china rising giant

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China

See also: Chinese CenturyPeople's Republic of China

The People's Republic of China receives continual coverage in the popular press of its potentialsuperpower status,[21] and has been identified as a rising or emerging economic and militarysuperpower by academics and other experts. In fact, the 'rise of China' has been named the topnews story of the 21st century by the Global Language Monitor, as measured by number ofappearances in the global print and electronic media, on the Internet and blogosphere, and inSocial Media.[22][23][24][25][26]Barry Buzan asserts that "China certainly presents the most promising all-round profile" of apotential superpower.[27] Buzan claims that "China is currently the most fashionable potentialsuperpower and the one whose degree of alienation from the dominant international society makesit the most obvious political challenger." However, he notes this challenge is constrained by themajor challenges of development and by the fact that its rise could trigger a counter coalition ofstates in Asia.Parag Khanna states that by making massive trade and investment deals with Latin America and

Africa, China has established its presence as a superpower along with the European Union and the

United States. China's rise is demonstrated by its ballooning share of trade in its gross domesticproduct. He believes that China's "consultative style" has allowed it to develop political andeconomic ties with many countries including those viewed as rogue states by the United States. Hestates that the Shanghai Cooperation Organization founded with Russia and the Central Asiancountries may eventually be the "NATO of the East".[28]Geoffrey Murphay's China: The Next Superpower argues that while the potential for China is high,this is fairly perceived only by looking at the risks and obstacles China faces in managing itspopulation and resources. The political situation in China may become too fragile to survive intosuperpower status according to Susan Shirk in China: Fragile Superpower.[29] Other factors thatcould constrain China's ability to become a superpower in the future include: limited supplies ofenergy and raw materials, questions over its innovation capability, inequality and corruption, andrisks to social stability and the environment. Minxin Pei does not believe that China is a superpoweror that it will be one anytime soon arguing that it faces daunting political and economic challenges.

[30] Amy Chua states that whether a country has enough pull to bring immigrants is an importantquality for a superpower. She also writes that China lacks the pull to bring scientists, thinkers, andinnovators from other countries as immigrants. However, she believes that China made up for thiswith its own diaspora, saying that size and resources for them are unparalleled

The Rise of China as a Global Power

by Dr Rosita Dellios

China's population of 1.3 billion renders it the most populous nation on earth, accounting for a fifthof the world's population; while at almost 10 million square kilometres it is the third largest countryafter Russia and Canada. Its 2.25 million troops form the world's largest armed force. China'sreputation as a major military power is crowned by the possession of nuclear weapons that arecapable of all ranges and delivery modes.(1) Economically, it is the world's fourth largest tradingnation, having risen from 32nd in 1978 and 10th in 1997.(2) Its GDP at 13% of world output (atpurchasing power parity) is second to the US.(3) China, inheritor of 5,000 years of civilisation, isalso the world's fastest developing economy in the present age, having grown an average of 9.5%


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annually for the past 20 years. Such high growth rates, low labour costs and a huge emergingmarket, have attracted the world's highest levels of foreign direct investment. Since China joinedthe World Trade Organisation in December 2001, it has also become one of the most openeconomies in the developing world, with average tariffs dropping from 41% in 1992 to 6% afteraccession to WTO.(4)

Communist rule over a Market Economy

All of this economic activity is occurring under a communist party government which, since theintroduction of market reforms in 1978, operates a system it describes as 'socialism with Chinesecharacteristics'. These 'Chinese characteristics' are a common theme in the country's adaptation tothe modern world. After China was rendered the 'sick man of Asia' as a result of European andJapanese imperial aggression, revolutionary forces turned to the then modernizing philosophy ofMarxism to revive their nation. A poor match for the Marxist requirement that a state shouldindustrialise before being ripe for revolution, agrarian China pursued a different path under theleadership of Mao Zedong. Chinese communism took on 'Chinese characteristics', allowing thepeasants rather than the proletariat to become the vanguard of the revolution in the early 20thcentury.

The formula succeeded in bringing Chinese Communist Party (CCP) rule and releasing China from

internal chaos and a 'century of humiliation', as the Chinese often express it. After Mao's death in1976 it became apparent that China needed not only an able new leader but a new formula forstrengthening itself for the modern world. The command economy was not releasing China's hugepotential for growth and power but had kept it backward in comparison to Japan and otherdeveloped economies. The stage was set for veteran politician Deng Xiaoping to rise to the top andimplement his ideas of reform. It was under Deng's leadership that China decoupled the economyfrom politics, allowing a command economy to transform into a market-based one. Politics,however, remained under the tight control of the CCP, as the crushing of the 1989 TiananmenSquare student uprising demonstrated. The failure of democracy to take root in China did notadversely affect China's economic growth. Thus, just as Chairman Mao could proclaim in 1949 thatChina had stood up, so too market forces - or capitalism - allowed communist China to rehabilitateitself to the point where the rise of China is becoming a serious issue of consideration for 21stcentury international relations.(5)

History and Culture

Specifically, the question is whether China will rise to become once again a major political, militaryand economic power, just as it had been during its Middle Kingdom period of tribute-trade relationsin the traditional East Asian world order. It was a world which came to an end after two millennia asa result of dynastic China's gradual weakening, lack of technological innovation and finally defeat inthe Anglo-Chinese (or 'Opium') wars of the 19th century. As The Economist has observed: 'In fact,China was the largest economy for much of recorded history . . . [and in] 1820 it still accounted for30% of world GDP.'(6) Historian Arnold Toynbee marveled at China's record as a force for stability,commenting that it brought to its world 'long-lasting unity and peace';(7) while Mark Borthwick citesChina's enormity as significant in its own right for the Middle Kingdom having been a centre forgravity in world affairs: 'The largest political unit of Asia has been and remains China,' he notes. 'Its

combined population and physical domain have not been equaled by any other nation.'(8) Add tothis impressive physical dimension the activating spirit of civilisational power, and it is not difficult tosee why China was able to exercise a stabilising effect through the soft power of attraction,(9)which was more reliable and hence sustainable than the hard power of threat and physicalcoercion.

Indeed, China has been well equipped with the philosophical resources for socially constructingpeace through Confucianism, Daoism and Buddhism. In all, the rise of China could represent analternative to American global dominance. Whether this alternative is a form of complementarybalance like the Chinese yin-yang symbol, or a dangerous competition for global hegemony, has


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remained a matter of debate. The yin-yang perspective is not without persuasion, though there areproblems still complicating the hoped for harmony. Perhaps greatest amongst them is the problemnot of physical power but the soft power of values: how attractive is a China that lost Confucianismto Communism, and is still trying to find its way back again to Confucian humanism withoutsacrificing the politics of control. Domestically, too, there are costs in China's economic successwith the growing divide between the wealthy coastal region and the poorer interior. Internalweakness does not bode well for external resilience, as China's history has shown. Hence China'srise as a global power - while probable given its present trajectory of growth - must still navigate aminefield of hazards and uncertainties.

To understand this phenomenon of the emergence of China, it is important to establish what ittakes to be a global power in the contemporary world.

I What does it take to be a global power in today's world?

