STWR - Share The World's Resources

The term "peaceful rise" describes a policy of bringing China out of poverty by embracing economic globalization and improving relations with the rest of the world, as China's continued development depends on and will in turn reinforce world peace. Zheng wrote that "the most significant strategic choice the Chinese have made was to embrace economic globalization rather than detach themselves from it".

While "peaceful rise" (heping jueqi) has since been replaced by "peaceful development" (heping fazhan) in the official white paper released by the Information Office of the Chinese State Council in December 2005, the recent US invitation to China to become a "stakeholder" in the US-dominated international system and the post-Cold War unipolar world order engineered by the US has given the appeasement faction in Chinese political circles new ideological energy.

It is ironic that China is now rushing to join the globalization game when neo-liberal free trade is encountering vocal resistance everywhere else, even in US domestic politics. Such resistance has been generated by the structural imbalance created by excessively high return to transnational capital derived from low, stagnant wages imposed globally on labor. The win-win claim of globalization has revealed itself as one giant hoax.

While it is not necessarily a bad move for China to be involved with globalization, it is necessary for China to take the lead in reordering the unequal terms of trade in current economic globalization to provide a level playing field for labor, not just in China, but throughout the whole world, including the advanced economies. The benefits of wealth creation from global trade have been dissipated by maldistribution. The whole world is now crying out for a new economic world order in which growth will benefit the poor and not just the rich, both among individuals inside an economy and among economies of uneven wealth and development.

Zheng Bijian acknowledges that China's rapid development since 1978 has been "narrow and uneven". He uses this fact to argue why China is not a threat to peace, to the US, or any other great powers. Unfortunately, the opposite is likely: unless economic development in China starts to produce more broad-based equality, the resultant socio-political instability will threaten peace in the world.

The past 27 years of reform and growth, Zheng wrote in his article in 2005, showed the world "the magnitude of China's labor force, creativity, and purchasing power; its commitment to development; and its degree of national cohesion". Zheng asserted that "once all the potential of the Chinese workforce is mobilized, its contribution to the world as an engine of growth will be unprecedented". This is true. But the key is a fast, sharp rise in worker income, which unfortunately global neo-liberal trade is structured to prevent everywhere, particularly in the exporting economies.

Zheng also rightly allows that "economic growth alone does not provide a full picture of a country's development. China has a population of 1.3 billion. Any small difficulty in its economic or social development, spread over this vast group, could become a huge problem. And China's population has not yet peaked; it is not projected to decline until it reaches 1.5 billion in 2030. Moreover, China's economy is still just one-seventh the size of the United States' and one-third the size of Japan's. In per capita terms, China remains a low-income developing country, ranked roughly 100th in the world. Its impact on the world economy is still limited."

According to Zheng, the formidable development challenges still facing China stem from the constraints it faces in pulling its population out of poverty. The scarcity of natural resources available to support such a huge population - especially energy, raw materials, and water - is increasingly an obstacle, especially if the efficiency of use and the rate of recycling of those materials are not improved. China's per capita water resources are one-fourth of the amount of the world average, and its per capita area of cultivatable farmland is 40% of the world average. China's oil, natural-gas, copper, and aluminum resources in per capita terms amount to 8.3%, 4.1%, 25.5%, and 9.7% of the respective world averages.

Zheng thinks that for the next few decades, the Chinese nation will be preoccupied with securing a more decent life for its people. Since the third Plenary Session of the 11th Central Committee of the Chinese Communist Party in 1978, the Chinese leadership has concentrated on economic development. Responding to its national conditions while conforming to the tides of history, the path China will follow toward modernization can be called "the development path to a peaceful rise" driven by capital, technology, and resources acquired through peaceful means, rather than imperialism, asserts Zheng.

Yet such aims cannot be achieved by an export policy in a globalization regime under the tyranny of US dollar hegemony. Chinese appeasement on neo-liberal ideology and market fundamentalism will not provide the stability that China seeks to develop its economy, as the resultant income and wealth disparity in the past decade, both between people and regions, has so far shown. It will instead create socio-economic instability that will translate into political instability.

Zheng points out that according to China's strategic plans, it will take until 2050 before it reaches the level of a modernized, medium-level developed country. Along this long path, China will face three big challenges: (1) shortage of resources, (2) environmentally sustainable development and (3) imbalance between economic and social development.

