November 4th 2017


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Articles from this issue:

COVER STORY National Energy Guarantee: lots of smoke, but no coal-fired power

EDITORIAL Popular revolt against the ideology of globalism

CANBERRA OBSERVED Paris still rules in the party room

ENERGY Renewables and gas conspire to push up prices

ENVIRONMENT Climate change did not cause California fires

ELECTRICITY Consumers will wake up only when there are blackouts: economists

ECONOMICS Something new under the sun from China

NATIONAL AFFAIRS Abbott gets brickbats for exposing house of straw

NATIONAL AFFAIRS Australia is far from fulfilling its potential

TECHNOLOGY Aussie scientists 'write' with adult stem cells

75TH ANNIVERSARY NCC: new challenges, kind of new adversaries

MUSIC All around the beat: the essential drummer

CINEMA Happy Death Day: Deja vu with a sharp edge

BOOK REVIEW Traditions under threat fight back

BOOK REVIEW Journey to freedom

LETTERS

ENERGY Coal-fired power needed to restore economic growth

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ECONOMICS
Something new under the sun from China


by Colin Teese

News Weekly, November 4, 2017

Turning and turning in the widening gyre
The falcon cannot hear the falconer
Things fall apart, the centre cannot hold
Mere anarchy is loosed upon the world
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned.
The best lack all conviction, while the worst
Are full of passionate intensity.

The Second Coming
W.B. Yeats (1895-1939)

What Yeats wrote almost 100 years ago says it all. Things are falling apart and destroying the centre.

This writer has been inspired to confront all of this by recent articles of Geoff Raby and Andrew Nathan (The Australian Financial Review September 6 and October 7–8 respectively), and a book by Australian academic Hugh White. These have brought the China issue into clearer focus, and have led me to believe that much of what is happening in most of the West is directly connected with the emergence of China as a great power.

For me a starting point is to observe that for far too long we in the West – in lockstep with the United States – have come to regard our countries as “economies” rather than nations. In other, words Western nations (and their peoples) have become the servants of economics. It should be the other way around.

China, on my reading, has avoided the trap. By doing so it is on the way to becoming a significant influence shaping modern politics and economics. It is also, perhaps, in Western minds the least well understood.

Back around the turn of the century an academic commentator from one of the better universities in the U.S. published an article in the influential American journal, Foreign Affairs. His view was that Chinese growth and development should not alarm us; it could be comfortably assumed that emerging China would, as it were, be absorbed into the U.S. camp: it would follow and accept U.S. leadership in much the same way as had been the case with Taiwan, Japan and South Korea.

He could not have been more wrong, but for some time his view held sway – even among influential U.S. policy advisers.

It all made sense, so the argument went. This had worked with Taiwan, with South Korea and spectacularly with Japan. Chinese growth would coincide with that country being absorbed into a world dominated by U.S. capitalism and the values associated with it. And, of course earlier, in Europe, the same formula worked with Germany.

All of this should be seen against the background of a Cold War in which the U.S. and its allies were committed to defending capitalism against the onset of Communism. In that context winning China into the Western camp would be a triumph.

“ ... somewhere in sands of the desert   

A shape with lion body and the head of a man,   

A gaze blank and pitiless as the sun,   

Is moving its slow thighs ...”

W.B. Yeats, The Second Coming

It’s worth remembering that China turning communist in 1949, in the context of a deepening Cold War, was an unanticipated and worrisome development for the U.S. It raised the spectre of a new communist ally for Soviet Russia – each with a permanent seat on the United Nations Security Council.

For a time the U.S. refused to recognise Communist China and promoted the fiction that Taiwan was actually China. All of this changed when Richard Nixon, guided by Henry Kissinger, decided on rapprochement with Communist China. Normal relations between the U.S. and China were resumed in 1979.

A still more important step was taken by U.S. President Jimmy Carter and Chinese leader Deng Xiaoping, who signed an agreement drawing China into a close economic relationship with the U.S.

It was desperately important for Deng. After so many failed economic experiments under Chairman Mao, Deng knew that China’s Communist Party would not survive unless the country could be placed on a successful path to economic development. A tie-up with the U.S. opened the way to for China to take the proven road to economic success already taken by Taiwan, Japan and South Korea.

