Chinese leaders know that their country's current economic boom is the result of an export economy. Until domestic consumption increases, China's economy will continue to rely on maintaining good economic relationships with other nations. Even after domestic consumption increases, Chinese leaders know that turning inward isn't in the country's best interests politically or economically. Knowing something and acting on that knowledge are two different things. John C. Maxwell, an entrepreneur, author, and motivational speaker, claims, "A leader is one who knows the way, goes the way, and shows the way." Chinese leaders remain committed to keeping the Communist Party in power and that myopic objective is coloring a number of decisions being made by its leaders. Chinese politicians want the country to assume a larger global leadership role; but their "me first" decisions risk undermining that objective. Robert J. Samuelson asserts that these decisions also pose dangers for international community ["The danger behind China's 'me first' worldview," Washington Post, 15 February 2010]. Samuelson writes:
"It's become apparent from recent events that America's political, business and scholarly elites have fundamentally misjudged China. Conflicts with China have multiplied. Consider: the undervalued renminbi and its effect on trade; the breakdown of global warming negotiations in Copenhagen; China's weak support of efforts to prevent Iran from acquiring nuclear weapons; its similarly poor record in pushing North Korea to relinquish its tiny atomic arsenal; the sale of U.S. weapons to Taiwan; and Google's threat to leave China rather than condone continued censorship. The United States and China view the world in starkly different terms. The lesson of the Great Depression and World War II for Americans was that isolationism was self-defeating. Tried after World War I, it failed. The United States had to engage abroad to protect its economy and physical security. These core ideas remain the bedrock justifications for overseas military commitments and the promotion of an open world economy. The quest is for stability, not empire."
One would think that the Great Depression and Second World War would offer sufficient evidence for any world leader about the dangers of isolation, protectionism, and confrontation. What you see, however, depends on where you sit. According to Samuelson, China sees the world differently than most of the rest of the world. He continues:
"China, too, covets stability. But its history and perspective are different, as Martin Jacques shows in his masterful "When China Rules the World." Starting with the first Opium War (1839-42) -- when England insisted on importing opium from India -- China suffered a string of military defeats and humiliating treaties that gave England, France and other nations trading and political privileges. In the 20th century, China was balkanized by civil war and Japanese invasion. Not until the communists' 1949 triumph in the civil war was there again a unified national government. These experiences left legacies: fear of disorder and memory of foreign exploitation."
The past is not necessarily prelude to the future; but in China's case it may be. Samuelson explains:
"Since 1978, China's economy has increased roughly tenfold. The prevailing American assumption was that as China became richer, its interests and values would converge with those of the United States. China would depend increasingly on a thriving global economy. Freer domestic markets would loosen the stranglehold of the Communist Party. The United States and China would not always agree, but disputes would be manageable. It isn't turning out that way. A wealthier China has become more assertive, notes Jacques. American prestige has further suffered from the financial crisis originating in the United States. But the fissure goes deeper: China does not accept the legitimacy and desirability of the post-World War II global order, which involves collective responsibility among great powers (led by the United States) for world economic stability and peace. China's policies reflect a different notion: China First."
I think it may be a bit premature to dismiss the belief that the interests of China and other developed countries will eventually converge. Economic change almost always precedes political change; unfortunately, political change is what Chinese leaders currently fear most. I remain sanguine that economic change will continue and that it will eventually lead to positive political change. Samuelson wonders, however, if current Chinese decisions won't derail the brighter future I envision. He continues:
"Unlike the isolationist America First movement of the 1930s, China First does not mean global disengagement. It does mean engagement on China's terms. China accepts and supports the existing order when that serves its needs, as when it joined the World Trade Organization in 2001. Otherwise, it plays by its own rules and norms. Trade policy is explicitly discriminatory to address two crucial problems: surplus labor and scarce commodities. The undervalued renminbi aims to help create 20 million or more jobs that Jacques cites as needed annually. China is scouring the globe to make investments in secure raw materials, particularly fuel. The object of 'economic reform,' Jacques writes, was 'never Westernization' but 'a desire to restore the [Communist] Party's legitimacy.' Most American-Chinese disputes reflect China's unwillingness to endanger domestic goals for international ends. It won't commit to binding greenhouse gas cuts because these could reduce economic growth and (again) jobs. On Iran, it values its oil investments more than it fears Iranian nukes. Likewise, it worries that unrest in North Korea could send refugees spilling across the border. Because Taiwan is regarded as part of China, U.S. arms sales there become domestic interference. And censorship is needed to maintain one-party control."
