China, the Abnormal Great Power- Yukon Huang
March 5, 2013
China’s rising economic influence has leaders around the world on the edge of their seats. But Beijing is an abnormal great power. Its international potential is constrained by significant domestic economic vulnerabilities, and the inward-looking Chinese leadership has yet to craft a nimble and constructive international posture. And as the Chinese economy normalizes, its growing pains are laid bare. All this has the effect of elevating risks and aggravating insecurities in China’s neighborhood and beyond.
This is not the path many hoped Beijing would follow. As China became a global economic power, expectations were raised that it would act as a responsible stakeholder, as Robert Zoellick put it when he was U.S. deputy secretary of state. Beijing, it was hoped, would help shape the international agenda—consistent with norms largely established by the West—rather than continue to adhere to long-established national interests. And indeed, Beijing seemed headed that way.
As far back as April 1974, the Chinese leadership was avowing its peaceful intentions. Deng Xiaoping, in a special address to the UN General Assembly, declared that “China is not a superpower, nor will she ever seek to be one. If one day China should change her color and turn into a superpower, if she too should play the tyrant in the world, and everywhere subject others to her bullying, aggression and exploitation, the people of the world should identify her as social-imperialism, expose it, oppose it and work together with the Chinese people to overthrow it.” In 2003, the Communist Party’s theorist Zheng Bijian echoed the sentiment, explaining that China’s economic ascendancy should be seen as a “peaceful development” that posed little threat to its neighbors but offered many benefits to the world at large.
But expectations were clearly unrealistic. China’s remarkable economic progress has encouraged Beijing to become more rather than less confrontational. Most observers see a diminished likelihood of China playing a positive role in global affairs. The discussion is now about how rising nationalism and related security interests have hardened China’s foreign policy positions. This has created the impression—arguably unfair at times—that Beijing is more inclined to use its economic clout to advance core interests than to strengthen political relationships.
While the country is criticized for becoming more assertive, aggressive, and bullying, in reality it should be seen as being too reactive.
China’s position stems in part from the fact that the leadership in Beijing feels the need to get its own house in order before forging its international path. Beijing is an emerging great power trying to escape the middle-income trap—domestic wages have risen so China is no longer the least expensive producer of low-cost goods, but it still cannot compete effectively with technologically more advanced countries. China also faces particular impediments that were not present for other rising states. And in transitioning to a slower but more normal growth trajectory, instability and risks have emerged. Thus, contrary to expectations, its economic successes do not translate necessarily into greater self-confidence at this stage in its development.
Traditionally, Beijing has sought to bide its time in dealing with many sensitive geopolitical issues, preferring to build up its capabilities and wait for a favorable shift in the balance of power. But in many cases, events have forced it to act earlier than it would have liked. This reactive posture is often not well thought through and is potentially self-defeating.
Many areas of friction have emerged as a result of these tendencies, including emotionally charged claims over the Diaoyu/Senkaku islands. But these reactive stances emanate from a wider set of issues, including trade and investment flows, intellectual property rights violations, interactions with “rogue” regimes, and other geopolitical concerns.
These tensions are manageable. Beijing will soon be forced to take a more nimble and practical outward view—a reactive posture is counterproductive. In the meantime, both China and the United States in particular should focus on building their relationship in the economic realm and on developing more inclusive international policies.
Becoming a Normal Economy but Abnormal Great PowerChina’s rapid economic rise has pushed it into the unique position of becoming a superpower earlier than expected or intended. The country has had startling economic success, moving from low- to upper-middle-income status and lifting some 600 million Chinese out of poverty in only three decades. Some see Beijing as being able to exercise considerable influence, but in reality, its ability to do so is limited.
In transitioning from central planning, China’s institutional base and experience in dealing with sensitive global issues lag well behind its impressive economic achievements, placing it at a disadvantage in working with other major powers. And part of the cost of becoming a more “normal” economy is slowing growth and increased vulnerability to global economic cycles.
Beijing is facing a bumpy road ahead. The country will no longer be able to maintain stability by controlling key economic prices, such as interest and exchange rates, and limiting capital movements. Liberalization in the context of internationalizing the renminbi naturally involves greater exposure and risks.
And this prospect has only exacerbated anxieties within the Chinese leadership. Those concerns then spill over into foreign policy decisions aimed at diverting attention away from domestic problems to real or imagined threats abroad.