The term global power is a more contemporary term for great power, as traditionally employed inthe International Relations (IR) literature, and a better fit for 21st century conditions thansuperpower. Superpower was the creation of the politics of 20th century nuclear weaponstechnology, even though the coining of the term in 1944 did not take the nuclear dimension intoaccount but rather the global reach of a nation.(10) As the Cold War became more entrenched, that

which distinguished a nuclear superpower from a 19th century great power was possession of thepower of ultimate destruction and the strategic doctrine of nuclear deterrence that emerged from it.The processes of globalization that characterize the present century mean that 'great' power needsmore than nuclear superpower capability. Indeed, it needs to broaden out to the more traditionalgreat power attributes of maintaining sufficient diplomatic, economic, and military resources forpreserving the international order in which great powers presume themselves to be the main actors.(11) Beyond being merely 'great', or only 'super', they must now be 'global' and attain transnationalcompetencies that permit interaction with non-state actors, regional forums and the instruments andinstitutions of global governance. In short, a global power needs to promote international order;possess formidable military capability and the communicated will to use it; and engage productivelyin transnational projects such as global justice, as well as deal effectively with transnational threatssuch as militant religious extremists.(12)

Such is the meaning behind the term global power as used in the present discussion. Its meaningwill be further elaborated in the next section on China's capacity to match these criteria of not onlybeing (a) a great power in the traditional sense and (b) a militarily outstanding one, but also (c) atransnational performer.

II Does China fulfil the criteria? Does it affect the criteria?

(a) Is China a great power in helping to maintain the world order?

A great power, according to Hedley Bull's classic 1977 work, The Anarchical Society, belongs to asociety of states that maintains a balance-of-power to prevent a global dictatorship emergingthrough imperial conquest. Besides the balancing-of-power in maintaining this socially constructedsystem, great powers also engage in the order preserving mechanisms of international law,diplomacy, concerting (or joint management of the system), and war when it acts to preserve (ordefend) the system rather than destroy it.(13)

As a member of the United Nations (UN) Security Council, the People's Republic of China (PRC)belongs to the elite club of recognized great powers. It is involved in more than 1000 internationalgovernmental organizations that deal with issues ranging from drug trafficking to the environment;


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(14) and it is an ardent supporter of the United Nations and international law, warning against theexercise of military power when peaceful methods of diplomacy ought to be given greater scope forrealization. This was especially notable with regard to China's reaction to American militaryinterventions in the post-Cold War era, indicating China's understanding of the need for greatpowers to critique one another in the interests of a balanced state system. Even before itseconomic rise and military modernisation, China was a vocal critic of superpower conduct in worldaffairs. Indeed, China's role during the Cold War was one of balance in the strategic triangle(comprising the US, Soviet Union and PRC), whereby China pursued a policy of 'leaning to oneside' (either the Soviet Union or the United States) from within a posture of strategic independence.

Even with the collapse of the Cold War structure, and the clear military and economic superioritythat now rests with the remaining superpower, the United States still supports the prevailing statesystem and is sensitive to balance-of-power as well as concerting behaviour. Thus China maycontinue to exercise its role of superpower critic as the need arises. China is not alone in itsbalancing efforts, as the failure of the US to gain UN support for its war on Iraq in 2003demonstrated. In this sense, the European Union (EU) and its member states, Russia and othersact as both a concerting and balancing force. China, too, acted in concert with the US in itscampaign against state-defying terrorism. But alongside other states, including France, Germany,Russia, and Turkey, it opposed the US war on Iraq. Even though the US went ahead regardless, itstill returned to the UN to gain a mandate to continue in the aftermath of the war and to involve

other nations. This indicates that the American hegemon is aware of the need to maintain its powerthrough legitimacy, as well as reducing its foreign policy costs in material terms, in the rate ofcasualties, and hence in domestic public opinion terms.(15) Another 'Vietnam' - both at home andabroad - would not be countenanced by the American public.

Unlike the characteristically unipolar structure of the state system over which Washington presidescoupled with US unilateralist management tendencies, China has been a strong advocate ofmultipolarity and, of late, multilateralism.(16) This would suit China in view of its subordinate powerstatus in comparison to the US; a view which would suggest to some observers that if Chinasurpasses the US and becomes the dominant state, it would behave in a similar fashion to the US.This is the 'strong states cast long shadows' proposition. Such a proposition supports the Chinathreat thesis if (a) one is opposed to the emergence of an Oriental hegemonic power in the statesystem preferring an Occidental one, or (b) if one is opposed to unipolarity, preferring a closer

semblance of balance-of-power in bipolarity or multipolarity. The first pertains to cultural affiliationsand Samuel Huntington's 'clash of civilizations' thesis; (17) the second has an aversion tohegemonic systems. In light of increasing opposition to US hegemonic leadership in the aftermathof the Iraq war, China may garner some support for its rise as a serious balancer to the US.However, the US would need to entrench itself in world-defying, self-aggrandising behaviour towarrant such an adversarial image. Indeed, the US would need to lose its hegemonic legitimacyand China to gain it.

The Pursuit of Great Power Legitimacy

It is unlikely the US will persist in such a self-destructive path of loss of legitimacy but it is possiblethat China will capitalize on it tactically in order to make strategic gains in its own legitimacyenhancement.(18) To gain legitimacy of the order exercised by the US, there would need to be an

acceptance of an Oriental superpower, the issue of dissent in its various forms (Tibet. Xinjiang,Taiwan, Democracy, human rights) would need to be addressed, China's championing ofinternational law and diplomacy would need to be maintained and visibly supported, as would aconsultative management style global affairs. And this is only in the political field. There iseconomic and military strength to consider too. However, it is in the political field that legitimacycomes to the fore; such legitimacy equates with 'honour' in ancient Greek or Occidental thoughtand 'virtue' in the classical Chinese or Oriental equivalent.(19) Legitimacy, honour and virtue areindeed precious moral resources for a great power to cultivate and they apply to aspiring statesacross the East-West civilisational spectrum. Thus the acquisition of legitimacy may overcome'clash of civilisations' objections, particularly if deployed along multilateralist rather than unilateralist


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lines. This, China appears to be doing. Ironically, it was China who acted as an imperial power in itshierarchical international tribute relations until the 19th century, and the United States that disdainsimperial ambitions in its 'freedom and democracy' rhetoric.

