hike as far back as March 2016.

The Federal Reserve has two mandates: To keep inflation low, and to keep the economy running smoothly. Currently, however, the main enemy looks like deflation, not inflation. The consumer price index, the government’s main gauge of inflation, was virtually unchanged the 12 months ended July.

And many commodity prices have collapsed. Light, sweet crude oil — the kind the U.S. produces — has fallen 60% from last year. “Industrial metals prices are at their lowest since July 2009, the first month of the recovery,” says John Lonski, managing director and chief economist for Moody’s Capital Research Group.

The markets, too, are arguing against inflation.

When bond traders think inflation is in the air, they demand higher yields. But there’s not a whiff of inflation in the Treasury market: The bellwether 10-year Treasury note yield is currently hovering near just 2%. Comparing a 10-year T-note to a 10-year Treasury inflation-protected note shows that Wall Street expects inflation to be 1.56% for the next decade.

Nor does the economy show signs of overheating. Average weekly earnings rose 2.4%, to $864.65, in July. And while the unemployment level is 5.3%, the number of discouraged workers — those who have essentially given up looking for a job — has remained virtually unchanged the past 12 months, according to the Bureau of Labor Statistics.

Because of turmoil in global financial markets, expectations for a Fed rate hike in September are already changing.

Barclays Research, which had been predicting that the Fed would start hiking rates next month, now believes the Fed won’t act until March. “Given the uncertainty around the current global outlook, the timing of the rate hike seems more uncertain than usual,” the firm indicated in a note on Monday.

The Fed may also be concerned that delaying the once widely anticipated September rate hike could spark even more fears. Still, the odds of a September rate hike seem to be falling along with the Dow Jones industrial average. “The fed funds futures market has priced in a 24% chance of a rate hike on Sept. 17th,” Lonski says. “A couple of weeks ago, that was an 85% chance.”

Meanwhile, a just-released survey by the National Association for Business Economics found that only 37% of economists believe the Fed will raise rates next month.

Read next: 3 Charts That Explain the Stock Market’s Huge Drop

TIME Economy

This Graphic Explains Monday’s Stock-Market Crash

How a slowdown in China can take money out of your pocket

The Dow Jones Industrial Average plummeted more than 1,000 points Monday morning, taking millions of Americans’ 401(k) plans down with it. While stocks regained some of their lost ground by Monday afternoon, continued uncertainty over factors as far-ranging as China’s economy to global commodity prices could continue to wreak havoc on the markets for the rest of the week and beyond.

How can an economic slowdown in China take money out of your pocket? Check out the TIME infographic below to learn more:

Dow-drop-online

 

TIME stock market

Why Silicon Valley Is Getting Hammered by the Global Selloff

An investor stands in front of electronic board showing stock information at brokerage house in Shanghai
Aly Song—Reuters An investor stands in front of an electronic board showing stock information at a brokerage house in Shanghai on Aug. 24, 2015

Aging bull or emerging bear? Investors see larger problems ahead for big tech

Last week was a relatively quiet one for tech news. So why, in a week when the S&P 500 suffered its biggest decline in 18 months, were technology stocks being hammered especially hard?

The question takes on a new relevance as US markets brace for new declines. The real culprits behind Wall Street’s turmoil last week—primarily, tumbling Asian stocks and slumping commodity markets—only became worse over the weekend. Should tech investors brace for even worse declines ahead? The near-term answer seems to be that they should.

During the past five trading days, the S&P 500 index fell 5.7%. Overall, technology shares were hurt by the selloff even more, with the NASDAQ Composite Index—more heavily weighted with mid-sized and large-cap tech companies—down 6.7%.

The biggest names in tech suffered even worse declines than the NASDAQ. Microsoft fell 8.4%. Apple and Facebook both fell by 8.8% Yahoo fell by 9%. Twitter, already having one of its worst months in the stock market, fell 11%. Google was one of the few large-cap tech shares to fare better than the NASDAQ, but it still declined 6.6% last week.

None of these companies announced any grim development that could have triggered a selloff last week. Instead, they are caught up in a downdraft of selling that was triggered by events well beyond Silicon Valley—continued collapse of the Chinese stock market, the prolonged slump in global commodity prices, and the erosion of currency valuations against the dollar in emerging markets.

