Buffering China’s risePosted: May 3, 2010
Self-interest and the myth of cohesion.
There’s a propensity to describe the shift in global power and authority as one moving from North to South or West to East – and more specifically from the US to China.
This description fits neatly in the evolution of power since World War I, a war which marked the handoff of empiric supremacy from the UK to the US. In theory, we’re watching the next leg of the race, as the US hands the baton to China.
Yet in reality, today’s power shift is much more nuanced. China may be at the head of the class of new rising powers, but unlike the US’ post-war ascension as the only wealthy Nation around, China has company amongst developing countries. And that company means that China won’t have as easy as a time as the US did in creating a policy and governance environment that best suits its own needs.
For the US, self-interest after both wars meant the use of American dollars and American lending to stimulate the revival of European consumer markets and American industry at home.
For China, a purely self-serving agenda would do very much the same – cheap Chinese credit would ensure steady purchasing power for North American and European consumers, fuelling Chinese industry, all thanks to a war of a different sort: a currency war. For that cheap credit is enabled by the massive trade surplus that is partially fuelled by an undervalued Chinese currency. By keeping the Renminbi fixed to the dollar, China ensures its trade dominance, its trade surplus, and its export of capital to fuel overseas spending.
However, unlike the American experience in the 1920’s and 1940’s, China isn’t alone on its economic upswing. Brazil, India, South Africa and others such as South Korea, Turkey and Mexico are all vying for part of the economic space and influence left vacant by a near-bankrupt USA.
Hence the debate over China’s currency valuation is much more than a US/China dispute; it’s a truly global debate about the rules of trade where exchange rates are in some ways no different than tariff – or non-tariff barriers to trade.
Therein, countries such as India and Brazil have a significant part to play in that debate. And perhaps unsurprisingly, they’ve both sided with the US on the Renminbi issue.
In India, an undervalued Renminbi is seen as one of the major reasons that exports from China have outpaced Indian exports going the other way. In Latin America, the same reasoning is being used by Brazil to explain in part why its share of exports to its neighbours has drop by 18 per cent in the first eight months of 2009 while China’s grew by over 7 per cent. Brazil has gone so far as launching 26 anti-dumping suits against China at the WTO, and has noted the critical need for China to “appreciate its currency to ensure equilibrium in the global economy.”
But finding that equilibrium amongst more than a dozen powers and would-be powers won’t be easy.
China’s interests may align with Brazil and India’s , and more broadly speaking with the Global South, when it comes to increasing their share of votes at the IMF or when lobbying to abolish rich farming subsidies in the US and Europe. However when it comes to more intricate questions of economic competitiveness and possible infringements of China’s sovereign economic rights, such as how it handles its exchange rate, then the cohesion of the South is bound to show signs of stress and possibly fracture.
What a fracture amongst the world’s emerging powers would mean is anybody’s guess.
The Sino-Soviet split of the late 1950’s / early 1960’s is perhaps an appropriate analogy. The fracture of the Socialist world saw both vie for influence amongst like-minded states, and more important, saw China successfully flirt with the US on the basis of its Soviet fears, and obtain dramatic concessions related to nuclear technology and the sciences as a result. The later, post-Mao era. Sino-US economic rapprochement was equally driven by US desires to ensure that the Soviets remained sidelined.
A split in the emerging world today might lead to something similar. China, Brazil, India and maybe even South Africa could emerge as individual poles in a hyper-polar world – where regional influence and regional governance supercedes the past half-century of uni-polar global governance.
This is evidently quite pessimistic of an outcome, but for the sake of ideas, given the relatively similar spheres of influence of those four countries, and the relatively similar population levels in each, it might be a path to ensuring equitable economic development around the world – while providing each of the leading nations in their respective nations with the ego-boosting leadership and stewardship they’ve been unable to grasp for the past century.
More likely, however, or so I hope, is that the concomitant rise of several emerging powers will see a global governance system emerge that forces each to sacrifice some of its natural self-interest to ensure stability, fair-trade and development throughout. Traditional notions of sovereignty over internal economic affairs will have to give way for a more nuanced grasp at shared responsibility.
I’m far from convinced that political leaders will adopt this more optimistic scenario – putting aside the absolute best interest of your citizens is somewhat anathema to the nature of politics and internal governance: It’s one thing to tax for tomorrow, it’s quite another to tax for a citizen in another country.
Self-interest might not quite be that flexible.
And hence why China’s rise won’t be without challenges – both internal and external – as the rest of the world grapples with the new realities of power of a multi-polar world.