The third challenge, Zheng notes, is already visibly reflected in a series of tensions Beijing must confront: between high GDP (gross domestic product) growth and social progress; between upgrading technology and increasing employment; between keeping development momentum in the coastal areas and speeding up development in the interior; between fostering urbanization and conserving agricultural land; between narrowing the gap between the rich and the poor and maintaining economic vitality and efficiency in the market mechanism; between attracting more foreign investment and enhancing the competitiveness of indigenous enterprises; between deepening reform and preserving social stability; between opening domestic markets and solidifying economic independence; between promoting market-oriented competition and providing a socio-economic safety net to take care of those displaced through no fault of their own. To cope with these dilemmas successfully, a number of well-coordinated policies are needed to foster development that is both faster and more balanced, according to Zheng.

Yet all the undeniable tensions listed above have been the structural by-products of China's excessive dependence on export as the main engine of growth in the past decade.

Stuck in 'takeoff' mode
In 1978, when Deng Xiaoping introduced economic reform and an "open to the outside" policy, the intention was to focus on export only as an initial "takeoff" stratagem, not a permanent plan. This was necessary to overcome dismal Chinese economic conditions left by decades of US embargo and internal political disorder. In 1978, the Chinese economy was so poor and decrepit that export financed by foreign capital was the only sensible option. It was expected that after the initial decade of using joint ventures with foreign capital with technology transfer to kick-start the stalled Chinese economy, foreign trade would be put back in its proper place as an auxiliary component of domestic development. The first law on foreign joint ventures limited their term to nine years, after which full ownership would be transferred back to China.

Instead, events since 1989 have permitted the runaway export sector to become the tail that wags the dog in Chinese economic development. China has become a victim of overwhelming trade dependency. This situation is made worse by the emergence of US dollar hegemony after 1991 in which Chinese export paid in dollars cannot be used in the Chinese economy without creating a domestic monetary crisis due to financial market globalization and must be lent backed to the US economy, leaving China with a permanent structural capital shortage. The rise in China's foreign reserves has been paid for by an 18% rise in the annual growth of M2 money in yuan in the past few years while real wealth has been leaving the yuan economy into the dollar economy. This has caused an overheated yuan economy while China finances a debt balloon in the dollar economy, an unsustainable trend that is destructive to both economies.

Zheng reports that Chinese policies to meet these three great challenges can be summarized as three grand strategies - or "three transcendences". The first strategy is to transcend the old model of industrialization characterized by rivalry for resources in bloody wars and by high investment, high consumption of energy, and high pollution. China is instead determined to forge a new path of industrialization based on technological innovation, economic efficiency, effective use of natural resources relative to the size of its population, drastic reduction in environmental pollution, and optimal allocation of human resources. The Chinese government is trying to find new ways to reduce the percentage of the country's imported energy sources and to rely more on China's own. The objective is to build a "society of thrift".

Yet while the goals are laudable, current globalization trends that Zheng urges China to join "fully" move exactly in the opposite direction, away from such goals. There is ample evidence that market fundamentalism encourages individual waste by externalizing social costs. A "society of thrift" in a free market is an oxymoron. Fundamental changes are made by revolution, not by continuing along well-worn paths. The way to achieve this "transcendence" is to challenge the current global economic order by righting its wrongs, not by joining it indiscriminately.

The second strategy, according to Zheng, is to transcend the traditional ways for great powers to emerge, as well as the Cold War mentality that defined international relations along ideological lines. China will not follow the path of Germany leading up to World War I or those of Germany and Japan leading up to World War II, when these countries violently plundered resources and pursued hegemony. Neither will China follow the path of the great powers vying for global domination during the Cold War. Instead, China will transcend ideological differences to strive for peace, development, and cooperation with all countries of the world.

Yet current Chinese appeasement toward US trade demands to move quickly away from its socialist market economy and toward a free-market economy under World Trade Organization (WTO) terms will again condemn China to a semi-colonial economy for decades to come. Economies win in global competition by having their wages increased, not by pushing their wages down. Gaining market share by keeping wages low is self-imposed servitude, not development. Even the US, the strongest economy in the world since the end of World War II, is beginning to realize that economic globalization based on pushing wages down through international wage arbitrage is not in its national interest.