I don't disagree with Samuelson's assessment. My only point is that we often ignore history in other developed regions that often mirror the course China is currently taking. In his book Great Powers: America and the World After Bush, my colleague Tom Barnett wrote:
"The United States was the rising China of the age, zooming up to and—in many categories—zooming past our model, Great Britain. If you think Americans use Chinese products to the exclusion of all else now, the same realization was dawning on the British regarding America at the turn of the 20th century. Consider this account from [historian Edmund] Morris:
Current advertisements in British magazines gave the impression that the typical Englishman woke to the ring of an Ingersoll alarm, shaved with a Gillette razor, combed his hair with Vaseline tonic, buttoned his Arrow shirt, hurried downstairs for Quaker Oats, California figs, and Maxwell House coffee, commuted in a Westinghouse tram (body by Fisher), rose to his office in an Otis elevator, and worked all day with his Waterman pen under the efficient glare of Edison light bulbs.
As China today markets tequila to Mexico (!), back then America was managing the equally inconceivable, coal-to-Newcastle feat of exporting beer to Germany! America could only consume a fraction of what it produced, meaning the rest had to be exported, resulting in a trade surplus and an inflow of foreign direct investment that left Wall Street awash in capital, much like Shanghai’s stock market finds itself so popular among international investors today. If Americans today fear that China, with its trillion-and-a-half dollar reserve, could buy our economy tomorrow, back then steel magnate Andrew Carnegie 'calculated that America could afford to buy the entire United Kingdom, and settle Britain’s national debt in the bargain.' What the world’s economies feared most back then was the all-powerful 'American price,' much like so many U.S. manufacturers today fear the seemingly bottomless 'China price.' But as with China today, the ease with which America conquered foreign markets and expanded commercially ... hid a lot of rising problems at home in a capitalism that seemed at once unforgivably cruel, hopelessly unequal, and increasingly unmanageable. If that is globalization’s nightmare image today, with China serving as poster boy for all that’s out of control, then America served the same function in that earlier globalization age."
Although China's economic and political trajectory may be similar to America's past trajectory, the pace at which China is traveling that course is greatly accelerated. That may be what's behind Samuelson's concern. He continues:
"China's worldview threatens America's geopolitical and economic interests. Just recently, 19 U.S. trade associations wrote the Obama administration warning that new Chinese rules for 'indigenous innovation' could 'exclude a wide array of U.S. firms' from the Chinese market -- or force them to turn over advanced technology. (British firms are so incensed by 'overwhelming protectionism' that some may quit China, reports the Telegraph newspaper.) It would be a tragedy if these two superpowers began regarding each other as adversaries. But that's the drift. Heirs to a 2,000-year cultural tradition -- and citizens of the world's largest country -- the Chinese have an innate sense of superiority, Jacques writes. Americans, too, have a sense of superiority, thinking that our values -- the belief in freedom, individualism and democracy -- reflect universal aspirations. Greater conflicts and a collision of national egos seem inevitable. No longer should we sit passively while China's trade and currency policies jeopardize jobs here and elsewhere. Political differences between the countries are increasingly hard to ignore. But given China's growing power -- and the world economy's fragile state -- a showdown may do no one any good. Miscalculation is leading us down dark alleys."
