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March 19, 2009

China's Political Shift Accelerating A Bit During the Crisis

The Economist reviews how China is handling the current crisis.

China is taking advantage of some opportunities to gain some more influence at an affordable cost by trading investment and money for more influence. China is being a bit more forward in various international dealings, but is avoiding the generation of unnecessary conflict and tensions.





Two weeks after Mrs Clinton’s departure, Chinese boats (according to the Pentagon) harassed an unarmed American ship, the Impeccable, in the South China Sea. The ship was a mere 75 miles (120km) off China’s coast and was probably on the lookout for Chinese submarines. But much as China objects, the American navy frequently deploys in international waters off China to monitor military activities. In this case Chinese responded more aggressively than usual, surrounding the American ship and trying to stop it from withdrawing. America later sent a guided-missile destroyer to protect the Impeccable.

China clearly does not want to push this too far, mindful perhaps of the huge crisis in relations that occurred in 2001 when a Chinese fighter jet crashed into an American spyplane.

Though China may be unwilling to give America more than a cautious poke, it is a different story with Europe. Its abrupt decision to cancel a summit with the European Union scheduled for last December showed that, even amid the global crisis, it was prepared to deliver a powerful snub to leaders of its biggest trading partner.

China stole the limelight at the last G20 summit by announcing a 4 trillion yuan ($565 billion) stimulus package just before it. Rumours continue to circulate that it has another up its sleeve. That would please everyone.

But China is not (yet, anyway) seeking to knock America off its perch. It is pushing for a greater say for itself and other developing countries in the IMF, over which the Americans, in effect, wield a veto. But it is not demanding a veto of its own.

A recent article in Economic Reference, a journal published by a government think-tank, said the crisis would severely weaken the economic, political, military and diplomatic power of developed countries. This would create an “historic opportunity” for China to strengthen its position. China should export capital to South-East Asian countries to strengthen their economies. By so doing, it would help prevent political turmoil and win strategic influence in the region.

In America, the article suggested, China should buy up businesses in order to acquire sophisticated know-how. If the American government balks at this, “the Chinese government absolutely can use its American dollar savings as a bargaining chip to force the American government to agree to China’s acquisitions.”

The China Institute for Reform and Development, a prominent liberal think-tank, has just published a 171-page report entitled “The International Financial Crisis Challenges Reforms in China”.

The report says that, without further market-oriented reforms, the stimulus package will not only fail to achieve its goal but will also store up long-term problems. In need of change, it says, are government controls on prices of water and power and government monopolies in industries such as telecoms, railways and aviation. It calls for faster financial reforms such as encouraging the development of non-state financial institutions, freeing controls on interest rates and allowing the yuan to float.

On March 13th, at the end of the parliamentary session, Mr Wen said that to counter the crisis China “would rather speed up reforms”. He said it should “give full play to market forces in allocating resources” and encourage the development of the private sector.


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