China's consolidation of its role as a great power in a sovereign state system was evident in itssocialist state persona when it emphasized the equality of states principle, criticized thesuperpowers for putting their own strategic competition ahead of global welfare, safety and justiceand, since the Cold War's end, its assiduous cultivation of diplomatic relations with a host of nationsand regions. Of interest are its more positive relations with traditional rivals Russia and India. Withthe former it is engaged bilaterally in a 'strategic partnership' that has developed into a Treaty onGood Neighbourly Friendship and Cooperation (2001),(20) and the establishment of a mechanismof bilateral security consultations (2005) inclusive of joint military exercises - the first being plannedfor August 2005,(21) as well as multilaterally through the Shanghai Cooperation Organisation.(22)With the latter, now a nuclear power in its own right, China has not only worked to dispel threatperceptions but also supports India as a candidate for a permanent seat on the UN SecurityCouncil. According to Chinese State Councillor Tang Jiaxuan, during his visit to India in October2004: 'India is a major country in Asia . . . China fully understands India's position and endorses itsaspirations . . . We also hope to see India play a greater and constructive role in the UN SecurityCouncil.'(23) Also of consequence is China's interest in promoting peace on the Korean peninsulathrough its hosting of the Six-Party Talks on prevent the nuclearisation of the Korean peninsula,

and a planned common economic future with Southeast Asia. The end of this decade will see theemergence of a regional free trade agreement between China and the Association of Southeast

Asian Nations (ASEAN). Tariffs are to be reduced to between 5% and zero and investment barriersremoved. This trade region will create an integrated market of 1.7 billion people, forming what willbecome the world's most populous free trade zone. At the same time China has committed itself toa code of good conduct over the contested ownership of seabed resources in the South China Sea.(24)

Economic and Military Dimension of Great Power

The issue of energy resources in the South China Sea, while seemingly contained within a code ofconduct that is not legally binding but which appeals to China's honour and legitimacy, does notremove doubt in the minds political realists who see China's need for energy as an overriding

concern, driving diplomacy as well as military expansion. 'China's appetite for energy resources,'notes Jeffrey Robertson, 'threatens to outweigh the trend toward great power responsibilityepitomized by its dealings with Russia and India.'(25) How strong are China's appetites in relationto its spirit and reason - or its traditional notion of power in terms of virtue?

The Economist of 2 October 2004 dedicated its Survey of the World Economy to China and theUnited States. It notes that China is the world's largest consumer of steel, copper, coal and cement,the world's second largest consumer of oil (after USA), and that in 2003, China consumed 40% ofthe world's coal and 30% of its steel. In 20 years (2024), it was projected that China's energyrequirements would quadruple but its per capita use of energy would remain half that of the US.(26)

The implication in China's growing appetite is whether it will seek what it wants with a carrot or astick - with the soft or hard power option - or what combination of both? A classical source of

Chinese strategic culture, Sun Tzu states that 'All warfare is deception'.(27) How deceptive isChina's military power? How soft is China's hard power? - as in (a) vulnerable and (b) a disguise forsoft power? How hard is China's soft power? - as in (a) compelling and (b) a disguise and meansfor the acquisition of hard power? These combinations speak to a realist strategic culture whichsome commentators view as the natural outcome of China's rise to global power. As the November2004 issue of the IISS Strategic Comments states, China has 'sought to promote a variety of newinstitutional arrangements that exclude the United States . . . [in Eastern Asia] where China canexercise a natural leadership role' and that its need for energy and raw materials has extended itsresource diplomacy to Central Asia, the Middle East and Africa.(28) Indeed, many of China's gainsare in direct relation to American interests.


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It is estimated that China's proven oil reserves will be depleted by 2018.(29) China has beenimporting oil since 1993. Its dependence on oil imports has led it to energy investments in countrieswhich are not only resource rich but also at polar extremes in terms of friend or foe in the Americanstrategic spectrum. Thus, Australia - a firm US ally - won a AUS$25 billion contract in 2002 tosupply liquid natural gas (LNG) to China. It was described by Australia's foreign minister, AlexanderDowner, as 'the beginning of a long-term strategic partnership in energy'.(30) As to oil imports, afifth of China's imports (14 percent from Iran and 6 percent from Sudan) come from countriesgoverned by what the US would regard problematic regimes. The imposition of sanctions on theseand other 'rogue' countries would impinge on China's energy sourcing. Why would China choose toinvest in such politically risky energy producers? The answer largely lies with the benefits to begained by entering regions that are prohibited to American business interests. As China specialistDrew Thompson has remarked, '. . .China's presence in the energy and infrastructure sectors ofSudan, Iran and Syria is largely the result of longstanding sanctions that have largely marginalizedmultinationals and the "supermajor" oil companies . . .' (31) It may be concluded that China pursuesan opportunistic and pragmatic approach in relation to its energy needs, and as long as there arewilling suppliers there is no reason for China to exercise military means for energy acquisition. Forexample, it is unlikely that China's expanding naval capability is directed to the forcible acquisitionof the contested Spratly Islands in the South China Sea. It is more likely that it is a demonstration toTaiwan - an internal not international affair, as far as Beijing is concerned.

Nuclear Superpower Status

With regard to the China threat theory - the fear that China will grow into a military superpower,China's leadership deliberately adopted a policy of good-neighborliness (see above) under theconcept of heping jueqi, meaning 'the peaceful emergence of China', also known as its 'peacefulrise'. This entails the non-hegemonic stance of China, the emphasis on development and the viewthat China's economic growth will benefit other nations, not hurt them.(32) Indeed, 'peaceful rise'was replaced with 'peaceful development' to further emphasise the non-threatening nature ofChina's growth.(33) If China's is a peacefully rising power, how does one explain its armory of over30 intercontinental ballistic missiles (ICBMs), 110 intermediate-range ballistic missiles (IRBM) aswell as its submarine-launch missile capability (which is still small)? While this nuclear force is byno means comparable to that of the US which has over a thousand nuclear missiles, or Russia with

its 635 ICBMs,(34) and its newly announced plan for nuclear modernization, China's nuclear forcedoes bestow upon it the prestige and deterrent power sought by others in recent times - includingIndia, Pakistan and even North Korea in its formative stages of becoming a nuclear power.

It may be argued that with its minimal deterrent force China is hardly a nuclear superpower to betaken seriously. On the other hand, China does have global reach - how many nuclear warheadsare needed to constitute a threat and to be deemed a credible deterrent? Moreover, China'snuclear arsenal is not designed to compete (as occurred during the Cold War between the USSRand US in the accumulation of ever greater numbers and sophistication of nuclear warheads anddelivery systems), but to deter threats to China. It does not have a strategic alliance system todefend or an umbrella under which allies shelter - as is the case with the US and its defencepartners. Thus China can claim nuclear superpower status without arousing undue suspicion. Thesuspicion which it does arouse concerns Taiwan - and this is precisely what Beijing intends: to

deter a Taiwanese bid for formal independence.

Global Power

China's insistence that Taiwan - a democratic country with all the attributes of independentstatehood except recognition - belongs to China and has no right to an independent sovereigntystrikes at the heart of China's legitimacy problem as a global power. For all its good-neighbourlydiplomacy and calls upon the presiding superpower to exercise restraint in the exercise of itscoercive power, China in domestic (Tibet, Xinjiang, democracy movements, human rights) andquasi-domtestic (PRC-Taiwan) affairs is seen as overbearing when handling the problem of


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dissent. Given that most states in the world accept Beijing's view on the matter, that is, the OneChina policy which states that there is one China and that Taiwan is a province of China, this doesnot appear to be a problem for the society of states. Irrespective of minority claims within itssovereign territory, China remains an accepted great power in the IR system.

In military terms it is also a superpower if one accepts that its nuclear arsenal is adequate to thetask of global (deterrent) reach and that its conventional forces can defend China in the improbableevent of attack. Unlike the US and other modern military establishments, China lacks the latesttechnology. However, it continues its program of modernization, which it is increasingly able toafford thanks to a strengthening economy. Thus while China is a great power, exercising a valuedbalancing and concerting role in the system, it has yet to be accepted as a superpower along USlines. In terms of global power, China demonstrates an ability to engage in global governance whenstate-managed (as in the UN and its agencies) and transnational business relations (benefitingfrom investments from transnational companies), but where issues of dissent and their widerramifications are involved (particularly democracy and human rights issues), global civil society isnot overly impressed with China. Social networks independent of the state, including human rightsactivists, as well as postmodernist views on diversity and tolerance, find the authoritariangovernment of China troubling and out of touch with the global ethos.