Adding to the pressure on the leadership to bring stability and success to China is the country’s long history. China as a great power will be an “abnormal” great power compared with the United States, Japan, and the major European economies. Unlike the others, whose ascendancy represented a broadly continuous and lengthy process, China is unique in being a returning great power—one that accounted for 30 percent of global production two centuries ago but saw its share fall to less than 5 percent by 1950. Even today, after three decades of double-digit growth, its share at 15 percent is only half of what it once was.
Moreover, despite its economic resurgence, China’s ability to escape the middle-income trap is not a foregone conclusion. Only a handful of middle-income countries have made the transition to high-income status in the past quarter century, and none of them had China’s formidable handicaps.
Foremost among these challenges is that China will become old before it becomes rich. Its working-age labor force is shrinking, and the needs of the elderly represent a major financial burden. Many observers do not realize how relatively poor China is, with a per capita income ranking only around 90th internationally. Even by 2030, only about 10 percent of China’s population will be seen as relatively well off (defined as within the top decile of global incomes) compared with about 90 percent of the population in the United States.
With a legacy to live up to and domestic issues to overcome, China remains inward looking. And that stance has affected its relationships with the outside world. Tensions have arisen in a number of areas as the Chinese leadership attempts to balance its internal struggles with an evolving international order that waits for no one.
Trade and Investment Tensions. For much of the last decade, friction with China has been most often reflected in trade issues. Headline criticism focuses on complaints that Beijing manipulates the exchange rate and unfairly subsidizes exporters. Since accession to the WTO in 2001, China has become the number-one target for complaints filed by the United States and Europe. But this situation has to do with China’s approach to development, not aggressive Chinese policies meant to bully the rest of the world.
Increased litigiousness against China does not jibe with the country’s decreasing trade surplus, which has fallen sharply to around 2 percent of its GDP from a high of 8 percent five years ago. Nevertheless, trade tensions with the West persist because of China’s unique position in the East Asian production-sharing network. Components produced by its neighbors are shipped to China for assembly and final export largely to the United States and Europe. China actually benefits much less financially but bears the brunt of trade tensions with the West that should in theory be shared with others in Asia.
Beijing’s development strategy has been focused on export-oriented investment. Its economic success has been facilitated by its rapid assimilation of foreign technology through direct investments of multinationals and reverse engineering. This strategy helped propel China from a poor country to middle-income status.
But the reality is that such an approach will be less helpful in the future. The country now faces the challenge of producing more sophisticated components that rely on indigenous technology. This structural transition will further raise tensions in the region as China begins to compete with more developed Asian economies as well as the United States and Europe. This is evidenced by recent U.S. and European complaints against China’s production of solar cells and wind turbine equipment.
Moreover, China is increasingly under attack for promoting indigenous innovation through forced technology transfers or theft. Here, China’s rise directly influences perceptions about its behavior as an international stakeholder as it grapples with implementing wide-ranging structural and legal transformations that are required to improve the enforcement of intellectual property rights.
And the qualitative importance of foreign direct investment to the Chinese economy is falling. Beijing wants instead to tap expertise abroad through direct investment in foreign ventures. But there too, China has problems.
Beijing’s efforts are often subject to security restrictions in destination countries. That was demonstrated recently in a congressional report that raised still-to-be-substantiated national security concerns about Huawei Technologies and ZTE, two large Chinese telecommunications companies. These suspicions were based largely on the companies’ presumed connections to the Chinese government.
These incidents only accentuate the image that China cannot be trusted, making it all the more difficult to nurture the vision of it becoming a responsible stakeholder.
Resource Needs, Rogue States Further complicating matters is a major component of China’s overseas investment strategy: the search for new energy sources and natural resources. China’s overseas investments and aid flows now dwarf the amounts coming from all other multilateral and bilateral donors. That strategy, too, is not without drawbacks.
A hostile reception and burdensome regulations in more developed countries have led China to turn to markets portrayed in some cases as “rogue” states to power its growth engine. In doing business with these regimes, Beijing has at times evaded or failed to actively implement sanctions—a policy that has attracted criticism. Its export-financing terms are seen as undercutting OECD guidelines. And because China abides by principles of noninterference and respects the wishes of host governments, an oft-cited complaint is that China does not adhere to established international norms and ignores the sensitivities of affected local communities.
