Our Broken China Policy
Beijing plays chess; America plays tiddlywinks.
Jan 17, 2011, Vol. 16, No. 17 • By IRWIN M. STELZER
Move on to wind turbines. GE acceded to a Chinese government demand that it build a wind turbine factory in China if it wanted to tap its market. Now, subsidized state-owned contractors direct all their business to domestic manufacturers, who are also eating steadily into GE’s U.S. market. The Obama administration has filed a complaint at the WTO—with no help from GE. Like all other companies that still see the Chinese market as one they must cultivate in order to grow their earnings, GE has backed off the public criticism of China in which it and others were temporarily emboldened to indulge when Google drew the line at accepting censorship and pulled out of China.
The camels that trod the old Silk Road laden with spices and porcelain are being replaced by air and sea freighters hauling solar panels and all sorts of goods based on copied technologies and purloined intellectual property. Nothing seems to have changed since Lenin observed, “The capitalists will sell us the rope with which we will hang them.”
There is worse. While Barack Obama and American supporters of free trade are congratulating themselves on a WTO finding that China is subsidizing the export of cheap tires, and negotiating a trade deal that might enable American carmakers to sell a few more vehicles to South Korea, the Chinese are establishing themselves in Africa, South America, and the Middle East to lock up supplies of minerals, oil, and food. This is about more than money and trade balances, or the pursuit of an economically efficient use of the world’s resources obtained through an Adam Smith-like international specialization of labor. It is about the use of state resources not only to satisfy the legitimate needs of a growing economy, but also to obtain the power to influence the policies of other nations.
Thus, when Japan detained the captain of a Chinese fishing boat that collided with a Japanese patrol vessel, China’s rulers banned the export to Japan of rare earth minerals crucial to the manufacture of many industrial—including defense—products. Their more recent decision to cut exports of those minerals by over 70 percent is seen as an effort to force companies needing the stuff to relocate in China, which controls over 95 percent of the world’s supply. The regime deems the nontrivial environmental costs of processing these minerals a small price to pay for the power their control confers. American liberals and greens prefer a more pristine environment.
Still another problem is the difference in attitudes towards foreign investment. The Obama administration’s treatment and threatened treatment of earnings on foreign investments discourages companies from investing abroad. China, knowing that influence follows foreign investment, encourages it, even to the extent of offering to buy the bonds of broke European countries. Having already invested massively in resource-rich African countries such as Sudan, China is turning its attention to Latin America. In Argentina alone China’s state-owned and subsidized companies have invested in a wide range of natural resource developments and in ports to facilitate the large-scale shipment of these resources to China.
Then, of course, there is India, a giant, fast-growing, democratic country that is now the prize in the 21st-century version of the Great Game. Barack Obama visited India and trumpeted his success in nailing down trade deals worth $10 billion. The next month Wen Jiabao, China’s premier, played one-upmanship and booked $16 billion in deals, financed by China’s banks, and announced he would open China’s markets to Indian goods and double trade between the countries to $100 billion annually by 2015. Lest there be any doubt that China expects India to adjust its foreign policy to its new dependence on the Chinese market, it warned India that criticism of the Chinese leadership could threaten “fragile” bilateral ties that would be “difficult to repair.”
Even more important are two additional factors, one economic, the other military. Beijing has its eye on the dollar: not the jiggles in its value but its position as the world’s currency of choice. Countries can already invoice and settle trade deals in renminbi, which more will do as China gradually makes its currency more easily convertible. No need for dollars.
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