Yet China is not standing still, even for these critics who confront the Chinese state at a deeper,

ontological, level than China's fellow sovereign state, the US. The question about China's rise toovertake the US in what will essentially remain a state system - but with perhaps more Confuciancharacteristics - is not as important as another question: how will China change in becoming a trulyglobal power? How will this affect the global community? Elsewhere I have written,(35) China'ssteady rise in global influence will move from the material to the spiritual:

Goods (and, increasingly, services) will not only be made in China but made for China. This doesnot imply a new cultural hegemony. Like Europe, which is not only 'European', China is not only'Chinese'. Multiple traditions continue to express themselves in mandalas of their own syncreticdesign. This Sanskrit word which means circle is especially pertinent to the future of world trade.(36) As the Chinese trade mandala grows, it does so by absorbing tributaries of difference, therebyenriching itself and, in turn, further regionalizing - even globalizing - that composite (more-than-material) wealth. The West is becoming as much a part of contemporary China, and the East more

generally, as the 'Other' is permeating the West. This . . . is not homogeneity. These aremandalized globalizations with Centres of cultural orientation, acting as ideational sources,(37)rather than Wallestianian Centres of industrial power dominating a dependent Periphery.(38)

Thus the globalising world is changing the way in which identities are handled and experienced, butnot at the risk of destroying the state system. What appears to be happening is state adaptation tothis condition by seeking the benefits of globalisation while concerting to control its threats(terrorism and international crime).

Implications of China's Rise

China provides an alternative to the US modernisation model based on liberal democracy by havingincorporated capitalism into a socialist polity. It has still to present an acceptable human rights faceto the world, but this may be managed through adoption of a contemporary Confucian humanism.Just as Marxism was modified with the 'Chinese charcateristic' of Maoism (peasants as thevanguard of the revolution), so too democracy and human rights are likely to take on a Confuciancharacter.

As the new century unfolds, in all probability so will China's prospects unfold as a global power, notjust a regional one. Consider once again China's contemporary dimensions - an enormous countrywith the world's largest population and military establishment. Its economy is among the world's


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fastest growing. It is expected to become the largest by the year 2025 (by PPP calculations).(39)Historically, too, it is imbued with greatness. Along with India, it is one of the two great civilisationsof Asia. While India could rival China in the dimensions of greatness, China has had a head start. Interms of world powers, one cannot forget that an innovative America, an integrating Europe, andpossibly a revitalising Russia, are also contenders. Viewed from a 'society of states' perspective,that is, a system intent on preserving itself, contention is matched with concerting behaviour. Greatpowers - indeed global powers with unprecedented economic and security interdependence - mustconcert together as much as compete. The world no longer operates, if ever it did, as a zero-sumgame. In this sense, China's rise may be seen as an asset in world terms. One need onlycontemplate the fall of China - by its own hand or another's - to appreciate this perspective. Historyhas already demonstrated the latter proposition to be plausible. The international system is thusbetter served when rise of China becomes probable.

Endnotes

1. For details, see the International Institute for Strategic Studies (IISS), The Military Balance 2004-2005, Oxford University Press, Oxford, 2004, pp. 152-155.

2. Historic figures from WTO, cited in Birgit Zinzius, Doing Business in the New China: A Handbookand Guide, Praeger, Westport, 2004, p. 5.

3. 'A Survey of the World Economy - The Dragon and the Eagle', The Economist, 2 October 2004,p. 4.

4. Ibid.

5. For example, Ch. 1, 'China Rising', in the IR text Donald M. Snow, Cases in InternationalRelations: Portraits of the Future, Longman, New York, 2003. To allay fears of the rise of athreatening China, the Chinese leadership had even gone so far as using the phrase 'peaceful rise',in April 2004, for China's emerging power. See discussion below.

6.'A Survey of the World Economy - The Real Great Leap Forward', The Economist, 2 October2004, p. 5.

7. Arnold J. Toynbee, Change and Habit: The Challenge of Our Time, Oxford University Press,London, 1966, p. 158.

8. Mark Borthwick, Pacific Century: The Emergence of Modern Pacific Asia, Allen & Unwin, Sydney,1992, p. 4.

9. The traditional call to pay tribute to the emperor of China was lai hua, meaning come and betransformed (civilisationally).

10. William T. R. Fox, The Superpowers: The United States, Britain and the Soviet Union - Their

Responsibility for Peace, Harcourt Brace, New York, 1944, cited in Lawrence Freedman, 'China asa Global Strategic Actor', in Bary Buzan and Rosemary Foot (eds), Does China Matter? AReassessment: Essays in Memory of Gerald Segal, Routledge, London, 2004, p. 24.

11. See the classic work on international order maintained by a 'society of states': Hedley Bull, TheAnarchical Society: A Study of Order in World Politics, Columbia University Press, New York, 1977.An insightful article on Bull's ideas as they apply to the post-Iraq War period is Galia Press-Barnathan, 'The War against Iraq and International Order: From Bull to Bush', International StudiesReview, Vol. 6, No. 2, June 2004, pp 195-212.


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12. It should be noted that 'hyperpower' has been introduced as a term for a global power that isbeyond balance. China is not in favour of such a development as it supports multipolarity, andclearly the US is currently better qualified to aspire to such a condition - one which would effectivelyremove China as a balancer. On 'hyperpower', see Freedman, 'China as a Global Strategic Actor',in Buzan and Foot (eds), Does China Matter?, in which he cites former French Foreign MinisterVedrine, who used the term to denote a state that combined 'hard power with soft power, projectingitself through the English language, free market principles, its mastery of global images, andtechnological and cultural creativity' (p. 25). See Hubert Vedrine et al., France in an Age ofGlobalization, Brookings Institution Press, Washington DC, 2001.

13. Bull, Ch. 8.

14. 'China's Grand Strategy', Strategic Comments, International Institute for Strategic Studies, Vol.10, No. 9, November 2004.

15. See Press-Barnathan, 2004, p. 204.

16. Multipolarity has been advanced in China's official documents and diplomacy, for example, inthe 1997 Sino-Russian declaration endorsing 'a new multipolar world' that was seen as heralding acounterbalance to the US as the remaining global superpower. Multilateralism is evident in China's

willingness since 1995 to discuss the contested Spratly territorial issue with the Association ofSoutheast Asian Nations (ASEAN) as a grouping rather than its previous insistence on bilateraldiscussions. This has evolved to China signing a code of conduct (the Declaration of the Conductof Parties in the South China Sea) in November 2002 whereby the signatory parties pledge not touse force to resolve the Spratly issue. Besides belonging to the ASEAN+3 grouping (the 'plus 3'being China, Japan and South Korea), it is a member of the Central Asian security grouping knownas the Shanghai Cooperation Organisation, which was formalised in 2001. It began on China'sinstigation in 1996 as the 'Shanghai Five', when China, Russia, Kazakhstan, Kyrgyzstan andTajikistan became parties to a treaty signed in Shanghai to demilitarise their common border, andexpanded to include Uzbekistan in 2001. China's hosting of the six-party talks (North Korea, SouthKorea, USA, PRC, Japan, and Russia) in 2003-2004 on the North Korean nuclear issue representsanother sign of China's multilateralist direction.

