November 18th 2017


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Articles from this issue:

COVER STORY Full audit can end dual-citizenship fiasco

CANBERRA OBSERVED High Court high handed to 'foreigners' in Parliament

MANUFACTURING Auto industry loss result of government policy failure

AGENDA FOR AUSTRALIA Financing infrastructure for development and jobs

FOREIGN AFFAIRS Behind the indictments of ex-Trump campaigners

AUSTRALIAN HISTORY Beersheba charge enabled a pivotal victory

ECONOMICS China intends to party like it's 1949 ... again

ENVIRONMENT Core of climate science is in the real-world data

U.S. HISTORY Why Americans stick to their guns

MUSIC New styles: Dipping into the melting pot

CINEMA Loving Vincent: A mystery in oils

BOOK REVIEW Just what is the conservative idea?

LETTERS

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ECONOMICS
China intends to party like it's 1949 ... again


by Colin Teese

News Weekly, November 18, 2017

I’m not the only Australian wondering about China.

The question for me had always been, which direction China would take. Would it fully embrace the conventional (even neo-liberal) capitalist model, and follow the United States by fully embracing the market economy model, or did it really believe in the kind of communism followed by the former Soviet Union? Was it happy to take the chance the U.S. offered it to enter the U.S. market to dig itself out of a hole, or was that merely a means to supporting a communist end?

I think we now have definitive answers to those questions. The Chinese Communist Party dominates China’s economic and political life today as much as ever. The party is firmly in the driver’s seat. As was the case at the time Deng Xiaoping did his deal with U.S. President Jimmy Carter, the party can only be dislodged if its economics and politics fail.

China’s modern party leadership has been at once cautious and daring. All the big important bits of the economy are state owned or controlled – steel, transport and finance – and market-based policies have been downgraded.

China’s private sector still accounts for 70 per cent of gross domestic product (GDP), and is crucial to China’s plans to shift from an export-reliant economy to one where 70 per cent of economic activity (about the same as in the West) comes from internal consumption. At the moment it is about halfway there and gaining rapidly.

We must assume that the private sector is under firm party control. But it is not like the old Soviet Union where there was no private sector. (In fact, what the Soviets practised was not communism but state capitalism. The state, not the workers, owned everything.)

In the period after World War II until the late 1970s the West operated a very successful form of mixed-economy capitalism; one which delivered widespread benefits to its peoples. The West’s mixed economy over that period was based on the idea of a market-based private sector dominating the economy, but accepting an important role for appropriate government intervention.

It would be naïve to imagine that China was ever likely to follow this model. China’s mixed economy is its own political and economic creation. Taking bits from what it thinks is the best of Western economics, while consciously keeping it all under party control. Better to regard the Chinese as dumping what did not work in the Soviet experiment, and accepting that part of market economics that works for them.

The Chinese Government, under party guidance, will remain the dominant influence on Chinese economic and political policy for as far ahead as we can look. Market economics and the private sector will enjoy only limited power to influence government or party policy.

A second fundamental difference also seems to have been firmly cemented into place. The resurgence of party influence over all aspects of Chinese life leaves no place for Western-style democracy – unless the course set by Xi Jinping fails.

Failure in this context will mean an inability to deliver outcomes that further enhance the economic wellbeing of 1.3 billion Chinese. The Chinese leadership is well aware of these pressures. Presumably it judges that its chosen model offers the best chance to deliver what is needed.

This then is the background against which we must assess what kind of future faces China and what will be its impact on the rest of us in the decades ahead.

For many in the West these newest developments will be disappointing, especially for those who had hoped, or had been persuaded to believe, that the Chinese leadership was poised to embrace Western values and to accept what in the West is described as a “rules-based system”.

The fact is the Chinese leadership was never going to accept a “rules-based system” that to their minds was intended to advance and protect predominantly U.S. policy positions.

How China actually sees communism is difficult for outsiders to follow, but it has remained firmly committed to it since 1949. The evolutionary developments we have seen under Chinese leaders since Deng Xaoping over the past 40 years should be seen as adjustments to circumstances: in particular, delivering economic outcomes and other advances that would ensure that the Communist Party’s hold on power could not be challenged.

