Issue 50

Summer 2010 CHINA REVIEW Great Britain-China Centre, 2010. All rights reserved

ISSN: 1359-5091

50th and final issue of the China Review! After 10 years of regular appearances the China Review is taking its last and final stand. We have an impressive line-up of writers, many of whom have been regular contributors. We take this opportunity to thank them and many others for their support over the last ten years of publication. China Review is published by the Great Britain China Centre, a publicly-funded organisation, and the time has come, sadly, when we can no longer justify the time and expense of producing a quarterly magazine. We hope you have enjoyed receiving the China Review and trust you will continue to take an interest in both the GBCC and the All Party Parliamentary China Group by visiting our websites www.gbcc.org.uk and www.appcg.org.uk.

The China Review Editorial Team

Contributors David Shambaugh is Professor of Political Science & International Affairs in the Elliott School of International Affairs at George Washington University Michael Yahuda is Professor Emeritus of International Relations at the London School of Economics Peter Nolan is Director of the Chinese Big Business Programme at Cambridge Judge Business School Calum MacLeod is Asia correspondent for USA Today Rana Mitter is Professor of History and Politics of Modern China at the University of Oxford Frank N. Pieke is University Lecturer of Modern Politics and Society of China and Fellow of St Cross College, University of Oxford Dr. Linda Yueh is Director, China Growth Centre and Fellow in Economics, St Edmund Hall, University of Oxford Carl Minzner is an Associate Professor of Law at Washington University in St. Louis, School of Law Duncan Hewitt is a correspondent for Newsweek in Shanghai Peter Hessler is the author of Rivertown, Oracle Bones, and Country Driving Laura Rivkin is Information and Office Manager at GBCC

China Review Summer 2010

CHINA: AN UNPREDICTABLE GLOBAL POWER

B Y D A V I D S H A M B A U G H

been any change in Chinas behaviormuch less that China is anything but always cooperative with others. The answer lies in the fact that the nation itself is deeply confused about its international identity and roles it should play in the world. Sources of Confusion China wrestles with a conflicted international identitya kind of schizophrenic personality. On the one hand it aspires to being, and possesses many of the attributes of, a Great Power. But Beijing seems to lack the confidence to act as a Great Powerparticularly in concert with other Great Powers. Rather, China remains hesitant on the international and regional stage, taking baby steps towards being a confident global leader. In short, China remains a global actor without being a global power. While uncertain, it is not unaware. Few nations have had as extensive, animated, and diverse domestic discourse about their potential and roles as a major power as has occurred in China over the past decade. Official, semi-official, and unofficial circles in China actively debate the roles, opportunities, dangers, risks, and responsibilities of being a major global power. The impetus has been to learn

FOR SEVERAL YEARS THE world has been witnessing Chinas emergence as an international actor, but has been wondering what kind of global power it will turn out to be? Following the majestic Olympic Games of 2008, many hoped that the countrys symbolic success would breed a new confidence and cooperativeness on the world stage. But this did not fully emerge, and throughout 2008-09 Beijing continued to abide by Deng Xiaopings dictate to keep a low profile (taoguang yanghui) and engaged itself in a limited fashion abroad. During the autumn of 2009, many observers discerned a number of troubling indications that suggested a more assertive but uncooperative China. Government spokesmen and officials adopted a tough and uncompromising attitude on a range of issues, displaying a disturbing dismissiveness and arroganceparticularly towards the United States and European Unionand diplomats complained of Beijings extra truculence in negotiations. More recently, during the spring of 2010, however, there seems to be a thaw in Chinas icy postureas Beijing has begun to evince some smile diplomacy and pragmatism towards the US, EU, and Latin America. Why the fluctuation and fickleness in Chinese diplomacy? Of course, Chinese officials deny there has

