China’s glass ceiling

A US and a Chinese flag wave outside a c“It’s over for America,” a Chinese academic told me in late 2008, two days after Goldman Sachs turned itself into a commercial bank in order to fend off possible collapse.

“From here on, it’s all downhill.” Sitting in Beijing as American capitalism seemed to be hanging by a thread, it was easy to believe that one era was ending and another beginning.

The past half-decade should have been the glory years for the spread of Chinese influence around the world. After China’s ravishing 2008 Beijing Summer Olympics, and its startling recovery from the financial crisis, it had a platform to push for a bigger voice in international affairs.

At a time when the United States has been navel-gazing on its own deficiencies and beset by dysfunction and infighting in Congress, China has quickly become the main trading partner for a long list of countries, not just in Asia, which should give it all sorts of sway. And at the very least, many Chinese assume, the country should start to resume its role as the natural leader in Asia.

Yet the years since the crisis have demonstrated something very different. Rather than usher in a new era of Chinese influence, Beijing’s missteps have shown why it is unlikely to become the world’s leading power. Even if it overtakes the United States to have the biggest economy in the world, which many economists believe could happen over the next decade, China will not dislodge Washington from its central position in global affairs for decades to come.

China is certainly not lacking in ambition, even if many of its final goals are not clearly articulated. It is implementing plans which challenge U.S. military, economic, and even political supremacy. But on each front, the last few years have demonstrated China’s limitations, not the inevitability of its rise.

China’s effort to gradually squeeze the U.S. Navy out of the Western Pacific did not start with the financial crisis in 2008. The financial crisis did, however, coincide with a new aggressiveness in the way China has pushed its territorial claims in the South China Sea and the East China Sea. Beijing has scored at least one victory, securing control of the Scarborough Shoal, a group of small islands in the South China Sea, from the Philippines in 2012.

Its “peaceful rise” is not taking place in isolation

But among these tactical successes, China has been sowing the seeds of a strategic defeat. China’s assertiveness is generating intense suspicion, if not outright enmity, among its neighbours. Its “peaceful rise” is not taking place in isolation. There may be echoes in today’s Asia of the late-nineteenth century in Europe and North America, but this is the one critical difference.

The United States came into its own as a great power without any major challenge from its neighbours, while Germany’s ascent was aided by the collapsing Austro-Hungarian and Ottoman empires and Russian monarchy on its frontiers. China, on the other hand, is surrounded by vibrant countries with fast-growing economies, from South Korea to India to Vietnam, who all believe that this is their time, as well.

Even Japan, after two decades of stagnation, still has one of the most formidable navies in the world, as well as the world’s third largest economy. China’s strategic misfortune is to be bordered by robust and proud nation-states which expect their own stake in the modern world.

The last few years have shown that these countries have no desire to return to a Sinocentric Asia, as existed before the arrival of Western powers in the late-fifteenth century, and one where China is the undisputed leader.

All the talk about the Obama administration’s “pivot” to Asia has obscured the much bigger shift that has taken place in the region since the crisis – almost all of China’s neighbours are now deeply anxious about what a powerful, expansionist leadership in Beijing portends for their future. They still want to trade with China, but they also want protection from Beijing’s bullying.

Rather than undercutting U.S. influence in the region, the result of China’s post-crisis assertiveness has been to push most of its neighbours closer towards Washington. Yet Beijing seems tone-deaf to the tensions it is creating, falling back instead on complaints about U.S. containment and trying to resurrect the spectre of Japanese militarism.

China’s leaders should be asking themselves: why has every Asian leader, with the possible exception of Kim Jong Un, welcomed the pivot? The answer: in the last few years, Washington has become more relevant, not less, to Asia’s future.

Turning the renminbi into a major reserve currency 

On the economic front, Beijing is taking aim at another pillar of U.S. power: the dominance of the dollar. China is putting in place an ambitious long-term plan to turn the renminbi into one of the main international currencies.

Chinese leaders often discuss the project in technical terms, about reducing currency risk for their companies, but they also do little to hide their frustration with the dollar’s privileged status. One Chinese academic even likens the importance of the project to turn the renminbi into a major reserve currency to China’s acquisition of a nuclear weapon in the 1960s.

The politics of the currency plan are themselves an interesting sidebar to the over-hyping of Chinese influence. While American politicians have been worrying loudly about the risk of China owning so many Treasury bonds (“How do you deal toughly with your banker?” Hillary Clinton asked at a private lunch with then Australian Prime Minister Kevin Rudd in March 2009), China has been fretting about how little leverage its U.S. bond holdings give it.

The desire to dethrone the dollar is partly rooted in China’s frustration that it has absolutely no influence over the Federal Reserve. And yet it has few options other than buying American debt, because the U.S. Treasury bond market is the largest and most liquid in the world. “We hate you guys!” Luo Ping, a senior Chinese banking official admitted in 2009, only half-jokingly. “Once you start issuing $1 trillion-$2 trillion [in new debt],” he said, the dollar will depreciate, “but there is nothing much we can do.”