The gain for the U.S. was to bring China into the West under a capitalist umbrella; the deal negotiated with Jimmy Carter allowed Deng to keep his Communist Party in place in return for embracing capitalist ideas of market-economy domination, including the opening up of China’s economy to foreign investment. Apparently only Deng, within the Chinese leadership, understood how important this was.

Unlike Taiwan, Japan and South Korea, China was not required to adopt Western political models. It is only today becoming clear how decisively important this distinction was in China’s growth to independent major power status.

As it turned out, more by accident than design, China gained far more than the U.S. did from the experiment. As a result of access to the U.S. market, China quickly grew into a major economic power. Two immediate gains flowed from this. First, the success of China’s new economics (quasi capitalism) enabled it to satisfy its people’s demand for measurable economic gains; and, second, a more powerful China was insulated from Soviet interference.

These two factors, as it turned out, saved Chinese communism.

However, things did not go so well for the U.S. What it hoped for was political change to the point of bringing China into the Western camp. That did not happen. Neither did the economics work out. China embraced free trade and opening its borders to foreign investment – in a sort of way. And yes, U.S. consumers got cheap Chinese goods, and some U.S. businesses did well by teaming up with Chinese partners to sell into the U.S.

However, the flood of Chinese imports closed down job opportunities in the U.S. to the point of generating social unrest that continues into the present.

And one presumes neither side could have imagined how quickly access to the U.S. market would stimulate economic growth in China. It made China into a major power – ultimately into the second largest economy on the planet – and growing. China has over three times the population of the U.S., meaning that Chinese workers only need to be a third as productive as their U.S. counterparts to have an economy to match that of the U.S.

All of this without China being drawn into the U.S. economic and security network.

On any writing of the scorecard, the Carter/Deng Xiaoping accord seems to have done a great deal more for China than it has for the U.S.

Following the collapse of the Soviet empire, the U.S. assumed world dominance to a greater extent than any other power in modern history – including Britain. But it was not to last. Under economic stimulus China’s economic and political power quickly developed – not merely in Asia, but globally. And this increase in China’s power and influence has been associated with a decrease in that of the U.S. – especially in Asia.

Compare all of this with the rise of Japan. Its economy grew rapidly like China’s, but entirely beneath the umbrella of a dominating U.S. influence.

Now it’s time to consider quite where we are. I am especially grateful to Geoff Raby, mentioned above. Geoff was formerly our ambassador in Beijing with business interests in China. He has provided us with an outline of some of China’s achievements and of the plans of its present leader, Xi Jinping, for the country’s future.

The West doesn’t much like China’s politics; then again, ours is not travelling too well at the moment. But China’s politics do work. The government and the people are confident. Between 2007 and 2017, per-capita income doubled. China has more high-speed rail than all of the rest of us. Global companies have emerged with household names like Tencent and Alibaba.

That’s the stuff we know about. Less well known until now are the fundamental changes made under the leadership of Xi Jinping to what his predecessor Deng Xiaoping implemented following his deal with Jimmy Carter in 1979.

It has to do with the return to pre-eminence of the Communist Party. Xi is ensuring that all elements of state power “serve and entrench” party control. The 2013 policy, in which the party recognised the market as the driving force of the economy and the private sector was on an equal footing with the state-owned sector, is gone.

Amalgamating huge entities into even larger units is the new policy, especially in steel, transport and power. All these as well as finance are state owned and closely tied to the Communist Party and its purposes.

The Party is back on top.

Although the private sector is still generating 75 per cent of GDP, the Party’s hand is on everything that shapes the economy – and even in the private sector the high-tech end want close links with the Party.

It’s no Soviet model, as the strength of the private sector testifies. It could be said to be Xi’s version of the mixed economy of the West in the period 1945 to 1980 – though the Chinese emphasis is decidedly on the side of state rather than private pre-eminence.

Presumably, all of these changes are part of Xi’s purpose to strengthen China’s influence in today’s world. Whether and what may be any wider Chinese purpose is as yet unclear but important, given that China is being shaped in a way totally different from the West.

The West seems intent on business as usual. That is, getting the economics right and letting the rest take care of itself. But the rest is where most of the troubles lie. Perhaps the Chinese are doing it better by putting the economics in the context of a wider Chinese purpose in the world.

But we should be clear about one thing. We are not seeing a replay of the Cold War. This is no game to see which ideology can deliver the best economic outcomes. It’s old-fashioned power politics, where mere misunderstandings can end up in wars.




























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