A Lot to think about

Updated: 2012-07-06 08:47

By Andrew Moody (China Daily)

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A Lot to think about

Think tanks around the world grapple to come to terms with a rapidly changing China

What is the latest thinking on China? Western and Chinese think tanks and research organizations are engaged in a constant battle of ideas about China.

Their clients want to know what is happening because it could have a direct impact on them.

They want to find out not only about its economy - whether there is to be a hard or soft landing, whether the China growth story might come to an abrupt end or what impact a euro collapse will have on its economy - but a wide range of issues too.

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These include the impact of China on the environment, security issues in the Pacific, whether cash-rich Chinese companies are about to buy everything in sight and also the implications of China's economic rise.

There are also issues as to whether the Western or outsiders' view of China is different from the people doing their thinking and research from within the country's borders.

One of the big questions currently is whether there has been any recent change in the terms of the debate about China.

Kerry Brown, head of the Asia Programme at Chatham House, one of Europe's leading foreign policy think tanks based in London, says the whole debate about China has had to suddenly speed up.

This, he argues, is because China in 2011 became the world's second-largest economy overtaking Japan, which had held that position for 42 years, quicker than anticipated.

"China has become the victim of its own success. No one really expected it to be in this position quite so quickly. This is partly because of the screw-up in the West since 2008," he says.

"Everyone had assumed China would be in this position five or 10 years down the road and so all the issues of how to accommodate a new power have come ahead of schedule."

Brown says the West now has to come to terms with the fact that decisions made in China can have a big impact on the rest of the world.

"The Chinese government can make quite big decisions that will have an impact on international markets, resources and on industrial policy," he says.

Over in Beijing, Miranda Carr, head of China research at NSBO, which provides research on China's economy to leading clients around the world, says one of the major issues is whether the China economic juggernaut can survive a seismic event such as the collapse of the euro.

She says the global economy has become dependent on China remaining a vibrant, successful economy.

"With one of the world's major currencies collapsing you would see a global crisis and massive instability and uncertainty and countries would go on into full-scale crisis mode on a global basis and China would be part of this."

Carr says China might not respond this time with a 4 trillion yuan ($645 billion, 509 billion euros) stimulus package as it did in 2008. "The problem then was protecting jobs because of loss of exports in places like Guangdong (the South China province which is a light-industry manufacturing hub)," she says.

"Policymakers have already anticipated slow export growth this year and only 20 percent of China's exports go to Europe so the response this time may be different."

Oliver Barron, head of NSBO's China office, adds that any euro collapse will come at a bad time for China.

"Growth already is forecast to turn out at between 7.5 percent and 8 percent this year which would be the worse since 2003 or 2005 so any major event like this would prove difficult."

James Fallows, board member of the Washington-based think tank New America Foundation and national correspondent for the Atlantic, says one of the most frequent questions he is asked is whether the China economy is going to unwind.

Speaking from the Aspen Ideas Festival in Colorado, he says the China economy has shown remarkable resilience.

"The Chinese economy has problems now but it has had them at any point in the last 30 years and has still moved forward, so we ought to recognize by now there is a lot of resilience built into it. It might not have the same level of growth this year but it will probably find ways to rebound," he says.

While the impact of global events may also be important to Xu Wei, a researcher from the China Center for International Economic Exchanges in Beijing, her key focus is on the Chinese consumer.

Boosting personal consumption is a major theme in the Chinese government's 12th Five-Year Plan (2011-15) so that it is less reliant on exports and investment in infrastructure for generating growth.

Xu says consumption is now a major area of research in China, particularly around the policies that need to be enacted to boost it.

"We need to expand household consumption because it is on a downward trend. The continued economic growth of China depends directly on consumption and it is playing a role in boosting economic growth."

She says the goal of policy needs to be to increase the income levels of low- and middle-income groups.

"We need to enhance people's ability to consume such as by accelerating improvements in the social security system, improving the well-being of people and making every effort to increase employment."

For Xu, there has to be greater investment in China's rural areas, the building of better transportation and power and water supply so they become closer to vibrant economic communities with higher consumption levels such as the wealthier major cities.

"There will be two effects. It will be easier to get cheap goods and services to rural markets and also it will be easier to get agricultural products to the urban markets."

The potential of new consumers in remote areas of China is also of major interest to many Western think tanks.

It is something that the Economist Intelligence Unit through its Access China regional team has been engaged in.

"There is a lot of interest in the internal growth story," says Duncan Innes-Ker, senior researcher at the Economist Intelligence Unit in London and a China specialist.

The economic growth disparities can be quite marked. While according to a recent Bank of China report, China's GDP growth is estimated to be 7.6 percent in the second quarter of this year, growth is much higher in other areas of the country. According to the EIU, it hit 14.4 percent in Chongqing in Southwest China and 14.7 percent in Tianjin in the first quarter. In both Beijing and Shanghai, it was just 7 percent.

"A lot of cities on the Yangtze River are seeing this double-digit growth. Companies wanting to make investment decisions are clearly interested in this information. Most of the international companies are still only in the first- and second-tier cities with one exception being Yum! Brands (owner of the KFC franchise)," Innes-Ker says.

For Carr at NSBO, the major question being asked is whether China is to have a hard or a soft landing.

"There seems to be this anti-China camp that always wants China to have a hard landing. The US has had a hard landing and so has Europe, so why shouldn't China? I actually don't think China will have a hard landing but I do think it is more difficult for the government to stimulate growth, particularly by conventional means (such as investment in infrastructure)," she says.