There is no doubt that China’s currency will start to play a larger role in the international financial system, just as the euro and yen do. But toppling the dollar is a different matter. For a start, there is a huge amount of inertia, which means that big shifts in reserve currencies tend to happen only in the event of a major crisis.

Admittedly, U.S. Republicans have flirted with the idea of default in order to win a congressional argument, but the likelihood remains that the dollar will only lose its leading status if the United States lets it happen.

For the renminbi to assume a central role, China would also have to make massive reforms to its own economy. The key to Chinese state capitalism is control over a relatively closed financial system, which allows the Communist Party to funnel huge volumes of cheap credit to select projects, industries, and companies.

But to have a truly international currency, one that the world’s central banks want to hold, China would have to let investors from around the world buy and sell large volumes of Chinese financial assets. As a result, Beijing would have to dismantle that system of controls. It would need to permit capital to flow freely in and out of the country, let the market set interest rates and allow the currency to float.

An independent legal system and transparent economic policymaking would also be useful. China has a choice. It can have an international currency that might challenge the U.S. dollar or it can keep its brand of state capitalism that has driven the economy and kept the Communist Party in power. But it cannot have both.

China is mounting a political challenge to the United States

Beijing is not looking to export its economic and political model around the world, but it has become obsessed with soft power – the idea that countries can get their way through the attractiveness of their society, rather than just by force or money.

China is opening hundreds of Confucius Institutes around the world and spending billions to send its main state-owned media groups overseas, including launching a cable news channel in the United States. At the very least, Beijing hopes these investments can shift the way the world thinks about China, and maybe even chip away at the cultural influence the United States enjoys.

That won’t work. China treats soft power as a problem that can be solved by bureaucrats – by throwing money at it, in the way that it has with high-speed rail or wind power. But modernity is not something that can be acquired off-the-shelf. Soft power is generated by society rather than the Ministry of Culture.

The effort to shift its image is constantly undermined by the way that China actually treats its more awkward and interesting citizens – from well-known figures like Nobel Peace Prize winner Liu Xiaobo and artist Ai Weiwei to the writer Yu Jie, who has been living in the United States since shortly after he wrote a critical book about former premier Wen Jiabao.

Its media companies will not prosper abroad because the one thing they really have to offer – the inside story on what is really happening in China – is the one thing they cannot report. China hopes its soft power investments will blunt criticism of its political system, but it is the political system that is holding back its soft power.

Even favoured artists suffer. I once asked Zhang Yimou, the film director and creative genius behind the Olympics opening ceremony, why his recent films had all been period pieces that shunned the fascinating complexities of contemporary China. If I made a film about today’s China, he answered, I would have so many problems with the censors that it would not be worth my trouble.

If Beijing will struggle to displace Washington, where does this leave the United States?

It will come as a huge psychological shock when the Chinese economy eventually overtakes the United States, which will be felt again perhaps even more powerfully when China also overtakes Washington with the world’s largest military budget. (According to the International Institute for Strategic Studies, this could happen as soon as 2025.) The United States will have to get used to a different status.

But the one huge advantage it will continue to hold is its ability to organise and sustain alliances, coalitions, and important friendships. The balance of influence between the United States and China over the coming decades will hinge to a large degree on which nation can mobilise other nations to its cause. This is an area where Washington is far more skilled.

The new bursts of free trade projects in the Pacific and with the European Union are one example, even if they are far from being completed, and its long-lasting military alliances in Asia and Europe another. (When the Berlin Wall fell, who imagined that NATO would still exist more than two decades later?) And China? It’s only real ally is the mercurial, dangerous North Korea.

Of course, managing such a group of friends and allies in Asia will be extremely difficult in the years ahead. The distances across the region are huge and few of its allies have common interests, even if their anxiety about China is collective. The United States will find itself asked to pick up parts of the security bill that others could pay, and to intervene in squabbles in which it does not want to get involved.

It will also require a big shift in attitude, with more emphasis on understanding the politics of its friends and allies, and less on shows of military power. Some might even be moved to describe the approach as leading from behind. But it’s the United States, and not China, that has the capacity to shape the future of Asia and the world for decades to come.

Author: Geoff Dyer, former Beijing bureau chief of the Financial Times, is writing a book on China’s new global ambitions. 
Source:  Foreign Policy – China’s Glass Ceiling

Categories: Politics & Law

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6 replies

  1. This was an excellent piece. The only thing that I don’t really agree with is when the author talks about how the US is far better working with allies and alliances. On the surface this may appear to be the case but the reality is that for allies like South Korea and Japan the US has opened up its market to both countries, lost millions of jobs, seen the domestic auto industry nearly collapse from the loss of the American market, all so we can set the geo-political agenda in the region for these countries. The point is that all the US has done has been to buy off allies with access to the US market, do you really think China won’t just do the same?



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