The Rising Chinese Superpower

 The Rising Chinese Superpower

By John J. Tkacik, Jr.

Thank you Joan. The last time I spoke to you all here at the Dallas Public Affairs Luncheon Club was on January 16, 2006. Perhaps some of you here this afternoon remember me from four years ago -- I’m afraid that my presentation was pretty pessimistic. I confess, I had a number of skeptical -- if not hostile -- questions from you-all in the audience.

Much of the hostility, or at least uneasiness, came from my rather dire predictions for the direction of America’s relationship with China. Well – let me read you what I said here, four years ago:

I said “the time has long since passed to start rethinking the US-China relationship, and it may already be too late to do much to shape China’s future in a way that will yield a China willing to be a ‘stakeholder’ in the global status quo.

I asserted that “America now faces an economic superpower in East Asia which has already eclipsed Japan in military power AND regional influence and which will soon surpass Japan as the top industrial power in Asia.”

I pointed out that “Economic superpowers are wonderful. They are markets for exports, sources of imports, financial partners, and in general provide the vibrant dynamism of innovation that is generated by healthy competition. Of course, economic superpowers must be stakeholders in the international trade system – that is, they must be committed to playing by the rules.”

And I said

“Economic superpowers become a tad worrisome, however, when their massive industrial capacities are driven by mercantilist instincts to gain trade advantage at all costs. When an economic superpower requires foreign manufacturing investors to give up their trade secrets, intellectual property, technologies, as a price for entry into its domestic markets, it is not playing by the rules.”

A mercantilistic regime is one that seeks to exclude foreign industrial goods (like advanced semiconductors, for example) from its markets, and instead demands that foreign manufacturers invest in completely new infrastructure to produce those same goods locally, even at higher cost. A mercantilistic regime will keep its currency at a level where its treasury can amass nearly a trillion dollars in foreign exchange reserves and then use its holdings to purchase control of vital overseas resources such as rare earth minerals, copper, hydrocarbons, scrap steel, aluminum, paper, you name the commodity. And these commodities are sold to domestic producers at subsidized prices – that is, the undervalued currency price – and in the process the mercantilistic regime deprives world markets of those resources. A mercantilistic regime will invent entirely new industrial standards for its local markets in an effort to force foreign corporations to divulge their technologies and source codes.”

Blah, blah . . . but it got worse. I described China’s government as totalitarian-lite, because the regime is a one party state equates the Party with the Nation, that claims authority over the totality of social behavior, that has a monopoly on information, that exercises unrestrained police authority, etc., etc.

I said China will not democratize or liberalize on its own …

You get the idea. Well, I don’t know what more to say. It was all true, and has continued to get more and more true. It’s time to get used to it. China’s emergence as the next great superpower is a lasting historical phenomenon, one which is likely to vex America for decades.

Last time I was here – I suggested that there was a way to deal with China. It demanded that America’s leaders begin to modulate their behavior toward China – to treat it as though it were indeed becoming a rival and hostile superstate – not openly, of course, but to work behind the scenes to toughen trade and currency policies, to quietly build up America’s eroding alliances and alignments in Asia and globally. To build up America’s failing industrial and manufacturing sectors which have been undermined by China’s own predatory and vicious trade policies. But above all, to level with the American people that China isn’t turning out quite the way we’d hoped, and the time had come to start hedging America’s bets.

But, is it too late? I don’t know how many of you have ever seen the satirical British political sitcom – “Yes, Prime Minister.” But in it, the senior British civil servant, Sir Humphrey Appleby, explains how the Foreign Ministry avoids making policy.

“You see, Prime Minister, they first say ‘there isn’t a problem.’ And then they say, ‘well, there IS a problem, but there’s nothing we can do about it.’ And finally, they say, ‘well, there WAS something we COULD have done about it . . . but it’s too late now.’”

Having worked for 24 years in the State Department, and then having sparred with my former colleagues for eight years while I was at the Heritage Foundation . . . let me tell you, the same inertia-bound outlook that pervades Whitehall also suffuses Foggy Bottom.

