Before the G20 summit, China made a series of high-profile moves, notably comments by People’s Bank of China Governor Zhou Xiaochuan (周小川) about replacing the US dollar with special drawing rights or a global reserve currency.
China achieved little at the summit and its currency proposals were not discussed, despite the pre-summit hype. It even had to rely on US help to have Hong Kong and Macau removed from a list of tax havens.
China made little headway toward its goal of strengthening its status in the IMF. The US$40 billion it pledged to the IMF was a mere 4 percent of what other countries pledged to counter the financial crisis; the decision-making power China will receive in return is a far cry from its expectations.
Chinese Premier Wen Jiabao’s (溫家寶) concerns expressed at a press conference following an earlier meeting of the National People’s Congress on the safety of China’s US investments, together with Zhou’s proposals, imply that things are not as rosy in China as many analysts in Taiwan believe when they refer to China’s increasing strength.
After reforming and opening its economy, the Chinese government used an authoritarian development model to oppress workers, exploit the environment and mobilize the nation to increase exports. Collusion between officials and business drove farmers from their lands so that the model could create an export miracle in coastal areas.
These export centers also started to take in displaced and unemployed farmers, which helped to alleviate social tensions. However, this growth model — purely driven by external demand — hides a deeper inequality: Under strict government controls, laborers have long been unable to demand higher wages, while China’s near US$2 trillion in foreign exchange has been used as a bargaining chip for state-owned enterprises that blindly spend on expansion.
Together with weak domestic demand, this has made the Chinese economy heavily dependent on US consumers, who pay for this consumption with borrowed money.
The authoritarian development model helps to increase exports and earn foreign exchange, but it has also contributed to China’s US dollar-based financial problems. Anything that affects the status of the US dollar will see China’s US$2 trillion in foreign exchange reserves decrease in value. Therefore, the more China tries to challenge the US for the post of global financial leader, the more it hurts its national strength. This Catch-22 situation was reflected in the outcome of the G20 summit.
If analysts are serious about China becoming stronger, they should encourage Beijing to deal with the changing situation calmly by adapting to it and not getting carried away with dreams of becoming a great power.
China’s leaders must stop issuing large loans to state-owned enterprises in order to buy out domestic and overseas firms or make large capital-intensive investments to meet growth projections. They should instead invest in raising the incomes of the lower classes to increase spending power and create domestic demand; encourage China-based Taiwanese businesses to move from export production toward producing for the Chinese market; and deregulate the yuan and cease manipulating exchange rates. It must enhance political participation and let people other than business and bank leaders create policy.
China has a long way to go before it becomes a truly powerful nation. Economic transformation must be accompanied by a political transformation.
Chen Ming-chi is an assistant professor at National Tsing Hua University’s Institute of Sociology and a member of the executive committee of the university’s Center for the Study of Contemporary China.
TRANSLATED BY DREW CAMERON
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