The Hindu Business Line : China’s new assertiveness

In a major departure from its style of low-profile diplomacy, China in recent weeks has actively intervened and participated in global economic confabulations. Perhaps with the West in economic disarray, China’s leaders see an opportunity to wield a bit more of the clout they feel they’ve earned from recent rapid economic growth and rising global integration.

Boasting over 10 per cent of global economic output, and as the world’s second-largest economy by purchasing power parity, China’s importance to a global recovery is undisputed. It is also an important trading nation, and not merely because of its huge trade surplus with the US and its trade-to-GDP ratio of 71.3. Accounting for some 7.7 per cent of global trade (exports plus imports) and 6.7 per cent of global imports, China is an important export destination for many countries in the Asia-Pacific region, with which it runs double-digit trade deficits.

Clout in ASEAN

Also, contrary to popular perception, Chinese imports are not merely concentrated in industrial raw materials and natural resources. For example, in 2006 China’s imports from the original Asean 5 countries (producing and trading in commodities that China itself trades in) was 8.8 per cent of its global imports, up from only 1 per cent in 1980. Clearly, China’s trade integration with the East Asian countries has increased in recent times.

This is probably one reason why China is expected to have a much stronger voice in the forthcoming Asean Summit. While China is well on its way to becoming the region’s pre-eminent economic power, the reigning regional leader — Japan — seems to have abdicated its responsibilities owing to its prolonged domestic economic woes.

As Mr Hidehiko Mukoyama of the Japan Research Institute noted: “Japan is beginning to give up the leading role in Asia to China... I don’t think there is any doubt that China will tend to take the leading role at the summit.” The implications of such a development for India need to be carefully evaluated, vis-À-vis the proposed East Asia FTA and the larger geo-strategic fallout.

Self-confident tone

But the real surprise has been China’s uncharacteristic aggression in multilateral forums. During much of the build-up to the G20 summit, China was a quiet participant. However, in the days preceding the London Summit, it launched a series of initiatives demonstrating a desire to move centre-stage.

Notwithstanding enormous social stress at home resulting from an export slump, declining growth and rising unemployment, Chinese officials have of late assumed an increasingly self-confident tone when speaking to the rest of the world. Mr Zhou Xiaochuan, Chinese central bank president, has proposed modalities for an eventual replacement of the dollar as the global reserve currency.

Premier Mr Wen Ziabao, in his pre-summit address, advised Mr Barack Obama’s new administration on the need to follow up stimulus spending with a renewed effort at fiscal consolidation.

US-China co-dependence

Even the US administration acknowledged that it cannot afford to alienate China at a moment when it expects the Chinese surplus to bankroll its monetary and fiscal initiatives, and has accordingly toned down its earlier rhetoric on currency “manipulation”.

Chinese hegemony on global economic, financial and trade governance is clearly on the ascendant.

In fact, most commentators believe that in the next quarter century, China will continue to dominate the world on an equal footing with the reigning superpower, the US. The World Bank President, Mr Robert Zoellick, and the Bank’s chief economist, Mr Justin Yifu Lin, recently argued that without a strong US-China G-2, the G-20 would disappoint.

It is clear that for both countries, this co-dependence is a matter of survival. As one of the largest surplus countries, China’s importance to the US is understandable. China knows that for now it has little choice but to keep bankrolling the US. In the absence of alternative sources of demand, it has to humour the US consumer and the government, at least in the medium term.

However, for both China and other Asian countries, the immediate need is for restructuring domestic economies and reorienting national growth policies.

Self-help for Asia

The experience of the Asian crisis and the current one clearly indicates that the solution to excessive dependence on developed country consumers lies in reorienting economies inward and focusing on domestic demand.

This requires Asian countries to desist from adopting economic and exchange rate policies that create a not-so-level playing field for exporters. Unfortunately, most economies will tend to, as did the US in the 1920s — raise production and export their way out of the recession.

Asia should look at a co-ordinated and co-operative model in developing services as the growth engine for the region. It should use the tertiary sector to decouple the region’s economies from the developed West, and help boost economic prospects in today’s difficult times.

Second, a more sustainable solution would be to reorient domestic spending through investments in social infrastructure, rather than physical infrastructure and construction — the latter being the instrument of choice for neo-liberal policymakers in Asia. As Mr Obama rightly said, investment in schools and healthcare will ultimately help the US economy get back on its feet.

(The author is a Visiting Research Fellow with the Institute of South Asian Studies, National University of Singapore. Her views are personal. blfeedback@thehindu.co.in)

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