china's economic rise

Canadian International Council

China's Economic Rise and the New GeopoliticsAuthor(s): Oded ShenkarSource: International Journal, Vol. 61, No. 2, Global China (Spring, 2006), pp. 313-319Published by: Canadian International CouncilStable URL: http://www.jstor.org/stable/40204159 .

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Oded Shenkar

China's economic rise and the new geopolitics

BACK TO THE FUTURE

Following a quarter of a century of robust, double-digit economic growth, China is now poised to overtake the United States as the world's largest economy (in purchasing power terms) within two to three decades. When this happens, China will not only be ending a 150 years of US reign, but will also be reclaiming the primacy it first obtained a millennium earlier when it pulled away from western Europe to become the biggest economy on the planet. Today, the Chinese "factory to the world" is producing not only gar- ments and toys but computer components, cars, and aircraft, and sets its eyes even higher. The Chinese have successfully launched manned space missions, something only two other nations have managed before, and are planning further space exploration. They are investing heavily in the technologies of the future, such as nanotechnology and fuel cells, that will help their nation cement a leadership position in the economic arena as well as in world politics.

Naturally, China's continuous economic progress depends on its ability to contain or overcome numerous problems. A manifestation of the remaining and often growing obstacles en route to China's modernization

Oded Shenkar is the Ford Motor Company Chair in global business management at the Fisher College of Business, Ohio State University. His most recent book is The Chinese Century (Wharton Publishing, 2005).

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is social unrest - naturally a threatening phenomenon to a non-democratic

regime whose legitimacy is underpinned by a modern "mandate of heav- en" - that is, by its ability to continue to deliver economic prosperity. The discontent reflects a number of serious problems, such as China's rising inequality between rich and poor, whether individual citizens or provinces, and is amplified by past professed beliefs in egalitarianism and a long tradition of local squabbling, pervasive corruption at many levels of business and government, massive pollution, and a demographic time bomb result-

ing from the one-child policy, which means that a shrinking working population must support an ever-growing number of retirees whilst a national

security system is still in its infancy. Just as these concerns are mounting, the dismantling of rural collectives and the decline of state-owned enter-

prises have taken away what used to be the regime's most effective control

apparatus, making such challenges to the party's authority more ominous. Abroad, China is also facing challenges that may well spill into its own

borders. On the Taiwan front, China has pushed itself into a corner such that quasi-dedarations of independence may compel it to invade the island, jeopardizing its global and economic prospects. In Hong Kong, where pro- democracy forces are testing the limits of expression and offering an unwel- come alternative model to the mainland's residents, China has retreated, for now, from enforcing unpopular antisubversion measures, but remains hesitant about its future course. In the rest of east and southeast Asia, concerns about the rising economic, political, and military power of the Chinese are not too far from the surface, and may be triggered by a single crisis. Further ashore, China is facing the prospects of American and

European protectionism, which represents a serious threat to an economy that is increasingly reliant on exports.

OBSTACLES AND THEIR SOLUTION Can China overcome those daunting challenges? I believe it can, as it did in some 25 years of reform, despite the early observations of multiple western economists that it was not possible to have a successful free market econo-

my under a non-democracy. Most forgot that Hong Kong, Milton Friedman's poster boy of a free market, was a British colony whose residents had even less power to elect their rulers than under the current Chinese rule. China, in my opinion, is likely to continue its economic march forward but is unlikely to follow the route laid by most western observers, that is, by edging ever-closer to a democratic, US-style system.

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Not only will that not happen in the foreseeable future, but China will instead develop and prosper with an alternative model that many nations, especially in the developing world, will find appealing: one-party control administered via a merit-based bureaucracy but without separation of powers, something not too removed from the imperial model, in which a dynasty ruled through a capable bureaucracy made up of a combination of generalists and professional experts, with the former in charge.

Foreign investors are enamoured by Chinese efficiencies: no need to wait for public hearings, court challenges, and the endless political bicker- ing one encounters in some other investment destinations (such as India), not to mention at home. No wonder other developing countries and their rulers are reflecting on whether this is not a better course than plunging into the uncertain and chaotic world of democratic elections and changing regimes.

