Monday, September 12, 2011

Will China Be the Dominant World Power? A Pro Argument

China watching has become a full-time job for pundits, both professional and amateur. It is a country exceptionally rich in potential and uncertainty. Possible futures vary from world domination to chaos and revolution. Some view China as the world’s inevitable economic powerhouse, while others see a country and an economy that is "unconditionally unstable." Foreign Affairs features two articles that argue China’s future from different perspectives. One, the more positive, sees China’s economic and political dominance as inevitable. The second, the less positive, sees China’s future as resembling that of any other developing country: problems will arise, growth will slow and the future will be uncertain. We will discuss the first article here today.

Arvind Subramanian has produced a document incautiously titled: The Inevitable Superpower: Why China’s Dominance Is a Sure Thing. He provides a very simple and blunt definition of dominance.

"Broadly speaking, economic dominance is the ability of a state to use economic means to get other countries to do what it wants or to prevent them from forcing it to do what it does not want."

He has developed an index that he claims allows him to tally the dominance of a country.

" index of dominance combining just three key factors: a country's GDP, its trade (measured as the sum of its exports and imports of goods), and the extent to which it is a net creditor to the rest of the world. GDP matters because it determines the overall resources that a country can muster to project power against potential rivals or otherwise have its way. Trade, and especially imports, determines how much leverage a country can get from offering or denying other countries access to its markets. And being a leading financier confers extraordinary influence over other countries that need funds, especially in times of crisis."

Subramanian projects China’s growth to slow, but still projects a 7% average over the next twenty years. By his index, China and the US are essentially equal in power now, and by 2030 China will be much stronger. To those who would disagree with this near equality at present, he argues that China has already demonstrated the power to intimidate.

"....China's exchange-rate policy has affected economies throughout the world, hurting developing countries as much as the United States: by keeping its currency cheap, China has managed to keep its exports more competitive than those from countries such as Bangladesh, India, Mexico, and Vietnam. Yet these countries have stood on the sidelines, leaving Washington to wage a crusade against Beijing on its own -- and for that reason, it has not done so very successfully. China, meanwhile, has been able to buy off the opposition. Although many countries chafe at seeing their competitiveness undermined by an undervalued yuan, they remain silent, either for fear of China's political muscle or because China offers them financial assistance or trading opportunities. Even within the United States, few groups have really been critical. China is a large market for U.S. companies, and so it is the liberal left, not the holders of U.S. capital, that has condemned China's exchange-rate policy, on behalf of U.S. workers."

Subramanian recognizes that his contention of inevitable dominance may have logical problems when he allows that in 2030 China will still have a per capita GDP that is still mid-range, and quite a bit smaller than that of the US, whereas dominant countries have normally been much wealthier than their competitors. He enumerates reasons why this would be a disadvantage in terms of having to extract from the economy in order to focus resources on things like military power projection when the excess wealth that usually enables that is lacking. Nevertheless, he believes China will have the "internal coherency" and "inspiring national ideals" that will allow it to maintain a path to dominance.

One supposes that if all goes well and the world waltzes slowly forward in time, a twenty year economic and political projection made today might actually happen. Currently, it would be difficult to produce a credible two-year projection for just about any country on earth.

While China has made tremendous progress, it still has a long way to go if it is to create a coherent society in which the extremes of wealth and poverty are subdued. Discounting the Mao years, it has really been a country for barely a generation. It is still learning how to govern itself—and this must be done in the face of enormous problems. If the price of food goes up too high, or if the economy slows and the jobs begin to disappear, the central government faces a billion or more unhappy people. One thinks of China as being ruled by a dictatorial regime that enforces discipline—violently if necessary. It is perhaps more accurate now to say that the government is more afraid of the people than the people are afraid of the government.

For the vaunted Chinese economy to continue to grow and lift hundreds of millions more out of poverty, it will require enormous amounts of resources. One can interpret all of China’s actions in the context of moves it believed were necessary to maintain its supply of the materials its economy needs. Does it keep its currency undervalued because it chooses to demonstrate its power, or because, given the state of its economy, there is no other choice? Does it build an aircraft carrier to project power and intimidate, or is it frightened that someone or something could hinder the flow of goods into and out of its ports. Does China "occupy" Tibet because it is an aggressor, or because it cannot survive without the resources to which the region provides access? Does it invest in Africa in return for natural resources as a modern-day colonial power, or just as a country that needs the materials and tries to get the best deal possible?

China has a difficult path to follow. It is a country where the environment was ravaged by overpopulation for centuries, and then it was ravaged again in order to carry out the rapid industrialization that provided its economic growth. It is accumulating enormous environmental bills that will one day have to be paid. That will have to come at the expense of economic growth.

One tends to forget at times that China has a neighbor who will become bigger and poorer than it. India will try to duplicate the growth that China has seen and it will have to compete with China for natural resources and for commercial ties. They have long shared an extensive armed border and a near state of war. The relationship seems destined to become even more contentious. It is difficult to foresee a happy ending here.

Subramanian seems to believe that China has considerable control over its own future, and therefore the future is theirs to lose. I have a hard time buying that. Let him make his twenty-year projections. I would be happy if in five years I can still recognize the world as being the same one I am living in now.

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