China: threat or opportunity?

China has come a very long way in the past 25 years. The land of the Giant Panda is also the land of giant numbers and achievements:

• China’s population represents more than one fifth of the world’s population: 1.3 billion people.




• Between 1978 and 2001 China’s average growth rate of GDP per capita was at the top of the world’s growth performance in this period (1).




• China’s exports grew in value terms by almost 15 times between 1978 and 2001 (2).




• In 2002 and 2003, China was, second only to the USA, the world’s largest recipient of Foreign Direct Investment (3).




• In 1978 almost one in three Chinese people were ‘absolutely poor’, according to the World Bank. This fell to under one in 20 people by 1998 (4).

In 1982 one fifth of China’s population lived in urban areas, and almost one in four people were illiterate. By 2000, over one third lived in urban areas and illiteracy levels had fallen to one in 15 people (5). Add to this China’s industrial accomplishments: the Three Gorges Dam is the world’s largest hydroelectric dam project; China has the world’s longest steel-arch bridge; and Beijing Airport will be the biggest in the world by 2008. In 2001 China produced 96 million electric fans, 41 million colour TV sets, and 25 million mobile phones (6).

Yet despite these phenomenal advances, Western commentators interpret trends and events with great pessimism. An acknowledgement of the incredible achievements of China in the past two-and-a-half decades is generally accompanied with a statement of the dangers that the transformation brings.

On UK Radio Four’s flagship current affairs programme Today in late 2004, Tim Luard, former Beijing correspondent for the BBC, echoed the view that the achievements are actually a source of anxiety: ‘The sheer scale of China’s economic transformation is matched only by the size of the new challenges and dangers it has created (7)’. The apparent dangers of China’s rising wealth and power include the danger to the environment caused by pollution; the danger to employment and the Western economies caused by China’s increasing competitiveness; and the possible military aggression of a rising power.

As Stephen Roach, managing director and chief economist of Morgan Stanley, one of the largest investment banks in the USA, pointed out in 2004: ‘A fickle world has changed its mind about China again. A year ago, the miracle of Chinese growth was widely seen as a bonanza for an otherwise sluggish global economy. Today China is being cast as a threat – in effect, it has become a scapegoat for many of the intractable problems that a dysfunctional world has been unable to solve.’ (8)

Today, the rise of China tends to be viewed in the West purely as a threat. Yet there is no reason why the West could not turn this challenge into an opportunity. China’s growing economic power is a challenge for the West, but a challenge that the West can either turn to its advantage or to which it can succumb, by attempting to batten down the hatches and retreat. Perhaps this challenge is just what the West needs to kick it out of its doom-laden sense that things are getting worse and worse. Preparing to meet China’s ‘can-do’ culture could serve to regenerate a sense of ambition and experimentation within Western societies.

Although there are negative aspects of China’s economic transformation, these are resolvable. More of a problem is the way that the West is transporting its own concerns into China – its loss of confidence in its own system, its embarrassment of success, lack of entrepreneurship, and attachment to the environmentalist orthodoxy.

So what is going on with China? The West’s main fears about this rising power tell us more about the preoccupations and double standards of commentators ‘over here’ than the life ‘over there’. But by examining these fears, we can cut through some of the myths about China, and approach a better understanding of the realities.

Fear 1: The threat of military aggression

In June 2005 US defence secretary Donald Rumsfeld issued a blunt criticism of China, saying that its military spending was threatening the delicate security balance in Asia. He went on to suggest that the Chinese should place more emphasis on political freedom and open markets (9).

Rumsfeld’s criticism was based on the annual Pentagon report to Congress about China. In its opening pages, the report states that ‘secrecy envelops most aspects of Chinese security affairs. The outside world has little knowledge of Chinese motivations and decision-making and of key capabilities supporting People’s Liberation Army (PLA) modernisation. Hence, the findings and conclusions are based on incomplete data. These gaps are of necessity bridged by informed judgement’ (10). This judgement, it appears, is informed by Pentagon officials who know far more of America’s concerns than they do of China’s.

