Founder Editor in Chief: Octavian-Dragomir Jora ISSN (print) 2537 - 2610
,
ISSN (online) 2558 - 8206
Contact Editorial Team RAFPEC The Idea
The Other Side of the (Chinese) Wall

The Other Side of the (Chinese) Wall

No. 4, Mar.-Apr. 2017 » UNCOVERstory

“It is only in appearance that time is a river. It is rather a vast landscape and it is the eye of the beholder that moves.”

Thorton Wilder, The Eight Day 

Time and perceptions of China 

For someone who has been born in the Western world it is quite a challenge to accept or at least to imagine that world is much more diverse, old and complex than the European civilization. Even today, in the age of globalization and Internet, very few Europeans know that Europe represents just about 17% of the world gross product and only a tiny 7% of the world population.

The Western civilization’s perceptions about China have been very much influenced by the geographical distance and by the relative seclusion of China.

The Eurocentric or North American centric perspective assumes the world or the Universe is orbiting around the Western civilization. For a period after 1990, this belief has materialized in the “end of history” concept and in the simplistic vision of a future where the whole planet will be defined by the market economy and the liberal-democratic models. More than 20 years later, this vision has more and more difficulties in coming to terms with a reality which begs to differ with sweeping pronouncements. A key argument in this respect (without being the only one) is China, which has succeeded to become the first or the second global economic power (depending how one measures the gross domestic product, in purchasing power parity or nominal terms), has lifted from poverty about 700 million people and it is gradually transforming itself into a center of innovation and progress[1].

The Western civilization’s perceptions about China have been very much influenced by the geographical distance and by the relative seclusion of China. It was only around the year 1300 that Europeans learnt more about China from the writings of Marco Polo. But for many centuries the European contacts with China had been rare or very rare and related mostly either to trade or religious missionaries. For the Europeans of the mid 19th century, China was associated with the two opium wars, while, at the beginning, of the 20th century it was associated with the Boxer rebellion. After the end of World War II China was a country associated by the Western world with Communism, a low level of development and the largest population in the world. Its potential had, from time to time, been recognized, for instance by Napoleon predicting that “when she wakes, she will shake the world”.

It was only relatively recent that historians and people with knowledge of the world economy started to estimate that, likely from its unification until around 1820, China was the largest economy in the world[2] through its combination of size, relative stability and productivity, even as the Roman world and Renaissance Europe likely exceeded it per capita.

At the same time, for many people, especially from the Western world, China is still a “copy & paste” country that makes an endless flow of low cost copies of things that were invented elsewhere. This is an important part of China bootstrapping its economy, the way the Japanese once did, but the stereotype is farther and farther away from the truth.

Most of the people just saw the trees, and not the forest, with the Chinese economy staying behind the Great Wall, shrouded in the Oriental exoticism that sometimes stands in for actual knowledge.

A change in the perception of the Western world about China happened in the 1990s when an increasing number of the products around us from digital cameras to computers, from household appliances to flags and software had a label saying “Made in China”, after decades of “made in Japan” or “made in Taiwan”. The link between the increasing flow of goods made in China and the economic power of the Chinese economy which could be routed to political influence, military development and to innovation was, for some time, willfully denied, even as China secured its entry into the World Trade Organization in 2001, aided by the Bush Administration. Most of the people just saw the trees, and not the forest, with the Chinese economy staying behind the Great Wall, shrouded in the Oriental exoticism that sometimes stands in for actual knowledge.

Changes in the Western perception related to China shifted rapidly when, like Japan before it, China flexed its newfound economic muscle buying prestigious Western brands, landmarks and other key assets – IBM’s PC business in 2005, Hoover’s US vacuum cleaner business in 2007, the Volvo car company in 2010, Italian fashion brand Cerruti in 2010, London Taxi Company in 2013, General Electric's appliance division in 2016, Motorola in 2014, the Waldorf Astoria hotel in New York City in 2014 (home of visiting US Presidents for a century, a practice discontinued through fear of espionage), Smithfield Foods in 2013, the French all-inclusive vacation brand Club Med in 2015, Pirelli in 2015, Inter Milan FC and AC Milan - famous football clubs - in 2016, the famous English club Aston Villa FC in 2016[3], the General Electric appliance division in 2016, Hollywood’s Legendary Entertainment Group in 2016. Even some of the Bordeaux vineyards as well as over 100 Bordeaux chateaux[4] are owned nowadays by Chinese companies[5] as well as some vineyards in Italy, Chile and US. The above list is far from complete and is also, like newly ascendant powers before, reaching a point of excess where it overpays for assets[6] or makes dubious purchases, with companies in one sector making purchases abroad in a totally different sector, where they lack strategic competencies.

