Chinese President Hu Jintao’s summit with President Obama in the US this week has come at a critical time in relations between both countries. The rise in Sinophobia within the US establishment marks a worrying trend whereby China is being blamed for America’s economic woes due to its refusal in the eyes of US politicians, economists and political commentators, to raise the value of its currency in order to stem the flow of exports to the US which continue to cripple US manufacturing. As a result the whiff of protectionism is in the air.
The essential point to be made, however, is that despite the rise in hostility being directed towards China from within the United States, and the West in general, the relationship between both countries remains interdependent, with the fortunes of each inextricably linked to that of the other.
China’s economic growth over the past decade has been simply staggering, averaging 10-12 percent annually. In 2010, in the midst of a global recession, China’s growth succeeded in confounding economic experts, registering over ten percent when most predicted it would plateau at around 6-8 percent. The latter would still have been impressive compared to other industrialised economies. Consider for example that US growth in 2010 was just 2.8 percent.
But what most commentators in the West fail to understand is that China’s accelerated rate of economic growth is essential in order to meet the rapid transformation taking place within China itself. As millions continue to migrate from the countryside into the city each year, in a process that shows no hint of slowing down, China’s priority is ensuring its economy is able to meet the increased demand for jobs within its urban centres. Huge capital investment projects have been undertaken over the past few years to offset the drop in demand for exports, with the Chinese taking advantage of its unique position in the world of being deposit rich as a consequence of an economic model which has placed a priority on saving over consumption. The lack of social protection provided by the state is largely responsible for this high level of saving within the Chinese economy, a situation which the Chinese government is currently in the process of alleviating, especially in light of the global recession and the fear it could precipitate a spike in unemployment. Without a viable system of social protection in place large scale unemployment could be the catalyst for widespread social unrest.
Added to the rapid increase in urban population and new jobs to meet the demand incurred, increased social protection is having the effect of slowly but steadily increasing domestic consumption. This is the main reason why China has been able to protect itself from the global downturn to the extent it has, offsetting the reduction in global demand for its exports. Regardless, the global share of Chinese global exports in 2010 came to £1.5 trillion. This means that China continues to export more than any other single major economy, with only the European Union in is entirety exporting more. Germany comes second on the list of the world’s major exporters with $1.3 trillion, while the US is third with $1.2 trillion worth of exports in 2010.
The non convertible status of the renminbi has lent further stability to China’s economy, giving it protection from the sudden and often sharp fluctuations suffered by convertible currencies. That said, there are both positives and negatives when it comes to maintaining the renminbi’s non-convertibility status. Allowing its currency to float would enhance China’s role in the world by making it easier for Chinese companies to invest abroad. More significantly, it could see the renminbi rival the dollar and the euro as an international reserve currency, especially throughout the developing world where China’s economic activity has seen it begin to weaken US domination.
The downside of course would be the possibility of opening the currency up to the kind of speculation which so afflicted its neighbours during the Asian financial crisis of the 1990s, precipitating a mass exit on the part of investors and savers as they seek a better return on their investments.
For the US – a declining economic power relative to China, though still some way ahead in terms of overall GDP – the danger is that China’s economic growth will inevitably progress to it growing as a military power in order to protect its accumulating global interests and economic alliances. This is particularly the case when it comes to East Asia, though is increasingly also a factor throughout the developing world. This strategic threat, as perceived within the US, is reflected in a staggering US defence budget of over $600 billion in 2010 under an Obama administration which came to power in 2008 perceived as progressive relative to the preceding Republican one. Compare this to China’s 2010 defence budget of $77.9 billion (though this does constitute a 7.5 percent increase). To put this disparity in even greater context, the US defence budget constitutes 46.5 percent of the entire world’s military budget, whilst China’s constitutes around 7 percent.
China’s role as the world’s major creditor to the US, currently to the tune of $908 billion, in effect funding US domestic consumption, is one half of the reason why the relationship between both countries will remain a mutually dependent at least in the short term. For China, its main priority lies in continuing to ensure the viability of US domestic consumption in order to maintain the US as its largest export market.
China’s role in the developing world has also come under much scrutiny in recent years. This is especially the case when it comes to Africa, where China’s influence has grown rapidly. This should come as no surprise. Africa is a continent richly endowed with natural resources, while China by comparison suffers from a lack of natural resources. With its economy expanding at the phenomenal rate it is, China’s need for oil, gas, iron ore, timber etc., has therefore forced it to look abroad. The result has been a doubling of trade between Africa and China between 2005 and 2010. Chinese aid to the continent has steadily increased over the same period. A development fund in the region of $5 billion has been established to encourage Chinese companies to invest in the continent; a zero tariff has been placed on more than 440 export items from the least developed African countries; and additional billions in preferential loans and trade credits have been granted.
Unlike the impact of the West throughout the African continent, first during the colonial period and latterly under as a consequence of neoliberalism under the auspices of the IMF and World Bank, China’s impact in Africa has thus far been positive. It has trained over 15,000 African professionals, sent over 100 agricultural experts to the continent, and built 30 hospitals and 100 schools in rural areas. In addition, China by 2009 had increased the number of annual academic scholarships to African students to 4,000.
Currently China imports 23 percent of its oil from Africa compared to 38 percent from the Middle East, while overall Chinese imports of primary commodities have grown more rapidly from Africa than anywhere else in the world, making China now the continent’s third largest trading partner after the US and France with the gap rapidly closing.
Cultural differences are evident in China’s approach to Africa when compared to the West also. Whereas the West insists on political influence to go along with economic assistance and investment, China does not. Respect for national sovereignty runs deep in the Chinese psyche as a direct result of its own colonial history at the hands of the western powers. Further, Chinese assistance typically comes in the form of a package, consisting of road, rail and building projects along with the provision of technical expertise.
Taken together, the alternative provided by China’s arrival as a competitor of the West has undoubtedly been beneficial to the African continent in lessening its prior dependency on the western powers along with the harsh terms and conditions traditionally attached to that dependency.
Over the past week of his visit to the US, President Hu Jintao’s priority will have been to try and head off the possibility of a damaging fracture in US-China relations. He and the rest of the Chinese government are aware that with the US economy in decline, US foreign policy shifts are likely to become increasingly sharp under pressure from within. The US establishment has grown increasingly vocal in its demands for China to allow the value of its currency to appreciate by removing state control over currency transactions. However, mindful and fearful of the huge shocks which bedevilled the so-called Asian tiger economies in the 1990s, and still at the stage of developing its economy to meet the growing needs of 1.3 billion people, the Chinese are not likely to succumb to US pressure to do so anytime soon.
China’s emergence and growing influence means that as things stand the days of US cultural, economic, and political hegemony around the world are numbered. The danger comes however in how this process unfolds. America’s fixation on the deployment of hard power since 9/11 presages the dangerous prospect of future military conflict with China. Meanwhile, US support for Taiwan is considered a provocation by the Chinese, while US encouragement of an increasingly belligerent South Korean stance towards North Korea is considered reckless.
Yet more evidence of the extent to which China’s growth is perceived as a threat in Washington comes in the shape of increasingly vociferous attacks on China’s human rights record, lack of democracy, and so on. The arrogance and hypocrisy involved in such criticisms being mounted by an imperialist behemoth like the US is apposite.
Regardless of increased US hostility towards China, it seems clear that Beijing’s overriding priority over the coming decade will be managing America’s decline in a way which ensures stability and lessens the possibility of military conflict in the years ahead.
The consequences involved in failing to do so are too grave to contemplate.