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08th April 2000
LEADERS
The Economist

Demystifying China

China is neither an economic power, nor yet a military one. It is a country beset by woes that its leaders are ill equipped to deal with

THE West cannot quite make up its mind about how it wants to deal with China. That French philosopher-king, Jacques Chirac, sends poems each month to China’s president, Jiang Zemin, who responds with his own calligraphy. Yet defence planners in western capitals play their games on the assumption that the next big war may be between American-led forces and a rising China bent on trouble. In America, big business lobbies Congress to treat China as a normal trading nation, while Congress urges the administration to sell more weapons to Taiwan, as defence against Communist Chinese threats. Golden economic prize or rising international menace? Is China one or the other? Both or neither?

If China is not the golden economic prize it is made out to be, then the world at the very least risks wasting a fabulous amount of money. If it is not really the rising international menace that Senator Jesse Helms makes it out to be, then treating it as such could, at worst, help turn it into one. At best, the West would lose what influence it may have had in nudging China away from its many dissatisfactions and down more democratic paths.

Foreign interest in China’s commercial promise typically follows a roller-coaster course that starts in hope and ends in despair. Hopes are rising again, with the prospect that China may be a member of the World Trade Organisation (WTO) by the end of this year. This has long been the stuff of salesmen’s dreams: 2.6 billion armpits to deodorise. Added fervour comes from the Internet craze, with foreigners falling over themselves to invest in Chinese dot.coms—no matter that government deems such investment illegal.

Time to clear up a misunderstanding. China has never been the prize that foreign businessmen have imagined—foreigners earn an average return on equity of just 3.3%—and will not be for a long time to come. Much of the place is still miserably poor: average income per person is less than $1,000 a year. Indeed, China probably should not be buying many of the aircraft, power plants and capital goods, not to mention the fighters, bombers and submarines, that outsiders are selling it. Should the economy really take a tumble—after an American economic plunge, say, or a bout of self-inflicted regional instability over Taiwan—China would have trouble repaying loans. Meanwhile, WTO membership will not mean a surge of foreign imports.

Another misunderstanding, when the roller-coaster heads for despair, is about the treatment of foreign companies in China. They do not get a rawer deal than local ones. Rather, they are usually side-swiped by restrictions that hit deserving domestic companies harder. Indeed, foreigners often have investment privileges denied to locals. Yet it is these home-grown outfits that hold the key to the future. The real significance of China’s WTO membership is not as a bonanza for foreigners, but as a rod for the forces of reform to beat back a still stifling state and to build up the rule of law.

The Chinese state will no doubt continue to resist. China’s membership of the WTO will assuredly place strains on that organisation, as the socialist legacy of protectionism clashes with international trading rules. There are risks here for the West. But is the WTO so weak an organisation that the clash will mortally harm it? China’s trade with the rest of the world is still smaller than the Netherlands’. And, even realistically imagined, the potential prize of admitting China is still worth having: a continental-sized, more liberal economy that promotes regional stability where now it lends instability.

What of China as a rising international menace? As our article 1002 points out, China’s armed forces, though capable of regional mischief over Taiwan or disputed claims in the South China Sea, are still far from being the fighting machine its generals seem to want outsiders to believe. In other ways, China is slowly starting to conform to accepted international practices. It has signed the Nuclear Non-Proliferation Treaty and the Comprehensive Test Ban Treaty. Under American pressure, it has started to curb military and nuclear sales to unstable states, such as Iran and Pakistan. And it takes part in regional talking clubs, albeit with a determination to keep Taiwan either out or down.

The reason is that China wants its rightful place at the top table of nations, and enjoys the back-slapping that comes with it. Its leaders want economic prosperity too, since their rule rests upon it, and membership of the WTO seems the only way to achieve it. China may rant about American “hegemony” but, step by step, it is surrendering to an international order that, while often American-led, enjoys broad support.

Raising the standard

 

This is the level-headed case for engaging China. But engagement is not certain to transform it for the better. Capitalist economics and communist politics cannot coexist for ever: the risks of instability will grow, as the demands for a liberalised economy clash with an illiberal state. If China turns militaristic, even fascist, the West will have to contain the threat that poses, as it has done before. Perhaps the greater peril would be a collapse of central authority under severe economic strain. Such an upheaval would not necessarily bring democracy. It might intensify concerns about weapons proliferation, illegal emigration and international crime.

Whether the worry is about China’s future strengths or weaknesses, its uncertain future makes the pursuit of diplomacy with it that much harder. Opting for illusion over reality, some western governments treat China’s weaknesses as strengths, overlooking the regime’s disdain for human rights and its intermittent bullying of its smaller neighbours, in the hope of winning commercial favours from the state. Better to be clear about the international standards expected, whether on trade, human rights or the use of force, and deal with China on all fronts. For China is not a monolith. As it changes, so the voices and interests that make up the country multiply. The West would do well to engage them all.

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According to the Economist Intelligence Unit, economic growth in China which slowed in 1999 for the seventh consecutive year, is expected to pick up slightly in 2000.