So – my presentation here this afternoon will not be quite so controversial as it was four years ago, because I’m retired now . . . resigned, as it were. America has gone past the point where we can deny that there’s a problem. The question is, are we at the point where we admit there’s a problem “but there’s nothing we can do about it?” or are we at the point where we realize we could have done something, but it’s too late now?

Let me start with a short vignette of my own China experience. It was my first morning in China, about 32 years ago, and I was in Beijing (then called "Peking") to begin a two year assignment at the United States Liaison Office as a U.S. diplomat. I had completed two years of Chinese language training in Taiwan, where I had also served at the U.S. Embassy in Taipei, a booming Asian city with streets overflowing with motorcycles and automobiles.

From what I had seen the previous day as I rode into the city from Beijing's Capital Airport, Beijing was different, it was a vast, quiet city, no traffic, few people on the long dusty road from the airport to the city.

And at 6:30 on the next morning, July 31, 1977, I awoke from my bed in my hotel room in the Peking Hotel to the sound of a faint but incessant tinkling, tinkling bells. I opened up the double glazed door to the balcony (the Peking Hotel was air conditioned), fifteen floors above Chang-An Boulevard that looked out over a flat horizon in all directions, across Beijing – The Peking Hotel was the tallest building in the city – and looked down to the bells . . . bicycle bells . . . and there was a stream of humanity, on either side of the boulevard virtually all wearing white, short-sleeved shirts or blouses, on bicycles, flowing sedately in near silence from as far as the eye could east to west in the summer haze, near silence except for the bells . . . Few busses, fewer trucks, no passenger cars. And my first thought was – coming from Taipei – Ye gods! What if all these people had motorcycles?

30 years later, no motorcycles in Beijing. They all have cars, microvans, minivans, trucks . . . Beijing's population is now 15.8 million, then it was five million . . . You get the idea.

Four years ago, 2006, Congressman Randy Forbes of Virginia asked me to come over to discuss China with him. He and Congressman Ike Skelton of the House Armed Services Committee had just returned from a four day visit to China, and the Congressman said he could sum up what he and Cong. Skelton had seen there in two words. "Uh Oh."

China is now the second most powerful nation on earth. It has arrived at this happy state primarily because – and here I simplify a bit – because the United States needed to develop a new geopolitical power on the Eurasian landmass that would balance the Soviet Union. Through the 1970s and 80s, U.S. policy was to integrate China into the global trade structure that could provide the resources for China's growth.

With the collapse of the Soviet Union, however, the grand organizing principle behind U.S. economic support and preferences for China – still a totalitarian state after the Tiananmen Massacre – evaporated. Yet since 1992, virtually all American leaders – the current Speaker of the House being one of the few exceptions -- have argued that America's increasingly generous trade and financial treatment of China are needed to co-opt China into global economic structures, as well as political, strategic, environmental, etc., in order to make China a "responsible stakeholder" in the status quo of the international system.

Now, 30 years to the month after the inauguration of Deng Xiaoping's "Reform and Opening" strategy in 1979, as China has taken full advantage of America's sponsorship in the global economic order, China's GDP has grown annually at about 10 percent, and is the second most powerful nation on earth. China is not interested in maintaining this status quo. Rather, in the words of Harry Harding at GWU, China seeks to be a "rule-maker" rather than a "rule-taker."

One economist puts it simply. “China[‘s economic growth] is losing its capacity to shock . . . however astonishing it would be elsewhere.” Since 2004, China’s annual gross domestic product (GDP) growth in U.S. dollar terms has been 22 percent a year – twice the officially published rate. Its industrial sector is growing even faster. And the Chinese government officially acknowledges military spending growth of 12-18 percent annually – while U.S. intelligence agencies suggest China’s total military outlays at between double and triple Beijing’s announced figures – and China announced a 2010 military budget of $78 billion. The CIA, however, estimates China’s military spending at 4.3% of GDP .