Rumsfeld stated that ‘China’s defence expenditures are much higher than Chinese officials have publicly admitted. It is estimated that China’s is the third-largest military budget in the world and now the largest in Asia’ (11). A closer examination of China’s defence budget, however, shows that this year’s US defence budget is between six and 15 times bigger than China’s (even with its so-called ‘huge hike’ this year), depending on whether you believe the USA’s estimate of China’s defence budget or China’s official figure. Per capita, America’s defence budget is 77 times bigger than China’s official figure. The US defence budget is about the same as the rest of the world’s put together (12).

China has said that the increases in spending are to improve the living conditions for the military and to improve military hardware in line with hardware improvements around the world (13). In the 1980s, defence spending represented a decreasing percentage of government expenditure, and the PLA was forced to become more self-sufficient (14). This led to the PLA becoming involved in a range of non-military industrial ventures, from aircraft production to pig farming (15).

These entrepreneurial activities were at their height in the 1990s – in 1992, profits of the Chinese ‘military industrial complex’ are estimated to have been about 10-15 percent of the total defence budget (16). In the mid-1990s there were estimated to be 20,000 different enterprises run by the PLA (17). The state realised that this was not in the interests of a professional defence force and curtailed these activities, but as a result has had to raise the defence budget.

The disingenuous character of Western concerns about a Chinese military threat is further exposed by the fact that the first time that PLA troops were active in the Western hemisphere was because they were encouraged to be so by the United Nations (UN) – the PLA sent an active peacekeeping force to Haiti in September 2004.

As Edward Cody, the Washington Post‘s reporter on China, explained the process: ‘The United States and other Western countries have long urged China to play a bigger role in UN peacekeeping, pointing out that the country is a permanent member of the Security Council, is the most-populous country in the world with 1.3 billion people and boasts the largest military, with 2.2 million members. But the Chinese government resisted until a decade ago, citing a policy of non-interference in other countries.’

He continued: ‘In 1992, Beijing softened its stance and sent military engineers to Cambodia as part of a UN operation related to elections. In 1999, China announced that police also would be available for other UN operations. Since the shift, China has dispatched more than 2,700 police officers and army troops to 19 trouble spots, according to the ministry’s tally. Chinese police officers currently are taking part in peacekeeping operations in Kosovo, East Timor, Liberia and, with one adviser, Afghanistan. Until now, China’s soldiers and police have largely been sprinkled through other countries’ battalions or limited to duties such as medical care and road building. Now China has taken the next step with its plans to send off an integrated riot control unit that will operate in Haiti as a Chinese entity under UN command to respond to security needs.’ (18)

The USA and the UN have thus encouraged China to stretch an under-resourced army further.

Many Western commentators suggest that military conflict is likely over Taiwan and that this will upset a delicate balance of military power in Asia. The anti-secession law passed by China in March 2005, authorising military invasion in the case of Taiwan ever announcing independence, frightened some into believing that war might be on the cards. The Kuomintang (KMT), the ruling party in Taiwan from 1949 (when it fled there from the Chinese Communists) to 2000 (when it lost power to the Democratic Progressive Party (DPP)) has previously said it favours eventual reunification, so long as China is by then democratic. The party was for decades implacably opposed to dealing with China’s Communists, but since it lost power in 2000, it has increasingly favoured closer ties, especially for promoting business interests (19).

In 2004, the DPP, which is more inclined to independence from China, lost a referendum on boosting defences against China, held at the same time as the March 2004 poll. In late 2004 the DPP lost power to an alliance that favours closer ties with China.

Although China mounts fairly regular exercises in the Taiwan Straits, it is more likely that the anti-secession law, with its threat of military invasion, is just that – a threat to keep Taiwan away from independence. Sabre-rattling is also a useful element in the Chinese government’s emphasis on nationalism, which it is using to boost its flagging legitimacy.

The new law also provides a glimpse of the debate within the Chinese government about the best way to deal with Taiwan. However, it seems unlikely, even with US support and arms, that Taiwan would risk provoking China by announcing independence. Unless China’s economy got into severe difficulties and the Chinese government was determined to play the nationalist card, it also seems unlikely that China would risk the international ramifications of invading Taiwan.

