Three reasons we don’t need to fear China

And one reason to be a little worried

 

 

Given events between China and the US over the last year, including showdowns over the South China Sea, cyber space, pacific trade agreements, currency manipulation, and the Asian Infrastructure Investment Bank, it isn’t surprising that China has been a popular topic on the campaign trail.  Throw into the mix China’s massive military build-up and the Chinese government’s ongoing crackdown on dissent, it seems fitting that a policy analysis published last year by the prestigious Council on Foreign Relations suggested that the US needs “a new grand strategy toward China that centers on balancing the rise of Chinese power rather than continuing to assist its ascendancy.”

 

Suggesting that the US needs to stop assisting China’s rise is a fairly strong policy recommendation and raises the question: Just how much should we fear China?  How big is the China threat?  Economically?  Politically?  Militarily? 

 

A detailed answer to that question would likely require an entire book.  But any analysis would have to include a discussion as to how China is changing.  From that perspective we can identify three reasons why we need not fear China and one reason why it makes sense to be a little worried. 

 

China is integrating with the rest of the world

Integration leads to interdependence which promotes good relations

 

As China grows, it is integrating with the world, not withdrawing from it.  The first stage of China’s growth relied heavily upon exports which of course requires foreign customers.  The next stage has already shown it will rely heavily upon cross border investment, including foreign capital flowing into China and the Chinese companies buying overseas firms.  Those are just the direct economic benefits.  The indirect benefits—sending students overseas, learning new management methods and business practices from foreigners, cooperating in science and technology—are even more important in terms of driving China’s development.  China seems to recognize it needs the rest of the world because it continues to pursue policies that encourage Chinese companies to seek ties overseas and invites foreign companies to invest in China.  It isn’t difficult to reason that integration promotes better relations—it just doesn’t make sense to go to war with your customers, suppliers, shareholders, partners, and overseas subsidiaries.  From the WTO to the liberalization of China’s currency and capital markets, we see ample evidence that, the more China integrates into the world economy, the more it is incentivized to play by the rules that everyone accepts. 

 

“Socialism with Chinese characteristics” is a myth

China is not inventing a new type of economic system

 

China’s economy is not exactly like ours.  The government plays a much larger role.  There are those who say this reflects the notion that China is inventing a new economic model which China itself has called “socialism with Chinese characteristics” and others have referred to as a “state-directed” economy.  Don’t believe a word of it.  For those close to the Chinese economy, there is no doubt which part of the economy is driving growth—the private sector.  From virtually every measurable angle—exports, job creation, R & D spending, brand value, overseas investment—China’s private sector either outperforms the state-owned sector or is on its way to outperforming the state-owned sector.  Even the Chinese government knows that, from the capital markets to the automobile market to improving the performance of state-owned enterprises (SOE’s), without more market-oriented reforms, China won’t continue to grow.  China has grown because the hand of government in the economy is lighter now than it was 30 years ago.  If thirty years from now China’s government is still performing the same economic tasks it does now, we will have stopped worrying about China because China will have stopped growing and developing.   

 

China’s culture is changing

The Chinese people increasingly have the same goals and outlook that we have

 

In highly impoverished countries, where life is dismal and doesn’t change generation after generation, people don’t look to the future and they don’t think in terms of individual goals for their own lives (because everyone’s life is roughly the same).  Growth and development change all that.  The future can be brighter and people begin to focus on ways to improve their own lives.  What kind of job can I get?  Where will my kids go to college?  When can I retire?  What kind of patio furniture do we want?  In fact China’s culture—the values, attitudes, behavior, and goals of its people—are changing in ways that will impact not only its economy but also its political system (moving toward democracy) and the very fabric of its society.  To put it another way, Chinese people increasingly think like we do.  As we all know, people who are planning for college, retirement, and patios, don’t have a strong thirst for war or confrontation. 

 

Change takes time

We must be prepared for bumps in the road

 

To summarize the above, China needs the rest of the world and is becoming increasingly similar to us (in terms of economic system, culture, etc.).  In the long run that is why China’s development will be a benefit to the world, not a danger.  But it must also be said that the operative word here is “becoming” like us.  China is changing, but it isn’t like us quite yet.  In many ways both its people and its government see things differently than we do.  Those differences pose a risk, one we can’t ignore.  So before we can truly call China an ally, we have to hope for the best and prepare for the risk.  Maintaining appropriate military strength and alliances will be important.  Pushing back on key issues like cyber security is vital.  Like foreign businesses who invest in China, we have to seize the opportunity while protecting ourselves against the risk.  If our companies can do it (the vast majority of foreign companies investing in China earn a profit) then so can we as a country.  I don’t think protecting ourselves against risk requires us to no longer engage China as it transforms into a better country.