Chinese GDP figures for 2009 showed 11% GDP growth in US dollar terms to nearly $5 trillion – while U.S. GDP shrank. Add that on to China’s nearly 29% GDP growth in US dollar terms in 2008 – from $3.46 trillion in 2007 to $4.49 trillion in 2008 – again compared to likely negative U.S. GDP growth – and China's GDP will be close to US$5 trillion, compared to America's $14.4 trillion. So, doing the math – that’s about a military spending total of about $215 billion for 2009 in foreign-exchange rate U.S. dollar terms.

China’s economy is now the world’s second largest, after the United States – but I will admit that the latest hard numbers from both the Chinese and Japanese government still place Japan a hair ahead of China in nominal U.S. dollar terms.

China’s industrial output in 2009 was second only to the United States. China's industrial sector is already up in the magnitude of (15,696 billion yuan) $2.3 trillion -- compared to $3.12 trillion for the United States' industrial and manufacturing sector ; but significantly ahead of Japan's at $1.41 trillion , and Germany at about $885 billion. One study estimated that for 2009, the United States had accounted for 16.9 percent of global value-added factory output, with China at 15 percent.

Maybe this is the place to introduce another concept central to comparative economics: Purchasing Power Parity or PPP.

But the most unsettling aspect of China’s economic power is its manufacturing output. According to the latest figures in the CIA’s World Factbook (https://www.cia.gov/library/publications/the-world-factbook/), industry accounts for about 22 percent of the U.S. GDP, and about 48 percent of China’s. Simple math suggests that China’s industrial output in ppp terms is already about $4.3 trillion compared with $3.12 trillion in the United States. Admittedly, these figures aren’t accurate to the decimal place, and both countries calculate their industrial product differently. But it’s probably accurate to say China’s industrial sector is already bigger that America’s – and China’s industry expanded yet another 9.5 percent in 2009, while America’s dropped.

Already, China is the world’s largest steel producer; in the words of one alarmed U.S. trade official, "China now has more excess steel capacity than the entire steel production capacity of Japan. In addition, China produces more steel than the United States, European Union, and Japan combined,” an observation he capped with the conclusion that, “China is not investing in steel on a market basis.” The immensity of China’s other primary industries – aluminum, copper, cement, petroleum, – is staggering. I have my suspicions that much of China’s investment in raw materials, iron ore, copper ore, etc, crude oil, and so forth, are not so much for industrial consumption as for currency speculation – the Chinese may be buying up all these commodities because they fear the bottom will suddenly fall out of the U.S. dollar and they want as much of their wealth in these tradable stockpiles – but I’m still looking at this.

Anyway, -- China has overtaken the United States in output of information technology products. And, as I’m sure you all know, China is now the world’s biggest motor vehicle market, surpassing the United States in 2009.

These trends indicate China’s industrial sector could overtake the United States’ in a matter of a few years, not several decades. So, too, will China’s military industrial infrastructure also overtake America’s is current trends continue. This has historical significance because America's industrial output was more than double the combined output of Japan and Germany in the Second World War, and remained more than double the USSR's throughout the entire Cold War.

But let's do the math for 2009: China’s announced GDP for 2009 was $4.95 trillion dollars, and the CIA estimates military spending at 4.3 percent of GDP – or about $212 billion (while China's published military spending for 2009 was about US$79 billion ). The CIA’s figure does not take into account the World Bank’s “purchasing power parity” factor which calculates that a dollar’s worth of Chinese currency can purchase double the amount of goods and services in China that a dollar can buy in the United States. So, for comparative purposes, a purchasing power parity figure for China’s defense outlays in 2008 could reasonably be pegged in the neighborhood of $424 billion.

What do they get for their military expenditures?

Let me put this question in a strategic framework – because the Chinese leadership thinks strategically and in a long-term historical context. China's foremost scholar of U.S. affairs, Professor Wang Jisi, pointed out in August 2004, "facts have proven that it is beneficial for [China's] international environment to have the United States militarily and diplomatically deeply sunk in the Middle East to the extent that it can hardly extricate itself." Nonetheless, he concluded that "the United States is still China's greatest strategic adversary."