17. Samuel P. Huntington, 'The Clash of Civilizations?', Foreign Affairs, Vol. 72, No. 3, Summer1993, pp. 22-49; and Huntington, Samuel P. The Clash of Civilizations and the Remaking of theWorld Order. Simon and Schuster, New York, 1996. See also: 'So, Are Civilizations at War? AnInterview with Huntington', The Observer, 21 October 2001.

18. The IISS Strategic Comments (Vol. 10, No. 9, November 2004) argues that such 'calculatedkindness' is part of China's grand strategy, making opportunistic use of Washington's unpopularunilateralism. This casts China in an unwarranted threatening light. On the contrary, China's tacticalemployment of the prevailing superpower's foreign policy weakness may be seen more positivelyas a productive (but only tactical) move in a strategy that seeks to bring balance back into the statesystem in which China must survive, develop and exercise its great power functions.

19. The ancient Greeks sought human harmony through a balance of appetite, spirit, and reason.

As Lebow notes, 'Thucydides, Plato, and Aristotle considered the principle of balance equallyapplicable to states, and they attributed civil disorder to psychological imbalance within the politicalculture of the polis." If appetite may be equated with economy, and reason with international lawand justice, what of spirit? Returning to Lebow, spirit 'manifested in the competitive quest forrecognition, understood to be the basis for self-esteem'. This is often rendered as 'honour', a qualitythat requires a social recognition. 'It was often conferred by others, as was hegemonia in ancientGreece and as is great power today.' (Richard Ned Lebow, 'Constructive Realism', InternationalStudies Review, Vol. 6, No. 2, June 2004, pp. 346-348.) As to virtue, this is an ancient Chineseideal par excellence. For the Chinese the word for virtue and power is de, as in the Daoist classic,the Dao De Jing, meaning the Book of the Way and its Power/Virtue, also known as the Lao Tzu


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(the leading Daoist philosophy to whom the Dao De Jing is attributed). Virtue is thus seen as alegitimate or ethically-based power. By the same token, ethical bahaviour is potent with power - itconstitutes legitimacy. In Chinese traditional thought the balance sought is between yin and yang -between soft and hard power. This balance is not in equal measure of both but with civil (wen) orsoft power leading over martial (wu) or hard power elements. Thus the ideal balance would beregarded, by way of illustration, as three parts yin and two parts yang.

20. See Peter Symonds, 'China-Russia Treaty: A Reaction Against Aggressive Unilateralism inWashington', 23 July 2001, World socialist Website, www.wsws.org

21. See 'Russia, China Tighten Security Links', China Daily, 3 February 2005,http://taiwansecurity.org/News/2005/CD-030205.htm

22. See footnote 16.

23. Jeffrey Robertson, 'China's Power Hunger Trumps Japan Diplomacy', Asia Times Online, 2November 2004, www.atimes.com/atimes/China/FK02Ad01.html

24. See footnote 13.

25. Jeffrey Robertson, 'China's Power Hunger Trumps Japan Diplomacy', Asia Times Online, 2November 2004, www.atimes.com/atimes/China/FK02Ad01.html

26. 'A Survey of the World Economy - A Hungry Dragon', The Economist, 2 October 2004, p. 12.

27. Sun Tzu, The Art of War (trans. Samuel B. Griffith), Oxford University Press, London, 1963.

28. 'China's Grand Strategy', Strategic Comments, IISS, Vol. 10, No. 9, November 2004.

29. Robin Wright, 'Iran's New Alliance with China could Undermine U.S. Leverage', The Wall StreetJournal Europe, 18 November 2004, p. A3.

30. The Australian Department of Foreign Affairs & Trade (DFAT) webpage:

http://www.foreignminister.gov.au/releases/2002/fa188_02.html

31. Drew Thompson, 'Disaccord on Sudan Could Poison China-U.S. Ties', The International HeraldTribune, 18 November 2004, p. 8.

32. See Willy Wo-lap Lam, 'Beijing's New "Balanced" Foreign Policy: An Assessment', China Brief,Vo. 4, No. 4, 20 Feb. 2004, The Jamestown Foundation, www.jamestown.org/publications

33. See Melinda Liu, 'Group Think', Newsweek, Issues 2005 Special Edition, December 2004-February 2005, p. 45.

34. IISS, The Military Balance 2004-2005, Oxford University Press, Oxford, 2004, pp. 170, 23, 104.

35. Rosita Dellios, 'Cultural and Political Contexts for the Future of World Trade', in Ross Buckley(ed.), The WTO and the Doha Round: The Changing Face of World Trade, Kluwer LawInternational, The Hague, 2003, pp. 213-228.

36. On the contemporary use of the mandala metaphor, see articles in previous issues of TheCulture Mandala, www.international-relations.com.

37. This term derives from the constructivist theoretical framework in International Relations,discussed in K. C. Chwee, 'The Ideational Sources of Chinese Foreign Policy: A Framework for

Analysis', Journal of Diplomacy and International Relations (Kuala Lumpur), Vol. 3, No. 2, 2001, 21-


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44. See also J.M. Hobson, The State and International Relations, Cambridge University Press,Cambridge, 2000, Ch. 5.

38. Immanuel Wallerstein's world system theory forms a recognised part of the theoretical debatesin International Relations. See I. Wallerstein, The Modern World System, Academic Press, London,1974.

39. Michael Hirsh, 'Behind Bush's Back', Newsweek, Issues 2005 Special Edition, December 2004-February 2005, comparative GDP table, p. 26.

Why China is Already aSuperpower?

Chinas declared ambition is to become the worlds superpower by 2025. It can

reach there much sooner. In many ways, it is already there. In terms ofdevelopment, India is a good 50 to 60 years behind, if not more. Here are someof the lesser known nuggets of information on China that demonstrate why Chinais already a formidable power.

China has a ten-year supply of oil and gas energy booked at the lowest marketpoint ($34 to $40 per bbl) of any nation. It is rapidly converting 10 percent of itsenergy sources to alternative forms much higher than the very small 1 to 2percent achieved by most of Western Europe thus far.

Chinas biggest mantra of success with the Middle East, Africa, and Central Asia

is its oil and gas diplomacy. China used to be an oil exporter, but about a decadeago it turned into a net oil importer. This way, China sought to kill many birds withone stone. For one, China made friends and influenced people in these countriesby buying their oil. Secondly, by doing this, China started replicating the U.S.strategy of building its POL reservesdefinitely a superpower-ish behavior. TheChinese involvement with Central Asia is best exemplified by its gas pipelinediplomacy.China has very quickly and methodically interwoven its economy with economiesof as diverse regions as Africa (South Africa and Nigeria), Latin America (Brazil,

Argentina, Chile, and Ecuador), Oceana (Australia and New Zealand), Middle

East (Iran), Central Asia (virtually every country in the region) and ASEAN(Indonesia, Malaysia, and the Philippines). This tactic has proven to be a majorfactor for China to successfully absorb the shocks of global recession that startedin September 2008 and is still not over.Needless to say that the Chinese juggernaut is moving at a breakneck speed asit milks its more than ten producing gold mines and sets its sights on five newand developing oil fields coming on stream by 2015-17.


