Wed, Mar 02, 2005 - Page 8 News List

Beware of China's encirclement

By Chong-pin Lin 林中斌

Three years ago, China became the world's second largest economy after the US. This is calculated based on purchasing power parity (PPP). For example, if a dozen of eggs cost five yuan in China, based on PPP, this would be 16 yuan or US$2 in the US.

China's GDP is one-ninth that of the US and one-third of Japan's. However, according to western economists, China's GDP will exceed Japan's by 2015 and top the US between 2020 and 2045. If these predictions come true, China's overall economic production will become the world's highest, although the average per capita income of people in China at that time will be only one-third of their US counterparts. Last year, Mark Helprin, a US academic, even predicted that China's budget for its national defense, expressed in PPP, will be comparable to that of the US by 2013.

While these are perhaps academic discussions, China's booming economy and ascending cultural power have begun to move the tectonic plates of the geopolitical world. Last fall, China became the world's third largest trading nation. Beijing has already taken advantage of such favorable trends to position itself on the global stage.

Firstly, in Europe, Beijing has poured money into the European space and fighter programs, saving them from bankruptcy. Moreover, as EU trade with China has been higher than its level of trade with the US since 2003, naturally the EU is eager to lift its arms embargo on China. In fact, EU arms sales that fall outside the limits of the embargo grew from 62 million euros in 2001 to 428 million euros in 2003.

Secondly, the US trade deficit with China reached US$125 billion in 2003, the largest imbalance the US has ever experienced with a single country. The trade deficit with China rose still further last year to US$160 billion. Trade deficits with China have become financed by China's foreign exchange reserves, of which 80 percent is now held in US dollars. Last November, the rumor that Beijing was shifting its US dollar-denominated reserves to euros abruptly set back the US dollar exchange rate. In the future, if Beijing could turn even a subtle hint of such an event into diplomatic pressure, Washington will feel it.

Thirdly, last year, Japan's trade with China for the first time overtook that with the US. On the surface, Sino-Japanese relations have been strained due to a recent Chinese submarine intrusion into Japanese territorial waters, anti-Japanese sentiment during last year's Asian Cup soccer tournament, and the Japanese prime minister's visits to the Yasukuni Shrine.

This negative trend belies an undercurrent of a rather different nature. Japanese Prime Minister Junichiro Koizumi has twice, since late last December, called for the strengthening of bilateral economic cooperation and emphasized the importance of Tokyo-Beijing relations. In January, the chief editor of Japan's Fuji SanKei Business-i, Masaru Soma, predicted that economic cooperation between Japan and China would eventually overwhelm Sino-Japanese tensions.

Fourthly, Beijing has quickly expanded its influence in South East Asia, South America and Africa through investment, financial aid and oil diplomacy.

Beijing has been proactively turning its economic power into cultural status, which it then uses to enhance its international influence. Beijing aims to make the world subconsciously look to China for future leadership. Such efforts have produced notable results in the following areas:

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