One way to keep the United States militarily "sunk" in Iraq, the Chinese government believes, is by aiding terrorists to kill U.S. soldiers. I apologize if this sounds harsh, but it is an unsettling fact. By 2007, it was increasingly clear that China had been enthusiastically supplying Iran’s Revolutionary Guards with massive quantities of small arms, explosives, and complying with Iranian requests to remove serial numbers from small arms and mortar rounds, and helpfully suggesting that cargos be airshipped.

In May 2008, Deputy Secretary of State John Negroponte told a congressional hearing on U.S.-China ties “Just the other day, Monday, when I was in Beijing, this was one of the issues I raised — concern about Chinese weapons or Chinese-designed weapons showing up in some of these battle areas, be it Iraq or Afghanistan.” Negroponte went on to say that his "Chinese interlocutors" had assured him they had "scaled way back" their sales of conventional arms to Iran, and that "there's been quite a bit of cooperation" with China on the issue. Yet, if Negroponte was still raising the matter as late as May 2008, it is clear the problem has persisted for years with little improvement. China still facilitates North Korean arms shipments via its territory to Iran and Syria;

China is already the world's largest shipbuilder in terms of deadweight tonnage (though not in dollar-value), but as China continues to field new classes of super-quiet nuclear submarines with heavy loads of new ICBMs, top-line jet fighters and a dazzling array of new space systems, the strategic importance of China's industrial and manufacturing sectors is already apparent to the Defense Department. The Defense and Energy Departments say that China is the "only major nuclear power that is expanding the size of its nuclear arsenal."

China is now a recognized economic superpower, or perhaps something more challenging: it is an economic superpower where absolute authority over economic decisions rests with the leadership of the Chinese Communist Party (CCP).

So the question is . . . "So what?"

About two years ago, I read and article, covering a half page, complete with graphics and photos in one of South China's most popular daily news papers . . .The headline read "Yuan Peng: America's three major schemes to impede China's rise".

Now, this got my attention because I know Dr. Yuan Peng, he was a visiting fellow at the Brookings Institution and is now in Beijing as one of the top America experts at a think-tank called "CICIR" (China Institute for Contemporary International Relations). CICIR's influence as a think tank is understandable – it is a branch of the Chinese Ministry of State Security.

But the sentence in the article that caught my eye was this:

“In the world today, virtually all of America’s adversaries are China’s friends.” And I have to admit, it's true. I met up with Dr. Yuan in Beijing last February and asked him about the article. He smiled as I enumerated America's "adversaries": North Korea, Iran, Burma, Sudan, Zimbabwe, Uzbekistan, Syria, Hamas, Hezb'ollah, Uzbekistan, to name a few. Then there are other problematic states, Venezuela, Russia, which seem intent on being very pushy these days. And Dr. Yuan agreed, they are all China's friends. Did he have any other countries in mind, I asked, thinking that maybe there were some of China's friends that perhaps the United States was pushing around like a bully that China was trying to defend. But, no, that was about it.

I thought to myself, though, that there are of course, other countries -- Taiwan, India, Vietnam and Japan – to name a few – which China would never admit in public are it's "adversaries" but which nevertheless drive China's military modernization campaigns.

So, I thought I'd share with you Dr. Yuan's observation because I think it poses the central question for U.S. foreign policy in the 21st Century: “can the United States conduct an effective national security strategy on the assumption that China will be a partner rather than a spoiler?”

To me, it's clear. The short answer is “I'm afraid not.” If America’s foreign policy priorities are:

-- respect for universal human rights;
-- nonproliferation of weapons of mass destruction and their delivery systems;
-- rules-based free trade undergirded by stable and rational exchange rate mechanisms;
-- mitigation of global environmental degradation;
-- product safety and consumer health;
-- the expansion of the freedoms of representative democracy;
-- the defeat of transnational terrorism in its myriad guises and, of course,

. . . then China’s behavior (and the behavior of its ‘friends’) cautions that China does not share those goals.

Can Americans feel reassured the “new multipolar world order” that China's leaders demand will be hospitable to American leadership or values in the coming decades? Or is there a grave potential for collision as the international system enters a power transition phase? University of Chicago's John Mearshiemer pointed out last year, in an article about China's rise, "as history shows, powerful states on the rise often fight wars with other major powers.”