These days, the most successful tech companies are global enterprises, so it’s not surprising that they would be affected somewhat by turmoil overseas. After all, these external factors have been haunting tech companies for months. Weaker currencies abroad, for example, are tied to a strong dollar, which can erode overseas revenues of multinationals.

But even so, big tech had been seen as a safe haven amid the global turmoil. Yes, Apple has exposure to China, but Facebook and Netflix don’t. And besides, Apple and Microsoft offer the kinds of dividends investors seek out in uncertain times. And nearly all of them were promising years of growth from the business models they helped pioneer.

Hence the vexing question: Why would they be sold off more harshly than other sectors where multinationals dominate? Some of the easy answers aren’t satisfactory. Yes, trading is seasonally light in August, but these are some of the most actively traded stocks. Yes, some like Netflix are overvalued, but Apple and Microsoft have P/E’s of 12 and 16, respectively—below the S&P 500’s ratio of 20. So why has Apple officially entered bear territory?

There is another explanation, having more to do with what may be a shift in the mindset of investors who grew accustomed to expecting high-growth from tech companies. Currency crises and panics in large overseas markets may not have anything directly to do with whether Americans will buy more smartphones, but they can signal big shifts in financial cycles.

Nobody is sure yet whether what happened last week was a correction or the beginning of a new bear market. Corrections are unpleasant but usually temporary—and they are often necessary before promising stocks can advance higher. But a bear market, which the US stock market hasn’t seen in six years, would slow down revenue growth and potentially even the profits.

And that’s what’s most likely worrying investors. This is an old bull market, ready to be put out to pasture. And the overseas turmoil may be, if you’ll allow the mixing of metaphors, the straw that breaks the aging bull’s back.

In other words, the tech selloff last week may reflect a growing sense of nervousness among large fund managers that have been buying not just publicly traded shares like Apple and Google, but investing in private rounds of newer companies like Uber and Airbnb with an aggression never seen before in previous tech bull markets.

These private tech companies–called unicorns because a billion-dollar valuation for a private startup was once unheard of (although now there are 131 of them)–don’t have financial data available to public scrutiny. It’s hard to know which of them are even close to making a profit. Or, more crucially, whether they have enough cash to carry them to profitability should the economy slow down in the future.

Individual investors have been largely shut out of investing in these companies, but institutional investors like mutual or private-equity funds have bought into them on a scale that wasn’t even dreamed of during the dot-com boom. And after last week, those fund managers may be wondering if they overextended themselves in the tech sector by gorging on these private rounds.

If the selloff is more than a correction—that is, if it’s a true bear market—many funds could be left having to write down losses from these private investments when their valuations drop. And unlike stocks in the public market, privately held shares are much harder to sell because they are illiquid. Some funds may already be selling their public tech shares at a profit as a hedge against this risk.

A few venture capitalists have been warning about this danger for a while. Bill Gurley of Benchmark, a veteran of the dot-com crash, has been sounding for a while like the VC version of Cole Sear, saying he sees dead unicorns this year. Last week, noting the drop in tech stocks, he warned again that investors would soon shift their focus from revenue growth to profitability. Others joined him in predicting zombie unicorns.

These warnings are coming from VCs who, unlike the rest of us, are in a position to see the financial health of many private tech companies. The day may come when the small investors who were barred from buying shares in these so-called unicorns are glad they never had the chance. In the meantime, the mere prospect of dying unicorns seems to be scaring fund managers. Scaring them even more than what’s happening in China.

TIME Economy

How Statehood Changed Hawaii’s Economy

RICHARD NIXON ET DWIGHT EISENHOWER SIGNENT L'ACTE PROCLAMANT LES ILES HAWAII 50ème ETAT AMERICAIN EN 1959
Gamma-Keystone / Getty Images Aug. 21, 1959: The President of the United States Dwight Eisenhower signing the act which declares the islands of Hawaii as the 50th state of the United States of America.

