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|China appears to hold all the cards|
David Pillin, Financial
Article Date: November 24, 2008
It is a
truth occasionally acknowledged that if you lay a map of China over one
of the US, some striking similarities emerge. Their size is uncannily
close, with both occupying almost exactly 6.5 per cent of the world's
land mass. Their shapes are broadly similar, if you make allowances for
Alaska - which, at least, would spare us a Chinese version of Sarah
Both have a rich eastern seaboard - the US has a rich western one too - and swathes of relatively underdeveloped hinterland. History has placed their most important city, Beijing and New York, in the top north-east corner, and Hong Kong and Anaheim, in the south.
If you ask Chinese academics whether China has a role model, a surprising number point to the US. That country is the only one - leaving aside Russia - with the continental scale and oceans of ambition to match China's own.
Even culturally, there are superficial similarities. Viewed from Japan, with an etiquette-laced culture that values craft above commerce, China looks like an American-style can-do nation where money is king.
But recent events have knocked China's confidence in, and even respect for, its mentor. After years of preaching the virtues of the free market to Beijing, Washington has created a raft of state-owned enterprises (SOEs) from the wreckage of Wall Street.
Its once mighty car industry, with brands every Chinese person once aspired to own, has been reduced to knocking on the door of politicians, begging bowl in hand. The next thing you know, Washington will be working on a five-year plan. Of course, politically, the US's reputation has been temporarily salvaged by Barack Obama. His victory is seen in China as evidence of the extraordinary flexibility of US democracy, surprising those who thought Americans would never pick a black president.
Glory days over
But financially, America's glory days appear over. Chinese academics love telling the story of how George W. Bush begged Hu Jintao, China's president, to keep buying US bonds.
China will keep on helping out, they say, though it knows the US will have to debase the dollar.
"Only God can fix it and Obama is not God," says Shi Yinhong, professor of international politics at Renmin University. "If they print too much money, the financial basis of this empire will collapse."
China appears to hold all the cards. It has nearly $2 trillion (Dh7.35 trillion) reserves and a fashionably basic banking system that the state uses to funnel money to the real economy.
Are you watching Hank Paulson? The government can spend an extra $586 billion to keep growth ticking over at 8 per cent.
Francis Fukuyama, the academic, fresh from declaring the victory of liberal democracy, now suspects US hegemony is fading. He recently told Newsweek, "American power relative to the world is declining because of the growth of other centres of power."
Yet China is not acting as though its moment has arrived. Before last weekend's G20 summit, officials were almost diffident about Beijing's role in helping to design a new financial order.
Referring to the presidents of France and Brazil, both of whom have seized on US weakness with greater alacrity, one official said, "We are happy to let Sarkozy and Lula [Luiz Inácio da Silva] be in the headlines."
Liu Lefei, chief investment officer of China Life, the world's largest life assurer, said China would be cautious about introducing derivatives, not because it held them in suspicion, but because it lacked expertise.
In the military arena, too, officials are disarmingly humble, acknowledging the stabilising presence of the US Pacific Fleet and playing down any notion that China's navy wants to project power.
For such a big country, Beijing remains surprisingly nervous about what seem to be trivial disruptions, such as a trickle of North Korean refugees.
Though it undoubtedly aspires to greater clout in an enlarged Group of Eight or a reformed International Monetary Fund, it appears worried about what that might entail. More visibility would, after all, bring its currency, environmental and foreign policies - to name a few - under closer scrutiny.
Lack of confidence
China's belief in its own Great Power status is real. But so is its lack of confidence. It is easy to stroll down Shanghai's Bund and be taken in by the sight of the splendid buildings and well-dressed nouveaux Chinese sipping their green-tea lattes and hollering into their slimline mobile phones. But Shanghai is not China. And even most of Shanghai is not like the Bund.
The power and energy on display in emerging Chinese cities can be so impressive it is easy to forget that China's per capita output is less than Albania's. In purchasing power parity terms, at $5,325, China comes in 100th place, four slots behind Albania.
Of course China, with its 1.3 billion people, has an economy vastly bigger - roughly 350 times bigger, in fact - than its east European cousin.Scale does matter. But, until China chooses to act like the sum of its parts, it might be more useful to think of it as 350 Albanias than as one America.