China's economic and political influence

Power of China

From the end of World War II to the early 1970s, China was relatively isolated from the global landscape. It was a part of the Soviet Communist Bloc, but remained inwardly focused on improving its own infrastructure and economy, all the while poised for rapid modernization. Openness towards the West began around 1978 with increased trade, a small amount of additional transparency internally, and at least the semblance of allowing more capitalistic templates like ownership of businesses, development of more modernized factories, etc., and less journalistic control. After 1978, Mao's successor Deng Xiaoping realized that the government had to increase the standard of living for its population, or face revolt. Deng's, and subsequent regimes, focused on market-oriented economic development. By the turn of the century, for instance, Chinese output had quadrupled, living standards improved as well as personal choices -- to a degree. There has been increased global trade, outreach, dialog, and participation in international organizations of all types (Central Intelligence Agency 2010). We also see China, not in a vacuum, but with a patient cloak around as well as a firm policy in FDI into the U.S. And other developed economies.

In the same light, China's massive growth now shows an economy about 1/4 ths size of the U.S. economy. China's output will exceed America's in the 2020s, and their standard of living overall will continue to grow. However, many experts do not see this as a particularly viable threat. China's threat is that it will destabilize the world economy, distort trade, cause financial imbalances and increase competition for certain raw materials. China has proven to be a sly and patient exploiter, and by running a predatory trade policy while at the same time hoarding essential raw materials (oil, natural gas, copper, etc.) they ensure that their interests are stable, and if the rest of the world suffers, perhaps China will emerge dominant (Samuelson 2008).

China has looked at the long-term economic paradigm rather than the short-term model favored by many American investors. Through 2012, for instance, they received $59 billion in direct investment, ahead of the U.S. By $2 billion. "China's biggest attraction to global investment is now its huge market, contrasting the long-time low cost, which is now ranked third or fourth…. The economy is growing in China, outperforming the U.S. And the EU, which are suffering medium- or long-term troubles" (Trifunov, 2012).

We certainly know from history that many wars are fought on ideology but the core reasons surrounded economics. If not territory, then resources. How would the Western democracies respond to oil and gasoline shortages, or putting their populations on rationing? (Von Mises, 2008) Why might we think this will be different with China? Second, is this a policy that is designed to intimidate the world, or simply a consequence of a country with a huge population that must, by its very nature, look out for both hegemony and its population's satisfaction in order to survive?

As far as the United States and European Union are concerned, however, there is often a lack of cohesion on strategy toward China. China, however, does have a central strategy towards the developed world, one that was simmering since the 1970s and has become quite aggressive as the realization of globalism took hold in the 21st century. It was almost as if China anticipated global trends, and knew that if they could structure their economy to supply many of the goods and services necessary for the developed world's changing paradigm, they would also increase the value of internal needs and imports, thus winning on both the import and export sides (Wan, 2008):

International Security Defined -- in the modern global economy, international security focuses on the measures nation states and international organizations take to ensure a safe, prosperous, and economically viable world. We cannot look at China in a myopic view, though -- using foreign policy, economic policy, investments, etc. As individual strategies and tactics. Instead, we must look at the investment and economic paradigm as part of the overall security issue, since it is likely that any conflict with China will take place on that level, as opposed to the traditional battlefield. These measures may include military action, diplomatic treaties, economic sanctions, or a combination of the three. In a sense, then, international security and national security are linked and have some overlap and common ground (Baylis 1997).

International security and international relations have changed dramatically since the dawn of the 20th century. The post-World War II world and resulting decades of Cold War were nothing like past experiences with finite lines, preconceptions, and consistent ideological goals. Instead, a more advanced form of Otto von Biskmark's realpolitik became the dominant paradigm in which the basic construct of global security required the predominant template to the economic health of the nation state. Thus, the premise becomes that if state security is maintained, or even enhanced, security of both the economic system and the citizenry will logically follow. Militarily, this relied on a balance of power. For example, after World War II both the Soviet Union and the United States continued to expand their military to ensure that an imbalance did not exist that would make conflict inevitable. In realpolitik, states are thought to be rational, act upon national interests, evolve to protect its territory for invasion, and keep the population relatively happy and under control (Hough 2008 2-42).

