woodenspoon

                                                                                                                                                                 Jenny Lee 

8 Dec. 2006

 

The United States and China are coming to terms with their developing relationship.  Awareness of the complexities will produce a win-win outcome.

 

In 1999 Gerald Segal, a respected British scholar of China said “China is a second-rank middle power that has mastered the art of diplomatic theatre:  it has us willingly suspending our belief in its strength.” [1]  Segal argued that China was indeed a “theoretical power” and was overrated in terms of international trade and investment and that it mattered much less than many believed. 

 

Just seven years later it is difficult to recognize this description of China. Since 2000, China’s contribution to global GDP growth has been bigger than America’s and more than half as big again as the combined contribution of India, Brazil and Russia, the three next-largest economies.[2]  China’s massive build-up of American Treasury bonds $342.1 billion in Sep.2006,[3] affects American interest rates and thus Americans’ willingness to spend. Its low-priced manufactured goods give western consumers more buying power. Its thirst for energy and other commodities such as steel and cement has helped push prices to record highs. Whereas a few years ago it might not have mattered much to the West if China growth falters, today it would be a very different story.

 

 The speed with which this has happened has taken everyone by surprise.  For centuries China was a sleeping giant.  Its policy was inward looking.  When the communists, under the leadership of Mao Tse-dong took control in 1949, Russia was seen as the main threat to world peace. China was thought of as a large but weak country and was largely forgotten about. Relations between China and US remained cool until the visit of President Nixon to Beijing in 1972 which was the first step to try to normalize relationships between the two countries.  Nixon, recognizing the importance of China, said at the end of his visit “This was the week that changed the world.” Margaret Macmillan, the Canadian historian claims in her book that America gave too much away during the visit and that this sowed the seeds for the formidable development of China.[4]                                                                                                                                                                                                                                                                                                                                                                                Since 1972 China has transformed itself from a poor backward society to a major player in world markets – its annual growth in GDP has regularly been in double digits and it is now attracting more foreign direct investment than any other country in the world. Asia is the region driving the world economic growth and China is the power house driving the Asian economic growth.  Although there are many uncertainties, it is generally accepted that China’s economy will match that of US within the first half of this century.[5]/[6]/[7]China cannot be ignored in the future and the relationship between China and US has become the single most important relationship between any two countries.                                                                                                                                                                                                                                                                                                                                                                          According to China scholar and former National Security Council official  Kenneth Lieberthal there remains a deep unease in the United States about the impact China will have on American vital interests. This unease can be expressed in five fundamental issues.  [8]                                                                                                                                                                                                                                                                     Issue 1:  For decades America has treated the relationship with China as a foreign policy issue. Advice has been freely given to China on domestic reforms necessary to achieve success.  However, China’s cheap labour costs have enabled it to become a global manufacturing centre which is now a threat to America’s own manufacturing base.                                                                                                                                                                                                                                                                                                                                                Issue 2:  There is disagreement in United States about the long-term nature of the US-China relationship.  Some Americans believe that it is inevitable that by 2020 China will be an enemy of United States and those steps should be taken to block development of the Chinese economy.  Others believe that China is only a potential enemy and that diplomacy can encourage a more constructive long-term relationship based on co-operation rather than distrust.   

 

Issue 3:  It is not clear where China is going domestically.  The economic development is spread along the coastal strip Guangdong to Beijing but the majority of Chinese still live in rural poverty.  Will China’s wealth spread to the rural areas or will the wealth gulf breed resentment and ultimately internal conflict?  America is concerned to what extent this potential internal conflict will produce external influences such as refugee flows, proliferation of international criminal syndicates and other destabilizing influences for the region and the rest of the world.

 

Issue 4:  America and China are uncertain about their respective roles in Asia.  America has been the dominant foreign power in Asia since the end of the Second World War.  In recent years its focus has changed to Iraq, Afghanistan and Iran in response to concerns about international terrorism.  At the same time China has developed stronger diplomatic ties in the region and has now replaced America as the largest trading partner of most countries in the region.  There is a strong perception in the region of Chinese engagement and American disinterest.  The Bush administration has become alert to this but in trying to redress the balance it may lead to tensions and mutual suspicions about each other’s intentions.

 

Issue 5: America supports open economic and financial systems based on democratic government as the model for global development.  China, on the other hand, sees more state intervention in the economy and strong centralized government as the better model.  America has been concerned recently with China pushing its development model in Brazil. [9]

 

These issues are wide-ranging and complex and will have to be tackled step by step as illustrated in recent US – China contacts.

                                                                                                                                                                                    Henry Paulson, the new US Treasury Secretary, visited China recently.  He is no stranger to China having been a frequent visitor while head of Goldman Sachs. He is well placed to tackle some of the economic problems with the Chinese leadership.  One of the main issues he tackled was the weakness of the yuan which is leading to cheap exports to US. China’s trade surplus with the United States last year was $200 billion[10].  Although China recognizes the problem, a rapid change could lead to unemployment in local factories and potential social unrest.  

                                                                                                                                                                                           On the political front, US needs China’s help to try to resolve one of the most difficult and dangerous world problems, North Korea.  The Stalinist regime depends completely on China to keep it viable.  It is not in China’s interests to have a nuclear North Korea and Beijing has been working with Pyongyang to try to find a way forward following the reported nuclear tests in North Korea.  This seems to have had success with reports that Pyongyang has agreed to an early resumption of the six nation talks.  This has been an important test for China and demonstrates it is both willing and able to play its part on the world diplomatic scene. 

 

The Olympics in 2008 will be a major challenge for China.  In 1991, Liu Jingmin, Vice President of the Beijing 2008 Olympic Games Bid Committee stated “By allowing Beijing to host the games you will help the development of human rights.”  However, Amnesty International points to a continuation of serious violations of human rights in China.  While this does not have a high profile yet in the mind of the public, it can be expected to grow as the opening of the games approaches.  Pressure will be brought to bear on China to make improvements and some progress can be expected over the next couple of years.  However, will China revert to its old ways after the Olympics are over?  

 

There is a precedent which gives cause for optimism.  South Korea was a military dictatorship when it was awarded the 1988 Olympics in 1981. The games were awarded on the understanding South Korea was moving towards democracy.  By 1988 elections had been held which, while not fully democratic were at least a step in the right direction.  The momentum build up in this process was unstoppable and today South Korea is a full multi-party democracy.  While China is a much larger and more complex country, any changes made in the run up to the Olympics may not be reversible.

 

The other significant event in 2008 is the US Presidential elections.  In the past, incoming presidents have adopted fresh approaches to China which has had a significant impact on relations between the two countries.  However, Chinese development has been so strong since Bush came to power that it is now less likely that a change of president alone can significantly impact on the relationship which is now as strongly tied to economic and trade as it is to diplomacy.

 

 The speed of China’s development and the impact this will have internationally as well as domestically in the US will inevitably lead to tensions in the years ahead.  These tensions will have to be managed carefully to ensure that there is a win-win outcome for both countries as well as the rest of the world.  It is in no one’s interest for a new cold war to develop.