China’s dilemmas in domestic and foreign policy
CHINA is already the second biggest economy in the world, on the cusp of becoming the largest in the not too distant future. With the world’s largest population and formidable military capability, it is more powerful than the Soviet Union ever was against the United States.
Yet, China is reticent about its success at home and role in the world. It would rather be left alone to continue with its “peaceful rise” to attend to many domestic challenges and to develop relations abroad without undue disturbance. But no power and economy its size can hope just to carry on the way it has these past three decades.
Although millions have been brought out of a-dollar-a-day poverty, over 100 million of its people still live on less than that. China’s per capita income is still less than those of nine African countries, according to LSE economist Danny Quah.
Its Gini coefficient, the measure of income inequality, has for the past decade been consistently above 0.4, the UN determined danger point for social stability (A score of one spells absolute inequality, so the lower the number the better it is). Development with equitable distribution is not taking place efficiently, whether among individuals or regions, the western parts of the country being still far behind the east and coastal areas.
Corruption is extensive which the high profile Bo Xilai trial only highlights. The ills of economic growth with disproportionate gain for some are becoming a plague on China. To add to this, environmental degradation has become a serious problem. The pollution level in 74 Chinese cities, including the capital Beijing, is over three times above the danger point set by WHO. It has been estimated life expectancy at birth in China is shortened by between seven and 12 years because of environmental deterioration.
And, against all these challenges of economic success, economic growth is slowing, a conundrum Chinese authorities have to further manage. Western authorities and economists now seem to move from fear of China to fear for China. Paul Krugman sees a crash into the Great Wall of the Chinese model of development. Having over-extended credit, the economy’s debt-fuelled asset bubble is about to burst, exposing large non-performing loans. Yet others see what economist Arthur Lewis described as the inexhaustible supply of cheap labour drying up which he claimed was behind the economic miracle of China and other emerging economies. Of course there is the usual call for China to restructure its economy, to switch from an investment-driven growth to a consumption-driven one, from export-led to domestically-charged expansion – if China is to avoid being caught in the middle income trap.
To boot, the population is ageing as a result of the one-child policy; so China will not reap the demographic dividend, a virile young population driving further growth and not a dependent, unproductive old one. All the time it is intoned that China’s underlying socio-political stability will be undermined if economic reforms are not put in place, together with reform of the political system.
The advice is not disinterested, even if China’s domestic challenges are truly huge. China must find a way out for itself and not be in denial because some the criticisms and cures offered by the West are not honest or consistent. If China is ageing, then the mantra of having to have at least 8% annual economic growth to absorb the work force coming onto the market does not hold true. Then, at least on this count, China’s slowing economy is not a catastrophe.
Those that will be hurt are other emerging and even Western economies as China has become an engine of global growth. Indeed many Western economies themselves are ageing. Then again, if China is to divert resources away from investment to consumption, how about those in the far west still on less than one-dollar-a-day who need to be linked to become part of a larger consumer base? What about bridging the wealth and income gap by providing the investment essentials to them of a better quality of life?
Thus, there is more than meets the eye on the advice proffered. But, there is also truth in some of them which should not be denied. China must make the balancing choices, an essential part of the management of any political economy. The new leadership is struggling to come up with a new national ethic. This is nowadays a difficult process in the globally democratised age of the IT revolution. Every netizen seems to have an opinion. It is not going to be as straightforward as Deng Xiaoping’s Four Modernisations or the Central Party School’s Peaceful Development, then to Rise and now back to Development, I think.
No.2 and growing
Even as China grapples with these momentous issues, the impact of its size on the world is not something that can be, shall we say, postponed. China is No.2 and growing. It could become Sparta to America’s Athens, rising Germany to stable old Europe, a challenging Japan denied status in the Pacific world, or a hostile Soviet Union seeking to overturn the established world order.
While most, not everything depends on the United States. China has a global role to play. How it is played will define how China is perceived as well as the outlines of the new global and regional order.