Aug. 21, 1959: Hawaii becomes the 50th state, by Eisenhower’s executive order

Mainland Americans have been making their mark on Hawaii — in ways both welcome and unwelcome — since the early 1800s, when Protestant missionaries first landed there and, per TIME, “devised a Hawaiian alphabet, soon printed a speller… promoted monogamy, [and] introduced the spare, hardy architecture of New England whaling ports.”

While the U.S. annexed Hawaii as a territory in 1898 under somewhat shady circumstances — and over the objections of many Hawaiians — by the 1950s most Hawaiians were in favor of being admitted as a state. When the state reached that milestone, on this day, Aug. 21, in 1959, just seven months after Alaska had joined the Union, Hawaii underwent immediate and radical change, largely in the form of unprecedented economic growth.

The cluster of islands that comprise America’s 50th state are some of the world’s most isolated: 2,390 mi. from the West Coast and 4,000 from Japan. But with statehood came a proliferation of commercial flights that connected Hawaii to the mainland and brought a massive influx of tourists.

Three days after Hawaii was admitted to the Union, Pan American became the first airline to provide jet service to the newest state, according to the Los Angeles Times. This convenience changed the face of Hawaiian tourism entirely. “The islands, which had been the playground of well-heeled visitors, most of whom traveled by ship, began welcoming middle-class travelers,” the LA Times notes.

As TIME reported in 1966, the years after statehood became a “jet rush,” in which the number of passengers arriving annually at Honolulu’s airport more than doubled — many of them vacationers who snapped up $100 tickets for the five-hour flight from Los Angeles or San Francisco. TIME observed:

No fewer than 18 airlines are begging the [Civil Aeronautics Board] to let them put new flights on the Honolulu route. Already, tourists spend $300 million a year, making tourism Hawaii’s largest civilian source of income, larger than the pineapple and sugar businesses combined. To accommodate them, some $350 million worth of hotel construction has gone up in the past five years. The boom has also created new jobs to absorb the unemployment created by automation on the plantations.

This jet-fueled increase in tourism was not Hawaii’s only area of growth. The state also saw a rapid expansion in light industry — companies producing “everything from muumuus to mirrors,” per TIME — and diversification in agriculture. The flurry of commercial activity led to a corresponding boom in development: In 1964, construction spending was up nearly 20 percent from the previous year, and included a $27 million high-rise on Waikiki Beach that was then the world’s largest single-unit apartment building, according to TIME.

Additional projects included a $14 million business complex in downtown Honolulu as well as freeway expansions and new planned communities. Other signs that 1964 was a banner year for the Hawaiian economy, by TIME’s account: “Four new mattress factories have been opened, and Schlitz is about to build a 100,000-barrels-a-year brewery near Pearl Harbor.”

Read more from 1959, here in TIME’s archives: Hawaii: The Big Change

TIME China

These 5 Facts Explain Why China Is Still on the Rise

Chinese President Xi Jinping waits to welcome French Prime Minister Manuel Valls at the Great Hall of the People on Jan. 30, 2015 in Beijing
red Dufour—Getty Images Chinese President Xi Jinping waits to welcome French Prime Minister Manuel Valls at the Great Hall of the People on Jan. 30, 2015 in Beijing

China has had a terrible past few weeks, but that won't stop it's growing dominance

Stock market plunges, currency devaluations and warehouse fireballs out of China have dominated headlines this summer. But make no mistake—this is the opening of the “China Decade,” the moment when the emerging giant’s international influence crosses a crucial threshold. These five facts explain why China’s rise is inevitable, even in the face of bad news—and why it won’t last forever.

1. Rough Summer

Economic indicators have been pointing to a Chinese slowdown for some time—exports had already dropped 8 percent last month compared to the same time last year—but matters have come to a head these last couple of months. Between June 12 and July 8, the Shanghai stock market plummeted 32 percent. On July 27, the stock market fell 8.5 percent, its greatest single-day drop. To put that in perspective, “Black Tuesday,” which kicked off the Great Depression in 1929, saw the Dow plunge 12 percent. Markets under the thumb of autocratic regimes were thought to be immune to such wild swings; turns out they’re not.

On August 11th, the Chinese government devalued the renminbi to kick-start their slowing economy. By the end of the week, the currency’s value had fallen by 4.4 percent, its biggest drop in 20 years.

