The seemingly unstoppable rise of China has long been high on the agenda at the annual meeting of the World Economic Forum in Davos, Switzerland. This year, though, the discussion is likely to include a greater focus on major challenges facing the country.
China is already the world’s biggest exporter and the second-largest economy after the US. The country has US$2.9 trillion in foreign exchange reserves and is pushing to build its first aircraft carrier and land a spacecraft on the moon within two years, but there are also potential problems ahead this year. At home, there are growing worries about inflation, including rising property prices and the possibility that a widening income gap between rich and poor could threaten social stability.
On the international front, China is struggling with trade friction over its currency policy and it is coming off what analysts say was a year of diplomatic missteps.
Minxin Pei (裴敏欣), who teaches political science at Claremont McKenna College in California, said China undermined its standing last year with a more assertive and erratic posture on foreign affairs.
Among other things, he said, China needlessly confronted the US over the sale of weapons to Taiwan, berated Japan for its decision to detain the captain of a Chinese fishing trawler and lashed out at the West in an exaggerated way after Norway awarded the Nobel Peace Prize to Liu Xiaobo (劉曉波), a Chinese dissident.
“This may reflect the nature of the regime and its autocratic system, but in the end, they’re pragmatists. They’re not led by blind megalomaniacs. So there may be some adjustments. There is some hope,” Pei said.
Sensing discord in its foreign relations, China has responded in recent months with what some analysts see as a series of charm offensives.
Delegations of high-ranking Chinese leaders have traveled to world capitals to sign multibillion-dollar trade and investment deals. In Europe this month, Chinese leaders pledged to support the euro, in part by buying the sovereign debt of some weakened eurozone members.
When Chinese President Hu Jintao (胡錦濤) visited Washington last week, China signed business deals that promised to create a quarter of a million US jobs. Beijing also tried a dose of soft power by releasing a promotional video showing positive images of China and Chinese celebrities. The images were broadcast on giant television screens in Times Square, New York.
However, those efforts had been undermined by diplomatic stances that seem increasingly hardheaded, said Orville Schell, director of the Center on US-China Relations at the Asia Society in New York.
“There’s a muscular resistance to any kind of cooperation that might seem like yielding to US demands and interests,” Schell said. “For the last hundred years, China has wanted to be in the position where it’s not pushed around and now they are close to that.”
“It should be a sweet moment, but when such cooperation even so much as hints at submission, it becomes difficult. Especially at a high, visible level, this concern makes the give-and-take that is essential in working out common problems very difficult,” he said.
Other analysts say the US and Europe need to accept some of the blame for souring relations. Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, said the West often demonized China, and Western leaders tended to lecture the Chinese in a way that could be seen as disrespectful and was likely to fan resentment among Chinese officials.
“The West is terrified because they’ve dominated history for the past 200 years and now China’s emerging, but we should all recognize that a multipolar world is much better than a unipolar world,” Mahbubani said.
Still, the Chinese Communist Party’s chief concerns this year are internal, analysts say. Top among them are maintaining strong economic growth, which helps improve the livelihood of its citizens, while also reducing the likelihood of social instability and challenges to the party.
To strengthen the economy, the government has promised to rein in inflation and soaring property prices. Several big cities are considering new property taxes and local governments have announced plans to build more low-income housing.
Many economists have forecast another year of stellar economic growth, with the Chinese economy expected to grow about 9 percent. Yet concerns remain about overly aggressive lending by state-run banks.
Since early 2009, Chinese banks have engaged in a record lending spree that has helped back state-owned companies and financed huge infrastructure and property projects. Analysts say the policies probably encouraged loose lending standards, which could increase the likelihood of a sharp rise in nonperforming loans — something that seriously threatened state-run banks less than a decade ago.
The government has also pledged to revamp the economy, moving away from a heavy reliance on exports and government investment and toward more domestic consumption.
Chinese leaders are supporting efforts to increase the wages of average workers and are encouraging more investment in inland provinces, which have lagged far behind the nation’s coastal cities, but getting Chinese consumers to spend more will not be easy, analysts say, particularly in a nation with a relatively weak social safety net.
Another barrier to change is what some analysts say is a quiet shift in government policy away from market-oriented changes toward ones that back state-owned companies and so-called national champions.
Two recently published books argue that China has been moving away from Western-style capitalism toward what is called state capitalism, in which the government and state-owned companies team up to dominate business and the economy, and to compete with multinational corporations from abroad.
In Red Capitalism, Carl Walter and Fraser Howie wrote that the Chinese government’s efforts to change the nation’s banks and financial system had stalled from 2003 to 2005 as various government agencies battled for control over the banking system.
While the outside world sees a vibrant Chinese stock market, splashy initial public offerings and new billionaires — all ostensibly signs of an increasingly market-oriented economy — the reality, they say, is a system in which the state manipulates the markets to raise huge sums of money and then forces the banking system to make wasteful loans to state-owned companies.
The real turning point came after the financial crisis, when China lost confidence in Wall Street’s financial model, said Ian Bremmer, president of the Eurasia Group, a consulting firm, and author of The End of the Free Market: Who Wins the War Between States and Corporations?
China then began adopting a system that allowed the state to use its assets to move markets and strengthen support at home.
This, Bremmer said, will greatly alter the relationship between China and Western countries such as the US, generating more conflicts over jobs and market access.
“This has certainly changed the calculus,” Bremmer said in an interview. “This means the most important economic relationship in the world will become an increasingly zero-sum game.”
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