China cannot any longer avoid the role it must play by seeking to be left alone in its peaceful rise. Or by being insular and petulant in its foreign policy. Self-righteousness will be a defeatist strategy. It certainly cannot be a policy. Already, its nationalistic impulses have had negative ramifications, as can be seen from its territorial sea disputes in East and South-East Asia. China cannot be seen as attempting to assuage domestic pressures and challenges with international assertion and adventure.
China is not always in the wrong of course, but the way it conducts its foreign policy makes it appear not to be in the right. In South-East Asia, the benefits of its policy of economic cooperation since the 1997-98 financial crisis are not sufficiently underlined as the positive plank of foreign policy. Rather China retreats in hurt pride and spurned affection – and then comes out in anger. Beijing does not quite know how to turn swords into ploughshares. There is too much angst and emotion. This could be observed in the Scarborough Shoals stand-off with the Philippines last year, when the Philippines was not exactly innocent, but China came out as the bullying party. It could be seen even in the failure of Asean foreign ministers to issue a joint communiqué in July last year, widely observed as a consequence of Chinese mischief in tandem with their Cambodian ally.
But, what would have happened to Asean-China relations if an anti-Chinese communiqué had been issued? This is a point that has not been sufficiently advertised, with every commentator tearing his hair out about this first ever Asean failure because of Chinese machination.
It is often said China lacks soft power communication skills. Actually, soft power should be left out as an analytical tool here. China simply has to understand it has to communicate effectively, not intone. It has to develop the skills of subtle diplomacy as well as the ability to make foreign policy with a strategy to achieve its end. With that clarity and ability, China can avoid being wrong-footed, as in the South China Sea disputes, and being undermined after having invested so much economic goodwill.
The American pivot or rebalance to Asia-Pacific drew China into the purely political-security aspect of the US reassertion. China began to act as of it had some kind of Monroe Doctrine right over South-East Asia, just as the Americans claimed in Latin America. This was great power stuff, whereas China has always contended it does not have any such pretensions. President Xi Jinping had discussed with Barack Obama last June in Sunnylands about a “new type of great power relations.” Since then there has been much speculation on what that is all about. It is just G2? What about other relationships in any new world order?
The genius, perhaps unintended, of the US pivot and subsequent American initiatives is in their economic content while highlighting political and security matters in Asia-Pacific relations. In the sweep, previous Chinese economic advantages could be contained. After announcement of the pivot, former US Secretary of State Hillary Clinton led or participated in a number of business meetings in the region involving senior American corporate leaders, an association not often the case in US diplomacy. More senior American corporate leaders are actually represented in visits of the US-Asean Business Council to the region than previously.
Very importantly, American initiatives such as the Trans Pacific Partnership (TPP) and also, on the other side of the world, the Trans Atlantic Trade and Investment Partnership (TATIP), underline the basis of economic relations in significant and dominant blocs of the world (see table). They represent the strengthening of the Washington consensus, if one examines the trade and investment rules being espoused.
Indeed they also seek to repair rules that have been violated to protect interests such as intellectual property, investment rights and financial flows. Fundamentally, these initiatives have significant geopolitical consequence. As I have written previously, the Americans are not about to roll over and die against a rising China. Their palms are still wrapped around the globe.
When I asked a senior Chinese official during a visit to Beijing earlier this month why China has chosen not to participate in the TPP, the answer was: It would only benefit the big countries and their big companies.
When I suggested it would be better to participate to shape the rules that will govern trade and investment relations of the future, the answer was China’s Free Trade Agreements had worked well to the benefit of the member countries. The proposed Regional Comprehensive Economic Partnership (RCEP), which is a massive multilateral expression of such free trade agreements, is of course China’s preferred route.
It would appear therefore that in terms of strategy in international politics, China would rather let the Americans make the running. Let the United States expend its “American exceptionalism” while China has the absorptive capacity of the Middle Kingdom. However, time may not always be on China’s side as it had been in the past. China has serious domestic problems with a discerning and demanding populace linked to the global democratic marketplace.
China has made a number of wrong turns in the conduct of its foreign policy which may make the Americans a more attractive strategic proposition. This is not the world where China will be left alone to get on with it. Better that China participates more actively in the making of that world even if it does not wish to upset it.