From its founding in 1949 until 1978, the PRC operated on a Soviet-style centralized and planned economic and political system. Based on ideology they were aligned with the Soviet Union, but the major focus was internal control and as rapid of modernization as possible. This fit in well with the organization of the global hierarchy of the time -- everyone knew where everyone stood and with whom. However, following Chairman Mao's death and the end of the Cultural Revolution, the new Chinese leadership began the arduous process of reforming the economy and moving towards a mixed economic system, retaining one-party rule. In 1978, for example, China and Japan normalized their diplomatic relationship so that China could borrow money from Japan to modernize. The leadership, under Deng Xiaoping, realized that production would only increase by dismantling collectivization and privatizing agriculture. This created a movement towards a different type of nation, one in which Cold War paradigms no longer worked well (Meisner 1999 413-40).

Once the Soviet Union collapsed and Eastern Europe opened up, China was well on the way to reform. Without Cold War tensions and the hierarchy that engendered, a new model arose -- security was threatened by hardships arising from internal state activities as well as non-state aggressors (terrorists). But it was increasing poverty, disease, hunger, violence, and human rights that had the potential to be more destabilizing than external political events. Indeed, by putting resources in the militaristic paradigm, many states found that they had decreased internal security by neglecting their own populations (Baylis).

China, like the rest of the world, realizes that there are certain basic aspects of global cooperation and safety that must occur for international security to take place. Instead of a state centered view, the new template is more holistic and acknowledges cooperation and collective measure designed to protect the most possible. Terroristic threats that jeopardize global shipping (piracy) or transportation (hijacking) are thus threats against all of humanity, not just one nation. In a similar manner, as global economies become even more aligned, even natural disasters and catastrophes pose global threats because the interrupt the flow of resources (Global Security Engagement: A New Model for Cooperative Threat Reduction 2009).

This new model is a clear and drastic switch from the historical way China and the world interacted. Instead of a complete climate of mistrust, there is a level of human security emerging that moves the idea of what is best for the greatest number (utilitarianism) as the guiding foreign policy. The world is simply too interconnected to allow peaks and valleys, elections and policy changes, or even the changing nature of allies and enemies to guide the world. If a state can now best maintain its security and the security of its citizens by participating in the security of all other nations then, too some degree, the idea of globalism becomes more than an economic system (Matthew and McDonald 2009 209-11).

China Awakens -- for years China has been known euphemistically as the "Sleeping Giant of Asia," and in the 21st century as a precursor to the economic health and stability of Asia. If we think about this logically, we find that China has over 1/5th of the world's population, intercontinental nuclear weapons, veto power on the UN Security Council and one of the most dynamic and energetic economic revitalizations ever seen. From a lumbering Marxist economy, China now emerges in the 21st century as a market oriented economy that is now part of the global interdependence model. Additionally, many see China as growing fast enough, with enough strategic political and economic progress that it is well on the road to superpower status (Khanna 2008 269-72). We must not forget, however, that, like most countries, China's economic leaps are tied to her political security. China's new model shows the world that economic security is as important as military security. Presently, though, based on the economic and political model of the world, China is focused on domestic economic issues and a slow but steady rise to socio-political power and role as a strategic player in global issues (Zakaria 2008 86-94). China has even begun to realize, possibly after the unfortunate events in Tianamen Square, that human rights are often tied to global economic issues. They can perhaps not understand why the West would act so emotionally on issues that occurred, say, during the Olympic Events China hosted, but they are aware that the world's public opinion is worth dollars -- both imported and exported. China still remains authoritarian, however, cracking down on Internet access, access to certain films and literature -- but far less heavy handed and more as a benevolent parent knowing what is right and wrong for its children, and protecting them from that which might be harmful (MacKinnon 2010).