Changes in the Western perception related to China shifted rapidly when, like Japan before it, China flexed its newfound economic muscle buying prestigious Western brands, landmarks and other key assets.

A further change in the perception of China happened, at least in the small world of economists, geo-strategists and experts in international relations after 2014 when China became the first economic power of the world, at least in purchasing power parity expression of gross domestic product[7]. Then, in 2016, China became the third largest member country by share quota in IMF[8] as the reform voted back in 2010 entered into effect. Just recently, Christine Lagarde, the embattled IMF Managing Director, suggested that, if the current trends continue for the coming decade, the IMF might find itself taking decisions from Beijing[9].

Therefore, if one takes the long perspective, the Western world shifted in its views of China from a remote and exotic country to a troubled Communist country, then the mass scale producer of cheap goods, most of them copied from other parts of the world, and, very recently, a global power that has the financial might necessary to buy, piece by piece, the jewels of the developed countries. Quite a change of perception and even that is far from the real position and importance of China in the global economy. 

The Chinese response to changes and challenges 

The list of developments presented above or any similar ones may induce the feeling that all is well and perfect with China, which is far from the truth. China faces many challenges, among them being:

  • the size of its population but also the aging of the population;
  • internal migration, rising inequality and massive social infrastructure disruption;
  • the climate changes and the pollution of the environment;
  • pressure on natural resources, especially water, and attending conflict with neighbors;
  • the changes in the global balance of power;
  • the fourth industrial revolution that brings with it automation, robots and artificial intelligence.

In our opinion, a particular challenge for China is translating its undeniable economic power into political and military power, which bring their own sets of challenges, before truly meeting, for instance, Huntington’s definition of a superpower as having a full spectrum of capabilities. The economic, political and military spheres have to be in balance in order to secure a sustainable position for a country on the global stage. The higher the power, the higher the responsibility a country implicitly has to maintain stability. Maybe this is why China takes small and cautious steps in the international arena, since it is difficult to maintain a steady course one can fail for numberless reasons.

When you have a population of 1.3 billion people, a very small problem multiplied by 1.3 billion may become very large, but, when you have a big problem, if you divide it by 1.3 billion, it may become very small.

A possible representation of the Chinese response to changes and challenges can be found in the remarks made some years ago by a Chinese ambassador to Bucharest. He said that, when you have a population of 1.3 billion people, a very small problem multiplied by 1.3 billion may become very large, but, when you have a big problem, if you divide it by 1.3 billion, it may become very small. Channel the small inputs of 1.3 billion people so that these inputs can achieve synergy and become more than the sum of the parts, in the context of inherited wisdom and historical experience, is key to overcoming challenges.

The present times, when China is moving towards a position of preeminence in the global economy, is a change of paradigm. For centuries, starting somewhere during the 7th century BC, China tried to defend itself from the nomadic invasions by building a wall that was further consolidated and expanded until the mid-17th century, during the Ming Dynasty.

After WW2, China hid for decades behind a different wall, this time an ideological one. But starting with the market reforms initiated by Deng Xiaoping in 1978, China went on to adopt, in an original way, market economy principles and limited openness to the world economy, while moving towards a “social market economy with Chinese characteristics”.

Forty years later (1978 – 2018), China is ready to go fully beyond the Great Wall. China and the Chinese are more and more seen by the rest of the world not within the limits of the Great Wall but beyond them. There are probably more than 50 million overseas Chinese people while the Chinese investments abroad are expected to triple, from 6.4 trillion US dollars in 2015 to about 20 trillion US dollars in 2020[10].

These new circumstances require China to think about its new role one the global stage and that answer seems to have materialized in the “Belt and Road Initiative” (formerly known as “One Belt, One Road”). 

The Belt and Road Initiative 

This initiative has in view a large-scale development of infrastructure in more than 65 countries from Asia, Middle East, Eastern Europe, East Africa and the Mediterranean that include 65% of the world population and about one third of the world GDP[11]. The cost of the project by 2049 is of about 5 trillion US dollars, which is 12 times larger than the US Marshall Plan that assisted the reconstruction of Western Europe after WW2, though the Chinese expressly downplay any such comparison.

China is attempting to simultaneously solve several challenges while laying the foundation for the development of its economy and society for the 21st century.