She says the other perennial issue is whether the China property bubble is going to burst and if there is going to be a crash.

"The challenge for the government is not to create a bubble when it eases up on some of the property restrictions that have been in place since last year," she says.

"The sector remains so important to the China economy since it accounts for about one-eighth of GDP growth. What we have found is that private real estate investment is weak only up by about 3 percent year-on-year and that the market is being supported by the government's target of building 26 million affordable homes by 2015."

One key area of research about China is the environment, particularly after the Copenhagen Climate Change Summit of 2009 when an international agreement was not reached.

Isabel Hilton, CEO of chinadialogue, an independent body based in London, Beijing and Delhi, specifically provides research and promotes debate on the subject of China and the environment.

"There was a huge chasm at Copenhagen but it was complicated because the other elephant in the room was the United States which had signed but never ratified Kyoto (the 1997 United Nations' Protocol on climate change)," she says.

Speaking at a cafe near her offices in Charles Square, Islington, London, she says the main interest is in the environmental targets - both for renewable energy and emissions - set out in the 12th Five-Year Plan.

"There was quite an important shift from the 11th Five-Year Plan and the 12th in that China decided it couldn't go on as it had been doing, which was hoping to get rich and then cleaning up afterwards," Hilton says.

"There has been a realization that cleaning up is infinitely more expensive than not polluting in the first place. You also can't clean up things you have lost forever."

Hilton, also a leading journalist and well-known broadcaster, says she gets a lot of questions about the China renewable energy industry and whether it is destroying Western companies in the same field through unfair competition.

"They are worried about China destroying the clean energy industries such as solar and wind by subsidizing its own industries and creating market barriers for Western companies in China. You can see it in the wind sector, in particular, where European and American technology is actually more advanced."

One of the major issues in the West about China is its emergence as an economic superpower and the security implications for the West.

US President Barack Obama has made a number of moves over the past year to build alliances in the Pacific region and there has been a sense within China of being ganged up against.

Brown at Chatham House says China is now too big to follow a non-interventionist policy that owes its roots to the Five Principles of Peaceful Coexistence of the mid-1950s.

"This is what we get asked a lot. I feel that this non-interference is way past its sell-by date and as a global power China has assets, interests and links ways past its own borders and can no longer say it just wants to develop its economy and look after its own backyard. There are going to be all sorts of people banging at its door and wanting it to take a position," he says.

Andreas Maurer, senior fellow, Brussels office of SWP, the German foreign policy and security think tank, says there is concern in Europe at present about a developing alliance between China and Russia.

He says some in Europe believe the Shanghai Cooperation Organization, which also includes Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, is developing a more political role.

"There is a perception within the EU that they are creating a new bloc, which they believe to be a threat. I don't think this is the case personally," he says.

Despite China's growing power, Fallows, who is also author of China Airborne, about the development of the aviation industry in China, says it is not playing as big a role in the US presidential election as many seem to assume.

"People in China see these clips on TV where there seems to be an insult every other day. I think Chinese diplomats on the scene are trying to tell people in Beijing to calm down since what they don't see back in China is the 5,000 insults about everyone else," he says.

Fallows was recently on the campaign trail with Mitt Romney and did not hear China mentioned once.

"It is very much a third-order issue when it should really be a first-order one. It is very different to the 1992 election when the effect of Mexico on jobs was a major issue or in 1988 when Japan was the big issue," he says.

Michael Barr, lecturer in international politics at Newcastle University and author of Who's Afraid of Chinese Soft Power, says there is a lot of confusion in the West as to what China's new economic power means.

"If you look at some of the opinion polls done by Gallup last year about American views on China, they showed American people viewed a closer relationship with China a good thing. Many were under the false impression that the China economy was already larger than that of America. They had no idea also as to how poor China was in per capita terms."

Maurer at SWP says there is a growing demand for research on China's developing relationship with Africa.

"China has a different way of cooperating with Africa in that it doesn't place any conditions when it invests. China's yardsticks are local laws and practices, instead of European Union's requirements on human rights and sustainable development," he says.

One economic area in which there is a lot of research and discussion is that of yuan convertibility. China announced at the end of June that it was to set up a special business zone in Shenzhen as trial for this.

"We get asked about this a lot since there seems to be momentum," says Carr at NSBO. "You had situations last year where QE2 (quantitative easing 2) just resulted in inflated commodity prices. If the yuan was fully convertible it is not inconceivable that things like commodity prices could be priced in yuan rather than dollars since China is a major user of them."

Whether the type of research coming out of the various think tanks at present influences actual policy in either China or the West is also open to debate.

"I think this is more the case in the United States were the likes of the Brookings Institution and Carnegie Endowment are more embedded in the system. I think 26 people went from Brookings to the Obama administration so you get this amazing crossover of people. This doesn't tend to happen in Europe where the think tanks are more separate," says Brown at Chatham House.

A big question also is whether there is a diversion between the thinking among research bodies in China about the country and that of Western institutions.

Fallows, for one, thinks there is now a convergence of thinking that did not previously exist.

"I think some of the discussion I have been having in Washington recently has not been that different from that I had in Shanghai a couple of weeks before. I think this is a step forward of sorts. There is no longer this up or down, black or white view, at least among the people I have been talking to," he says.

Fu Jing contributed to this story.


(China Daily 07/06/2012 page1)