Why China Won't Rule the World

[jimmy olsen]

An article tailor made for our anti-China lobby.

http://www.newsweek.com/id/225627

Why China Won't Rule the World

By Minxin Pei | NEWSWEEK
Published Dec 8, 2009
From the magazine issue dated Dec 7, 2009

Conventional wisdom can be devilishly hard to dispute. For example, most pundits agree that the Great Recession helped China more than any other state. At first glance, this claim seems obviously true. Unlike the United States and the other major Western powers, which saw their economies plummet and their financial institutions come close to ruin, the Chinese economy has kept on growing. Chinese financial institutions, considered technically insolvent only a few years ago, now boast balance sheets and market capitalizations that Western banks can only dream of. With its economy expected to grow at 9 percent in 2010, China will soon surpass Japan as the world's second-largest economy (measured in U.S. dollars). Pundits like Martin Jacques, a veteran British journalist, are predicting that China will soon rule the world—figuratively, if not literally.

Yet before declaring this the Chinese century, you might want to take another look at what's actually taken place in the country over the past year.

One of the strangest things about predictions of Chinese dominance is that they tend to impress everyone but the Chinese themselves. Take China's supposedly miraculous economic recovery. While the international business community has practically run out of words to praise Beijing's handling of the crisis, Chinese leaders haven't stopped worrying. They fret that their banks have gone on a reckless lending binge; Liu Mingkang, China's chief bank regulator, warned in September that "all sorts of risks have risen" as a result. He's right. In the first half of 2009, Chinese banks shelled out roughly $1.2 trillion, creating a potential tidal wave of future nonperforming loans. State-owned enterprises (SOEs) used much of the money to speculate in the real-estate and stock markets and to make questionable expansions; as a result, Dragonomics, a Beijing-based consultancy, now estimates that as much as one sixth of all the bank loans made between 2008 and 2010 could end up not paying off. Yet Beijing is still wary of shutting off the spigot, lest China prove unable to keep growing without it.

Its leaders' frequently voiced trepidation may be overstated. Perhaps the officials are simply being modest or trying to soothe Western worries about the so-called China Threat. It's far more likely, however, that China's leaders are actually telling the truth. They know their country has indeed pulled off the world's most impressive recovery. But they also know that's a relative -accomplishment—and China has paid a huge long-term price in the process. In addition to sowing the seeds for future dud loans, its investment-focused stimulus policies have exacerbated the country's economic imbalances by creating new productive -capacities—factories and the like—without really boosting China's anemic household consumption. In other words, Chinese plants may be cranking out even more TVs, cars, and toys than before, but no Chinese are buying them. Loosened bank credit has mainly benefited SOEs, allowing these inefficient behemoths to expand at the expense of the private sector, which has been given little access to the government's largess.

Meanwhile, China has yet to confront what has become an enormous overcapacity for producing cheap goods. During the boom, when Americans were hungry for these products, Chinese exports registered double-digit growth year after year, accounting for nearly a quarter of the country's net GDP growth. Now that nervous and debt-ridden U.S. consumers have virtually shut their pocketbooks, China can no longer expect them to snap up its wares. To account for this change, Beijing must embark on some painful restructuring, shuttering many export--oriented factories and strengthening the social safety net to boost household consumption (which remains stuck below 40 percent of GDP). China's leaders know all this. But they've yet to take the plunge.

Dig a bit deeper, and it becomes very difficult to pin down just how exactly China has gained so much from the crisis. Its failures are much more evident. Take Beijing's lack of success in snapping up prized assets overseas. For several years, Chinese leaders have aimed to secure foreign natural resources by acquiring effective control of or stakes in oilfields, mining companies, and commodity producers in other countries. Beijing is convinced that such moves are essential for its long-term security. Yet opposition by Western politicians, entrenched multinationals, and vigilant governments in developing countries has stymied many attempts by cash-flush Chinese SOEs to execute their government's master plan. During the first months of the crisis, these SOEs and China's sovereign-wealth fund did nab modest stakes in a few minor natural-resource companies. But they failed to score a big hit, and there were some embarrassing failures. In late 2008, for example, Chinalco (a state-owned Chinese aluminum company) reached a tentative agreement to pay $19.5 billion to increase its stake in Rio Tinto, a global mining giant. But fierce shareholder opposition and the skepticism of Australian regulators doomed the deal, to Beijing's intense frustration. To borrow a colorful Chinese proverb, Chinalco saw its "cooked duck fly away." This ignominious setback served as an uncomfortable reminder of the humiliation of 2005 when CNOOC, one of China's state-owned oil companies, was prevented from taking over Unocal, an American energy producer, by congressional opposition.



