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Tuesday, March 1, 2011

Not the right time for the G2. Part I

On the 18th of February, right before Hu Jintao’s visit to the USA, Hillary Clinton delivered a speech in the State Department where she mentioned the possible future format of Sino-American relationship in the 21st century. Recent rapid growth of the PRC economics made everyone talking about the new Chinese global role, which may reconfigure the G8 having reduced it to the G2 — alliance of America and China.
Public address of the U.S. State Secretary was timed to the commemoration events for Richard C. Holbrooke, who passed away in the end of last year. This well-known American diplomat used to be the State Secretary Deputy for the Asian-Pacific region in Jimmy Carter’s government and was mostly responsible for the coordination of foreign-policy efforts that normalized the diplomatic relations between the PRC and the USA in 1978-79 after death of Mao Zedong and Dang Xiaoping’s coming to power. Since then world has changed and so have both of these countries. As madam State Secretary emphasized, it was the rule of Democratic President (Richard Nixon) and efforts of then chief of American diplomacy Henry Kissinger that helped to achieve the fundamental improvement of bilateral relationship:

„These three decades of relations between our countries have also been three decades of impressive growth for China. When Richard Holbrooke and his colleagues first visited China, its GDP barely topped $100 billion. Today, it is almost $5 trillion. Trade between our two countries used to be measured in the hundreds of millions of dollars. Today, it surpasses $400 billion annually”
Mrs. Clinton repeatedly mentioned millions, billions and trillions in her speech. Meaning of these large numbers — often heard from American politicians — is not always clear enough for the speechwriters themselves, let alone the common public. State of American economics — also described with an amount with a lot of zeroes — is by no means a sign of serene future. Trade deficit in the amount of $227 billion in 2009 caused serious problems at the labor market. America stands heavily in Chinese debt — and its amount also has quite a number of zeroes. According to official data of the U.S. Treasury by October, 2010 it made up $895 billion. Yes, Japan and Great Britain follow the PRC in the list of American lenders, from whom the USA have borrowed similar amounts of money and in our computerized age it doesn’t really matter at which server information about American foreign debt is hosted. But still Sino-American commercial relations cause peculiar anxiety among the officials of Obama’s administration. In outward appearance it doesn’t seem that bad for the USA. Share of Chinese goods in American import makes up some 20%, while American export to the PRC is constantly increasing (for the account of mechanical engineering, agricultural production and nuclear reactors). At the same time the matter of artificially understated Yuan exchange rate (“renminbi” in English transcription or „ in Chinese means “people’s currency”) still remains the permanent irritating factor of Sino-American relations. In spite of the well-spread opinion that Chinese have filled American market with their cheap commodities, Chinese market itself absorbs quite a number of American goods. According to Gary Locke, current U.S. Secretary of Commerce, during the last 20 years volume of export from the USA to the PRC increased 12 times. China is the 3rd largest export market of American goods after Canada and Mexico — weakening of dollar largely contributed to that. Even during the economic crisis value of American commodities imported by China in 2009 decreased only by 0.2%. China is the 4th largest world exporter of soya, cotton and cattle pelt. Americans are supplying the PRC with electric cars, planes, computers and raw materials for the chemical industry. Given all that, it is not surprising that Hillary Clinton is trying to ease the tensions around Sino-American rivalry a bit:
But despite its progress in the past 30 years, China still faces great challenges. When I speak with my Chinese counterparts, they often talk to me in passionate terms about how far their country still has to go. Because even with all that growth, China’s GDP is only a third of the size of America’s with nearly four times the number of people. And our trade with the European Union is still greater than our trade with China. As Secretary Geithner[1] noted this week, China has a lot of work to do to move from a state-dominated economy, dependent on external demand and technology, to a more market-oriented economy powered by domestic demand and innovation”.
China is without doubt a huge country both in territorial sense (9.600.000 square kilometers) and by the sheer size of its population (1.330.000.000 by July of 2010), therefore, having a colossal labor market (813 million of able-bodied citizens). Despite an impressive growth rate (9% a year in 2009), its GDP (which makes up approximately $5 billion) is still lower than the American one by far ($14.7 billion according to the Bureau of Economic Analysis — U. S. Department of Commerce). However, if we take a closer look, we’ll find out that low Chinese labor productivity is preventing it from serious competition with the developed global economies. GDP per capita in China makes up $3.678 (for 2009), while average value of this important index of economic development around the globe is $8.971. Compare it to the indices of the wealthiest countries in the world: Luxemburg — $70.014, Qatar — $68.696, Norway — $47.551). The USA is at the 6th position in this list with the value of $41.674 of GDP per capita[2]. Thus it becomes clear that the Chinese model of economic development — so attractive for certain economists — is an extensive socialist economy, which still has a long way to go before it reaches the top positions of global economic ratings.
More careful analysis of Chinese economics causes the thought that Chinese economic miracle to a considerable degree originates in the West, which is willing to “saddle” the tremendous Chinese market. In 2008 only about $110 billion of foreign investments were directed into the Chinese economics. Almost a half of Chinese exported goods are produced at the factories with a certain share of foreign capital. This paves the way for colossal influx of new technologies from all over the world — including the ones that Chinese managed to obtain using the industrial espionage. Major part of Chinese economic boom may be ascribed for the account of transiting of industrial capacities from the better economically-developed countries — seeking for cheap labor force and secretly planning to sell its goods at the domestic Chinese market — to China. New opportunities that opened before China in 2001 when the country entered the WTO also contributed to the development of Chinese economics. That’s why we may agree with Hillary Clinton who said the following in her above-mentioned speech:
“China’s transformation, made possible primarily by the hard work of its people and the vision of its leaders, was also aided by an open and dynamic global economy and by the American power that has long secured stability in the region. It has lifted hundreds of millions out of grinding poverty and now helps drive global prosperity. The United States has welcomed this growth, and we have benefited from it. Today, our economies are entwined and so are our futures.”


[1] Timothy Geithner — current U.S. Secretary of Finance
[2] According to the IMF data. Russia holds the 51st place with the value of $15.807 of GDP per capita.


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