Who is afraid of big bad China?

The economic and political growth of the People’s Republic has damaged many interests and given rise to much concern: it is however left to be seen whether this ascent will really be overpowering.

Who is afraid of big bad China? The answer, as things stand today is: “More or less everybody”. European and American industrialists are afraid of being gradually pushed out of the market by a rival who pays labour one twentieth of its cost in the West, has no trade union problems and ignores all environmental regulations. The United States of America, which look on with concern at the modernization process of Chinese armed forces, are afraid and are exercising very strong pressure on Europe to maintain the embargo on sales of war materials enforced after the Tien An Men massacre, despite abolition proposals brought forward by the Chancellor Schroeder and president Chirac. Japan is afraid having powerlessly witnessed the April attack against its diplomatic representatives in Beijing and Canton conducted by thousands of students who protested against the Japanese refusal to admit the atrocities committed by the Imperial Army during the invasion of China in the ‘30s. Persian Gulf countries are afraid wondering why Bejing is investing billions of dollars in building a large port in Gwadar, Pakistan, just in front of the sector of sea from which 40 per cent of international oil is shipped. Virtually all China’s neighbours are afraid, observing the surge of a wave of nationalism, which is tolerated or rather encouraged by the authorities and which could soon take on more aggressive attitude towards border disputes. And above all Taiwan is afraid after the Chinese parliament approved a law obliging the government to take military action if the secessionist island should formally proclaim its independence.
How far are these fears founded? How long will China keep up its development pace - 9% a year - which has enabled it to become a leading protagonist in international trade in just a few years? Does it really harbour aggressive intentions towards its neighbours, even if this would mean compromising the success of the Olympics 2008 and risking an embargo, which would lead to the collapse of its economy? How far does Beijing mean to push its “challenge” to Tokyo, which however remains its greatest commercial partner and which would consider a Chinese veto to its becoming a permanent member of the United Nations an insult that must be paid at a dear price? Will the Chinese really succeed in sending a man to the moon in 2010 and a man to Mars in 2015, as envisaged by their space programme?
The possible answers are many. Brookings Institution, which even forecasts China overtaking the United States and Europe by 2030 (“It would only be a return to the past: in 1820 China was responsible for 30% of international economy”), is balanced by experts like Jonathan Power who believe that most of these fears are a form of paranoia, because on the one hand behind the China’s spectacular progress in many sectors there stands a fragile nation, which is plagued by many contradictions and could explode at any moment, and on the other hand China has failed to achieve many of the goals it has been recognised.
The truth as always lies in the middle, but all forecasts depend on too many variable factors to provide an absolute answer. Let us consider the problem of cheap Chinese products, which are invading international markets and which many would like to block by resorting to customs duty, shares or antidumping measures. It is a fact that today China can produce fabrics, clothes, televisions, toys and many more items, which are not high quality products but are more than acceptable, at costs that are so much below ours that we cannot even speak of dumping. As a matter of fact the same prices are applied in Beijing and Shanghai markets, where nobody is interested in selling goods below cost. They will soon produce large quantities of far more sophisticated products, such as domestic appliances, computers, industrial machines (even impudently copied), cars and ships. Increased Chinese exports towards the so-called “first world” in the first three months of 2005 speak for themselves: over 36.8% towards the United States, over 42% towards Great Britain, over 44% towards Germany and over 59% towards Italy and Canada. Imports have instead increased at a much slower rate, because the national industry is by now able to provide many products it had to formerly purchase abroad. The anchoring of the Chinese yuan to the dollar, which has lost a lot of ground compared both to the euro and to the Japanese yen, naturally enhances such a flow and the Chinese keep refusing to re-evaluate under the pretext (which is not entirely unfounded) that the process would cause serious difficulties to their banking system.
The vertiginous growth noticed in recent years is however already creating a series of hard to solve problems. Though unskilled labour continues to be so plentiful, counting a reserve of six hundred million farmers in the internal provinces yet to be exploited, managerial frameworks, which are essential to all modern industries, are lacking.
Here we can feel the heavy inheritance of forty years of communist education, which contrasts with what we learn in western business schools: though Chinese youth are technically level with western students the same age, they lack decision-making skills and training in marketing, human resource management and sales network organization. Those who have been endowed by mother nature with these skills either tend to resort to self-employment, often heaping a huge fortune in a short time, or are in great demand since multinationals, which have decided to establish themselves in China with the power of green bills, compete for them. A survey conducted by the Economist disclosed that Chinese executives’ wages are rapidly rising and that increasingly high offers, including a company car, houses, expense reimbursement are required to avoid migration towards the competition. “If you think that China is a place where employees are cheap, think again”, Vincent Gautier, a “head hunter” from Hewitt Associates who operates on behalf of many European firms, declared to the newspapers.
Then we cannot fail to consider planning errors, which have been (and will still be) made, leading to massive wastage of resources. Today we have only to walk through Beijing, Shanghai or the other ten or twelve metropolises in this developing area to realize that many of the skyscrapers, which dot the landscape, are empty because building speculation has anticipated demands that will probably arise in ten years time. Even if the sector does not work according to our rules, where immobilization of capital often leads to the bankruptcy of firms, this special “bubble” could burst one of these days.