Another puzzle: if China is so strong, why doesn't it show more leadership in addressing global problems? While Chinese officials show up at almost every important gathering of world leaders, and their opinions and support are eagerly solicited, they consistently maintain a low profile, preferring to focus on guarding their national interests and skipping opportunities to showcase their soft power. At the G20 summit in London in April 2009, for example, the only thing China cared about was keeping Hong Kong off the list of offshore tax havens being scrutinized. Beijing's coffers may be bulging with $2.1 trillion in foreign-currency reserves, but it is not exactly offering to spend that cash on common crises. Besides calling for a new international reserve currency, China has remained mostly silent on how to reform the global financial system. Nor did it take charge in advance of the make-or-break Copenhagen climate-change conference in December 2009. Beijing's foreign policy remains stuck in a reactive mode; if this is a superpower, no one's told the Politburo yet.
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Still, most Chinese leaders seem unconcerned with their inability to translate strength into real gains on the international stage. That's because they're far more concerned with domestic stability. Yet here again the news is hardly reassuring. Antigovernment riots and collective protests throughout China are on the rise. Corruption remains rampant. More than a dozen senior officials, ranging from a vice minister of public security to several CEOs of giant SOEs, were arrested in 2009. The political maneuvering for the next succession, due in 2012, has already begun, making Chinese leaders all the more cautious—even a tiny misstep between now and then could be politically catastrophic.

The worst news on this front has been the reemergence of ethnic separatism in China's restive, but resource-rich, border regions. The bloody riots of July 2009 in Urumqi, the capital of Xinjiang, killed nearly 200 and wounded more than 1,000, making it China's worst ethnic conflict in three decades. Coupled with the Tibet problem, the challenge by the Uighurs to Chinese rule will preoccupy the minds of Beijing's ruling elites for years to come—and keep their sights firmly fixed on matters domestic.

All this helps explain why, while China's leaders may be mightily relieved to have escaped the worst consequences of the world economic crisis, they see no cause to celebrate. True, the crunch enabled China to close the economic gap with its badly ravaged rivals, particularly the U.S. and Japan. And popular perceptions of new Chinese strength have allowed China's leaders to bask in the global limelight and flaunt their elevated international status to the Chinese public. Deep down, however, Chinese leaders are no fools. They understand perfectly well how tough are the challenges they still face—and how quickly fortune can turn. If only foreigners knew this as well. Of course, the Chinese are thrilled that everyone thinks they're the biggest winner. The truth, however, is that they're more like the least-bad losers—and they know it.

Pei is the Tom and Margot Pritzker '72 professor of government at Claremont McKenna College.

© 2009

[Monoriu]

Chinese inherently look inwards.  That should not be news to anyone who has studied Chinese history.

[Lettow77]

 China must not be that strong, because it doesnt take a more active role in righting world problems?

Is that a bad joke?

[jimmy olsen]

In response to both Mono and Lettow, I was more interested in what he had to say about the Chinese economy.

[Queequeg]

The Chinese were ruling the largest empire in the world through a remarkably functional bureaucracy, defended by steel and crossbows when my ancestors where screaming naked in the darkest forests of Europe.

I fail to see why it is so weird that China is becoming more powerful and wealthier.  This is a return of China to it's rightful place more than anything else.   

[Razgovory]

The Chinese were ruling the largest empire in the world through a remarkably functional bureaucracy, defended by steel and crossbows when my ancestors where screaming naked in the darkest forests of Europe.

I fail to see why it is so weird that China is becoming more powerful and wealthier.  This is a return of China to it's rightful place more than anything else.   

My grandparents were always curious about who that nut was screaming past their house naked into the forest.

[citizen k]

[Martim Silva]

Chinese inherently look inwards.  That should not be news to anyone who has studied Chinese history.

Americans (and most Europeans, for that matter) are extremely aggressive peoples, far more than they themselves admit.

For them, the idea of a "powerful" nation is always, always, that of an expanding power, one that seeks dominance over all others and does not tolerate, if possible, any rival.

That another race can have a different approach to global politics is totally beyond their compreension.

Thus, if China is strong, they reason, surely it *will* try to rule the world.

If China does not attempt to impose itself on the world, then they will surmise that is due to some weakness, and never due to differences of attitude.

[Richard Hakluyt]

China's expansion has been slow but each area secured has been colonised by Han Chinese and made part of the metropolitan area. Go back 3000 years and the civilisation was centred around the Yellow river. During the Han dynasty the Yangtze valley was a colonial zone.. During the 19th and 20th centuries Manchuria was sinicised. Nowadays it is the turn of inner Mongolia, Tibet and Sinkiang. I'd be worried about them if I was Russia, Korea, Mongolia or Vietnam.......

Otherwise it is the return of the Middle Kingdom to it's typical position in world affairs. I suggest we send emissaries, perhaps a crack corps of Jesuits, with gifts and expressions of respect; there is no particular need for the West to worry about Chinese expansionism.

[citizen k]

Russia being absorbed by the Chinese would be a step up on the civilization scale for them.

[Duque de Bragança]

China's expansion has been slow but each area secured has been colonised by Han Chinese and made part of the metropolitan area. Go back 3000 years and the civilisation was centred around the Yellow river. During the Han dynasty the Yangtze valley was a colonial zone.. During the 19th and 20th centuries Manchuria was sinicised. Nowadays it is the turn of inner Mongolia, Tibet and Sinkiang. I'd be worried about them if I was Russia, Korea, Mongolia or Vietnam.......

