Monday, August 15, 2005

China, Challenge and the Future...

The story of China’s growth is everywhere. They bought IBM’s personal computer manufacturing business, they want to buy a major US oil company, they are buying into the oil sands and they own a significant portion of the US debt. They are currently building a 50,000 mile, three lane highway road system that will be bigger than the US inter-state system, but they will complete it in five years – the Americans took forty.

Their economy is growing at 9%, - Canada grows between 2.5-3% each year. China is already the second largest trading nation in the world after the US and will, at some point, overtake it – it is already trading at a higher volume that the whole of the European Union. Chinese economic activity accounts for over one third of the world’s economic growth and, so strong is this growth, it attracts both foreign investment (now around US$600 billion) and many companies - some 75,000 firms so far.

Some commentators point to these facts and many more like them and suggest that, just as the twentieth century belonged to America, the twenty first century will be China’s. One symbol of this will be their hosting of the 2008 Olympic Games.

Yet there is another side to China. It is a communist country, rife with corruption. It jails more journalists than any other country. It is a country which represses free speech – banning the BBC from its cable TV networks and making sure that certain search words typed into the Google search engine are prohibited - words like “democracy” or “freedom”. It represses the pursuit of certain religious beliefs, not just Felun Gong (a sect), but also some forms of Christianity – all “reactionary sects”, according to the Government of China. It also continues its brutal occupation of Tibet and threatens war over any attempt by Taiwan to declare its independence.

Its Shanghai Stock market is poor. Despite over 500 new companies trading stocks on that exchange, its total capitalisation is lower now than it was in 2000 – suggesting that the economic engine fuelling China’s growth has at least one squeaky wheel. But there is another: Chinese banks – many of which have significant bad debts and its investors have poor levels of protection. Indeed, according to one commentator, if the standard applied to banks in Canada, the US or the UK was applied to the major banks of China, they would be declared insolvent.

Environmental protection is also weak. China is the fastest growing car market in the world – over 100 million cars will be sold in China between now and 2020; it has coal fired power generation and smoke stacks which remain uncontrolled. China has engaged in massive deforestation, lost a fifth of its agricultural land to development over the last fifty five years, pours untreated waste into rivers and pollutes with acid rain. Don’t expect to see significant changes in China when Kyoto comes into effect in China in 2012.

Then there is poverty. The average per capita income in China is around $6,000 - just below Lebanon and Fiji (Canada’s is $29,500). This is low in comparison to Taiwan or South Korea (in fact it is a quarter of their per capita income). China is the only major East Asian country that has not caught up with Western income standards since 1945. Poverty also creates the conditions in which illness flourishes. HIV/AIDS is likely to affect some 10 million Chinese by 2010 and infant mortality remains high – 30 per 1000 live births (India is now at 10 per 1000).
Poverty is leading to some major challenges to the Government of China. More than three million protested in over 58,000 incidents against working conditions and poverty in China in 2003 and the figure is rising. Tiananmen Square was not the last protest by the Chinese people against their Government.

The real reason we should pause when thinking of China is its unelected government. As China moves to an era of globalized free trade with massive shifts in economic power, especially with the emergence of India and Brazil as traders to watch, its government will come under strain. Free trade eventually requires democracy – its part of the process of people recognizing that the values associated with freedom are the values that drive an enterprise culture. We cannot expect the Communist Party elders who govern China will want to give up power easily – there is no sign of a Chinese Gorbachev. What they will do is to push for growth at 9-10% each year so as to create 10-20 million jobs, whatever the costs to the environment, health, or community and whatever level of corruption, denial of freedom and brute force is necessary to make this happen. By “buying off” some of the protests with regional economic development, the Government will hang on to its powers.

This in turn will create tensions between China and the US, as they vie for super-power status towards 2025 when China will be dominant in world trade and have caused a significant shift in economic activity from the West to the East. This tension – which will show itself in hundreds of different ways, but mainly through trade and issues surrounding regional issues in Asia – is another reason for caution in the way we view China. As its power within the UN and the WTO grows, so will the US become even more concerned about the implied challenge to its role in the world.

China is a power to be reckoned with, but also one that needs to be watched. Canada should not rush to assume that China will always be friendly.


makarios said...

Indeed, many countries already deem China more as a threat to their role in the world... as FDI flows into the Dragon like a gushing river, and with the likes of India emerging in the background, trade activity is indeed shifting towards the North of Asia.

However, the continuity of China's strengthening rise is an assumption that I'd like to question: how possible do you think it is for China to keep moving along this path? How dominant do you think she will be on the world stage?

I often wonder, being from a small part of Southeast Asia, if China's continued growth, together with India, will render us irrelevant. All of what we've been leveraging on; being a manufacturing factory, transport hub, newer entrants into areas like nanotech and biomedical sciences... are all being eroded away.

Do you think the rest of Asia will still have a role to play in the future world stage?

What an ominous thought.

Stephen Murgatroyd said...

China will continue down its growth poath for some time, but it will fac e both external challenges and internal ones. The most serious internal challenge will be to ensure new jobs for its 10m new "employees" each year - there are already 300m unemployed.

Other countries - especially Singapore and South Korea - will be significant if only because these two with China own 60% of US debt.

We are in the midst of massive change.

ps. Thanks for the comment.