Nationalism in 'free trade' guise
As Friedrich List points out in his National System of Political Economy (1841), a free-trade political economy as espoused in England in the 19th century, far from being a universally valid science, was merely British national opinion, suited only to English historical conditions. List's institutional school of economics asserts that the doctrine of free trade was devised to keep England rich and powerful at the expense of its trading partners and that it must be fought with tariffs and other protective devises of economic nationalism by the weaker countries. Secretary of state (1825-29) Henry Clay's "American system" was a national system of political economy to free the US from British economic hegemony. Napoleonic France opposed British free trade with its Continental System.

Once it has fallen behind in free trade, no nation can recover from its disadvantaged position in a trade regime dominated by an economic superpower short of victory in war. The post-Cold War free-trade globalization myth is US national opinion to keep a small group in the US rich and powerful at the expense of its own workers and those of its trading partners, as described in my six-part series in Asia Times Online, The Coming Trade War.

Myths about trade imbalance
The US has been putting heavy pressure on China to open its markets fully, particularly financial markets, as a way to rebalance China's trade surplus with the US. Writing in the May 22, 2006, issue of Business Week, Stephen Green, Shanghai-based senior economist at Standard Chartered Bank, suggested that much of China's trade surplus in 2005 did not come from trade at all, but rather from capital inflows (perhaps as much as US$67 billion) disguised as trade. As a percentage of GDP, China's trade surplus was actually declining through 1999 to 2004.

The Chinese yuan is widely expected by currency speculators to appreciate in the years ahead, and thus has become an attractive investment for foreign and domestic companies engaging in export trade. China's capital-account restrictions make it difficult to bring US dollars into China, except for Chinese exporters and trading companies because of the nature of their business. Exporters, by exaggerating invoices handed over to local authorities, could bring more hard currency into the country over the real value of goods sold outside. This "misinvoicing" of trade was commonplace in the last decade, but back then it was a way of getting money out of China to repatriate profit.

Now it is being used to bring funds into China for more investment in anticipation of future yuan appreciation. This inflates the value of Chinese exports, which also gets a boost from transfer pricing between units within multinationals to book the profit inside China. This trend, multiplied over millions of price transfers, inflates China's trade-surplus numbers.

Misinvoicing and transfer-pricing numbers show that the China's trade surplus could have been as small as $35 billion in 2005. Trade could have disguised some $67 billion of non-trade capital inflows.

The implication for China's policymakers is that the country's booming trade surplus is not caused by an undervalued yuan, but by US pressure to revalue it. As soon as such pressure eases to eliminate expectations of appreciation, the trade surplus could suddenly be sharply reduced, not from trade but from capital inflow disguised as trade. Yet this new capital, denominated in dollars, can only enter the Chinese economy by the Chinese central bank buying the dollars with more yuan while reinvesting the dollars in more US Treasuries to fuel a further rising US trade deficit. In the meantime, incessant increases in the yuan money supply overheat the Chinese economy, while the government tries desperately to cool down with ineffective macro-measures.

The US Commerce Department recently imposed countervailing duties to be applied to economies such as China's on industries that allegedly receive government subsidies. But Beijing's sharp response to the latest US decision to file WTO complaints on intellectual-property violations in China contrasted with the mild Chinese response about past US complaints on the Chinese auto-parts sector and the imposition of duties on Chinese coated paper, suggesting that bilateral trade disputes are entering a new bitter phase that may adversely affect bilateral political relations. Trade friction is not only out of sync with recent improvement in US-China relations, but also defies economic logic. The trade surplus China enjoys with the United States is caused also by US export restriction on things China wants to buy, not Hollywood films and popular music, but high-tech systems that the US refuses to sell to China because of their alleged dual-use nature.

WTO data show that in 2006 the five top exporting nations in the world were Germany, at $1.1 trillion; the US, $1.03 trillion; China, $969 billion; Japan, $647 billion; and France, $490 billion. China experienced the highest growth in exports, at 27%, in 2006. At that rate, China can be expected to overtake the US in exports this year and Germany next year. Still, Chinese exports are expected to be labor-intensive and relatively low-tech for a long time to come.