Otherwise it is the return of the Middle Kingdom to it's typical position in world affairs. I suggest we send emissaries, perhaps a crack corps of Jesuits, with gifts and expressions of respect; there is no particular need for the West to worry about Chinese expansionism.

Vietnam, I have no worries since they have been doing that for centuries and in the '70s and '80s most recently. There is still the Spratleys for spicing up the ambient besides.
A divided Korea is perfect for China. Now Russia and its demographic collapse and empty lands... Mongolia can survive as a vassal or reunite with Inner Mongolia

[HisMajestyBOB]

I like my Mongolia unspoiled, so the damn Chicommies better keep their hands off of it. 

Vietnam, I have no worries since they have been doing that for centuries and in the '70s and '80s most recently.

Heh, I'd love to see China get involved in another 500+ year quagmire in Vietnam.

[Josquius]

'The Great Recession'?
Since when has it been called that?

[jimmy olsen]

'The Great Recession'?
Since when has it been called that?

Looks like the term took off in December 2008 according to the graph.
http://economix.blogs.nytimes.com/2009/03/11/great-recession-a-brief-etymology/

March 11, 2009, 5:39 pm
'Great Recession': A Brief Etymology
By CATHERINE RAMPELL

The "Great Recession" has taken hold.

As a term, that is.

The title "Great Recession" seems to be gaining some currency. After months of floundering over what pithy moniker to call this mess we're in, a number of analysts, economists, historians, reporters, columnists, critics and even International Monetary Fund officials have begun using the term, often with a qualifier like, "what some are calling 'The Great Recession.'"

Clark Hoyt, the Times's public editor, asked me on Tuesday who had coined the phrase, and when. I wasn't sure, so I did some archive searches.

Brian Stelter, a colleague who covers the media, wrote back in December that "In the last week, 'Great Recession' has become a popular phrase." Here's a quick, highly unscientific Nexis archive search on articles containing the term "Great Recession"

GRAPH

The chart does give you the general sense that the term really caught on in December, after months of more sporadic use. Most usages of "Great Recession" that occurred before autumn were made in a predictive sense. In April, Portfolio's Jesse Eisinger, for example, predicted that "The next president will take office during what may well come to be known as the Great Recession."

But here's the thing: Nobody can take credit for coining the term "The Great Recession" during the last year. Why? Because the "Great Recession of 2008″ is not the first recession to be slapped with the lofty title. Every recession of the last several decades has, at some point or another, received this special designation:

    * Some economists believed the recession of 2001 would be a "Great Recession."
    * In "The Return of Depression Economics," first published in 1999, Paul Krugman wrote about the "Great Recession" of his era.
    * The downturn of the early 1990s was on occasion referred to as the "Great Recession." The term was especially used to describe the situation in Connecticut.
    * Some referred to the recessions of the 1980s as the Great Recession.
    * Forbes proclaimed "the Great Recession of 1979″ in an issue dated Nov. 26, 1979.
    * Before that, Forbes had proclaimed 1974-75 as the "Great Recession." So did Newsweek, and so did this New York Times column.

And so on.

Why does this term keep cropping up, downturn after downturn? It does seem strange, after all, that experts keep portending "The Great Recession" for recessions that in retrospect might seem somewhat mild (or even nonexistent, according to the official Business Cycle Dating Committee).

Perhaps "Great Recession" claims return periodically because the term is vaguely punny, and people just like to appreciate a clever turn of phrase. Or perhaps its regular revivals have something to do with a near-eschatological desire to witness a downturn of epic, historical proportions. After all, as long as we're suffering, we might as well brand the suffering so it'll sound more impressive to our grandchildren.

None of this is to say, of course, that the current downturn won't rightfully earn the title of "Great Recession" — only that the prior, relatively lax uses of the designation seem to dilute its fearsomeness.

Addendum: I'm not clear on when "The Great Depression" became officially known as "The Great Depression," or even just a "depression." In 1930, the economist John Maynard Keynes famously referred to it as "The Great Slump of 1930," so it's a wonder that label didn't stick. The Oxford English Dictionary's quotations section for the entry on the term "depression" includes the following chronology:

   1934 A. HUXLEY Beyond Mexique Bay 233 Since the depression, books on Mexico have been almost as numerous..as books on Russia. 1935 'J. GUTHRIE' Little Country xiii. 212 'I thought you had a baby.' 'No, darling,' said Carol. 'None of us are having them now. It's the depression.' 1935 Punch 19 June 719/1 All the wireless sets in Little Wobbly are pre-depression models. 1957 M. SHARP Eye of Love iii. 39 It was the Depression that had finished him off.

Feel free to share any information on the popularizing of the term "The Great Depression" (or, for that matter, "The Great Recession") in the comments.

[Valmy]

Chinese inherently look inwards.  That should not be news to anyone who has studied Chinese history.

Well right.  In order to dominate the world you need a reason to do so.

However I think this time the importance of the world economy and securing resources will force China into a role it doesn't want.  No country with any wisdom would ever want to be a world power, it is a ruinous position in the long term.