IT was Napoleon Bonaparte who famously remarked about two centuries ago that China was a sleeping giant. “Let her sleep, for when she wakes up, the world will be sorry,” the great French general is reported to have said.
China has awakened and arguably no other country is watching the rise of the once sleeping giant with greater interest and apprehension than the United States, with which the former is competing for political and economic supremacy.
Few will disagree that more than any other factor, Sino-America relations (G-2 as they have been referred to) will shape the current century.
The Economist, London, in a recent issue has discussed the implications of the rise of China with special reference to the US. One view is that Beijing and Washington are condemned to be rivals, because a rising China will seek to shape the world in its own way, which will be seen by the US as a threat to its pre-eminence.
China looks upon the US as a waning power, which will try to obstruct its rise. Another view is that Washington and Beijing are not necessarily enemies, partly because both have stakes in preserving the current international economic order and therefore maintenance of global peace, and partly because China, unlike the former USSR, has no ambition to export its ideology or create colonies. Trust-building, the British weekly concludes, holds the key to peaceful Sino-America relations. China has to believe that the US will, in no way, hinder its rise, while Washington must believe that Beijing will not fundamentally threaten the way it is running the world. But is this possible?
To begin with, the economy is the mainstay of China’s power and it is conscious of the fact that economic growth predicates a peaceful, predictable and stable environment.
Accordingly, China has acceded to the Comprehensive Test-Ban Treaty (CTBT), is a member of the six-party talks designed to tackle North Korea’s nuclear programme and is a major contributor to UN peacekeeping operations in different parts of the world.
What is even more important is the fact that China, like the US, is a beneficiary of economic and trade liberalisation and has no alternative economic model to espouse.
Politically, there are quite a few issues between the US and China. Arguably potentially the most explosive is the Taiwan issue. China claims Taiwan to be its province, which has to be united with the mainland. Officially, the US is committed to the one-China policy recognising Taiwan to be part of China.
So far the status quo remains intact, with China exporting civilian goods to Taiwan and the US supplying arms to it. However, problems may crop up in case Taiwan formally declares independence and China resorts to the use of force to avert that and the US steps in on the side of Taiwan leading to a direct military conflict between the two great powers.
Economically, the Sino-America relations are at once competitive and complementary. The US and China are the world’s largest and the third largest economies and the largest and second largest trading nations respectively.
China has already overtaken Germany to become the globe’s top exporter of merchandise goods. The bilateral trade has gone up from $302 million in 2005 to $378 billion in 2009. China is the US third largest export market and the largest source of its imports. America is China’s top export market and the third largest source of its imports. American multinational corporations (MNCs) have invested billions of dollars in the enormous Chinese market. On its part, China is a major source of financing of US current account deficit through huge investment in the American bond market. On the other hand, American firms are finding it exceedingly difficult to successfully face competition from their Chinese counterparts at home. The US trade deficit with China has risen from $218 billion to $240 billion during last half decade.
This has happened at a time when the US economy is in straits and is facing double-digit unemployment. The current account deficit increased to $669 billion in 2008 before falling to $378 billion in 2009, while budget deficit was registered at $1.42 trillion at the end of 2009. In 2009, the US economy contracted by 2.6 per cent and is projected to register a modest growth of 2.6 per cent this year and 2.3 per cent next year (IMF’s World Economic Outlook, October 2010).
By contrast, China is booming: the economy grew by 9.6 per cent in 2009, when most of the world was in grip of recession, and is projected to expand by 10.5 per cent and 9.6 per cent this year and next year respectively. In 2008, China registered current account surplus of $436 billion, which dropped to $298 billion in 2009 due to global recession. The foreign exchange reserves have reached $2.6 trillion.
Faced with increasing economic competition from Beijing, the response of Washington has been two-fold: to take trade defence measures on Chinese products, notably textile and clothing, which remains a highly protected sector in the US; and to pressurize China on such issues as human right and intellectual property right (IPR) violation, subsidisation and an under-valued currency.
Since China’s economic growth is largely dependent on its export performance—exports constitute more than 40 per cent of the GDP—the Chinese government is reluctant to let the yuan appreciate significantly. As a result, the currency remains undervalued making China’s exports cheaper than they would be if left to market forces.
At a time when the global currency issue is heating up, pressure is mounting on China to set its foreign exchange regime in order. During a G-20 meeting in Washington in October 2010, the allegation was renewed that China has maintained its currency artificially low to increase exports at the expense of competitors (US, EU and Japan).
China is also being urged to focus on domestic demand, as increase in it will create space for exports as well as make Chinese firms sell more at home than abroad.