Forcing Chinese imports to the United States to rise in price through exchange-rate manipulation would only cause US inflation without lowering the trade deficit, as the trade imbalance would remain unchanged while the actual amount of goods exchanged would adjust. Spending is a function of available disposable funds. As dollar hegemony produces the opportunity for the US to run a trade deficit financed by a capital-account surplus, a US trade deficit will continue as long as US consumer credit can be finance by external debt from Asia in general, and China in particular. Prices of goods are irrelevant under such circumstances. In fact, the possibility of a higher exchange rate of the yuan increasing rather than decreasing the US trade deficit with China is very real if higher Chinese import prices are financed by higher Chinese dollar reserves, allowing the US consumers to take on more debt.

Further, the share of Chinese exports to the US has been shrinking as a percentage of total Chinese exports, from 37% in 2000 to about 25% in 2006, being replaced by Chinese exports to markets outside the US. Chinese exports to the European Union remain stable at about 20%, and to East Asia they declined from 25% in 2000 to 20% in 2006. Exports to the rest of the world, such as the Middle East, Africa, and Central/Latin America, grew from 16% in 2000 to 30% in 2006 and are expected to grow more in coming years to pay for increases in imports in key commodities. While China's foreign reserves keep growing, most of the growth is now increasingly coming from other countries than directly from the US. The day is fast approaching when US-China trade, while continuing to be important, will cease to be the all-consuming factor in determining Chinese policy and US-China relations.

For the first time since World War II, Japan's biggest trade partner is no longer the United States. In the fiscal year ended on March 31, 2007, China overtook the US as Japan's largest trading partner, with trading volumes reaching 25.43 trillion yen ($215 billion). Japan's trade with the US in the same period was 25.16 trillion yen. Japan's trade surplus widened to 74% from a year earlier at 1.633 trillion yen. Trade between the two Asian giants is boosted by Japanese firms shifting their manufacturing work to China to lower labor costs and to tap into China's fast-growing market, helped by a weaker yen.

The US administration's decision to file two complaints against China with the WTO caused the Chinese government to express "deep regret and strong dissatisfaction" with the move. Zhang Yansheng, head of the International Economic Research Institute at the Economic Planning Ministry, said the tough US protectionist stance on its uncompetitive sectors would make it hard for China to compromise in the future. He said the US should act as "an ordinary member of WTO, rather than the lawmaker".

Higher-level response came a few days later from Vice Premier Wu Yi, who heads China's economic strategic dialogue with US Treasury Secretary Henry Paulson, warning that complaints to the WTO over commercial piracy in China will "badly damage" cooperation with Washington and bruise bilateral trade ties. The unilateral US action "flies in the face of the agreement between the two countries' leaders to propose dialogue as a way of settling disputes", Wu said, adding that never before had a WTO member simultaneously mounted two cases against another country. "This will have an utterly negative impact and will inevitably badly damage bilateral intellectual-property cooperation," she said, while also warning it would "harm" cooperation over market-access issues.

This new US toughness on China is the opening phase of the new trade war in which the battle is really being waged within US domestic politics between the White House and Congress, with the White House trying to ameliorate protectionist moves in Congress. The administration's new assertiveness toward China is designed to score points for President George W Bush as he tries to get Congress to renew by June 30 presidential fast-track authority to negotiate trade pacts. China is merely the scapegoat in a new war inside US domestic politics between the finance internationalists and the domestic populists.

On the other side, China's tough response is in part driven also by domestic politics where complaints about appeasement to illegitimate US demands are rising. The dispute on intellectual-property rights is exaggerated partly because Hollywood, which is a special-interest party in the dispute, is traditionally a heavy political contributor to Democrats, who regained control of Congress in last November's mid-term elections.

Even if China should be successful in shaking off creeping US neo-colonialism, the rules of competition within the current global economic order will inevitably move China toward a traditional rise as an imperialist great power. The leadership has repeatedly asserted that China will "never be a hegemon, never practice power geopolitics, and never pose a threat to its neighbors or to world peace". To keep these promises, China must avoid acting as a stakeholder in the existing international system that requires every participating nation to aspire to hegemony through power geopolitics and to pose threats to its neighbors and to world peace.

