China outlook

March 17, 2012

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IN recent weeks, there has been considerable prognostication in the western media, think tanks and policy circles about the direction China will take over the next decade, as President Hu Jintao and Premier Wen Jiabao are replaced by Vice President Xi Jinping and Vice Premier Li Keqiang, and most other members of the nine-member State Council by the ‘fifth generation of leaders’.

As usual, western attention has been directed to China’s internal leadership differences and social and economic problems arising from the rapid economic growth, human rights and democracy activists, China’s military modernisation, its disputes with some neighbouring countries, imputations of unfair trade and exploitative foreign investment.

A week spent in Beijing, coincidentally concurrent with the annual sessions of the National People’s Congress and the CPCC, and informal interactions with serving and former Chinese officials and diplomats, yielded different and more complex conclusions on China’s future policy directions.

The first conclusion is that the main preoccupation of the Chinese authorities is to ensure China’s continued stable growth and development. To achieve this, there will be greater emphasis on more equitable distribution of the benefits of economic expansion rather than only the GDP rise.

The official annual growth rate is projected at the historically slower pace of 7.5 per cent although real growth may continue to be somewhat higher in the immediate future. Reliance on exports and infrastructure investment will be accompanied by a greater focus on mass domestic consumption, specially social services, health and recreation facilities.

Geographically, infrastructure investment will shift mostly ‘inland’ and westward from already ‘developed’ coastal regions.

Exports will focus on higher value and quality rather than high volume and low margins.Imports of commodities will continue to grow with the rise of China’s remaining poor into middle-class status. External trade is already fairly open; it will be further liberalised on a reciprocal basis with global partners. The financial sector, including the renminbi, also will be gradually, yet ineluctably, liberalised.

Politically, the Chinese leadership is increasingly sensitive to public opinion, which is vigorously expressed through electronic channels and over the social media. Perceptions of social or economic injustice and instances of corruption or official high-handedness are projected over the blogosphere.

But the most frequent and strongest sentiment expressed in the electronic media is nationalism. Real or perceived slights to China’s pride and national interests evoke the strongest comments. Thus, to a much larger extent than in the past, Chinese official positions will be responsive to ‘public opinion’. Overall, the Chinese government will uphold its national interests more visibly.

Among the internal issues that affect China’s external policy, Taiwan is not presently a high concern; trade and growing economic integration have created a growing mutual interest in peace and cooperation across the Taiwan straits. The perceived danger is that the careful management of this process will be disrupted by external (US) interference. Presently, there is more concern about incidents of violence and disaffection in Xinjiang and Tibet.

In both cases, there is a tendency to indict outside factors as mainly responsible, namely the Islamist Uighurs of the East Turkestan Liberation Movement, seen to be located in Pakistan’s ‘ungoverned’ western frontier, and West-backed Tibetan dissidents led by the India-based Dalai Lama. But neither is seen as an ‘existential’ problem. Apart from containing, if not eliminating, the ‘external’ factors, the main concern in Beijing is to find economic and social solutions to alienation.

Second, China hopes to continue its ‘peaceful rise’. There is no desire to engage in a confrontation with the US. Chinese officials recognise the US remains the largest, most dominant economic and military power and possesses the most advanced technological capabilities. Mutual economic interdependence is observed to have well-served the interests of both China and America (and the West).

This interdependence will have to be intensified to overcome the current global economic slowdown. Europe and the US are broke; they need investment and financial flows from capital-surplus countries, mainly China.

Chinese finance and the execution efficiency of its major state construction companies can help rebuild America’s infrastructure. On the other hand, China has to invest its $3tr in foreign exchange reserves. It is presently holding low or no paying US Treasury Bills and similar European debt. These resources could be more productively deployed in buying ‘hard assets’ and cash-strapped companies in America and Europe.

While both Europe and America accept the logic of interdependence and desire China’s active contribution to their economic revival, some Chinese friends note there is a consistent endeavour to exploit ‘weak spots’ on China’s strategic horizon.

These endeavours include building ‘alliances’ with countries around China’s periphery (the deployment of US troops in Australia and the reversal of affiliations in Myanmar are two recent examples); US interposition in China’s demarcation disputes in the South China Sea; projection of China’s ‘legitimate’ military modernisation as a threat to the region and a challenge to America’s influence in East Asia, while the US military budget is seven times larger than China’s and over 70 per cent of the US Navy is deployed in the Pacific; criticism of China’s investments in Africa and other developing countries; efforts to create a rift between China and the Gulf Arab countries over the Libyan and Syrian crises; and unfair restrictions on China’s exports and discriminatory restraints on the transfer of advanced technology.

China is Pakistan’s ‘strategic anchor’, an ‘all-weather’ friend. The consistency and closeness of the relationship is dictated by geopolitics and preserved by mutually accommodative diplomacy and cooperation in defence and other sectors. In China, Pakistan is viewed as a tested friend. Major Chinese companies are executing scores of infrastructure projects in Pakistan, mostly financed with low interest loans from China.

However, neither Islamabad nor Beijing can afford to take this relationship for granted; it will need to be carefully nurtured.

Pakistan will need to continue to assure China that it will not join the circle of American ‘allies’ around China.

One shortfall is in the low level of trade between the two countries. The only way around this is to invite Chinese investment into building productive sectors of Pakistan’s economy. A second issue is the lethargy towards project implementation within Pakistani officialdom. Both these challenges can and should be addressed and overcome as a high priority.

A more fundamental issue is the difference in the value systems of the two societies. The Chinese people are preoccupied with economic and social self-improvement. They understand the defence of national interest. But, sacrifice of economic or national self-interest due to religious affiliations is incomprehensible to them. Given the strategic partnership between the two countries, Chinese friends find it difficult to fathom why Pakistan cannot accord priority to suppressing the Uighur rebels thought to be lurking in the frontier regions of Pakistan.

Although disdainful of India’s attempts to compare itself and compete with China, militarily or economically, most Chinese seem comfortable at the personal level with Indians and their pragmatic focus on business.

The Chinese government has also found it useful to promote a host of common causes with India and the other so-called BRICS countries. Pakistan should be concerned that, at a certain stage, China’s concern about Islamic militancy from Pakistan’s borders may erode its strategic resistance to India’s ambitions of regional dominance in South Asia.

The writer is a former Pakistan ambassador to the UN.