Fear 2: The threat of economic domination

‘China set to overtake America as world’s top exporter’ (20), read one recent headline. The article reports on the OECD Economic Survey of China (21), which says that China could overtake the USA and Germany to become the largest exporter by 2010.

But why is this now seen as a threat when China’s soaring economy was previously seen as an opportunity for investment? Foreign-invested firms were responsible for 57 per cent of China’s exports in 2004 – an increase of 43.1 per cent over 2003, and an increase from 41 per cent of total exports in 1997 (22).

There are a number of reasons why China’s continued economic growth is now seen as a threat rather than an opportunity. These include the perceived loss of jobs to China; the unfair competitive advantage of China’s pegged renminbi/yuan; and the view that China is the main cause of America’s current account deficit.

China’s attempt, through the China National Offshore Oil Corporation, to purchase the American oil company Unocal, and the successful purchase of IBM’s PC business by Lenovo’s, a Chinese PC manufacturer, have stirred up protectionism in the USA (23).

But most of these perceived threats are wrong. High labour input manufacturing jobs have gone en masse to China, but the bulk of this move happened a long time ago. Now China’s imports are rising at 18 per cent a year, meaning an increasing demand for foreign-made goods, which supports employment elsewhere in the world (24).

The revaluation of the renminbi/yuan that took place in July 2005 has eased some of the West’s fears. However, many felt that although it was going in the right direction it wasn’t soon enough or large enough. Western commentators believe that China revalued as a result of continued Western pressure. There are virtually no accounts of how China’s own economic interests might be served by the revaluation.

But Chinese commentators have said that they believe that the revaluation will benefit Chinese consumers through making imports cheaper, particularly cars but also housing, because the raw materials to build houses would be cheaper. They also see it as a boost to restructure the industrial sector and move foreign investment from the low-paid textile industry into industries where greater value is added. The revaluation was also seen as an opportunity to deflect business from the international market to boost the domestic market (25).

The biggest error of perception is that the US/China current account deficit is made in Beijing – if fact, it is entirely made in America. As Daniel Ben-Ami has explained on spiked (26), the reason for America’s deficit is because it is consuming substantially more than it is producing: therefore it has to borrow money from abroad. China has an interest in shoring up the US economy, as do other countries, because the dollar is the most important international currency.

There was a relationship between America’s current account imbalance with East Asia and its pressure on China to revalue its currency. However, China is only responsible for about one twelfth of the deterioration of the US trade balance over the past 10 years. As a recent report by the Centre for Economic Policy Research pointed out: ‘China is simply too small to be responsible for the US deficits or to be able to correct them. Since 1997 the US current account has deteriorated by $529 billion. Over the same period, China’s current account position improved by $35.6, or just seven per cent of the deterioration in the US position. This is small in absolute terms but also in relative terms, as China’s share of world GDP minus the US is 16.7 per cent.’ (27)

In addition, it should be noted that China does not have a large trade surplus overall. With many countries, notably raw materials producers, it has substantial deficits.

It is worth emphasising that although many see China’s trade surplus and exports as its major global impact, its imports are also rising fast, which give a big boost to global demand. It is therefore wrong to scapegoat China for the US deficit.

Fear 3: The threat posed by pollution and urban development

The recent OECD report highlights that five of the 10 most polluted cities in the world are in China. Many of the reported farmers’ protests are the result of farmers suffering damaged or lost crops due to pollution caused by neighbouring factories (28).

While there is undoubtedly a need to reduce pollution, China would arguably be best placed to do so if it could remain aloof from the West’s precautionary approach to scientific and technological progress.

Gerd Leipold, director of Greenpeace, visited China in November 2003 as an official guest of the Chinese government. He was anxious to point out that China could not expect to develop to the level of material wealth of the West, because it would result in unacceptable environmental damage: ‘If everyone on earth chooses to have the material wealth of North Americans, we would need three planets.’ (29) The implication of what Leipold is saying here is that the only solution to pollution is less development and an acceptance of a lower standard of living. What organisations like Greenpeace ignore is the possibility of reducing pollution through the further development of technology, which can only be achieved through more economic development, not less.