But this policy is unlikely to change in the near future, which means the negative effects of China’s approach are likely to persist. Its voracious appetite for securing these resources abroad will not diminish because its industrial structure will remain heavily resource intensive for the rest of this decade. Energy consumption will continue to increase as more Chinese are lifted into the middle class. This pattern will not be mitigated by recent efforts to develop renewable energy sources, and unlike the United States, China is much further behind in being able to exploit its shale-oil deposits.
Differing Time Perspectives on Geopolitical Issues. Still, the most visceral global reactions to China’s perceived assertiveness come from interactions that are seen as impacting America’s security and humanitarian interests and that are shared to varying degrees by other Asian countries and the EU. China’s real intentions in supporting the six-party talks on North Korea, for example, are questioned. Taiwan is a continuing point of contention with the United States, and Beijing’s position on Tibet attracts emotionally tinged criticism from many quarters.
On these geopolitical issues, China has been firm in supporting its long-standing principle of noninterference shaped by concerns of how the West might one day target China. But the interactions are also influenced by differing concepts of time. In such disputes, China has preferred to put off addressing the issue. This approach reflects its belief that many sensitive issues such as Taiwan will resolve themselves over time without the need for confrontation or that waiting will promote better outcomes.
Political differences between China and Western powers only heighten this divergence, as democracies like the United States with frequent election cycles tend to think of policy implications in terms of years while China’s leaders consider policy choices more in generations. In the North Korean example, both China and the West have a shared interest in a stable, non-nuclear state. But China is reluctant to put pressure on Pyongyang now because it hopes North Korea will eventually become a more reasonable country that can still act as a socialist buffer state. Beijing believes this waiting game will better serve its long-term interests.
But events have often forced China to react before it really wanted to. The result is that its actions may not be well considered. This stance harms China’s image as a responsible stakeholder if others see it as being deliberately uncooperative.
Territorial Disputes and Shifting Asian Alliances. Deng’s admonition that China should avoid getting involved in external issues remains a guiding principle for Beijing. But if the actions of others are seen as jeopardizing China’s longer-term interests, the Chinese leadership may feel that its decades-old posture is no longer tenable and presents risks for both sides. In this context, defending its interests is not seen by China as being more assertive but rather as ensuring that the country can move forward on its “rightful path” at the right time. This becomes very clear in the context of ongoing territorial disputes, such as the conflict over Diaoyu/Senkaku islands that both China and Japan claim as their own, and in China’s response to America’s return to Asia.
A decade ago, China presented itself as a source of support for its neighbors that felt the West had abandoned them amid an Asian financial crisis. With reassuring visits by its senior leaders paired with offers of economic assistance both directly and through regional frameworks, China’s top leaders demonstrated a skillful use of soft power in the first half of the last decade. It contrasted favorably with America’s neglect of its traditional interests in Asia. But territorial disputes and more aggressive fishing ventures in the South China Sea and the waters between China and Japan have squandered this goodwill and caused many in the region to welcome an expanded U.S. role in Asia to counterbalance China’s influence.
China is also deeply suspicious about America’s intentions in launching its much-heralded “pivot” or rebalancing toward Asia, which Beijing has interpreted as attempted containment of Chinese power. Such a move calls into question Washington’s willingness to provide more space for a rising China. The aggressive way that America has been pushing the Trans-Pacific Partnership (TPP) with a host of Asian countries is a case in point. There is little logic in a major regional trade and investment agreement that does not include the region’s largest trader and investor. Yet, the conditions of the TPP gave China no choice but to eschew membership.
China has also taken a strong stance in territorial disputes. Its response has been seen as a sign of rising nationalism fueling increased assertiveness abroad. But it can also be seen as a knee-jerk reaction to what Beijing sees as the provocative acts of others. Nationalism is on the rise not only in China but also in Japan and elsewhere in the region.
Domestic economic development also plays a role in island disputes. Lagging ASEAN countries have pressing energy and other resource needs and often look to these territories and their surrounding waters for oil and seafood.
The shifting power balance between Japan and China has also dragged long-standing territorial disputes to the fore. More naval equipment and nonmilitary boats from both sides are being deployed in the region—some acting independently of Beijing—and private fishing operations roam further afield as domestic consumption has soared with rising incomes. Such moves heighten the risk of accidental collisions or other incidents that could ignite conflict in the region.