I agree that miscalculations on either side could prove damaging; and China's "me first" attitude could prove to be a serious miscalculation by its leaders (just like similar "America First" economic policies are often wrong for long-term growth). Perhaps no decision by the Chinese has received as much press as the decision to limit exports of rare minerals ["China’s Threat Revives Race for Rare Minerals," by Keith Bradsher, New York Times, 25 September 2009]. Bradsher reports that China controls "more than 99 percent of the world’s production of these minerals." The big fear, he reports is that "China could try to use a ban to force other countries to buy the crucial motors for these high-tech end products, instead of just the minerals, directly from China." China, of course, wouldn't see this as issuing a "threat" but pursuing a good business move (and a good job creation decision); but the rest of the world would view such a development as extortion. As a result, Bradsher reports, "other governments and businesses reacted quickly as word of the proposed ban spread late this summer. The Chinese threat has touched off a frenzied international effort to develop alternative mines." For its part, the Chinese government hasn't backed down ["China ups rare earth reserve," by Patti Waldmeir, Financial Times, 12 February 2010]. Waldmeir reports:
"China’s leading producer of rare earth metals has been given government approval to build a strategic reserve, exacerbating concerns that Beijing is tightening its grip on the valuable minerals, needed to produce green and high-technology products. China supplies about 95 per cent of the global market for rare earths, used to produce everything from hybrid cars to iPod music players. Baotou Rare Earth said in a statement to the Shanghai stock exchange that it had gained approval from the regional government of Inner Mongolia to build 10 reserve facilities capable of storing more than 200,000 tonnes of rare earth oxides. Over the past three years, China has steadily cut export quotas for rare earth elements, saying it needs additional supplies in order to develop the domestic clean energy and high-tech sectors. This has fed foreign suspicions that Beijing plans global domination of rare earths."
The rare minerals sector is not the only sector in which Chinese actions have stirred concerns. As Samuelson noted, China has aggressively sought to secure access to a number of different natural resources, including oil ["Burning ambition," by Carola Hoyos, Financial Times, 4 November 2009]. Hoyos reports:
"China began discreetly buying Kazakh oilfields 10 years ago and now has more energy projects on the go in the central Asian nation than any other country. While the west’s biggest oil groups agonise over the risks of undertaking expensive infrastructure developments in obscure locations, Beijing has boldly built a 3,000km pipeline to lock Kazakhstan’s oilfields into its orbit. It is moves such as these that have prompted fears of a clash between the west and China over oil. Both John McCain and Barack Obama used the threat during last year’s presidential campaign to call for greater energy independence. Sombre oil executives fear they will never be able to compete with the deep pockets of China’s government-backed companies and will be driven out of the few last available new oil patches. The predicament seems even more dire in light of warnings from authorities including the International Energy Agency, the rich countries’ energy watchdog, that the world is heading towards another oil crunch by the middle of the coming decade."
As I have noted in previous posts, China has also sought natural resources in Africa. Sudan has been the principal source of African oil for China. Hoyos continues:
"Sudan is another country in which Beijing has had successes in terms of production. China produces about 225,000 b/d in the north-east African nation. But political strife is threatening its investment. Much of the oil China controls there is pumped from fields in the south to refineries in the north. Southern Sudan is expected to vote for independence from the Khartoum regime in a referendum in 2011, or fight for it before then – risking supply disruptions and the cut-off of its route for shipments. In the rest of Africa, however, China has a far smaller presence than the western groups that shun Sudan."
China has been often criticized for its willingness to make deals with rogue regimes. In addition to Sudan, China has deals with Burma, Iran, and Guinea (before recent events there -- see my post entitled An Update on Guinea). Despite its deep pockets, Hoyos reports that China is facing increased political obstacles from governments in the developing world because they see the Chinese as a threat to domestic jobs and resources. For that reason, Chinese national oil companies are now working more closely with established Western oil companies like Royal Dutch Shell and ExxonMobil. That development supports my assertion that economics precedes politics and that Chinese interests and those of other developed nations are likely to converge. Hoyos concludes with a note of caution:
"Nevertheless, China’s ambition and its advances abroad are a reminder that Beijing is deadly serious about its own rise from poverty. Regardless, of how benignly it proceeds, China will demand more additional oil in the coming decades than any other country in the world."
The road ahead for China and the rest of world is not clear of obstacles. There are likely to be potholes and detours that make the journey ahead uncomfortable. Competition will remain keen and brinkmanship is likely to occur on occasion. Chinese leaders are likely to stumble badly as they try desperately to cling to single-party rule. If cooler heads prevail, however, there should be more reasons to be positive about the future than negative ones. Although every nation takes understandable pride in its identity and culture, in the long-run, we are all in this together. The current economic recession should be a reminder of that essential reality.