Xi Jinping no less than Deng seems committed to consolidating China’s pre-eminence as a world power with the party firmly in charge. He will, we must assume, use his power and influence, both at home and abroad, to resist those who challenge either his aims or his means for achieving them.

Accordingly, the task for the West is to concentrate on what all this means for us, and how we should or must respond.

The two aspect of Xi’s program – geo­political and economic – are inseparable. The Chinese military is part of his plan, he has said so explicitly. But, at least for the moment, China does not see its power being projected militarily; perhaps because it would be disastrous for both China and the West. Is he then pursuing what, in the current jargon, is called “soft power”?

I think not, but neither is it “hard power”, if there is such a thing.

None of this should be reason for complacency. Xi’s vision for China is being rolled out before our eyes. If we look closely we will see it has profound consequences for China and for the rest of the world.

(For the purposes of my analysis, I am going to disregard the question of Chinese debt. Yes, it could bring China unstuck, but expert opinion is deeply divided.)

Putting the debt issue aside, I believe that what is happening in China needs, above all, to be evaluated in terms of how it relates to existing broad, geopolitical power relationships, especially the issue of China versus the United States, since these are now the most powerful nation-states on the planet.

China is almost on terms economically with the U.S., though the latter remains overwhelmingly more powerful militarily.

It is important to understand that two fundamentals underpin U.S. foreign policy. First, the U.S.’s capacity to enjoy unchallenged hegemony over the Americas. There currently is no serious challenge to this. Second, to ensure that no other power enjoys hegemony over any other region of the world. This, the U.S. takes seriously. It entered two world wars in the 20th century to prevent this happening: twice relating to Germany and once in the case of Japan.

Since the collapse of the Soviet Empire, the U.S. had been able to project economic and political power, based on these fundamentals, over much of the world. China’s emerging economic political and military power is a confronting challenge to U.S. basic interests, not merely in Asia but more widely. Chinese military spending has matched, in relative terms, a 900 per cent increase in Chinese GDP growth from 1990 to 2017: it has increased from $18 billion to $152 billion.

But, whatever one makes of China’s expanding military, it would be folly to assume that China does not have the great-power imperial predilections. Nor should we believe that these will be confined to the Asian region.

China appears to have chosen trade policy as its major instrument of global power projection. It is already the No. 1 trading partner of every other country in Asia. And its One Belt, One Road infrastructure initiative aims to extend China’s reach into Central Asia, the Middle East and Europe by cooperative investment in ports, roads, rail and airports. Sixty-four countries have become partners in this initiative.

It is one of the tragedies of Australia’s foreign policy that we seem not to have taken this project seriously.

The U.S., we may expect, will make no such mistake. For a start, it looks like a frontal attack on the hegemonic basis of U.S. foreign policy mentioned earlier. Even without its full implementation, China is already Germany’s largest trading partner, giving China a foothold in Europe.

The unresolved question is how might the U.S. respond? We know that under President Barack Obama the policy (unstated) was one of containment of China. That, after all, had worked with the Soviet Union. But a moment’s reflection will reveal the circumstances to be entirely different.

China is not extending its reach based on military power. Instead it has chosen to take advantage of existing global commercial realities (free trade) to extend its influence. Neither is it, at least for now, promoting ideological change, though it could be influencing some emerging economies to think about how they organise their politics and economics.

Those reflections perhaps best explain why Obama’s strategy was unsuccessful.

Only two alternatives seem to be available. Military conflict, which we would all hope is not an option, though distinguished U.S. international-relations scholar John Mearsheimer of the University of Chicago believes otherwise, and has outlined why in his book The Tragedy of Great Power Politics.

His thesis is that mistrust, in the end, will lead contesting big powers into conflict.

What, then, are the alternatives? Obviously, some kind of sharing of influence and power between the U.S. and China is the most desirable outcome. But how realistic is that between two great powers when one obviously wants more room, which can only be gained at the other’s expense. A successful outcome would require a retreat on both sides. We shall have to see.

Whatever happens, Australia, despite what our Government may think, is in no position to influence the outcome.




























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