China is not necessarily the aggressor in all of these conflicts. But it can be seen as being guilty of not staking out more clearly in advance what it would tolerate and thus encouraging others to become more aggressive. For example, China viewed Japan’s move in 2012 to purchase some of the disputed Diaoyu/Senkaku islands as a provocative attempt to nationalize the territory—even if Tokyo’s intentions were more benign. When pressed in that way, China responded with more forceful measures to establish firmer goalposts. While in the past Beijing may have expressed its unhappiness with a statement or a diplomatic cable, it now has enough weight to act.
Engaging an Abnormal Great Power. But China does not see itself as an unstoppable economic juggernaut. Chinese leaders see a country with deeply ingrained national interests and an economy faced with significant challenges and vulnerabilities that constrain its behavior on the international stage.
A slowing growth trajectory, weakened ability to tap export surpluses, declining access to technology transfers, qualitatively less significant inflows of foreign direct investment, and sustainable growth demands are all issues China must address as it tries to transition from a middle-income to an advanced economy. China also recognizes the reality that if it ever succumbs to a major economic crisis, adequate financial support from the global community is unlikely to materialize not only because of its sheer size but also because of differences in shared values with the other major powers.
But biding time until circumstances become more favorable is not a workable option for China if the actions of others force an earlier-than-desired reaction. Beijing believes that responding aggressively will forestall future disputes, but such behavior has only increased tensions with regional partners and drawn the United States into establishing a greater presence in the region—both unanticipated results of a self-defeating strategy.
A stance of engagement, reaching out, and seeking compromise with due consideration of the interests of others in region would serve China better.
Of course, China cannot be expected to follow the international consensus when this harms its own interests—that can be expected of no great power, including the United States. And thus far, China has largely been an outsider to an international system built by the West. It does not see itself as part of the system or bound by its rules.
In an ideal world, China would not be seen as a threat to be contained but as a strategic competitor that can be brought in as a partner when needed to help reduce tensions and ensure more constructive outcomes on global issues of a particularly sensitive nature. Providing China with more say in dealing with these issues might encourage a more cooperative relationship with the West.
This will require greater openness on the part of both China and the United States in particular. And the two powers should concentrate on promoting cooperative commercial relations, which will help them avoid fueling tensions over hot-button issues like sovereignty.
Beijing can start by taking the lead in supporting open markets and fighting protectionism. It would help China counter criticisms of its trade practices and put pressure on the United States and other developed countries that are moving in the direction of more protectionism. And supporting an open-trading system for commodities makes sense for China given that it is vulnerable to cuts in food imports during periods of scarcity.
As it seeks to increase its outbound investment, China also needs to support a level playing field. More open capital markets and bilateral and multilateral investment agreements can help ensure appropriate treatment and provide more flexibility to address security concerns. China needs to be sensitive to international norms about its use of aid money, but the West can also learn from China’s more efficient use of assistance for infrastructure investments.
Efforts to be more inclusive should extend to the U.S. pivot. The TPP should have been made more flexible so that China would see itself as having a stake in constructing a productive outcome rather than seeing little to be gained by being included. That lesson should be learned and applied to future trade deals.
Given the charged nature of sovereignty disputes, China and other Asian claimants might be well served by setting aside this question and focusing on narrow confidence-building measures or negotiating less troublesome resource rights, perhaps on the model of Taiwan’s East China Sea Peace Initiative. The United States should avoid making commitments that destabilize the situation and appear to favor one claimant over others.
And because the disputes are complex, with multiple claims and overlapping interests, China should recognize that multilateral approaches involving the most concerned regional parties as well as other interests or advisory groups can help achieve fairer and more inclusive solutions—a consistent goal in China’s history of international relations.
A reactive China is helping neither itself nor others. The United States and other major powers should take pains to stress the benefits of more active participation in shaping the international agenda as China enters a riskier period of economic transition. Harsh rhetoric and actions that are perceived as attempts to contain China’s development will not be helpful, but reaching out and constructing sensible solutions would be wise policy for Washington. The key is convincing Beijing that its interests are best served by forging solutions now, showing that compromise and cooperation will help China in the long run, and reassuring Beijing that its concerns will be heard.