Tag: China

Fear of Chinese Economic Hegemony

In the context of discussing the Trans Pacific Partnership (TPP), and the U.S. role in the Asia-Pacific region, Robert Kagan of Brookings raises the specter of competition with China and says this:

Economically, China would like to turn Asia into a region of Chinese hegemony, where every key trade relationship is with Beijing.

Along the same lines, law professor Noah Feldman says:

China is using its close economic relationship with its neighbors as leverage to build its geopolitical position. Its ultimate goal is to displace the U.S. as the regional hegemon.

I’m puzzled by statements like these.  What do Kagan and Feldman think Chinese economic “hegemony” in Asia would look like?  What exactly do they fear?

I don’t know the answer to what’s going on in their minds, but I have tried to look at what China is actually doing.  One thing it is doing is signing trade agreements with other countries in the region.  So are these trade agreements part of a scheme to dominate its neighbors?  Well, the text of the agreement China signed with Australia was just released, so let’s take a look at some of what it says.  As described by the Australian government, China would liberalize a lot of its trade with Australia, including the following:

  • Health and aged care services: China will permit Australian service suppliers to establish profit-making aged care institutions throughout China, and wholly Australian-owned hospitals in certain provinces. This will greatly expand the Australian private health sector’s offering of medical services through East Asia.

So Australia is touting the agreement as a way to build hospitals in China, and more generally to sell products there. (Australia also notes that 92.9 per cent of China’s imports of resources, energy, and manufactured products from Australia will enter duty free right away, with most remaining tariffs removed within four years.) This makes the whole idea of China’s “economic hegemony” sounds a lot less scary. Rather than setting up a system to compete with the United States, China seems to be participating in the same rules-based, liberalizing trading system that the United States and just about everyone else is in.

I wrote more about this issue in a recent Free Trade Bulletin.

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Europe’s Solar Cartel Enforcers Struggle to Keep Prices High

In what has been aptly named “the world’s dumbest trade war,” both Europe and America have fought to limit imports of low-cost Chinese solar panels.  Much to the chagrin of anyone who likes solar power, the United States and the European Union have imposed high tariffs on Chinese panels in order to protect their own subsidized domestic industries. 

In 2013, the EU negotiated a deal with Chinese solar manufacturers that exempted them from the duties as long as they agreed to sell panels above a set minimum price.  By managing trade in this way, European authorities are essentially creating a solar cartel that divvies up market share among established companies who agree not to compete on price.

But cartel arrangements are notoriously difficult to maintain because any member of the group can ruin the scheme by reneging.  This would seem especially likely when the cartel arrangement was forced on them involuntarily by government in the first place.

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Excluding China from Military Exercises Would be Short-Sighted

Last year China joined the U.S.-led Rim of the Pacific Exercise for the first time. However, Beijing’s role in RIMPAC has become controversial. Senate Armed Services Committee Chairman John McCain recently opined: “I would not have invited them this time because of their bad behavior.”

The Obama administration is conflicted. Bloomberg’s Josh Rogin worried that “so far, China is paying no price for its aggression.” Bonnie Glaser of CSIS suggested using the exercises to threaten the PRC. Patrick Cronin of the Center for a New American Security was less certain, acknowledging benefits of China’s inclusion: “It all depends on what you think RIMPAC should be.”

That is the key question. In part the exercise is about mutually beneficial cooperation for non-military purposes. With the simultaneous growth in commercial traffic and national navies, there likely will be increasing need and opportunity for joint search and rescue, operational safety, anti-piracy patrols, and humanitarian relief.

The question also involves military-military cooperation. Contacts between the Chinese and U.S. navies are few; those between the PRC’s forces and those of countries at odds with Beijing’s territorial claims, such as Japan and the Philippines, are even fewer.

There is value in allowing potential opponents a better assessment of one’s capabilities. Chinese expectations may be more realistic if they have a better sense of what and who they might face, especially the navies of their neighbors, which are expanding and becoming more competent.

Maoist Shaming Tactics Spread from Shanghai to Santa Monica and Silicon Valley

Ariana Eunjung Cha reports on the newest target of public shaming in China:

Long before the Internet was invented, China’s Communist Party was already skilled in the art of public shaming.