Another obstacle on the path of the Chinese industry’s competitiveness is the now widespread need to purchase many raw materials, ranging from oil to iron mineral, cotton and wool from abroad. So far Beijing has not hesitated to pay prices, which are above market rates to lay in supplies for its production machine, and in this sense it is responsible for the generalised price increase implemented in the last three years. The Chinese have heavily invested in Sudanese oil, Australian mines and South American firms to ensure long term supplies. It is however obvious that this policy will finally have negative repercussions on their production costs. Hence optimists say that the western industry must only organize itself to hold on a few more years till the prices of Chinese products will be forced to align, if not with European ones, at least with those of Korea and Taiwan. The internal market’s very growth margins lead us to believe that the current thrust to increase exports will finally diminish: suffice it to say that today only one Chinese on 70 has a car and that if the country were to draw close to European standards, they would need another 300-400 million to meet the demand (without counting road networks for circulation). Hence the Chinese will always remain formidable rivals in many sectors, but they will not be as invincible as they appear to be today.
There are many optimists even concerning China’s foreign policy. If Beijing is raising its voice today with Taiwan, rousing its students against Japanese goals and forcefully claiming the possession of southern Chinese Sea waters, which conceal important hydrocarbon deposits, it is also for reasons of internal politics, in other words to find an “adhesive”, which can in some way replace the communist ideology. Some even say that Chinese executives have underestimated the international impact of the law, which has turned on the green light to an invasion of Taiwan, just as they have still to understand the damage wrought to their prestige and diplomatic relations by the four thousand yearly executions of prisoners under a death sentence, by the systematic violation of human rights and by the repression of all attempts at religion. Considering the issue from other perspectives we cannot deny that China has mellowed. It has settled its territorial dispute with Russia, it has collaborated with the United States in an attempt to induce Northern Korea to renounce the atom bomb and in April it promoted a historical rapprochement with India, its eternal rival, in a political economic framework. As the Beijing Olympics draw close - the government has invested extensive energy and prohibitive funds to make it a sports and organizational event to be remembered through the centuries - Chinese leaders will have to increasingly avoid throwing themselves into hasty enterprises or even just stepping on too many toes.
It would especially be ruinous for Beijing to attack Taiwan, since both the United States and Japan are ready for a forceful reaction. The Pentagon recognized that, following the latest reinforcement of its armed forces and the deployment of 600 medium-range missiles in front of the island, the People’s Republic has a certain military superiority over Taiwan and would probably be able to conquer it, though this would not be a speedy process. However even a small intervention of the American fleet in the strait, which separates the island from the Continent, would suffice to alter this tug-of-war and Beijing would end up paying a very high price as this adventure would make it suffer a ten-year regression concerning its attempt to be integrated in the large concert of world powers. This seems to be China’s leaders’ current target.
Other analysts believe that Beijing’s priorities in the near future will centre on solving serious political, economic and social issues resulting from the very success of its policies. Even considering all chance-related uncertainties, China has doubtless chosen well in placing economic liberation before the political one, avoiding Gorbaciov’s mistakes, which led to the Soviet Union’s break up. But keeping up a single party’s dictatorship, despite revolutionary developments in the social fabric, has created the premises for a conflict, which could have devastating effects. The nomenklatura, which still controls all the nerve centres, is often discredited and contested, even due to widespread corruption resulting from its dealings with the business world. An opposition, which is at yet amorphous and resembles ancient European “Jacqueries” rather than a structured party furnished with an ideology, is spreading in the countryside in internal provinces where the majority of the population is still dedicated to farming and often lives with less than a dollar a day, as in the poorest third world countries. Since foreign correspondents still lack the permission to travel freely, we have only second hand news of these movements, which often organize demonstrations against the government and at times even lynch corrupt public officers. The numbers the government is called to face are impressive: they speak of a hundred million unemployed, a plan to build 450 new cities to dislocate developed factories, which cannot be housed along the coast line, and 300 of the 700,000 villages, which are the site of feuds between rival clans.
Another source of concern is the widespread use of the Internet, which by now counts 90 million users on one billion three hundred million inhabitants. It is doubtless a large step towards modernization, a sign that the country has by now a youth vanguard open to the world, which it can count on in the race towards international primacy. But the Internet is also a hard to control communicational tool, which can facilitate the circulation of what the regime considers as liberal subversive ideas. If it is true - as it is doubtless true - that in just a few weeks 30 million (!) signatures were collected over the Internet against Japan’s entrance into the Security Council, this tool can also be used to organize events that are less appreciated by Beijing. Furthermore with the international community breathing down its neck to ensure more respect for human rights, Chinese authorities will find it increasingly hard to apply traditional methods to repress dissent. Some are, for example, convinced that the party scored an own goal by issuing the authorization permitting recent national anti-Japanese demonstrations, because once the taboo is lifted, the square could become a tool for the Tien An Men martyrs’ heirs too. As occurs with cherries, one demonstration draws another, and anything can happen when one is faced with impressive masses such as the Chinese ones.
One of the topics brought forward by those who advice us not to fear China is the parallel drawn between the former and South East Asian countries, which have risen or are rising to the status of industrial powers: South Korea, Taiwan itself and Thailand. During their growth phase, they too experienced authoritarian regimes (though belonging to the right wing and allied with the United States) and emerging classes, which were too busy enjoying the newfound wealth to contest them, while the poor classes had no means of expressing their opinion. Finally, all the so-called “small tigers” turned to democracy. The same could occur with China.
Hence the yellow menace William II referred to in the last century does exist. But let us wait and see the turn events will take before we call it a mortal danger.

Livio Caputo