China’s Real Quest for Gold

Stephen DeAngelis

August 21, 2008

As the Beijing Olympics come to a close, Washington Post columnist Robert J. Samuelson uses the moment to reflect on China’s long-range goals and how they might affect the world’s future [“The Real China Threat,” 20 August 2008]. He warns that trying to equate China’s quest for Olympic gold medals to its quest for military or economic dominance will have us looking in the wrong direction for real threat. He writes:

“Obsessed with rankings, Americans are bound to see the Beijing Olympics as a metaphor for a larger and more troubling question. Will China overtake the United States as the world’s biggest economy? Well, stop worrying. It almost certainly will. China’s economy is now only a fourth the size of the $14 trillion U.S. economy, but given plausible growth rates in both countries, China’s output will exceed America’s in the 2020s, Goldman Sachs forecasts. But this is the wrong worry. By itself, a richer China does not make America poorer. Indeed, because there are so many more Chinese than Americans, average Chinese living standards may lag behind ours indefinitely. By Goldman’s projections, average American incomes will still be twice Chinese incomes in 2050.”

Samuelson is a champion of globalization and knows that it is not a zero sum game — something that more Americans need to understand. So where does Samuelson see a threat?

“The real threat … is that China will destabilize the world economy. It will distort trade, foster huge financial imbalances and trigger a contentious competition for scarce raw materials. Symptoms of instability have already surfaced, and if they grow worse, everyone — including the Chinese — may suffer. China is now ‘challenging some of the fundamental tenets of the existing [global] economic system,’ says economist C. Fred Bergsten of the Peterson Institute. This is no small matter. Growing trade and the cross-border transfers of technology and management skills contributed to history’s greatest surge of prosperity. Living standards, as measured by per capita incomes, have skyrocketed since 1950: up 10 times in Japan, 16 times in South Korea, four times in France and three times in the United States. Significantly, these gains occurred without serious political conflict. With the exception of oil, world commerce expanded quietly. The chief sources of global strife have been ideology, nationalism, religion and ethnic conflict.”

Samuelson doesn’t discount those factors as future justifications for conflict. His point is that economics should be added to that list as a potential justification for conflict. He argues:

“Economics could now join this list, because the balance of power is shifting. The United States was the old order’s main architect, and China is a rising power of the new. Their approaches contrast dramatically. Economically dominant after World War II, the United States defined its interests as promoting the prosperity of its allies. The aims were to combat communism and prevent another Great Depression. Countries would make mutual trade concessions. They would not manipulate their currencies to gain advantage. Raw materials would be available at nondiscriminatory prices. These norms were mostly honored, though some countries flouted them (Japan manipulated its currency for years).”

Many analysts have argued that the post-World War II international organizations that were established to keep the peace and foster economic prosperity are now getting long in the tooth and are in need of reform. Samuelson worries that China won’t cooperate in any such reforms, but will instead establish a competing economic system. People forget that the Cold War was as much about competing economic blocs as about military confrontation. Samuelson worries that China could begin a new economic cold war.

“China’s political goals differ. High economic growth and job creation aim to raise living standards and absorb the huge rural migration to expanding cities. Economist Donald Straszheim of Roth Capital Partners estimates the urban inflow at about 17 million people annually. As he says, China sees export-led economic growth as a magnet for foreign investment that brings modern technology and management skills. Prosperity is considered essential to maintaining public order and the Communist Party’s political monopoly. At first, China pursued its ambitions within the existing global framework. Indeed, the United States supported China’s membership in the World Trade Organization in 2001. But as it grows richer, China increasingly ignores old norms, Bergsten argues. It runs a predatory trade policy by keeping its currency, the renminbi, at artificially low levels. That stimulates export-led growth. From 2000 to 2007, China’s current account surplus — a broad measure of trade flows — ballooned from 1.7 percent of gross domestic product to 11.1 percent. The biggest losers are not U.S. manufacturers but developing countries whose labor-intensive exports are most disadvantaged. Next, China strives to lock up supplies of essential raw materials: oil, natural gas, copper. If other countries suffer, so what? Both the United States and China are self-interested. But the United States has seen a prosperous global economy as a means to expanding its power, while China sees the global economy — guaranteed markets for its exports and raw materials — as the means to promoting domestic stability.”

There is little argument that the Chinese put on a first-class Olympic games. Also well-known is the fact that behind the amazing public display were some shameful abuses of civil liberties and human rights. The ruling politicos are single-minded about remaining in power, keeping a lid on domestic unrest, and getting the respect they believe they deserve in the international community. It is this single-mindedness that Samuelson believes could bring East and West into conflict.

“The policies are increasingly on a collision course. China’s undervalued currency and massive trade surpluses have produced $1.8 trillion in foreign exchange reserves (China in effect stockpiles the currencies it earns in trade). Along with its artificial export advantage, China has the cash to buy big stakes in American and other foreign firms. Predictably, that has stirred a political backlash in the United States and elsewhere. The rigid renminbi has contributed to the euro’s rise against the dollar, threatening Europe with recession. China has undermined world trade negotiations, and its appetite for raw materials leads it to support renegade regimes (Iran, Sudan).”

Samuelson’s concern is not military conflict per se, but economic conflict in the form of dueling nationalistic and protectionist policies — the same kind of policies that led to the collapse of the first wave of globalization. He concludes:

“The world economy faces other threats: catastrophic oil interruptions; disruptive money flows. But the Chinese-American schism poses a dilemma for the next president. If we do nothing, China’s economic nationalism may weaken the world economy — but if we retaliate by becoming more nationalistic ourselves, we may do the same. Globalization means interdependence; major nations ignore that at their peril.”

Nationalistic fervor is always high during an Olympic competition. Rightfully, people enjoy seeing their country’s men and women do well. Too often they miss the larger purpose of the Olympic Games — to bring nations together in peace to enjoy the athletic feats of the world’s best athletes no matter their country of origin. It is a time to applaud and appreciate great performances completed under extreme pressure. World leaders need that same vision when considering economic competition. They need to bring the world together in peace to bring about the best economic performances they can from every nation. It was wonderful to see Togo win its first Olympic medal. It would be just as wonderful to see Togo prosper in the world economy. Only leaders with vision and wisdom will bring us to the level of prosperity and peace that the citizens of world have long sought. Just as China was key to putting on a world class Olympic competition, it is key to fostering a world class economic competition — one that benefits all of the world.