Dissidents have been known to disappear and then reappear after having published essays of self-criticism. On state-run television, business people, celebrities and editors have appeared so regularly from behind prison bars speaking about their misdeeds that the segments were like an early take on reality TV.

Now officials are using the tactic on another group that it feels has wronged the country: smokers.

Beijing has not relied just on public humiliation. It has banned smoking in indoor public places and workplaces, complete with large fines and massive propaganda campaigns. It also plans to

take more dramatic measures by posting the names of those breaking the law three times on a Web site in order to shame them.

That may not sound like a big deal, but in Asia the reaction of online citizens to inappropriate behavior can be harsh. Among the most infamous cases is one in 2005 when a woman in South Korea who refused to clean up her dog’s waste was caught in photos that were posted online. Internet users quickly discerned her identity and she was harassed so badly that she reportedly quit her university.

Left and Right in China

There’s an ideological divide in China, and it’s basically statist vs. classical liberal, as Tyler Cowen puts it.

Based on 171,830 responses to an online survey, Jennifer Pan and Yiqing Xu “offer the first large scale empirical analysis of ideology in contemporary China.” They “identify one dominant ideological dimension in China.”

Individuals who are politically conservative, who emphasize the supremacy of the state and nationalism, are also likely to be economically conservative, supporting a return to socialism and state-control of the economy, and culturally conservative, supporting traditional, Confucian values. In contrast, political liberals, supportive of constitutional democracy and individual liberty, are also likely to be economic liberals who support market-oriented reform and social liberals who support modern science and values such as sexual freedom.

This is interesting in several ways. First, of course, it means that China is no longer ideologically monolithic, as it was at least officially in the days of Maoism. And a significant number of people seem to support what we would call classical liberal or libertarian values – “constitutional democracy and individual liberty, … market-oriented reform … modern science and values such as sexual freedom.” The online survey isn’t scientific or representative enough to estimate the prevalence of each ideology.

Second, it’s refreshing to see ideological views lined up in a coherent way. Libertarians usually find the standard American ideologies inconsistent. Today’s “liberals” (unlike classical liberals from Locke and Smith and Mill to Hayek) tend to support democracy and at least some forms of personal and civil liberties, but not free markets. Today’s conservatives support free markets but have tended to oppose civil rights, drug decriminalization, and sexual freedom. In China those who support “the supremacy of the state and nationalism” also, quite understandably, support state control of the economy and state support for traditional values. That’s a bad package, but at least it’s coherent. And so is the opposing liberal ideology.

IMF Proposes to Sabotage China’s Economy

For the people of China, there’s good news and bad news.

The good news, as illustrated by the chart below, is that economic freedom has increased dramatically since 1980. This liberalization has lifted hundreds of millions from abject poverty.

 

The bad news is that China still has a long way to go if it wants to become a rich, market-oriented nation. Notwithstanding big gains since 1980, it still ranks in the lower-third of nations for economic freedom.

Yes, there’s been impressive growth, but it started from a very low level. As a result, per-capita economic output is still just a fraction of American levels.

So let’s examine what’s needed to boost Chinese prosperity.

China: Hot Money In, Now Out

For some years, hot money flowed in, adding massively to China’s foreign reserve stockpile. Speculators borrowed cheaply in U.S. dollars and bought yuan-denominated assets in anticipation of an ever-appreciating yuan. Well, this carry trade has shifted into reverse, with $91 billion in net outflows in the last quarter of 2014. And with that, the ever-appreciating yuan story has come to a close, too. Indeed, the yuan has lost 1.8% against the greenback since the New Year.

A clear picture of the drag that the hot money outflows are putting on China is shown by inspecting the annual growth rate in the People’s Republic of China’s net foreign assets. With the reserve of the carry trade, the slowdown in net foreign assets growth has been pronounced.   

This, in turn, has reduced the foreign asset component of the growth in China’s money supply, putting a squeeze on the economy’s fuel supply. Indeed, China’s money growth rate has fallen well below its trend rate since mid-2012.

In an attempt to reverse the slump in China’s money supply growth, the People’s Bank has just reduced its benchmark interest rates for the second time in three months. A wise move.