Foreign Direct Investment -- FDI is the investment into production in a country by another country -- either by purchasing a company in the target company or by expanding operations in that country. FDI is done for many reasons -- cheaper wages, tax exemptions, incentives into the market, or the eventual control over an economic sector that has strategic financial implications. Largely because of China, the United Nations Conference on Trade and Development found that FDI grew in 2011 and 2012, after being flat in 2009 and 2010. It would be a misnomer, though, to say that China is the only country investing into the United States, which has typically been the world's largest recipient of FDI, over $200 billion annual, coming primarily from Switzerland, the United Kingdom, Japan, France, Germany, Luxembourg, the Netherlands, Canada and China. The typical paradigm is that foreigners hold larger shares of their investment portfolios in the United States if their own countries have less developed or varied financial markets, or if their countries have fewer capital controls that make it easier to invest more into U.S. equity and bond market positions (Forbes, 2008). This is particularly true for China because China has relatively underdeveloped domestic debt markets.

Looking at the above figure, we can see some interesting trends, particularly in the last few years. Since 2008, the number of actual deals has risen, until 2012, but the proportion of the deals to the total value of investment varies. For instance, in H2 2010 there were a large number of deals but they did not result in as great a fiscal investment. However, in H2 2012, deals were down, but value fiscally was up. This, in particular, shows

China's New Role -- in comparison to the Western nations, Asians are more strategic and patient. In the late 1950s and 1960s Japan quietly endured disparaging remarks about transistor radios perceived as "cheap" and the phrase "Made in Japan" was not at all complimentary. Of course as their economy grew, they became not only giants in the electronics world, but also in automobiles -- so much so that many Japanese brands are now considered top of the line products (Engelman 2008).

China seeks to attract investment so that it can restructure its economy - moving from low-cost manufacturing, which has been the most rapid and robust in growth over the last three decades, to higher and more value-added enterprises. In addition, as China experiences structural adjustments in the FDI flows, they can further invest more into the United States and move towards market niche control over certain organizations. In particular, as China invests in U.S. real estate and import-export companies, there is a dual benefit that allows them to earn money from their investment into a U.S. company as well as from investments made into China into companies that produce products for the U.S. (China Tops U.S.., 2012).

Similarly, China is aware that they must maintain good relations with the developed world, and acknowledges that they are still developing. Under Chinese scrutiny and influence, Asia is now more stable than it has been in over a millennium. Only two states are unsure about their survival -- North Korea and Taiwan, both inexorably tied to China's dominance in the 21st century. China's ties with the European Union, for instance, are dramatically improving. Exports are up, delegations and diplomatic relations cordial and now that the mutual threat from the Soviet Union is gone, both can concentrate on improving economic ties. Europe is unique in that it is less threatened by China because it is no longer an Aisan power. For the European Union, the most fundamental objectives are to court China as an investment and trade partner, to have China act as a responsible and coherent player in world affairs, and to take responsibility to help maintain global security and a strategy of peace (Crossick and Reuter 2007).

The United States, of course, is a major importer of Chinese goods which, in turn, ties China to the economic health and recessionary policies of the American Administrations. China has a vested interest in seeing economic stability and has been investing heavily in U.S. interests. While many in North America tend to focus on China's human rights record and the authoritarian nature of the Party mechanism, there is cautious optimism about the future. Scholars and politicians are unable to form a consensus on whether the West can cope with this future -- knowing that at present, the U.S. And China still remain the dominant powers in Asia. As China's power grows, does this then constitute the strategic threat of a modern China? (Blankert 2009).

China's Internal Issues- as we noted, the economic health of a region is tied to several aspects of its societal, cultural, and demographic/psychographic make up. This is also true of China, in which the success of her economy over the past three decades still leaves Chinese leadership with a number of internal issues that affect the way foreign relations are managed. Chief among these problems is the holdovers of state ownership within the economy. These monolithic entities still employ over 25% of the urban Chinese workforce and are typically not profitable. The Chinese government, though, facing massive unemployment and social unrest, continues to prop up these organizations, at least until workers can be organized to subsume control over the businesses and turn them into viable market operations (Do Rosario, 1993, p. 15).