But of course, there is a long answer: “China is now too big to confront, and managing China’s rise now requires a quiet, coherent, multi-dimensional and disciplined strategy that must be coordinated with allies and friendly democracies.” Crucial to achieving America’s strategic policy goals is consensus among the world’s democracies that to “balance” China’s rise. The key obstacle to this consensus is China’s sheer economic weight and Beijing’s willingness to use it to punish its competitors. Unless the United States takes the lead, the world’s democracies must perforce acquiesce in China’s ascent and ultimately will acquiesce to Beijing’s world view.

China is now an economic superpower, and it is simply too big for the United States to inflict trade, financial or economic sanctions on it – even if it wanted to. To do so would be “mutual assured economic destruction.” But there is no need for the world’s democracies to avert their eyes and pretend that China is, somehow, a “responsible stakeholder” in the international effort to protect human rights.

But I have not been asked here to tell you what to do about it . . . just to tell you what the problem is.

Notes

“Economists React: China Economy Still Risks Overheating,” The Wall Street Journal online edition , October 25, 2007, at
http://blogs.wsj.com/economics/2007/10/25/economists-react-china-economy....
China's statistical bureau pegged the country's GDP in 2004 at $1.7 trillion U.S. dollars. See Report on the Work of the Government - "China's GDP in 2004 reached 13.65 trillion yuan, an increase of 9.5% over the previous year." (Delivered at the Third Session of the Tenth National People's Congress on March 5, 2005), Wen Jiabao, Premier of the State Council, at http://www.gov.cn/english/official/2005-07/29/content_18351.htm. Three years later, China reported 2007 GDP at $3.46 trillion. "Guonei Shengchan zongzhi (2007 nian 1-4 jidu) chubu gaisuan" [Gross Domestic Product (quarters 1-4, 2007) preliminary figures], National Bureau of Statistics of China, January 24, 2008, at http://www.stats.gov.cn/tjsj/jdsj/t20080124_402460186.htm (February 1, 2008 - no longer posted).
Gordon Fairclough and Jason Leow, "China's Military Boost May Stir Fear," The Wall Street Journal, March 5, 2008, p. A10, at http://online.wsj.com/article/SB120462837702610135.html.
Gordon Fairclough, "China slows increase in Defense Spending," The Wall Street Journal, March 5, 2010, p. A10, at http://online.wsj.com/article/SB1000142405274870386270457510053156126180....

