ASSIGNMENT WEEK 5: COMPARATIVE POLTICS
Source #2: Comment, Foreign Affairs Magazine, Volume 88, Number 3, May to June, 2013, “The Challenge of China and Its Expanding Economic Empire,” by Madeleine MacKenzie, Asia Economic Research Fellow at the Heritage Foundation.
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The year 2008 marked the 30th anniversary of the beginning of market reforms in China – and perhaps the third anniversary of their ending. Since the previous Chinese leadership took power, market-oriented liberalization has been minor. As market reforms wound down they were supplanted by renewed state intervention: price controls, the reversal of privatization, the rollback of measures encouraging competition, and new barriers to investment. With the recent election of new, somewhat younger party leaders, many of whom are veterans of the Tiananmen Squareera, Americans are wondering if there will be an opening for a renewed conversation about market reforms and improved economic relations between the two countries. One of the things required for this conversation will be for the United States not to fret so much over Beijing’s assertiveness in its foreign policy disputes involving its territorial interests in the South China Sea, including its conflict with Japan. Another thing required for the conversation is less direct confrontation with China over cyberattacks on Western firms, and some attention to the less visible, but more aggressive, world-wide push of Chinese state capitalism which also involves domestic investment in America. By buying companies and giving loans in America, China is pursuing a soft but deeply assertive form of economic domination. The comparative differences between Chinese state capitalism and American individualist capitalism can be helpful to our understanding if one looks realistically at the issues.
China’s aggressive pursuit of state capitalism means that American relations with China must be aware of particularissues and factors: the need for the United States to increase in its competitive edge; build the domestic jobs base, and blunt the criticisms of human rights abuses in China so as not to stop all conversation between governments. Additionally, the United States must develop an understanding of the primary drivers of China’s new economic expansion. These drivers are likely to prove difficult for the Chinese to give up. First, the Chinese government has control over more than a billion Chinese savers who receive negative returns on savings because government controls keep interest rates below the inflation rate, and restrict savers from investing their money in more profitable investments overseas. Second, Chinese sovereign funds are being used to invest in world-wide infrastructure, including some in the United States, such as hydroelectric plants and oil and gas pipelines. Overall, as of 2012, China invested a record 6.7 billion dollars in the United Statesaccording to Rhodium Group, an economic research firm.China’s direct investment in the United States will only grow and it represents the real threat to America’s economy.
What should be American policy responses to the threat of state-driven Chinese economic expansionism? Part of the response involves pushing forward with the Trans-Pacific Partnership, a regional trade association that is seen by critics in Beijing as an American-led policy to contain China. The “club” is thought to be restricted to countries
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who meet high American standards on issues like free competition, labor protections, and environmental standards. As China doesn’t meet these standards, it will have to reform or
risk regional isolation. Another response involves maintaining such practices as making it difficult for the Chinese telecom giant, Huawei by refusing to grant it contracts from
leading American telecom companies. This is not just about national security concerns, but also about sending Beijing a clear message that the United States Government is willing to block one of China’s most visible and successful companies.
One of the problematic issues for the United States is the prevailing viewpoint in Europe that China is an unavoidable and unstoppable force and therefore the only option is to accommodate: offer everything from a generous investment environment to essentially dropping human rights from the agenda. As a senior European official commented: “We don’t have any stick; all we can do is offer carrots and hope for the best.”
Of course, the reality is that China has deep pockets, an extensive labor force, and unlimited demands for natural resources to meet its needs. But, as China becomes a global player and a fierce competitor in American and European markets, its political system and state capitalist ideology pose a threat. It is therefore essential that America does not adopt the European attitude and works to ensure that economic relations with China reflect America’s commitment to what has been the core of Western prosperity: the rule of law, political freedom, and fair competition. While effective economic relations with China are essential, the United States must not think solely in the short term. Completely giving up on our commitment to human rights, or being wholly compliant in the face of rapacious state capitalism, will hurt us, and the world, in the long term. It is China that needs to adapt to the realities of the common good in the modern world, and not the other way around.