Chinese population growth is yet another problem that extends into the economic and political sphere. The continued population explosion taxes resources (from social and educational to industrial), creates unemployment, and diverts needed capital investment from industry into less economically viable sources such as housing. Similarly, more mouths to feed engenders higher expectations, more personnel must be trained to supply these services, and the loop continues (Peng and Guo 2000 185-92).

Because China is such a vast country, the increase in industrialization continues to place a huge burden on energy needs. Both to maintain and increase its agricultural production and to modernize and rebuild outdated industrial infrastructures require extremely high amounts of fossil fuels. China's cities now have more drivers than ever before, with the demand for personal transportation also continuing to rise. China, however, is running out of oil and must depend on Middle Eastern imports. China depends a great deal on coal reserves, which may be vast, but are labor intensive to remove, extremely environmentally unfriendly, and not very efficient. This results in two conundrums: China is also dependent upon oil reserves in other countries (which may help stabilize the region), and China's rapid development has environmental consequences. China, however, gives lip-service to its environmental issues but makes the cogent point that the Western world already had its Industrial Revolution, and therefore hundreds of years with no environmental regulation (Yu 2008 138-42).

Strategically, China expects continued economic development to provide the key to enhancing political and natural power. China must, however, manage this growth carefully to avoid inflation, price and wage disparity, and a sense of divergence between rural and urban populations. China is very well poised for global economic integration, but sees efforts of the West, particularly the United States when under a Republican administration, to attempt the imposition of economic principles and political democracy. This, China believes, could be destabilizing to the developing world in the long-term, and a threat to China's own political regime (How China Views America 2010).

The reality of China's growth and global importance has not gone unnoticed in the upper eschelon's of the Western democracies. Australia and New Zealand, like Europe, are cautiously optimistic about China's emergence as an economic superpower. Geographic proximity makes China an idea trade partner, and relations continue to improve and move in that direction (Fung 1997). The EU is trying desperately to retain legitimacy, establish the viability of an economic-based coalition, and to increase its markets and access to goods. It sees China as a huge potential marketplace and trade partner. However there is a vocal liberal contingency in many European countries that are quite sensitive to their perception of China's abuse of human rights (Shambaugh, Sandschneider and Zhou 2007). Many African countries see China in the way many underdeveloped countries saw the United States three decades ago -- as a major investor and partner for resource development. Because of China's lack of enough raw materials to satisfy its demands, China turned towards Africa to help individual countries develop mining and other natural resource projects with the hope that China would have the first right of refusal on critical exports. Similarly, in a way to court their governments, China has been willing to invest in Africa's people through billions of dollars in loans, doubling development assistance, and increasing educational opportunities for African students. This would make China Africa's single largest trading partner (Alden 2007).

Yet what drives China's need for FDI into global areas? First, China knows that for its massive economy to grow it must secure a stable supply of raw materials that cannot always be sourced in China, while at the same time exporting these raw materials wherever possible. Second, China's FDI into the United States contributes to foreign exchange earnings and further export opportunities. Third, in order for China to grow economically, China must grow technologically. This requires channeling advanced technology and equipment back into China through global channels. Fourth, any FDI externally helps China strengthen economic ties with other countries- truly embracing globalization (Finn, 2007).

Conclusions -- Is China a threat to international peace in the 21st century? The answer is not definitive -- it depends on one's point-of-view. From a military perspective, perhaps. They have the world's largest standing army, are rapidly replacing outmoded technology, and are the only nation that acknowledges it still has nuclear weapons that may be targets at Western urban centers (Post, Wehrfritz and Barry 1994). Despite this, no one really takes a military threat by China very seriously, their economy is too tied in with the U.S. And war would be devastating for business.