China has been criticised in the West for its development of nuclear power stations to replace the old polluting coal fired ones, as it has for its development of the Three Gorges Dam, which will be the largest hydro-electric project in the world (30). While many in the West decry the resettlement of over one million people to make way for the Three Gorges Dam reservoir, those affected generally believe that it is progress and to be welcomed.

As Peter Hessler, author of Rivertown (an account of living for two years in the Yangtse river port Fuling) and a reporter for the New Yorker, wrote in June 2003: ‘In the new cities I rarely heard criticism of the dam. Even in rural areas where people have received far fewer benefits, complaints tend to be mild and personal. Generally, people felt that they hadn’t received their full resettlement allowances, often because of the corruption of local Communist Party cadres. But those who complained almost never questioned the basic idea of the dam. [Huang Zongming] told me that the dam was “good” because it would bring more electricity to the nation.’ (31)

The reaction to the Three Gorges Dam is a demonstration of how the West seeks out the bad side of China’s rise, while the majority of Chinese people seem to see progress as a good thing.

China still relies on coal-fired power stations for 80 per cent of its energy (32), which it knows are a major cause of pollution. Recognising this, China is attempting to replace old coal-fire power stations with ‘cleaner’ energy sources – the hydroelectric power from the Three Gorges Dam, and also nuclear power. Although the Chinese have incorporated nuclear power into the state electric power plan, they are also well aware of the need to develop alternative means of disposal of nuclear waste (33).

China has already been victim to its lack of sufficient energy production, with industry having to make choices about whether to keep on the air conditioning or the lights. In some places the local bureaucracy has turned off the power to high energy-consuming factories, in an effort to force them to become more energy-efficient. The result of this is that thousands of very inefficient generators take the place of the state electricity supply (34). Developing new technologies to solve these problems is surely a positive step.

There have been numerous articles claiming that the growth of the car is damaging air quality and the environment (35). China’s roads are congested and a rise in the number of cars undoubtedly adds to air pollution. However, to address the congestion problem the Chinese are building more roads, which of course brings yet further criticism from the West. What Western commentators usually forget to mention is that China is attempting to address the pollution caused by cars through researching and developing alternative engines and energy sources (36).

There are worrying signs that China has already succumbed, to some extent, to the backward-looking and self-restraining approach of the West. For example, China has already accepted the United Nations’ Rio Statement on Sport and Sustainable Development and parades it on its Beijing Olympics website (37). China wants to showcase its achievements through the Beijing games – but also to indicate its willingness to play by the rules of the West by paying lip-service, at least, to the presumed virtues of restraint.

Where next for China?

In the 1970s, the West viewed a booming Japan with the kind of nervousness that is displayed today towards China. The threat of ‘Japanisation’ of the world was widespread. The concern about the ‘Sinification’ of the world has a similar feel to it. But Japanisation did not happen in the way most Western commentators feared it would. Although Japan has matured into the world’s second largest economy, it has done so without realising the fears expressed 30 years ago. China still has a long way to go before it matches the current world hegemon, the USA, in economic or military terms.

China’s rapid economic growth has impacted on the world and helped to lift the world economy. Furthermore, the West would no doubt benefit from an injection of current Chinese values; a ‘can-do’ attitude, entrepreneurship, ambition, a belief in their ability to resolve problems. China, on the other hand, stands to be damaged by the pessimism of Western values. What possible benefit would there be for China to curtail and restrain its ambitions, to stop developing technology to resolve problems, or to stop innovation for fear of the impact experimentation may have?

Digby Jones, director general of the Confederation of British Industry (CBI), recently hinted that the UK could learn something from the attitude of the Chinese – or face negative consequences if we don’t. ‘When China and India look at Britain – where we have examinations you cannot fail, sports days with no winners and schools where conkers and backstroke are banned on health grounds – they must think it is their birthday every day’, he said (38).

The point is not to look upon China’s successes and applaud, and nor is it to quail in the face of potential problems. Rather, it is to look upon China as providing a challenge to the sluggish West: a challenge that the West will benefit from meeting, and lose out if it shrinks away.

Whatever problems China may have now and in the future, these will not be solved by Western commentators panicking about nightmare scenarios, and encouraging the spread of precautionary culture further eastwards.

