Chinese Relations: Scruting the Inscrutable ChiComs

       Discussions about President Hu Jintao’s recent visit to the United States have been remarkably shallow, given the importance of the relationship between the two countries and the availability of information. Perhaps it is a European bias in our East Coast media or our current sense of national financial angst that prevents a meaningful discussion. (It did give Obama an “investment” theme for his State of the Union address.)  I will provide a perspective on this most important relationship nurtured out here on the West Coast.

    The Chinese leadership – not a single dictator; a Politburo of a couple dozen members – must feel quite good about themselves. With the past decade’s annual 9% GDP growth they have lifted 300 million people out of poverty and passed Japan as the world’s second largest economy. They have had no wars. They were little affected by the 2008 global financial meltdown. They enjoy the traditional “Mandate of Heaven“.

    The century before this had not been so harmonious for the Middle Kingdom: the Boxer RebellionSun Yat Sen’s overthrow of the Qing Dynasty in 1912; World War I; Mao’s Revolution; World War II; the Korean War; the Great Leap Forward; and a few million casualties from other internal and external conflicts. Today’s leaders grew up in these latter days. They like peaceful, prosperous order.

    China’s self-image has been helped by the shaking of the Western economic system, but they do have their problems. They have lost their family-based social security system as hundreds of millions have migrated for jobs and government policy has required a single child; thus a high personal savings rate. Lack of confidence in the currency and the stock market has driven a real estate bubble. Highway construction has not kept up with 12 million auto sales per year. Pollution abounds. Despite a population four times the US, their GDP is still only about one third of ours – one tenth in per capita terms.  

    So what do we need from them?

        1. Support for a soft landing while we get our financial house in order. That means reasonable currency and export policies and continued purchases of our debt.  In exchange they’d like to see a plan. (So would I.)

        2.  Peace in East Asia. Mostly this means corralling North Korea. A low profile in neighborhood disputes would be a bonus. (Their recent test of a “stealth” aircraft matches where we were 30 years ago.  Our military budget is six times theirs.)

        3. A market for our agricultural and tech stuff. We are still the world’s largest manufacturer and have a comparative advantage in computers, telecom, pharma, aircraft, and a number of other industries.

    And what do they need from us?

        1. A continued market for their lower end stuff. They still have a couple hundred million more folks in the interior to get off of the farm and become consumers and they need jobs to soak up internal migration.  And as their labor costs increase, global manufacturing of textiles, shoes, and plastic junk moves to Bengladesh and Vietnam. But WalMart still becons.  

        2. No meddling in their internal affairs.  Democracy activist  Liu Xiaobo and Tibet independence leader The Dalai Lama do have more Nobel Peace Prize “cred” than Barack Obama, but there is understandable resentment that the West would focus on a developing democracy rather than more worthy honorees in Russia, Pakistan, Africa, or Latin America.

        3. Respect. This was the gift of Obama to the Chinese, as “parity” was trumpeted in the Chinese press.  The reciprocal gift?

    It is ironic that we have been lurching toward an enlarged central government which intervenes extensively in the economy while the Chinese success is driven largely by an adoption of capitalism. (Their favorite presidents are probably Nixon who opened relations and George W who allowed a massive trade imbalance.) We will inevitably compete with the Chinese for natural resources and we need to stand up for our friends in the neighborhood, but the Chinese have never had global military ambitions. They do not export religious zealots. And they don’t insist that the rest of the world adopt a One Child Policy, outlaw the burning of coal, or speak Mandarin. We could do a lot worse for a partner with whom to share global leadership in the new century.

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