The responsibility of World War II cannot be laid exclusively on the fascist governments of Germany and Japan. The Western democracies were equally responsible for creating the underlying geopolitical causes of war, as evidenced by the historical facts relating to the manipulations at Munich. The global economic collapse in the Great Depression, the bastard child of unregulated market capitalism, was also a major cause of war. World peace can come only from a new world order of economic equity and social justice, away from the current economic order of exploitation of the weak and the poor by rewarding greed of the strong fueled by debt and speculation.

Toward a harmonious society
Zheng Bijian identifies the third strategy as transcending outdated modes of social control and to construct a harmonious socialist society. China is reportedly strengthening its democratic institutions and the rule of law and trying to build a stable society based on a spiritual civilization. A great number of ideological and moral-education programs have been launched, according to Zheng.

Yet it is undeniable that China has moved away from economic democracy in the past two decades, and educational programs alone cannot be effective without a reality of equality and justice on the ground, conditions that are under relentless attack in any market economy.

In defending China from unfair Western accusations of human-rights violations, Zheng is appeasing Western liberal propaganda by trying to explain that China is beating its grandmother less these days, and some day it can even be expected to stop entirely. Much of the mismatch on human-rights issues between the US and China traces to cultural differences between China's Confucian heritage and Western liberalism, exacerbated by Cold War moralism.

The Information Office of the State Council of the People's Republic of China released on March 9, 2006, its own critical report on "The Human Rights Record of the United States in 2005". Friends of the US in Europe and elsewhere have grown increasingly impatient, disappointed and annoyed with anti-human-rights actions by Washington. The US was voted off the United Nations Human Rights Commission on May 4, 2001, for the first time since the panel's founding under US dominance in 1947.

John Bolton, then US ambassador to the UN, voted against a draft resolution submitted to the 191-nation General Assembly on creating a new Human Rights Council to replace the old Human Rights Commission, even though advocates such as Human Rights Watch and Amnesty International voiced support for it. A group of 12 Nobel Peace Prize laureates endorsed the draft and urged the General Assembly to adopt it. They included former US president Jimmy Carter, Archbishop Desmond Tutu of South Africa, and former Costa Rican president Oscar Arias Sanchez.

China needs to "strengthen its democratic institutions and the rule of law" in the Western mode like it needs a revisionist counter-revolution. What China needs is to rediscover the participatory democracy, socialist ideological cohesiveness, and commitment to socio-economic justice of its revolutionary days and in the first decade after the founding of the socialist republic in the context of a Confucian civilization of a society governed by social rites. This is the direction in which China is moving with its harmonious-society policy. Any suggestion that this approach is moving China toward Western democracy and rule of law is merely adding to confusion and encouraging counterproductive Western fantasy.

Zheng lists several dynamic forces in the carrying-out of the three strategies: numerous clusters of vigorously developing cities in the coastal areas of eastern and southern China, and similar clusters emerging in the central and western regions, constituting the main engines of growth as major manufacturing and trading centers, and absorbers of surplus rural labor. They also have high productivity, advanced culture, and accumulated international experience that the rest of China can emulate and learn from. The expansion of China's middle-income strata and the growing need for international markets come mainly from these regions.

China's surplus of rural workers, who have strong aspirations to escape poverty, are another force that is pushing Chinese society into industrial civilization. About 10 million rural Chinese migrate to urban areas each year in an orderly and protected way. They provide Chinese cities with both new productivity and new markets and help end the backwardness of rural areas. Innovations in science and technology and culture are also driving China toward modernization and prosperity in the 21st century, Zheng asserts, notwithstanding that the conditions endured by China's migrant workers in the export sector are as bad as, if not worse than, Charles Dickens' industrial England.

Yet income and wealth disparity is the structural outcome of this top-down approach to development through globalized trade and export-driven urbanization, particularly if China continues to rely on low-wage export as the main engine of growth. Further, this approach runs directly against the new policy of balancing rural development to correct lopsided growth in the coastal regions, and to create employment in rural regions to reduce worker migration to urban centers. The solution to Chinese developmental imbalance is to shift the economy away from export-dependency toward balanced domestic development, and away from dependence on foreign capital toward effective use of sovereign credit, as suggested in my article Liberating sovereign credit for domestic development (HenryCKLiu.com, September 2004).

