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If China's So Powerful, Why Isn't It More Powerful?

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The United States and other nations have long recognized Beijing's economic might. But why hasn't that translated to commensurate political respect?

BY WEN LIAO | JULY 28, 2009

This week, during the latest meeting of the twice-a-year U.S.-China strategic dialogue, leaders from both countries are talking economic policy. Cabinet members, led by their respective finance ministers and central bank governors, are discussing trade, climate change, the fates of the dollar and yuan, and other vital issues. But there are signs that this dialogue may become bogged down in the same old tit-for-tat economic disputes and fear-driven rhetoric.

Leaders in Washington and Beijing have long recognized the emerging giant's importance to the world economy in general and the U.S. economy in particular. But, China's leaders feel, this has not yet translated into equal stature in making decisions regarding the international financial system, global economic policy, or the United Nations and global diplomacy.

Amid all of the discussion of dollars and bonds and deficits, the key question for the talks -- a question that isn't on the table -- is this: Is the United States prepared to treat as an equal partner the self-confident China that emerged following last October's financial meltdown?

During the early stages of the recession, in 2007, China stepped in to ease the credit crunch. Chinese sovereign wealth funds immediately helped recapitalize the debt of U.S. and European banking institutions. The crunch became a crisis in September when the state-owned China Investment Corporation pulled out of talks to buy Lehman Brothers, the troubled U.S. investment bank. The economic chaos that followed Lehman's eventual collapse revealed to China the depth of its stake, and the impact of its decisions, in the globalized world economy.

Zhou Xiaochuan, governor of the People's Bank of China, delivered China's assertion of its new status in a strikingly blunt article he published last spring. In that article, Zhou called for the dollar to be replaced as the main reserve currency by a new global currency. Zhou's broadside was China's way of making clear not only its fears about the dollar and hence the value of China's huge foreign reserves, but also that it is now prepared to offer its own solutions to fundamental global issues.

Although China is not in a position to replace (even if it wanted to) either the dollar or the United States as the engine of the global economy, its stake in the world continues to be underestimated. Since 2000, China's contribution to global GDP growth (in purchasing-power-parity terms) has been 150 percent bigger than that of Russia, India, and Brazil combined. Its massive holdings of U.S. Treasury bills are a primary determining factor for U.S. interest rates. Nevertheless, a misperception still persists that the Chinese economy is too inward-looking to have commensurate global impact.

In 2006, Robert Zoellick -- then U.S. deputy secretary of state and now president of the World Bank -- said that he hoped that China would become a "responsible stakeholder" in the world community. That neat phrase suggested that the United States wanted China to look beyond narrow self-interest in its international dealings.

But China's diplomacy was already moving in the direction Zoellick sought. Its refusal to engage in competitive devaluations during the Asian financial crisis of 1998 had marked the turning point, as China put stabilizing the economies of its region ahead of its own interests. Since then it joined the talks on North Korea and has raised no complaints about America's increasing military activities in Afghanistan and Pakistan. Indeed, in its relations with the United States, China seems to be guided more by pragmatism than by competition.

Yet China's sudden global reach generates anxiety at all levels of the U.S. government. Before this year, strategic dialogue meetings were dominated by American complaints about China's trade surplus with the U.S. and demands that China revalue the yuan upward. The U.S. Congress called frequently for trade sanctions against China and even, citing nebulous national-security concerns, scuppered the proposed takeover of Unocal, an American oil firm, by CNOOC, China's state-owned energy giant.

The "China bashing" voices in Congress are more muted this year, perhaps because there is a general recognition that China's dollar holdings give it a powerful say about the greenback's fate. But that does not mean that blaming China for global ills has gone out of fashion. Indeed, during the strategic dialogue discussions, climate change is likely to incite the heat that currencies and trade once did.

Climate change, indeed, is a knottier diplomatic problem for China than the global financial crisis has been. Not only has China become the world's largest emitter of greenhouse gases, but its future emissions will probably far exceed forecasts. Moreover, China remains a vast developing country, determined to lift hundreds of millions of its people out of poverty through rapid economic growth. Balancing its need for growth with climate protection makes climate change diplomacy a tricky venture for China.

So far, the problem in the climate talks is that the United States continues to demand something like parity in the level of sacrifice made by the two countries. But this demand conveniently forgets the fact that China remains a developing country, while the United States is a fully developed one. As a developing country that has throughout history emitted only one fifth of the CO2 emitted by the United States, China insists that it has the moral right to resist hard caps on its emissions.

The debate over climate change nicely encapsulates the unique nature of China's rise to great-power status. The Chinese understand that their country's ascent is far different than that of Germany and the United States in the early 20th century. Back then, the United States and Germany achieved parity with the per capita GDP of their key rivals, Britain and France. China, on the other hand, has achieved economic superpower status despite the fact that two thirds of its population remains mired in rural poverty.

Given these worries, China -- in its search for status with the United States -- has no interest in overturning the current open global order that has benefited it so much. Indeed, if the United States consults closely with China on today's most pressing global issues, it might find China to be more than accommodating.

Examples of China's flexibility can be found in the traditional world of foreign policy. For example, China is as worried as Secretary of State Hillary Clinton about potential military ties between Burma and North Korea, as its fears the negative impact that both unstable regimes may have within China.

In Afghanistan and Pakistan, too, U.S. and Chinese interests increasingly run in parallel. The recent Uighur riots in Xinjiang redoubled China's worries about radical Islam making inroads into China. So it should be no surprise that China has gone along with the United States maintaining its airbase in neighboring Kyrgyzstan for the resupply of NATO troops in Afghanistan, and that Chinese diplomats have consistently backed the Pakistani government as it scaled up its domestic war against the Taliban.

All of this suggests that Chinese and American strategic interests can be harmonized if both governments work diligently at doing so. But for this to be achieved, China needs to have its primacy among nations accepted, its responsible behaviour recognized, and its interests respected. The strategic dialogue can only succeed if it institutionalizes China's role in today's open global order, rather than hectoring China to acquiesce in the preservation of U.S. interests.

http://www.foreignpolicy.com/articles/2009/07/28/if_chinas_so_powerful_why_isnt_it_more_powerful
 
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