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China - playing by the rules?

By Chris Lewis - posted Thursday, 11 February 2010


I understand why the Chinese government behaves the way it does. With 1.3 billion people (2008), who can blame it for trying to maximise its economic position.

But there should be limits to the West’s tolerance of China’s mercantilism, despite its increasing importance to the global economy as China’s share of global GDP increased from 3 to 7.5 per cent since the end of 1997 and its share of global trade from about 3 to over 8 per cent.

I do not accept the argument that, because the economic growth China is experiencing benefits major resource providers like Australia, “We therefore shouldn’t let commentators from China’s industrial competitors, like the US and Japan, worry us about China’s economic rise” as “there are no limits on China mercantilist policies because they are appropriate, effective and flexible”.

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Nor should we wait for China’s communist party to promote and accept a more extensive civil society despite some optimism that China’s domestic Internet system will expand so quickly and become so vibrant that “tens of millions of tech-savvy inquisitive minds will have the ability and the compulsion to scale any fire walls Chinese authorities erect”.

Most recently, China led India, Brazil and South Africa to thwart US-led attempts at the Copenhagen summit to get developing economies to commit to legally binding cuts to their greenhouse gas emissions.

On Christmas day, the leading dissident, Liu Xiaobo, was sentenced to 11 years in prison on the charge of “incitement to subvert state power” because Liu had published six articles and help draft an online petition calling for greater political freedom. Liu had previously served three years in a labour camp for calling for the release of demonstrators after the Tiananmen Square protests.

There is also the issue of Internet censorship in China with Google threatening during January 2009 to leave China unless its government stopped censoring its search results after Chinese hackers stole valuable corporate software code and broke into the Google mailboxes of Chinese human-rights activists. Google also noted that hackers also infiltrated 20 other large companies (including the internet, finance, technology, media and chemical sectors).

And this month, Zhu Weiqun, executive vice minister of the Communist Party body that communicates with the Dalai Lama, warned “If the US leader chooses to meet with the Dalai Lama at this time, it will certainly threaten trust and cooperation between China and the United States”.

Something needs to be done to maintain Western influence sooner rather than later. While the US currently relies on China for its purchase of 23 per cent of Treasury Securities alone (as of September 2009), it (along with the EU, Japan and others) has the clout to resist China’s mercantile behaviour. According to the CIA World Factbook, the US, EU and Japan still comprise 61 per cent of world GDP.

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It is, today, misleading to call China a poor nation given its large trade surpluses ($US290 billion in 2008), its position as the world’s greatest exporter ($520 billion in the first six months of 2009), its ability to implement a $US586 billion stimulus package in early 2009, and it holding $US2.4 trillion of reserves (increasing by about $US450 billion in 2009). Add to this, China has 825,000 individuals with wealth of more than 10 million yuan and 51,000 people more than 100 million yuan.

And China’s supposed commitment to equality is laughable. According to China’s National Bureau of Statistics, China invested just 5.2 per cent of its GDP in 2008 (or 10.9 per cent of public finance expenditure) on social security with city residents usually enjoying better social insurance than those living in rural areas where 56 per cent of China’s population lives. Even the US, deemed the most neoliberal of Western nations, spent 16 per cent of GDP on social transfers in 2005 compared to the OECD average of 20.5 per cent (OECD 2009 Factbook).

At the same time, the share of wages of China’s national disposable income declined from 53 to 41 per cent of GDP between 1998 and 2005 (Ashok K Lahiri, “Limits of mercantilism”, Business Standard, November 28, 2009).

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About the Author

Chris Lewis has an interest in all economic, social and environmental issues, but believes that the struggle for the ‘right’ policy mix remains an elusive goal in such a complex and competitive world.

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