Zheng reports that the Chinese government has set up GDP targets for development for the next 50 years, with 2020 per capita GDP expected to reach $3,000, achieving a "peaceful rise" by 2050. This is a discouragingly long time frame for a dismally low target, particularly if income disparity needs to widen continually to achieve the target. Three thousand dollars in 2020 is less than half of the World Bank projection of world average per capita GDP of $7,111. US per capita GDP is 2006 was $43,500. Such a slow growth rate cannot possibly lead to sociopolitical stability or a harmonious society, let alone world peace for the next four decades. It will lead to dangerous social disharmony rather than a peaceful rise. It is misleading to suggest that slow economic growth in China will contribute to peace or lead to any peaceful rise of China as a major power. By 2050, China's per capita GDP is projected to reach $8,000, while the US per capita GDP is expected to exceed $85,000.

China must seek an alternative development path away from neo-liberal market fundamentalism to speed up its development on par with a fast-growing world. The alternative path needs to achieve growth without the income and wealth disparity and polarization that are structural with neo-liberal market fundamentalism. Embracing current globalization will not lead to peace or rise for China. It is not enough for the Chinese Communist Party merely to call itself communist. If its policies abandon socialism, the CCP will fall like any other bourgeois political party under Chinese conditions.

The most problematic argument Zheng provides for China's "peaceful rise" is that it will further open its economy so that its population can serve as a growing market for the rest of the world, thus providing increased opportunities for, rather than posing a threat to, the international community.

Notwithstanding that many modern wars have been fought between great powers over competition for markets in less-developed countries, Zheng seems oblivious to the fact that foreign trade has proved in the past decade to be a counterproductive path toward domestic development everywhere in the world. Factual data indicate that international trade under dollar hegemony has only increased the wealth gap between national economies as well as within the domestic economy of every country, even for winners such as the US itself.

For China to be a "stakeholder" in the current globalization regime is a path to neither peace nor a rise. If China embarks on a path of domestic development rather than the blind alley of exporting for dollars that cannot be spent at home without creating a monetary crisis, with economic growth coming mostly from a rise in domestic wages and consumption, putting export back in its auxiliary position of comparative advantage, China's growth will not pose any threat to the world. There is no need to bribe hostile foreign neo-imperialist powers with China's huge market.

That approach was the open-market policy in the form of free-trading ports agreed to in a series of "unequal treaties" starting in 1840 by Li Hongzhang, the top appeaser of the late, decrepit Qing Dynasty. Li's appeasement policy was so appreciated by Britain that Queen Victoria made him a Knight Grand Cross of the Royal Victorian Order. Li's open market-policy landed China in semi-colonial status for almost two centuries that took two revolutions to depose.

Zheng explains that China is not the only power that seeks a peaceful rise. China's economic integration into East Asia has contributed to the shaping of an East Asian community that may rise in peace as a whole. And, he says, it would not be in China's interest to exclude the US from the process. Zheng asserts that Beijing wants Washington to play a positive role in the region's security as well as economic affairs. The beginning of the 21st century is seeing a number of countries rising through different means, while following different models, and at different paces. At the same time, the developed countries are further developing themselves. This is a trend to be welcomed, according to Zheng.

Yet Zheng's vision of the current world economic order is through a rose-color lens. World trade under dollar hegemony has proved to be a highly destructive regime not only in the less developed economies, but also in the developed countries such as the US, which is seeing the rise of a new wave of anti-trade populism sweeping through its body politic. Less than two years after Zheng's message to the US of China's "peaceful rise", trade-war drums against China are beating loudly in the US Congress, with a lame-duck administration forced to put heavy selective pressure on China to ward off a full-scale trade war. US-China trade will be a key issue in next year's US presidential election in response to rising anti-China trade protectionism. Just as the dissolution of the Soviet Union in 1991 robbed US-China rapprochement of its geopolitical foundation, a new trade war now between the US and China will rob US-China relations of their economic foundation.

Far from China needing to become a "stakeholder" in the US-imposed existing world order, the United States needs to transform itself into a stakeholder of a new world order of justice and equality that will enhance homeland security by removing the root causes of worldwide anti-US hostility. It is not instructive or productive for the US merely to label such hostility evil or hatred of freedom. Everyone loves freedom. Anti-US hostility grows out of what many around the world perceive as decades of US abuse of the meaning of "freedom" as freedom of the strong to exploit the weak and freedom to impose its national values on others.

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