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China maintains a reasonably good balance between agriculture and industry.China has the largest car market in the world and at the same time its agriculturalbase is sound. China is not merely self sufficient in food production but a netexporter of products like edible oil, rice and meat, to name a few. The Chinese

food security scenario is all set to be all the more rosy with its recent free tradedeal with ASEAN. Because of this free trade agreement, the cost of living forsouthern and south western China is expected to be pushed lower by as muchas 19 percent as these regions of China will have access to much cheapervegetables, fruits and other food articles through ASEAN imports.China possesses a stockpile of rare earth metals for military and domestic usethat can easily last for the next two decades. The past few weeks havedemonstrated how China has flexed its rare earths muscle with Japan.Though it is not verified, Beijing has claimed to have the worlds largest English-

speaking population, pegged at some 390 million under-35 people who canspeak and understand basic English.Chinas infrastructural forays are very well known. China is going to add a hugenetwork of 13,000 km of new high speed rail across the length and breadth of thecountry in the next three years. This rapid connectivity will not only facilitate itscitizens and tourists to reach anywhere inside China within eight hours by rail;this massive infrastructure is expected to create as many as 12 million jobs.In China everything is big. So is the case with its army that exceeds that of theUnited States by at least 5:1. The 60th anniversary parade on October 1, 2009showcased the teeth and diversity of the Chinese military might, whichdemonstrated supersonic aircraft, drones, a wide array of missiles, SpecialForces, ground mobility vehicle and high-technology equipment.China is acutely aware of the racial challenges to the majority Han people and tothe State itself. That is why since 2007-08, Beijing has started catering to non-Han racial groups. Now as a matter of policy, China is increasingly encouragingcelebration of the multicultural diversity of all 56 ethnic groups. Their localfestivals, languages, art, music and dance are being promoted in an effort to knitall these ethnic groups together. Importantly, China is paying close attention tothe protection of heritage and natural sites of non-Han ethnic groups (China has17 World Heritage Sites).

Spacethe final frontieris another area of deep focus for China. It issignificant that while Americas NASA is gasping for funds, China has loosenedits purse strings, aggressively pursuing plans for its own space station, deepspace programme, and cutting edge space technologies. Besides, China isleaving no area of importance untouched and pouring in massive funds in suchdiverse sectors as nanotechnology, biotechnology, transportation, agriculture,


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textiles, environmental science, and medicine. The 242 exhibits at the recentShanghai World Expo gave a sneak peak to the world where China is headed inthe near future.The moral of the story is simple. China is here to stay. The 21st century is

projected to be the century of Asia. As of now, China is well poised to justify it.The way China is proceeding it may well be Chinas Century.

External trade:-International trade makes up a sizeable portion of China's overall economy. The courseof China's foreign trade has experienced considerable transformations since the early1950s. In 1950 more than 70 percent of the total trade was with non-Communistcountries, but by 1954, a year after the end of the Korean War, the situation was

completely reversed, and trade with Communist countries stood at about 75 percent.During the next few years, trade with the Communist world lost some of its standing, butit was only after the Sino-Soviet split of 1960, which resulted in the cancellation of Sovietcredits and the withdrawal of Soviet technicians, that the non-Communist world began tosee a speedy recovery in its position. In 1965 China's trade with other socialist countriesmade up only about a third of the total.Being a Second World country at the time, a meaningful segment of China's trade withthe Third World was financed through grants, credits, and other forms of assistance. Atfirst, from 1953 to 1955, aid went mainly to North Korea and North Vietnam and someother Communist states; but from the mid-1950s large amounts, mainly grants and long-term, interest-free loans, were promised to politically uncommitted developing countries.The principal efforts were made in Asia, especially to Indonesia, Burma, Pakistan, and

Ceylon, but large loans were also granted in Africa (Ghana, Algeria, Tanzania) and inthe Middle East (Egypt). However, after Mao Zedong's death in 1976, these efforts werescaled back. After which, trade with developing countries became negligible, thoughduring that time, Hong Kong and Taiwan both began to emerge as major tradingpartners.Since economic reforms began in the late 1970s, China sought to decentralize its foreigntrade system to integrate itself into the international trading system. On November 1991,China joined the Asia-Pacific Economic Cooperation (APEC) group, which promotes freetrade and cooperation the in economic, trade, investment, and technology spheres.China served as APEC chair in 2001, and Shanghai hosted the annual APEC leadersmeeting in October of that year.China's global trade totaled $324 billion in 1997 and $151 billion in the first half of 1998;

the trade surplus stood at $40.0 billion. China's primary trading partners were Japan,Taiwan, the U.S., South Korea, Hong Kong, Germany, Singapore, Russia, and theNetherlands. China had a trade surplus with the U.S. of $49.7 billion in 1997 and $54.6billion in 1998. Major imports were power generating equipment, aircraft and parts,computers and industrial machinery, raw materials, and chemical and agriculturalproducts.In 1998, China was in its 12th year of negotiations for accession to the World TradeOrganization (WTO)formerly the General Agreement on Tariffs and Trade (GATT),and had significantly reduced import tariffs. Previously in 1996, China had already


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introduced cuts to more than 4,000 tariff lines, reducing average tariffs from 35% to 23%;further tariff cuts that took effect October 1, 1997, decreased average tariffs to 17%. Togain WTO entry, all prospective WTO members were required to comply with certainfundamental trading disciplines and offer substantially expanded market access to othermembers of the organization. Many major trading entitiesamong them the UnitedStates, the European Union, and Japanshared concerns with respect to China's

accession. These concerns included obtaining satisfactory market access offers for bothgoods and services, full trading rights for all potential Chinese consumers and end-users, nondiscrimination between foreign and local commercial operations in China, thereduction of monopolistic state trading practices, and the elimination of arbitrary or non-scientific technical standards. China and other WTO members worked to achieve acommercially viable accession protocol.In 1999, Premier Zhu Rongji signed a bilateral U.S.China Agricultural Cooperation

Agreement, which lifted longstanding Chinese prohibitions on imports of citrus, grain,beef, and poultry. In November 1999, the United States and China reached a historicbilateral market-access agreement to pave the way for China's accession to the WTO.

As part of the far-reaching trade liberalization agreement, China agreed to lower tariffsand abolish market impediments after it joins the world trading body. Chinese and

foreign businessmen, for example, would gain the right to import and export on their own and to sell their products without going through a government middleman. Afterreaching a bilateral WTO agreement with the EU and other trading partners in summer2000, China worked on a multilateral WTO accession package. China concludedmultilateral negotiations on its accession to the WTO in September 2001. Thecompletion of its accession protocol and Working Party Report paved the way for itsentry into the WTO on December 11, 2001, after 16 years of negotiations, the longest inthe history of the General Agreement on Tariffs and Trade.

