Yuan underrated, China overrated?

Stimulus packages on massive scale have made sure that natural selection, as a Darwinian infiltration into economics, has not been able to cut away those businesses that would normally be doomed to fail. But, as practically everyone now knows, if ‘natural’ economical selection would have had free reign, the number of companies which would have gone bankrupt, would be enormous, leading to a disastrous situation. Think only of rising unemployment, permanent damage to production capacity and the ability of people to pay for their houses and financial burdens, not to mention the weight of governments’ debts on the shoulders of its citizens.

Recent times resulted in more than economic speculation though. As much as we expected western countries to go through a revival before the normally trailing Asians, the contrary seems to be the case. The ‘tigers’ hind-legs seem better at making high, quick and strong jumps. This had lead to quite some speculation, maybe or even probably, fuelled by the military parade of China. Awestruck at their progress, the only thing that we managed to hear from our politicians was some grinding of teeth and some negative forecasts of Asian world dominance. With doomsday scenario in the back of our minds, what will the future possibly look like? Will famous and infamous China take the lead in global politics? Will their innovative processes, combined with their fast growing economy (latest figures already point to a decent 8%) shove them forwards and legitimize their- more ascribed than self-proclaimed- status of superpower, usurping the position on which the U.S.A. was said to have such a firm grip only years ago?

Most of the answers will relax our nerves, because it still is a firm ‘no’. Even the firm grip China holds by having all its reserves in dollars is less threatening than it might seem at first sight. Sure, in theory they could wreck the American economy: After years of borrowing to the American state, in order to keep up the level of American spending, their share in state obligations is huge. But then again, so is Japan’s. Even so, by wrecking the dollar they would wreck their own financial backing. This prospect is, rather obvious, dauntingly unattractive to both countries.  To that we can add another prejudice with which we can quickly deal. That is the dependence of China on exports to America. It is true of course, that China does export fervently. But many of the relevant products are only shipped via China, rather than having been produced there. The added-value by Chinese companies is relatively low to the total amount of money involved, or in any case not as high as it could be. Besides these points however, there are a number of topics that keep sticking their heads around the corner which are important from more than an economical outlook. The positions China is expected to hold in the near future are for the most part prophecies of fear, reminiscent of cold war terminology. The size of its economy compared to America is a good place to start. A quick glance shows that America runs over its newly baptized world scene companion: It still is more than thrice as large in sheer size.

Since proverbs aren’t always either wrong or truisms, a simple reply might be that size isn’t all that matters, which is true. The most important factor that differentiates the two countries is the way in which their economies breathe. America is driven by innovation; China, running like a madman, still lags far behind on this issue, and relies more heavily on industry and agriculture. One implication of this fact is that it relies on imported knowledge, which it can combine with cheap, labor-intensive processes possible only by virtue of having been invented and developed by others. There are not many things on which all economists agree, but there seems to be relatively wide-spread consensus that in order to make something stable and profitable in the long run, research and development will have to be the pillars upon which to build.  If you now get the impression they are not developing, you are wrong of course.  Their large projects on infrastructure are impressive by almost any standard, and a lot of knowledge is needed in order to make them work. But hardly any of it is new. Even the Maglev, a train driven by magnetic levitation, best known by the trip from Shanghai to its airport, was labeled ‘made in Germany’, rather than the all too familiar ‘made in China’.

Standing at the root of such projects yourself will imply more than being innovative and willing to work, it’ll imply changing society. A more social, workable environment is a part of that. China needs to change, in order to let its people change.  The scale of that project is enormous: Health care, juridical rights and freedom will all have to be involved. Innovation cannot be arranged from top to bottom, it needs people who are not just able to put their ideas into practice, it also needs those people in circumstances which will allow them to do so. Doubts remain whether this is a message the powers-that-be want to hear.

Climate change is another sensitive issue. Not just for the Chinese, but also for the Americans and Europeans. From a historical point of view is it undeniable that the latter two have had a great share in global warming, assuming for the sake of argument that it is a hazard on which mankind has significant negative influence (I neither affirm nor deny any content concerning global warming, the discussion is only interesting from a political perspective here). When the total bill is presented and shared among its members, it therefore seems only right to make those pay that made it happen in the first place. But this is not something the American Congress will swallow that easy. Hardly anyone can imagine them into accepting that American policies are being driven by foreign demands.

Because surprising as it may seem, China neither mocks nor neglects negotiations on climate change. Optimists even stare blind struck at the fact that many cars sold there are efficient ones, though honesty might force us to admit this owes more to the fact that they are cheap than to the fact the Chinese care about the climate.  When average income rises, so might the prices of their cars. And if prices for a car are high, this in general implies more horsepower and less efficiency. Even optimists will admit that citizens are unlikely to care too much about climate change, especially as long as knowledge about the issue is lacking. Good thing is though that the many catastrophes of Mother Nature have created a partial awareness in the elite that it is a matter not to be taken too lightly, so that just for this once the strong iron first from Beijing might do some good. One reason for this might be internal (un)rest. The Chinese government avoids anything that might unravel social order, and if climate change is a threat to this than so much the better for the rest of the world. Besides, China will want anything but to ridicule itself in front of other countries.

Think only of the aforementioned military parade as an estimation of how much emphasis is laid on image, which displays exactly what it is intended to: They have travelled great technological distances, and their ambitions are unlikely to hold them back. Creating an aircraft-carrier is said to be one of them, and missiles with mid to long range potential and nuclear submarines pop up in conversations every now and then as well. This touches several issues, among them the Chinese-Taiwanese relationship, which has been problematic for years and will probably remain so in the years to come. There is no need for fear; one aircraft-carrier will be no match at all for America’s muscles. But it seems a must to take them serious, for neglect often does more harm than outright hostility. Ironically enough, China now accuses America of creating a cold-war climate. Not even all of it is idealistic nonsense, after all India has an aircraft carrier. Why shouldn’t they have one? China doesn’t want world dominance, or so it says. Here our skepticism might owe somewhat to the fact that they have created much more than just for safe-keeping. But their own version of events will only tell  a story of exploration and exploitation of economical ties with other countries. And this does indeed seem to contain some truth. It ties with Iran for instance can be regarded as a means to an end, where its reluctance to impose sanctions can be thought of as a result of an even greater reluctance to endanger its economic interests (or indeed one of mutual understanding when it comes to a desire for military development).

Trying to fit everything into this awkward puzzle will not make everything transparent. We have some intermediate conclusions to go on nevertheless. First is, we do not want another cold war. China should therefore be drawn into the scene of world politics. This won’t be too hard of course, because they like to portray themselves as important figures, both abroad and at home. The relationship between the two superpowers as if they are on equal footing is fictional, even if a complete, satisfactory argument on that statement needs more than just a paragraph or two of political summarizing. One thing seems clear though: Western influence will have to share more power, but it will not, seen from within the current framework of evidence, suffer the loss of its prominent position.

And as great as China’s economic growth, projects and ambitions are, they still remain catch-up labor. In comparison to the USA and the European Union they have a long, hard road to go. We might also add to that another conclusion, based upon China’s stance on issues that are better characterized as ethical than economical, for it hardly condemns or approves of anything. As mentioned above, it wants to improve its own position. And as I see it, a leader in global politics will have to have more to go on than a simple neutral stance as that. Its currency awaits appreciation, its nation depreciation.