Thursday 1 July 2010

The Arrogance of Chinese Power

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2010-06-28

NEW DELHI – Success breeds confidence, and rapid success produces arrogance. That, in a nutshell, is the problem that both Asia and the West face in China, and which has been demonstrated once again at the G20 summit in Canada.

Rising economic and military power is emboldening China’s government to pursue a more muscular foreign policy. Having earlier preached the gospel of its “peaceful rise,” China is now beginning to take the gloves off, convinced that it has acquired the necessary muscle.

That approach became more marked with the global financial crisis that began in the fall of 2008. China interpreted that crisis as symbolizing both the decline of the Anglo-American brand of capitalism and the weakening of American economic power. That, in turn, strengthened its two-fold belief – that its brand of state-steered capitalism offers a credible alternative, and that its global ascendance is inevitable.

Chinese analysts gleefully point out that, after having sung the “liberalize, privatize, and let the markets decide” song for so long, the United States and Britain took the lead in bailing out their financial giants at the first sign of trouble. By contrast, state-driven capitalism has given China economic stability and rapid growth, allowing it to ride out the global crisis.

Indeed, despite perpetual talk of an overheating economy, China’s exports and retail sales are soaring, and its foreign-exchange reserves now approach $2.5 trillion, even as America’s fiscal and trade deficits remain alarming. That has helped reinforce the Chinese elite’s faith in the country’s fusion of autocratic politics and state capitalism.

The biggest loser from the global financial crisis, in China’s view, is Uncle Sam. That the US remains dependent on China to buy billions of dollars worth of Treasury bonds every week to finance its yawning budget deficit is a sign of shifting global financial power – which China is sure to use for political gain in the years ahead.

The current spotlight may be on Europe’s financial woes, but the bigger picture for China is that America’s chronic deficits and indebtedness epitomize its relative decline. Add to the picture the two wars that the US is waging overseas – one of which is getting hotter and increasingly appears unwinnable – and what comes to mind among China’s leaders is the historian Paul Kennedy’s warning about “imperial overstretch.”

Against that background, China’s growing assertiveness may not surprise many. Deng Xiaoping’s advice – “Hide your capabilities and bide your time” – no longer seems relevant. Today, China is not shy about showcasing its military capabilities and asserting itself on multiple fronts.

As a result, new strains are appearing in China’s relationship with the West, and were in full view at last year’s Copenhagen climate-change summit, where China – the world’s largest polluter with the fastest-growing carbon emissions – cleverly deflected pressure by hiding behind developing countries. Since then, China has added to the strains by continuing to manipulate the value of the renminbi, maintaining an abnormally high trade surplus, and restricting goods manufactured by foreign companies in China from entering the domestic market.

On political and security issues, China has aroused no less concern. For example, China’s expanding naval role and maritime claims threaten to collide with US interests, including America’s traditional emphasis on freedom of the seas.

Yet the plain truth is that America’s economic and military travails are crimping its foreign-policy options vis-à-vis China. The US seems more reluctant than ever to exercise the leverage that it still has to press China to correct policies that threaten to distort trade, foster huge trade imbalances, and spark greater competition for scarce raw materials.

By keeping its currency undervalued and flooding world markets with artificially cheap goods, China pursues a predatory trade policy. This undercuts manufacturing in the developing world more than in the West. But, by threatening to destabilize the global economy, China threatens Western interests as well. Furthermore, its efforts to lock up supplies of key resources mean that it will continue to lend support to renegade regimes.

Still, America shies away from exerting any kind of open pressure on China. US policy today is a study in contrast relative to America’s unabashed exercise of leverage in the 1970’s and 1980’s, when Japan emerged as a global economic powerhouse. Japan kept the yen undervalued and erected hidden barriers to foreign goods, precipitating strong pressure – and periodic arm-twisting – by the US for Japanese concessions.

Today, the US cannot adopt the same approach with China, largely because China is also a military and political power, and the US depends on Chinese support on a host of international issues – from North Korea and Burma to Iran and Pakistan. By contrast, Japan has remained a fully pacifist economic power.

It matters greatly that China became a global military player before it became a global economic player. China’s military power was built by Mao Zedong, enabling Deng to focus single-mindedly on rapidly building the country’s economic power. Before Deng launched his “four modernizations,” China had acquired global military reach by testing its first intercontinental ballistic missile, the DF-5, with a range of 12,000 kilometers (7,500 miles), and developing a thermonuclear warhead.

Without the military security that Mao created, it might not have been possible for China to build economic power on the scale that it has. In fact, the 13-fold expansion of its economy over the past three decades generated even greater resources for China to sharpen its military claws.

China’s rise thus is as much Mao’s handiwork as it is Deng’s. But for Chinese military power, the US would treat China like another Japan.

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