With bilateral trade exceeding US$38.6 billion, China is India's largest trading partner.[149] Shown here is a Chinese container ship unloading its cargo at Jawaharlal Nehru

Port, Navi Mumbai, India.China's global trade exceeded $2.4 trillion at the end of 2008. It first broke the $100billion mark in 1988, $200 billion in 1994, $500 billion in 2001 and $1 trillion mark ($1.15trillion) in 2004. The table below shows the average annual growth (in nominal US dollarterms) of China's foreign trade during the reform era.Period Two-way trade Exports Imports198185 +12.8% +8.6% +16.1%198690 +10.6% +17.8% +4.8%199195 +19.5% +19.1% +19.9%19962000 +11.0% +10.9% +11.3%200005 +24.6% +25.0% +24.0%2006 +27.2% +19.9% +23.8%

2007 +25.6% +20.8% +23.4%The vast majority of China's imports consists of industrial supplies and capital goods,notably machinery and high-technology equipment, the majority of which comes from thedeveloped countries, primarily Japan[citation needed] and the United States[citationneeded]. Regionally, almost half of China's imports come from East and Southeast Asia,and about one-fourth of China's exports go to the same destinations[citation needed].

About 80 percent of China's exports consist of manufactured goods, most of which aretextiles and electronic equipment, with agricultural products and chemicals constitutingthe remainder. Out of the five busiest ports in the world, three are in China.


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The U.S. is one of China's primary suppliers of semiconductors and electroniccomponents, power-generating equipment, aircraft and parts, computers and industrialmachinery, raw materials, waste and scrap, and chemical and agriculturalproducts[citation needed]. However, U.S. exporters continue to have concerns about fairmarket access due to China's restrictive trade policies and U.S. exportrestrictions[dubious discuss][citation needed]. Intellectual property theft makes many

foreign companies wary of doing business in mainland China.[citation needed] Accordingto U.S. statistics, China had a trade surplus with the U.S. of $170 billion in 2004, morethan doubling from 1999. Wal-Mart, the United States' largest retailer, is China's 7thlargest export partner, just ahead of the United Kingdom.

Gourmet foods, such as Florida softshell turtle, are among China's imports[150]The U.S. trade deficit with China reached $232.5 billion in 2006, as imports grew 18%.China's share of total U.S. imports has grown from 7% to 15% since 1996. At the sametime, the share of many other Asian countries' imports to the United States fell, from39% in 1996 to 21.1% in 2005. The share of overall Asian imports (including China) tothe United States actually declined from 38.8% in 1996 to 35.7% in 2005. The U.S.

global trade deficit with the AsiaPacific region as a whole also has fallen from 75% in1995 to 49% in 2005.Trade volume between China and Russia reached $29.1 billion in 2005, an increase of37.1% compared with 2004. A spokesman for the Ministry of Commerce, Van Jingsun,said that the volume of trade between China and Russia could exceed 40 billion dollarsin 2007.[151] China's export of machinery and electronic goods to Russia grew 70%,which is 24% of China's total export to Russia in the first 11 months of 2005. During thesame time, China's export of high-tech products to Russia increased by 58%, and that is7% of China's total exports to Russia. Also in this time period border trade between thetwo countries reached $5.13 billion, growing 35% and accounting for nearly 20% of thetotal trade. Most of China's exports to Russia remain apparel and footwear. Russia isChina's eighth largest trade partner and China is now Russia's fourth largest trade

partner, and China now has over 750 investment projects in Russia, involving $1.05billion. China's contracted investment in Russia totaled $368 million during JanuarySeptember 2005, twice that in 2004.

Chinese cars at a dealer's lot in Nizhny Novgorod, the traditional capital of the Russianautomotive industryChinese imports from Russia are mainly those of energy sources, such as crude oil,which is mostly transported by rail, and electricity exports from neighboring Siberian andFar Eastern regions. In the near future, exports of both of these commodities are set toincrease, as Russia is building the Eastern Siberia-Pacific Ocean oil pipeline with abranch to Chinese border, and Russian power grid monopoly UES is building some of its

hydropower stations with a view of future exports to China.Export growth has continued to be a major component supporting China's rapideconomic growth. To increase exports, China pursued policies such as fostering therapid development of foreign-invested factories, which assembled imported componentsinto consumer goods for export and liberalizing trading rights. In its 11th Five-YearProgram, adopted in 2005, China placed greater emphasis on developing a consumerdemand-driven economy to sustain economic growth and address imbalances.The China Council for the Promotion of International Trade (CCPIT) promotes China'sinternational economic and commercial interests. This is accomplished by developing


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business cooperation and exchanges with foreign countries. It also produces economicdata, creates diplomatic ties and is active with trade arbitration issues. Hong Kongremains prominent in domestic trade, notably in its reliance on the mainland foragricultural products.

INDIA AND CHINA -LOOKING BELOW THESURFACE TO COMPARETHESE TWO

RISING ASIAN BUSINESSGIANTS

India has emerged as a trading superpower and as an increasing magnet for FDI. Itsrole in the international economy to this point has been less remarked than the rise anddominance of China but increasingly India will be appreciated for the opportunities it iscreating for its citizens, employers and foreign and domestic firms. At first glance, Indiadoesnt look like a major trading superpower or a place where your company should be

considering siting a factory. Major complaints heard by visit execs often involve the poorstate of infrastructure, the chaotic traffic, that the democratic process hindersdevelopment, that corruption is endemic and that bureaucracy is rampant. To this, manymanufacturers must factor in that relations between China and India are formal but notwarm and that apparently neither side trusts the other, which to this point has limitedeither location from generally serving the other for exports.

An interview with Chris Runckel, the author, on the content of this article. Listen to theshow - From Business Now Asia Pacific Radio, a weekly 30 min online programfeaturing reports and original analysis on the Asia Pacific region(www.businessnowasiapacific.com)

You only have to drive the roads from Bangalore out to Infosys or to some of the majorbiotech companies located in the South to appreciate that roads are in fact overcrowdedand need expansion. Also, ports are a problem. According to several sources,Shanghai can turn around a ship in eight hours. In Bombay, it takes three days.Competitiveness studies (please see this website for more on this) also make the casethat India needs to reform procedures and lessen red tape. Despite this, India shouldntbe neglected - things are changing here and India should be on every businesspersonsradar.


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To better understand what India is and what it is not, lets compare it to China. First,forget the hype about both China and India. Keep in mind that despite all the talk ofChina or Indias rising status, both China and India are still desperately poor countrieswith large disparities in incomes across each country. In China nearly half of thecountry's labor force remains in agriculture (about 60 percent in India). Also, despite allthe talk about Indian software engineers and Nobel laureates and Chinese engineering

whizzes, India has the largest number of illiterate people in the world and China also isburdened with a large number of rural poorly educated who will offer continuedchallenges for economic development. (Indias illiteracy rate is nearly 40 percent andChinas is nearly 10 percent according to World Bank statistics.) Of the total of 2.3billion people in these two countries, nearly 1.5 billion earn less than US$2 a day,according to World Bank calculations. The opportunities in both countries aresubstantial; the challenges are also large.

With this in mind, lets compare the two countries by size: China is the worlds third-largest country after Russia and Canada and is the second largest country by land area.India is about a third of Chinas size. In terms of population, China tops India at 1.3billion people compared to India at just over 1 billion but India is growing at a faster rate

and has a younger population. In terms of political systems, China is a communistcountry which economically is following market reforms that encourage free trade andcapitalist-based business models. India, by comparison, is the worlds largestdemocracy, but with a system of commerce that until the 1980s was based on the Sovietmodel and has since been reforming itself to follow more free trade and capitalist-basedmodels. China has been reforming its economy since 1978; India has been workingsince 1991 but at a faster rate of speed.