“China Statistical Bureau Announces 2009 GDP figures” [2009年国民经济总体回升向好
国家统计局], January 21, 2010 at http://www.stats.gov.cn/tjfx/jdfx/t20100121_402615506.htm.
U.S. estimated 2009 GDP was $14.4 trillion, about 21.9 percent attributable to the industrial sector. See 2010 World Factbook, Central Intelligence Agency, at https://www.cia.gov/library/publications/the-world-factbook/.
Japan’s 2009 GDP was forecast to be $5.049 trillion, Andrew Batson , "Who’s No. 2? China, Japan Still Duking It Out," The Wall Street Journal, January 21, 2010, at http://blogs.wsj.com/chinarealtime/2010/01/21/whos-no-2-china-japan-stil.... The Factbook estimates Japan’s industrial sector at about 26.5 percent of GDP, or $1.36 trillion. See also Japan Cabinet Office website statistical roundup at http://www.esri.cao.go.jp/jp/sna/qe074/kjissuu.pdf which indicates industrial sector output was $1.41 trillion at contemporary exchange rates.
Peter Marsh, “China to overtake US as largest manufacturer,” Financial Times, August 10, 2008, p. 1, at http://www.ft.com/cms/s/0/2aa7a12e-6709-11dd-808f-0000779fd18c.html.
After an exhaustive study of 2005 prices in China, published on December 17, 2007, the World Bank's International Comparison Program (ICP) determined that, one only needed about 3.4 yuan to buy in China a dollar's (8.28 yuan) worth of equivalent goods on the U.S. market -- less than half of the official exchange rate. See the International Comparison Program (ICP) Tables in 2005 ICP Regional Summary: East Asia and Pacific, at http://siteresources.worldbank.org/ICPINT/Resources/ICPregionalsummaries.... Since then, the Chinese currency has appreciated about 15 percent against the dollar.
The official was Timothy Stratford, Assistant U.S. Trade Representative for China. See “Effect of China on U.S. Economy Too Serious To Not File Cases in WTO, USTR Official Says,” Regulation & Law, No. 26, Friday February 8, 2008, p. A-2.
David Lague, "China corners market in a high-tech necessity," International Herald Tribune, January 22, 2006, at http://www.iht.com/articles/2006/01/22/business/rare.php.
For an excellent but perhaps overly sanguine survey of China’s economic growth, see Albert Keidel, “China’s Economic Rise – Fact and Fiction,” Carnegie Endowment for International Peace, Policy Brief, No. 61 July 2008, at http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=20279.
These figures were posted in the Central Intelligence Agency’s World Factbook 2010 on March 12, 2010, at https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html. Files for previous Factbooks dating to the year 2000 are available at the CIA website at https://www.cia.gov/library/publications/download/index.html.
Gordon Fairclough, “China Slows Increase in Defense Spending; Rural Development and Social Spending Compete for Funds; 'It Will Be Harder to Argue About the Chinese Threat'” The Wall Street Journal, March 5, 2010, at
http://online.wsj.com/article/SB1000142405274870386270457510053156126180....
Wang Jisi, "Meiguo zhanlue tiaozheng dui Zhong Mei guanxide yingxiang" [Impact of US strategic adjustment on China-US relations], Beijing Xuexi Shibao [Study Times], internet version, August 16, 2004, (a version of which is the third article at http://www.tecn.cn/data/detail.php?id=5949f)(July 18, 2008).
John J. Tkacik Jr., “The Arsenal of the Iraq Insurgency; It's made in China,” The Weekly Standard Volume 012, Issue 45, August 13, 2007, at http://www.weeklystandard.com/Content/Public/Articles/000/000/013/956wsp...
See Panel I of a Hearing on "U.S.-China Relations in the Era of Globalization," Senate Foreign Relations Committee, May 15, 2008, transcript by Federal News Service.
"National Security and Nuclear Weapons in the 21st Century," Departments of Defense and Energy, September 2008, at http://www.fas.org/programs/ssp/nukes/doctrine/Document_NucPolicyIn21Cen...
Reported in Bill Gertz, "Pentagon: China only major nuclear power 'expanding the size of its nuclear arsenal'," East-Asia-Intel.com, October 10, 2008 http://www.east-asia-intel.com/eai/2008/10_08/4.asp.
"Superpower" is a charged word, but, there it is. Read the opening sentence of C. Fred Bergsten, "A Partnership of Equals - How Washington Should Respond to China's Economic Challenge," Foreign Affairs, July/August 2008, at http://www.foreignaffairs.org/20080701faessay87404/c-fred-bergsten/a-par....
In Chinese, his phrase is "zai shijieshang, jihu suoyou Meiguode duishou dou shi Zhongguode pengyou." See Yuan Peng, "Yuan Peng: Meiguo san da shouduan yanyuan Zhongguo jueqi" (Yuan Peng: America's three major schemes to impede China's rise), Guangzhou Ribao, November 23, 2007, p. A20, at http://gzdaily.dayoo.com/html/2007-11/23/content_86129.htm (June 27, 2008). Dr. Yuan Peng is now a senior specialist in American affairs at the Chinese Institute for Contemporary International Relations (CICIR), the research arm of China’s Ministry of State Security. For a discussion of CICIR’s role in the Ministry of State Security see Michael Pillsbury, China Debates the Future Security Environment, National Defense University Press (Washington, D.C.) 2000, pp. 365-366.
Among others, Professor John Mearsheimer makes this point with reference to the United States and China. See John J. Mearsheimer, “Rivalry in the Offing,” China Security, Vol. 4, No. 2 Spring 2008, pp. 9, 11 at http://www.chinasecurity.us/cs10.pdf.