(The New York Times (a), CNN Money, The New York Times (b), TIME)

2. China’s Rise

Yes, growth is slowing, but to levels enviable in any developed country. In the mean time, China’s march to no. 1 continues. In 2014, China’s total GDP overtook the US’s when measured by purchasing power parity. Using this metric, China accounted for 16.32 percent of world GDP in 2014, eclipsing the US’s 16.14 percent.

More impressive than the size of China’s economy is the speed with which it’s grown. Back in 2000, Chinese imports and exports accounted for 3 percent of all global goods traded. By 2014, that figure had jumped to more than 10 percent. In 2006, the U.S. was a larger trade partner than China for 127 countries. China was the larger partner for just 70. Today, those numbers have reversed: 124 countries trade more with China than with the United States.

(International Monetary Fund, Financial Times, Russia Today)

3. China’s Resilience

And despite recent turmoil, China’s economy has staying power. That’s in part because China’s leadership has spent decades building its foreign exchange reserves, which today are valued at $3.7 trillion. That’s by far the world’s biggest rainy day fund.

More important than its money buffer is China’s consolidated political leadership under Xi Jinping. China’s president has presided over an extensive anti-corruption campaign that has already seen 414,000 officials disciplined and another 200,000 indicted. In the process, Xi has probably rebuilt some of the party’s lost credibility with China’s people. He has definitely sidelined current and potential opponents of his reform program—and of his rule. And the lack of backlash illustrates just how strong his political control really is.

(Wall Street Journal, The Atlantic)

4. Spreading Wealth (and Influence)

Consolidated leadership also enables Beijing to pursue its comprehensive global strategy. China has spent the last two decades tactically investing around the world. Chinese investments in Africa jumped from $7 billion in 2008 to $26 billion in 2013, helping the continent build desperately-needed roads, rails and ports. In Latin America, China has already pledged to invest $250 billion over the coming decade, giving Beijing a solid foothold in the West. This extends China’s influence well beyond East Asia, helps China secure long-term supplies of the commodities it needs to continue to power its economy, creates jobs for Chinese workers, and helps China open new markets for its excess supplies of industrial products.

China also wants to use its money to reshape the world’s financial architecture. To that end, Beijing just launched the Asian Infrastructure Investment Bank to rival the Washington-based IMF and World Bank. Given that 57 countries have signed up as founding members, some of them US allies who chose to ignore US objections, it’s well on its way. With initiatives like the AIIB, China will continue funding infrastructure projects—and building goodwill—for years to come.

(Bloomberg, BBC, Wall Street Journal)

5. Problems Ahead

All that said, China’s longer-term challenges are becoming impossible to ignore. By 2050, it’s estimated that China’s work force will have shrunk by 17 percent. Blame demographics—back in 1980, the median age in China was 22.1 years; in 2013, 35.4, and by 2050 it will rise to 46.3. An aging labor force is like an aging sports star: both want more money, and both are nowhere near as productive as they once were.

Pollution continues to take its toll—less than 1 percent of China’s 500 cities meet WHO air quality standards. China’s environment ministry concedes that nearly 2/3 of underground water and 1/3 of surface water is “unfit for human contact.” A new study estimated that 4,000 Chinese die prematurely each day thanks to air pollution. As China’s masses join a growing middle class, the leadership will have to deal with stronger public demand for clean air and water. Beijing better deliver if it wants to keep the peace, and its regime, intact. And the public will have the means to make its demands known: There are already 650 million Chinese people online, and censorship, however sophisticated, can never fully control the flow of ideas and information in a social media market of that scale—witness the information leaking out on the Tianjin blast. China’s leaders know they must care about public opinion.

(Bloomberg, UN Economic and Social Affairs, Council on Foreign Relations, Russia Today, CNN)

China’s growing strength threatens the established world order, but its domestic vulnerabilities will have global repercussions, as well. It’s still too early to tell which of the two will be more destabilizing. Either way, the world will be shaped by Beijing’s successes and its failures. Welcome to the China Decade.

Your browser is out of date. Please update your browser at http://update.microsoft.com