Further, in terms of manufacturing Chinas lead over India in terms of manufacturing isconsiderable. China is the worlds third largest nation in terms of manufacturing after theU.S. and Japan. India is a still impressive, but much further back 12th place in the samelist according to Global Insight and the Financial Times. This points out the fact that to

this point, Indias success in expanding its service industry has yet to be as firmlydemonstrated in the manufacturing sector.

In terms of performance, here are some charts comparing and contrasting the twoeconomies in terms of first GDP, then exports and finally imports:

Top 15 Manufactuing Nations

2006

20251US1China2Japan


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2US3China3Japan

4Germany4Germany5France5South Korea6UK6France

7South Korea7India8Italy8UK9Brazil9Italy

10Canada10Brazil11Russia11Russia12India12Indonesia

13Spain13Mexico14Mexico14Taiwan15


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Indonedia15Canada

As can be seen, China is by far the bigger economy, the bigger exporter and the biggerimporter but dont assume that all the advantages go to China. Here are somedifferences to consider:

Tax Regimes

China:

India:Corporate Income Tax: 24%Tax-Incentives for high-tech industries: 15%Tax Holidays for manufacturing industries:Initial two years of profitability: 0 percent taxNext three years of profitability: 50% of tax rate (This is assumed to be 12%)Indias tax system is being reformed as we write this. Following is the tax system forIndias Special Economic Zones:Corporate Income Tax: 15%First five years of profitability: 0% tax

Second five years of profitability: 50% tax (This is assumed to be 7.5%.)Third five years of profitability: 50% of tax rate for any invested dividends that areinvested back into India

As can be seen, India has introduced a tax regime that is vastly more advantageous inthe Special Economic Zones than China. Another benefit of India over China withrespect to locating in the Special Economic Zones is that India does not discriminatebetween manufacturing and services and either can offer the above incentives, which isnot the case in China. (Service companies are treated less favorably in China forincentives.)

Company Development

Tax incentives are not the only area that India is ahead of China in. Generally, Indiancapital markets far exceed their Chinese counterparts in terms of transparency andpredictability. Indian companies can list domestically on the Bombay Stock Exchange,

Asias oldest exchange. China has both the Shanghai and Shenzhen stock exchanges.Shanghai is larger than Bombay in terms of capitalization (Bombay has US$1 trillion with4,833 companies and Shanghai has US$1.7 trillion with 849 companies) but what differsthe two exchanges is not just their size but that Bombay is run to international standards


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and has tremendous stability in the quality of its companies. On the other hand, ChinasSecurities Commission has no powers to impose punishments, which must be imposedby the courts. Further as the government is the major stockholder of its State-ownedenterprises all these firms are not subject to independent policing and true financialanalysis meaning that the value of many of these firms is suspect. This means thatgenerally India has the more transparent economy.

Company Management Capabilities

India, however, is not only ahead in financial transparency. Although there are manyexcellent Chinese companies, generally the management abilities of many Chinesebusinesses is not as strong as their Indian counterparts. Part of this is due to the factthat reform in China started barely 30 years ago and that management training has notbecome of interest till recently. Also, it is a factor that in many respects it is the rest ofthe world that came to China to produce in the last decade and not Chinas homegrownexport industry that has driven exports. In fact, if one looks at cross-border activity,China has yet to become active in acquisitions to-date, although there is indications thisis starting to change. Big acquisitions by Chinese businesses include Lenovos takeover

of IBMs PC business and more recently the Chinese acquisition of an interest inBlackstone, which is a different twist on things.

On the other hand, Indian companies have been on a tear building up internationalassets and expanding throughout the world. Recent examples:Tata Steels $13.6 Billion Acquisition of CorusMittal Steels even larger $31 billion purchase of ArcelorTata Groups acquisition of U.S.-based Glaceau, a health drinks and watermanufacturer, for US$677 millionTata Teas purchase of a controlling stake in Britains Tetley for US$407 millionIndias wind energy firm Suzlons acquisition of Hansent Transmission for $324 millionInfosyss $28 million acquisition from Phillips of BPO centers in Chennai; Lodz, Poland

and Bangkok, Thailand.Indian Phamaceutical giant Ranbaxys acquisition of Romanias TerapiaBallarpur Industries (an Indian Paper and Pulp company) and JP Morgans acquisition ofMalaysias Sabah Forest Industries

As can be seen from the above examples, Indian companies are actively becomingworld players. Chinese companies really cant match the breadth or the depth ofacquisitions and this is giving Indian companies a lead over their Chinese counterparts.

Communication

Despite what some Europeans, and especially the French, have come to think; English

is the international language of business and one of the further reasons for Indiassuccess is the fact that Indian businesses generally speak it at all levels and with a highdegree of precision, while Chinese businesses do not. Although Mandarin is the worldsmost spoken native language, with some 874,000,000 native speakers, it is also spokenin only 16 countries in any substantial proportion of the population and those are all in

Asia. English is the worlds third largest spoken language with over 380 million peoplespeaking it natively. Despite the fact the absolute total is much less, the spread ofcountries 104 speaking English in a high proportion of the population and 71 as anofficial language is six and a half times greater than Mandarin and over 600 million


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people speak English as a second language, including 89% of current students in theworlds other developed powerhouse, the EU. The fact is that Mandarin is still a regional

Asian language and not a world language in the same way as English is. On theInternet, the difference is even more striking:

Native language: English

Number who has Internet access: 287.5 millionPercentage of Worlds online population: 35.2 %Native language: Other EuropeanNumber who has Internet access: 276 millionPercentage of Worlds online population: 37.9%Native language: All Asian languages (including Mandarin)Number of world online population 240 millionPercentage of World online population: 33%

Source: Global Reach (global-reach.biz/globstats)

Global Internet Statistics(by Language)

ASIAN LANGUAGES

LanguageInternet access(Millions)Percentage of world online population

Arabic10.5

1.4%Chinese102.614.1%Japanese69.79.6%Korean29.94.1%Malay13.6

1.9%Thai4.9

Vietnamese2.2

Total Asian Language204.6


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33.0%Total World729.2100%

As can be seen from the above, Chinese (including Mandarin and Cantonese) is only13.7% of the online population while English is 35.2%. Finally, over 80% of scientificarticles are published in English, up from only 60% fifty years ago. Indian managersability to communicate easily in English gives them a tremendous advantage and India ismaking skilled use of that advantage.

As can be seen from the above, on the surface, China looks like the stronger player butsome of that difference is veneer only. India does have advantages in many areas andthese areas are generally the sorts finance, management, and communications - thathave effects throughout the system. For these reasons, we believe India cannot beignored.

Here are our projections and our recommendations:

a. Indias economic growth will move roughly equal to Chinas at 10 % by 2008 but willthen exceed Chinas as Chinas economy slows to less than double digit figures

b. India will increasingly start to replace China as a site for lower-end exportmanufacturing and for projects that have higher content of labor

c. Indian companies will continue to globalize at a faster rate than their Chinesecounterparts.

d. Every company needs an India strategy both for sourcing, review for potential

factory relocation and long-term as a sales base.

china rising giant

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