The fact that the Summit related to this initiative that was organized by China on May 14, 2017 was attended by representatives of 130 countries, among them being 39 heads of state, while 70 countries signed agreements to participate may be considered as a good and promising start[12]. The map below shows the infrastructure projects within the Belt and Road initiative as of December 2015.

By focusing on both land and maritime infrastructure, China is attempting to simultaneously solve several challenges while laying the foundation for the development of its economy and society for the 21st century. The positive consequences resulting from the implementation of the Belt and Road initiative are: 

  • China finds markets and projects for its industries whose capacities exceed the opportunities in the Chinese economy, as its switches from an investment and export-based model to a consumption one;
  • China creates jobs for its workforce, especially those not yet in the middle class who are likely to become restive if cut off from opportunity by the consequences of the 4th industrial revolution;
  • China secures access to natural resources;
  • China becomes a source of capital and innovation, rather than a recipient of these, meaning that it will move up the ladder for added value, improving the structure of the economy;
  • The infrastructure projects may lead to many other economic opportunities in the bilateral relations of China with the participating countries;
  • As the participating countries will develop and have more disposable income, there are more opportunities for Chinese exports, as well as trying to rebalance the large existing deficits in commercial relations that may stress political ones and appeal to protectionism;
  • The Chinese investments and the Chinese support for development in various countries will help to increase the Chinese influence in the respective countries and in the global economy.

Just the beginning 

Maybe it is still too early to evaluate the chances of success for the Chinese Belt and Road Initiative. The auspices are promising and what can be said is that there are no comparable projects of such a scale and with such potential for positive externality and widely shared prosperity in the world economy. Even American voices have spoken out in favor of cooperating with China, on account of the stabilizing influence the BRI may have in Central Asia and the Middle East.

The implementation of this initiative will be beneficial to China, but also to the participating countries to the extent they play their cards well. The design of the initiative allows both for the capitalization on existing Chinese expertise in infrastructure projects and on the Chinese financial means, this “full service option” being part of the Chinese strategy in this regard.

From a Romanian perspective, looking at the map above, we can only hope that Romania will also be (more) present in this new configuration of the global economy, commensurate with its strategic positioning.

 

[1] Hsu, S., Foreign Firms Wary Of 'Made In China 2025,' But It May Be China's Best Chance At Innovation, Forbes, March 10, 2017

[2] Maddison, A., Contours of the World Economy, 1–2030 AD. Essays in Macro-Economic History, Oxford University Press, 2007

[3] MSN, 32 famous Western brands bought by the Chinese, 2016, retrieved from https://www.msn.com/en-nz/money/companies/32-famous-western-brands-bought-by-the-chinese/ss-AAkCT9X#image=33

[4] Samuel, H., Chinese now own 100 Bordeaux chateaux, as wine mania grows, 2015, retrieved from http://www.telegraph.co.uk/news/worldnews/europe/france/11380807/Chinese-now-own-100-Bordeaux-chateaux-as-wine-mania-grows.html

[5] Fraser, I., Why Chinese investors are snapping up Bordeaux vineyards, 2017, retrieved from http://www.telegraph.co.uk/business/2017/06/11/chinese-investors-snapping-bordeaux-vineyards/

[6] The Economist, “Chinese companies’ weak record on foreign deals”, 2017, https://www.economist.com/news/business/21723164-overpaying-commodities-and-trophy-assets-has-become-norm-chinese-companies-weak-record

[7] Bird, M., China Just Overtook The US As The World's Largest Economy, 2014, retrieved from http://www.businessinsider.com/china-overtakes-us-as-worlds-largest-economy-2014-10

[8] IMF, Historic Quota and Governance Reforms Become Effective, Press Release No.16/25, 2016

[9] Reuters, IMF could be based in Beijing in a decade: Lagarde, 2017, retrieved from https://www.reuters.com/article/us-imf-china-lagarde-idUSKBN1A922L

[10] Anderlini, J., China to become one of world’s biggest overseas investors by 2020, Financial Times, 2015, retrieved from https://www.ft.com/content/5136953a-1b3d-11e5-8201-cbdb03d71480

[11] PwC, China’s new silk route - The long and winding road, February, 2016

[12] Flounders, S., China Builds New Type of Globalization, Center for Research on Globalization, June 5, 2017

 
PRINT EDITION

SUBSCRIPTION

FOUNDATIONS
The Romanian-American Foundation for the Promotion of Education and Culture (RAFPEC)
THE NETWORK
WISEWIDEWEB
Amfiteatru Economic

OEconomica No. 1, 2016