Symbiotic competitors – the nature of Sino-US relations

Contents

Introduction: China and the United States of America

Economic Symbiosis

Geopolitical Competition

Conclusion: Competitive symbiosis

Bibliography

Introduction: China and the United States of America

In the middle of the 15th century China commissioned a giant fleet comprising the largest wooden ships ever made by man – nine-masted „Treasure ships“. Commanding Admiral Zheng He expanded Chinese influence beyond the Strait of Malacca into the Indian Ocean and lead expeditions at least as far as East Africa. China at that time clearly constituted what we would nowadays term a great power. In the centuries that followed, China's focus turned inwards and foreign powers from the Mongols to the Japanese invaded and weakened the „Middle Kingdom“.

Nearly 600 years later China is once again incrementally increasing its power in the inter-national arena drawing on its increased economic heft. Since the Communist Party under Deng Xiaoping initiated a process of economic reforms in the late 1970s, the Chinese economy has grown with an annual average of over nine percent, the fastest growth rate for a major economy in recorded history. Measured by official exchange rates, China at present is the fourth largest economy in the world – having superseded Italy, France and Great Britain in the last two years. China has also become the third largest trading nation after the US and Germany. If current growth rates were to be sustained, China would have overtaken Germany, Japan and the US by the middle of this century to become the largest economy in the world (Nye, 2006).

Although this might look very impressive at first sight, it has to be noted that China will have to face enormous challenges in order to accomplish rising to the pinnacle of the international economic system. The Chinese environment is already severely polluted, several hundred million people in rural China lack access to clean drinking water. Desertification is expanding drastically in the northern and western parts of the country. The inequalities within the society are growing steadily – between the rich and the poor on the one hand and between the thriving coastal provinces and the vast „hinterland“ on the other hand.

China's banking system faces major problems, because the government uses it to keep money-losing state-owned enterprises afloat. In 2002 the level of non-performing loans held by Chinese banks was estimated to be equal to 43% of China's Gross Domestic Product (GDP) (Morrison, 2006). Another huge problem are the ailing state-owned enterprises themselves. Most of them are not competitive on the world market, but nevertheless employ a great number of workers. If closed down, millions would be added to the large pool of unemployed people. The growing number of migrant workers leaving their rural communities – who are not entitled to permanent residency in the cities – already amounts to between 100 and 200 million individuals. Furthermore, corruption of local and provincial cadres of the Communst Party is high. This is causing a rising number of protests by peasants and workers against expropriation of land or against layoffs, often perceived as unfair. The social fabric in China is thin and every year millions of young people have to be integrated in the labor market. Economic liberties are steadily increasing, while means of political participation have been frozen since the bloody suppression of the Tiananmen square protests in 1989.

Even if the Chinese leadership should prove capable of steering a course between Scylla and Charybdis, economic history shows that – as its economy matures – Chinese growth rates are likely to decelerate. Many analysts depicting China as the future powerhouse are committing the same error which was made by numerous observers in the 1980s with regard to Japan. They extrapolate current growth rates into the future and neglect taking into account contin-gencies, such as economic crises, political unrest, major epidemics, fossil fuel shortages or military clashes with foreign powers. Thus, it remains to be seen whether current GDP growth rates of more than nine percent can be sustained in the next decades. One thing is clear: the Chinese leadership is diligently working on its „peaceful rise“ (Bijian, 2005) back on the world stage – at least as a regional actor – where the „Middle Kingdom“ had been performing for the better part of the last three millennia.

At the moment the unrivalled protagonist on this grand stage is the United States of America. Ever since the demise of its peer competitor – the Soviet Union – in 1989 the USA has enjoyed unparalleled preponderance in international affairs. The power of the US, especially its awe-inspiring military capabilities, outstrips that of other major countries by such a wide margin that an academic discourse arose of whether the United States constitutes an empire.^[1] Especially the frequent use of the military to globally enforce its interests and the repudiation of international law have often been cited as evidence for the self-perceived superiority of the US, which is associated with an imperial power.

This „empire“ however is not flawless. The US still constitutes the largest economy in the world by far, but the foundations on which this behemoth rests increasingly show signs of cracks. The ongoing occupations of Afghanistan and Iraq have strained the armed forces. Some observers regard this as the beginning of an „imperial overstretch“^[2]. The US economy displays precarious imbalances. Consumer debt is at record highs. The budget deficit and the current-account deficit are at all-time peaks and keep rising. Many analysts believe that prices in the real-estate markets in the United States are seriously inflated and that these „bubbles“ eventually have to deflate or that they might even burst. (White, 2006) All these imbalances could lead to a dramatic fall of the dollar, impairing its role as the de-facto world currency.

China needs very high economic growth rates to sustain its rise. Therefore, cooperation with the current arbiter of international relations – the USA – is imperative. But economic growth is of paramount importance to the United States as well. Economic vigor is vital if Washing-ton wants to remain at the apogee of the international system. Thus both countries have incentives to strenghten their economic relations. In fact, I will argue that the economies of China and the United States form a symbiotic relationship of mutual stimulation and dependency upon each other.

Economic symbiosis

China is a very open economy and depends on trade for half of its GDP (Eland, 2005). In 2004, China surpassed Japan to become the world's third largest trading nation – after the US and Germany. In the same year, nearly one third of all Chinese exports went to the United States, making it the biggest export market for China by far (Morrison, 2006). Wal-Mart alone, treated as an economy, would rank as the sixth largest export market of China, just after Germany (Schafer, 2005).

These massively growing exports are enabled by huge inflows of Foreign Direct Investment (FDI) into China.^[3] Multinational Corporations (MNCs) from the USA, the European Union, Japan and Taiwan are the main investors in China. These MNCs mainly construct export-oriented factories drawing on the very low wages – probably the biggest competitive ad-vantage China enjoys in the global economy. From 1979 to 2004 the United States was the second biggest foreign investor in the Chinese economy with cumulative FDI of close to USD50 billion (Morrison, 2006).

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^[1] See for example (Bachevich, 2002) and (Speck/Sznaider, 2003).

^[2] The term is associated with the book „The Rise and Fall of the Great Powers“ by Yale historian Paul Kennedy (Kennedy, 1987).

^[3] The statistics on FDI inflows into China are somehow distorted by the presence of two „gateway-countries“ in the top five origins of FDI. Hong Kong (first place) and the British Virgin Islands (fifth place) – a major tax haven – mask the true origin of FDI inflows into the People's Republic by rerouting them from other countries.