Sheila Lewis lectures on modern China at City Lit. She is speaking at the China: threat or opportunity? session at the Battle of Ideas in London on Sunday 30 October 2005.

(1) Nolan P, 2004, Transforming China Globalization, Transition and Development, Anthem Press

(2) Nolan P, 2004, Transforming China Globalization, Transition and Development, Anthem Press

(3) UNCTAD World Investment Report 2005

(4) World Bank data on poverty, 8 September 2005

(5) National Bureau of Statistics of China website

(6) Nolan P, 2004, Transforming China Globalization, Transition and Development, Anthem Press

(7) Tim Luard, BBC, 14 October 2004

(8) Stephen Roach in Fortune, 22 March 2004

(9) New York Times, 4 June 2005

(10) Office of the Secretary of Defence, Annual Report to Congress, The Military Power of the People’s Republic of China, 2005

(11) New York Times, 4 June 2005

(12) See worldwide military expenditures on GlobalSecurity.org

(13) China Daily, 5 March 2005

(14) See PLA History and China’s Defence Budget on GlobalSecurity.org

(15) People’s Liberation Army, on Wikipedia

(16) Red Army Inc, An analysis of the Military Business Complex of the People’s Liberation Army, on Storming Media, 11 September 1998

(17) Chapter 9, The Defence Budget and the Economy in Report to Congress of the US, China Security Review Commission – the national security implications of the economic relationship between the United States and China, July 2002

(18) Washington Post, 30 September 2004

(19) BBC News

(20) The Times, 17 September 2005

(21) Economic Survey of China, OECD, 16 May 2005

(22) China Country Report, EIU, September 2004

(23) What the renminbi revaluation reveals, by Daniel Ben-Ami

(24) China Daily, 7 October 2005

(25) National Bureau of Statistics of China, 9 August 2005

(26) What the renminbi revaluation reveals, by Daniel Ben-Ami

(27) Economic policy co-ordination is needed to realign global imbalances, Centre for Economic Policy Research, 16 September 2005What the renminbi revaluation reveals, by Daniel Ben-Ami

(28) ‘Farmers protest over alleged lead poisoning’, China Daily, 25 August 2005; ‘Chinese farmers’ protest, shut down factory’, Lancaster online, 18 July 2005What the renminbi revaluation reveals, by Daniel Ben-Ami

(29) Greenpeace, An official peaceful landing in China, China Review, Spring 2004What the renminbi revaluation reveals, by Daniel Ben-Ami

(30) For example: ‘But it’s not all good news. Economists and environmentalists balk at the consequences of damming the world’s third-largest river. The waters of the Yangtze’s middle reaches will rise by up to 110 metres. This will swallow up numerous cultural artifacts, submerge the homes of more than a million people and ruin the beautiful gorges forever.’ ‘Gorge yourself while there’s still time’, Observer, 2 December 2001What the renminbi revaluation reveals, by Daniel Ben-Ami

(31) ‘Letter from Wushan’, China Review, Autumn 2003What the renminbi revaluation reveals, by Daniel Ben-Ami

(32) Nuclear power in China, World Nuclear Association, September 2005What the renminbi revaluation reveals, by Daniel Ben-Ami

(33) China ready to start its nuclear power plan, Peoples Daily, 7 Jsnuary 2004What the renminbi revaluation reveals, by Daniel Ben-Ami

(34) ‘When the lights went out in Xinjiang’, The Times, 3 August 2004What the renminbi revaluation reveals, by Daniel Ben-Ami

(35) For example, ‘Strains of China’s love affair with cars begin to emerge’, International Herald Tribune, 7 June 2005; ‘Four wheels good, two wheels bad?’, China Review, Autumn 2004What the renminbi revaluation reveals, by Daniel Ben-Ami

(36) ‘Strains of china’s love affair with cars begins to emerge’, International Herald Tribune, 7 June 2005What the renminbi revaluation reveals, by Daniel Ben-Ami

(37) Beijing 2008 websiteWhat the renminbi revaluation reveals, by Daniel Ben-Ami

(38) ‘Exams must allow young people to risk failure’, Digby Jones, Financial Times, 25 August 2005