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| China: Pretender or Contender? |
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Economy
Few nations have changed their economy as fast or as dramatically as China has since the 1970s, without major leadership upheaval. The world's most populous country has radically liberalised its economy and moved from producing low-quality simple exports to sophisticated high technology goods. The country has been transformed from an inward and backdated economy to a global exporting machine. Total exports have grown tenfold between 1990 and 2003 to $436 billion.5 In 2004, China accounted for more than 20% of the total growth in the world economy. There is no question that China's emerging and increasingly powerful economy will be high on the agenda of most competitors, especially the US where there are increasingly loud and disgruntled noises being made concerning the size of the trade deficit with China, which shows no signs of receding.
Since China joined the World Trade Organisation, the Americans in particular have tried to create pressure on the Chinese to implement WTO compliance mechanisms. The main aims of the Americans in allowing Chinese membership to the WTO were twofold. Firstly, to promote China's continued "economic reform, modernisation and opening". And secondly to ensure China becomes a fully paid-up member of the rules-based global economic system.
The Chinese on their part have been consistently fighting such moves and have successfully sidestepped many of the restricting influences of the WTO. An example of this is the legislation regarding International Copyright and Infringement regulations, where China announced rules that will give a preference to domestic software in government procurement, thus bypassing WTO rules on software piracy, which are limited to private companies.6
Buoyed by foreign reserve assets of a staggering $600bn6, China is transforming on the economic world stage from being a cheap producer of unsophisticated goods to being a dominant player on the mergers and acquisitions markets, acquiring ailing companies on more than generous terms. This strategy is not born out of foolhardiness, but by a concerted desire to acquire the technological know-how of these organisations, and to secure the supply chain for its vital products and raw materials.
From Latin America to Iran to Africa, the Chinese leadership has wasted no time in spending and completing deals on generous terms. Hugo Chavez of Venezuela has found that being ostracised by the United Sates has had little or no impact on his ability to do business with the cash-rich Chinese. Iran, another major source of irritation for US foreign policy, has also signed a $100bn LNG (Liquid Natural Gas)7 deal with Beijing and has granted China the right to explore and develop the Yadavaran oil field, providing for LNG sales of 10 million tons a year.8 Niger, Gabon and Gambia are also in line to quench Chinas thirst for the black stuff, as it has outstripped Japan and is only second to the United Sates in its demand for oil. Worryingly for the United States, playing the economic card is not so effective. Expecting nations to succumb to economic pressure to achieve political ends has become rather more difficult, now that the world has discovered another buyer who attaches fewer strings.
So what makes a cheap producer of TVs and toys transform into arguably the most exciting candidate for being the largest economy in the world? One of the most informative answers is offered by Evan Fiegenbaum, in his book "China's Techno Warriors".9
Fiegenbaum argues that the raison d'être of China's impressive technological growth is the military considerations that have dominated the development of science and technology. He states that this is not a recent phenomenon, but can actually be traced back to the Mao era. Mao overtly stated his objective of forming a "militarisation" complex above all other needs. This "militarisation", though it appeared one-dimensional, formed the basis of Deng Xao Ping policy. Deng's aim was to diversify so that China's industrial and technological base could contribute not just to national defense but also to economic growth and civilian prosperity. Fiegenbaum states that Deng's famous 16-character guidance issued in the early 1980s makes this clear: "Integrating military and civilian production; but making sure to balance the military requirements; maintaining military capability; and using the civilian economy to serve military modernization" (junmin jiehe; pingzhan jiehe; junpin youxian; yimin yangjun).10
The incredible economic output has also given rise to frailties, and critical considerations remain that need to be addressed by the Chinese leadership. Firstly there is the dependence on natural resources, which are in scant supply at home. Chief amongst these of course is oil. With staggering economic growth comes an equally staggering thirst for oil. The multitude of contracts being signed in the past 6 months by China have undoubtedly led to the increases in the price of crude.11 Some major oil conglomerates like Chevron have publicly discussed their worry about a bidding war, especially for Mid-East oil, between the West and China.
Secondly, Chinese premier Hu Jintao, in his last major politburo address, devoted much of his time to discussing concerns about the economic disparity between rural and urban China. Disgruntled voices in the Communist party leadership have expressed annoyance at the formation of a two-tier nation and many experts have identified this as an Achilles heel for the growing economy. Although it is true to say that there is considerable disparity between the rural west and the industrialised east coast, this is not yet likely to reach the level that would make a considerable difference to the way China conducts itself politically or economically.
Even though this white-hot economy is outpacing the rest of the world by a considerable margin, China is setting the stage for a shift in priorities. The last two decades have been focused on economic changes within its borders, but now the focus is outwards. It seems likely that China has stabilised its economic growth and now its economic performance will have a permanent impact on the world stage. This spectacular growth has afforded China unprecedented riches with which to exploit its regional ambitions and alter the current status quo both economically and politically.
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