What about the protests? The Chinese are trying to deal with some of the root causes. For instance, massive incentives and prodding by the government to shift investment, both domestic and foreign, towards the hin- terland are beginning to bear fruit, as they meet the economic realities of an increasingly expensive coast. Pollution control is suddenly in vogue, though implementation beyond Beijing and the 2008 Olympics remains uncertain. In the meantime, the government can always use nationalism as an antidote to political aspirations, as it did recently in launching anti-Japan demonstrations. In addition, the Chinese are showing that they can and will engage in "modernization with Chinese characteristics" by turning the internet, as an instrument of democratization, on its head, turning it into a mechanism for monitoring and control. Here, the virtual community is replacing the physical communities of the clans, the commune, and the state-owned enterprise, continuing a millennium-old tradition of state control over both culture and information.

A new leadership model A common criticism of the Chinese model of economic development is its inability to produce innovation, an acknowledged but possibly overstated ingredient for economic leadership in a modern economy. The weakness is especially glaring when China is compared to the current leader, the United States, which is by far the most innovating country in the world as judged by technology flows (though not on a per capita basis). One can imitate only that much, goes the argument, so once the Chinese are ahead, they will be

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forced to innovate, something they cannot do under a non-democratic system. Not so fast. While I will be the first to admit that the debate and trans- parency associated with democracy are a boon to innovation, it is worth remembering that the Chinese empire has had a stellar record of innova- tions, from the compass to the abacus, though it has consistently failed to produce the sustainable science that would enable it to build on past suc- cesses. Several decades of communism, with its "innovation by decree" illu- sions, did not help, nor did early years of reforms with their wholesale importation of complete, turnkey manufacturing systems. Yet China is now undertaking one of the most ambitious attempts in history to reverse these weaknesses, restore what it had (the capability to invent) and develop what it did not have (the capability to develop science and its various applications). From the repatriation of its "turtles" (Chinese students educated abroad) to the acquisition of foreign firms on their more innovative staff (see, for example, Lenovo's acquisition of IBM's PC business), China is working hard to overcome its shortcomings, though only time will tell if it will be successful.

In the meantime, China is engaged in the most massive copying enterprise undertaken in modern time. This time around, the copier is not a third world country with the ability to imitate and reverse engineer simple products at a low-quality level, but an economy with advanced capabilities that can replicate a sophisticated product, sometimes at a level where it can hardly be told apart from the original. So while foreign firms are told that continuous innovation is their saviour, we may be seeing the development of a new order, where the copier trumps the innovator, leveraging its R&D investment to undercut its pricing power and eventually push it out of the market. In today's age, to suggest leadership by imitation sounds like an oxymoron, but once you combine the rise of the accomplished copier (China) and its supportive institutional environment with the commodifi- cation of product markets and with the rising global challenges to the current copyright regime, you may be looking at a new business model, and this one is China's to win.

MILITARY AMBITIONS

Of particular concern to the United States and other nations (Japan, for example), is the substantial increase in military expenditure by the Chinese regime. While China and the United States are sharply divided over the actual expenditure (the United States claims it is much larger

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than the official numbers suggest) and over the intent of the military buildup (offensive or defensive), there is no question that China is investing heavily in upgrading its military capabilities. Why the investment? First, the Chinese military is indeed in need of modernization, having lagged behind the major military powers in the technology that has become so vital to military endeavours and having recognized that numbers and

willpower alone will not win a modern war. At issue are not only weapon systems but the ability to coordinate multiple units of diverse and far-flung services, something akin to the managerial capability to run a modern global enterprise. Second, as with other nations, the Chinese military's objec- tives are to protect and fulfill national and strategic interests (e.g., "reunifi- cation" with Taiwan), including those that are primarily economic (e.g., control of vital raw materials and their supply routes). As China's ambitions and interests expand, so do the military capabilities it is aspiring to obtain. What is not dear yet is the extent and precise nature of China's regional and

global ambitions that the military is set to achieve or protect and how such ambitions are intertwined with China's economic aspirations.

