Tuesday, December 30, 2008

China or the USA?

Will 2009 be the year of China or the USA?

ND Batra
From The Statesman
This may be a defining year for both China and the US. Both are in trouble. The US is in recession. China’s export-driven economy has slowed down significantly. How each one comes out of the trouble will determine its future. The US cannot keep borrowing money from China to buy its cheap goods or resume subprime lending to finance its housing and real estate market. If China cannot export what it manufactures, what will it do? Furthermore, if China has no place for investment or depository for its billions of annual trade surpluses, what will it do?

Consider for a moment the following facts. China has been growing at the rate of more than 9-10 per cent for the past two decades and rightfully expects to become a great economic and military power in the next decade or so. Since the one-party authoritarian rule has not hampered China from growing at an extraordinary rate, it is reasonable to ask: How could China accomplish so much in such a short time without political freedom?China is one of the US’s biggest foreign lenders but it earns no gratitude; instead it creates fear. Mr Gao Xiking, president of the China Investment Corporation, which manages an about $200-billion sovereign fund, told Mr James Fallows in a recent issue of the Atlantic, “Be nice to the countries that lend you money.” In other words, don’t talk about human rights, Tibet, piracy, currency manipulation, bad toys, or milk products that kill children. Many American politicians including Speaker Nancy Pelosi have been great critics of China’s violation of human rights and unfair trade practices. But their rhetoric of idealism is compromised by international realities of Chinese economic power. When China says it might diversify its foreign exchange holdings, the dollar shudders. China holds about $2 trillion in foreign currency reserves (a substantial portion in US Treasury notes) thanks to its export-driven economy and controlled currency value. Japan too has massive foreign currency reserves, more than $1 trillion, but the US has never felt threatened by it.

Between the US and pro-American Muslim-Arab countries human rights and freedom have seldom been an issue. As a global power, the US cannot give up dealing with authoritarian regimes regardless of its zeal to spread freedom universally. But China is different because it wants to be a superpower. The rhetoric of freedom and liberty is a tool of public diplomacy that China cannot match.Nonetheless, many Americans believe that the US will remain vulnerable to terrorism so long as authoritarianism and hate ideology prevail abroad; and to beat it there’s no other solution except to expand freedom and openness.

But again China is doing well without democratic freedom. Day and night China’s disciplined and hard working people make goods for the entire world without much thought about freedom. Many countries in the developing world look to China not only for aid and trade but also as a wonderful working model. The biggest challenge for US diplomacy today is to ask China to open up and loosen its authoritarian control over society. But look what loosened controls have done to the US and global financial markets!

Before the global financial crisis hit China, the country was full of great expectations about its future, while the rest of the world struggled to manage with bad debts, spiralling prices and random outbursts of terrorism. China’s peaceful transformation from communism to state-controlled, export-driven capitalism is in fact a great tribute to China’s pragmatism, creating the perception of China’s relentless and inevitable rise as a global superpower. China has been attracting foreign direct investment with its managed narratives of boundless opportunities; and more so with the power of its ruling party’s ruthless collective will that rules 1.3 billion hardworking, entrepreneurial and yet obedient masses.

Until recently China believed that since the world could not do without its inexpensive goods and talents, there’s not much to worry about intellectual property, currency manipulation to boost exports, massive trade surpluses, and rising foreign exchange reserves that end up as US Treasury notes. Rising prosperity did not encourage China’s rulers to loosen their control over power and become less authoritarian. China felt that it could compete with the best without facing problems that an open society like the US confronts.Beijing, with the help of US telecommunication companies, Google, Yahoo!, Microsoft and Cisco, has expanded its control into cyberspace. Some social scientists say that large centralised political systems crumble due to internal pressures created by communications technology unless they have built-in shock absorbing capabilities. But it is not happening in China in spite of the Internet, satellites, cell phones and hosts of other wireless devices that are becoming available to masses.

Some US corporations think that by offering selective partnership to Chinese businesses they will be able to draft in China’s brainpower.In 2005, IBM alerted the public about the inevitability of China’s rise and the need to harness its strength for corporate America. “The future is a dragon. Do you hear it coming?” barked an IBM adman. IBM boasted of access to a global pool of thousands of scientists, engineers and technologists to solve complex problems. But that was a different time. The incoming Obama administration has already concluded that borrowing money and brainpower from China to sustain US global power is not an option any longer.

The Japanese too have been watching the dance of the dragon. In 2005, the Chinese claimed that their feelings had been hurt because some Japanese school textbooks showed no regrets about the atrocities the Japanese troops had committed against them during World War II. There were other grievances. Japan had begun to explore undersea oil and gas deposits in a disputed region of East China Sea. When Japan asked for an apology and compensation for vandalism and damage to its diplomatic and commercial property, China said there was nothing to apologise about. Before street protests, the Chinese government had allowed an online petition drive by millions of Chinese against Japan’s effort to seek permanent membership of the UN Security Council. The unprecedented online phenomenon showed how China could mobilise its masses.

A few years ago, China stunned the world when it destroyed one of its own ageing weather satellites by hitting it with a ballistic missile five hundred miles into space, thus, signalling its intentions to master space. The US cannot ignore such intentionality even though China has ceased to be an imminent threat since its economic growth has become increasingly tied up with search for energy and raw materials, foreign direct investment, and exports.

Through its growing trade surplus and currency reserves it seemed until recently that China had established an iron grip on the US.

But the financial crisis and recession, contrary to the general impression, have energised the US. The new kid on the block, President-elect Barack Obama, stands tiptoe, determined to rebuild the $15-trillion economy through innovative strategies for economic self-reliance (not protectionism).In 2009 as China scrambles to put its $3.25-trillion export-based economy in order, it will face a new United States of America ~ bolder, smarter, and more imaginative. The beat of the American drum will be heard around the globe for decades to come.

(ND Batra is professor of communicationsat Norwich University)

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