China's military is not only there to protect China's economic interests, but economic progress is likewise vital for the military to achieve its goals of growth and rapid modernization. Economic growth produces more resources, and those can be channelled towards military buildup. Similarly, as more technological capabilities are being transferred to China, the army benefits both directly, as a recipient of such technologies, and indirectly, for instance by absorbing staff who are well-versed in technology development and applications. And transfer they do. Twenty-five years of Chinese economic reform have retained one constant- the tie-up of foreign investment to technology transfer. Despite apparent WTO commitments not to main- tain the tie, evidence suggests it is still there. This is critical as technology transfer has now been expanded to include R&D capabilities, and these

capabilities are essential in the military's drive to build long-term capabilities and to achieve the continuous improvement that befits modern armed forces.

WELCOME TO THE NEW "NEW WORLD ORDER"

At the geopolitical level, the rise of China will introduce a return to a mul-

tipolar world, which, coming on the heels of a bipolar and then a single- superpower order, will represent a dramatic departure from years past. In the long run, China clearly is seeking strategic parity with the United




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States, though it is unlikely that this will signify a return to the bipolar world of yore. This is because we now have a semi-unified Europe and because, in my opinion, China itself does not harbour the aggressive ambitions of the Soviet Union. This is the subject of much contention, and time will tell if China will retain its imperial ways - modest regional incursions while aiming to beat its enemies by way of cultural supremacy - or veer towards the expansionary policies of other totalitarian regimes.

In the interim, China is set to build coalitions across the ocean, lever-

aging its economic power, relatively docile population (unlikely to complain about foreign aid, for instance), and lack of inhibition about dealing with

rogue regimes, from Zimbabwe to Iran. Regionally speaking, while active in Asia, China is pushing into the Americas, the Middle East, Africa, and, to a lesser extent, Europe. Its goal, for now, is to build a global position to rival that of the United States, even though the Chinese leadership is trying hard to sell the notion that this is not a zero-sum game, and that an involved China is in everyone's interest.

CANADA AND THE NEW "NEW WORLD ORDER"

What role will Canada play in the new "new world order"? Let me start with the bilateral level. At a risk of oversimplification and as an outsider

looking in, let me suggest how I believe the Chinese are looking at Canada and what this view will imply. To start with, Canada's early recognition of the mainland regime, its modest size, and lack of global military ambitions sit well with China's version of what a strategic partner should be. Canada is viewed as a haven of oil and minerals, which China needs for its bur-

geoning economy. Canada also represents a foothold in North America, a

pied-a-terre of a sort where one gains entry to the continent without con-

fronting head-on opposition on the part of the US government, as in the recent CNOOC bid. Canada is America's backyard, as New Jersey is to New York, close enough yet more open to Chinese foreign investment and less

suspicious of China's intentions. Finally, Canada represents a source of innovation - which the Chinese badly need and for which they worry about having to depend on the United States. Here, Canada is in the same boat with Israel and other innovating economies that can provide a coun- terbalance to American technological dominance and can compensate for China's Achilles' heel - its very limited capability to sustain genuine innovation as opposed to copying, imitating, or pirating somebody else's

knowledge.

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What' s in it for Canada? It is not for me to determine, but I do see risks in the relationship. First, while China's appetite for raw materials is a boon to Canada in the short range, it is not clear at all that it will not shift away resources from industry and services. Once China's raw material needs come under control (for instance, due to increased local production, sourc- ing from other countries, and enhanced efficiencies), the boom may come to a sudden halt. The risk for Canada as for any country in this situation is that of over-reliance on the energy and mining sector to the neglect of future sources of economic growth. A second problem for Canada is that of fraying relationships with the United States over such issues as energy diversion and the technology transfer of so called "dual-use" technologies. The current atmosphere in Washington is not very sympathetic towards China and the Chinese, and Canadian cooperation may be viewed suspi- ciously by some.

Beyond bilateral relationships, what will Canada's role be in the new "new world order"? This looks more promising. In a multilateral world, Canada can play a much more prominent role than it does today. It can serve as a bridge between countries that might feel less intimated by Canadian involvement than by American or Chinese involvement, a lynch- pin between countries that view Canada's diverse population as more recep- tive of differences of opinion, and a less-biased mediator in crossborder dis-

putes. If this happens, perhaps we should also be talking about a Canadian

century.




china's economic rise

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