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the lessons of other rising (and falling) powers, so that China could anticipate repetitive problems experienced by other previous powers and manage them effectively. Of particular Chinese concern is how to avoid the historically repetitive asymmetry trap between the major established power and the primary rising power, in which the latter challenged the formers hegemonic position in the international systemthus causing tensions, competition, clashes, even wars. To be sure, there is still a segment of official opinion that denies China is a major powerarguing instead that China remains a relatively poor, developing (and socialist) country. Another segment of opinion even denies that China is a global power, arguing the PRC is a regional power at best. Another tenacious self-identity, still deeply rooted in the Chinese mindset and frequently articulated in media and specialist publications, is that of historical victimization and humiliation at the hands of other major powers. This traditional weltanschauung has fueled modern Chinese nationalism, and carries two distinct aspects: (1) China is an aggrieved nation that has endured a century of shame and humiliation and various indignities at the hands of the West and Japan; and (2) China has been a great power historically and deserves to return to that status. Deeply held and longstanding aspirations for restored pride and dignity, wealth and power, animate both beliefs. These traditional identities reflect existing insecurities about Chinas potential as a power. Why the Reluctance? Part of Chinas international uncertainty no doubt derives from the leaderships domestic uncertaintiesas the country is beset with multiple pressing challenges associated with an unprecedented modernization process, and a cautious and seemingly insecure leadership atop a transitional political system. When Chinas leaders wake up and go to bed every day, it is events insidenot outsidetheir borders that preoccupy them. Another reason for Beijings tentativeness likely derives from the Liberal values and norms that underpin most international institutions. Beijing professes it seeks a democratic international order, but it does not share the Liberal premises of a democratic international system (although China has benefited enormously from that system). It is difficult to be a responsible stakeholder (to use Robert Zoellicks famous phrase) in an international system with which one does not share the operating premises at home and was not present at the creation to shape the system in the first place. In some key areaslike non-proliferation and free tradeBeijing has embraced global norms, but on so many others its hesitancy is obvious. Chinas continued preference for multipolarism over multilateralism (states over institutions) reflects its deeply ingrained Realism over a nascent Liberalism. Failure to fully embrace Liberal norms and institutions does not mean that China cannot be a cooperative partner with others on a purely pragmatic case-by-case basis. We see this on North Korea, for example. But it does suggest that China will continue to act with hesitancy on the world stage. Yet, a partially engaged China is far better than a disengaged

China. Selective multilateralism is better than no engagement. As Chinas international persona remains a work-in-progress, foreigners must be aware of the diverse and dynamic domestic discourse taking place within the international relations community in China. The Spectrum of Views on International Identity In Chinas international relations community, a spectrum with different schools of thought and analysis are evident. At one end of the spectrum are the Nativists who distrust the outside world, seek total international autonomy, and view international multilateral obligations as traps (laid by the West) to entrap and embroil China in costly commitments overseas. This cohort bears a strong traditional Marxist orientation. This group is the twin of the new left (xin zuopai) in domestic policy debates, as they believe the reform and opening policy of the past thirty years has cost China its socialist integrity, corroded its culture with negative foreign influences, and compromised Chinas sovereignty and autonomy in world affairs. The Nativists are a loose coalition spread across a number of institutions, and indeed a number of its leading advocates operate independently. After the political turbulence in 1989, this group argued that reform had inevitably lead to Chinas restoration of capitalism and Chinas opening-up (kaifang) policy was seen as facilitating the destruction of socialism. For them, therefore, peaceful evolution (heping yanbian)a policy whereby the West attempts to peacefully evolve China so as to undermine Chinese Communist Party rulehad become the main domestic contradiction (zhuyao maodun) and they argued the main policy priority should be to counter peaceful evolution (supposed) efforts of the West and close Chinas doors. For this group, every reform and opening measure had to be questioned whether it was intrinsically of socialist or capitalist nature.

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National pride: 60th anniversary celebrations in China

China: An Unpredictable Global Power

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the Sino-US relationship as the key of the key (zhongzhong zhi zhong). One obvious reason is demanded by Chinas modernization drive, i.e. the Western powers are the major source of advanced technology as well as of capital and investment. More recently, however, as Chinese power rises and frictions in great power relationships occur more frequently, Chinese intellectuals and the informed public increasingly have less tolerance for emphasizing the United States in Chinas diplomacy. Conversely, another group (which we identify as the South-South School) argues that Chinas main international identity and responsibility lies with the developing world. They argue for a more balanced foreign policy that takes account of Chinas longtime partners and

client states in developing countries and should advocate their interests. This reasoning finds expression, for example, in Chinas strong support for the Millennium Development Goals, no strings attached aid programs and debt relief, placing the climate change burden on developing countries, and developing the BRIC Group with Brazil, Russia, and India. The South-South Schools identity has much to do with Chinas longstanding self-identification as a developing country (fazhanzhong guojia). Another group in the middle of the spectrum argues for China concentrating its diplomacy on its immediate periphery and Asian neighborhood (the Asia Firsters). One important sub-group of this cohort are those who push for multilateral regionalism and East Asian community building, as distinct from a more state-based strategy. This school first found expression in Chinas foreign policy in the late-1990s. During that time, following the 1997 Asian Financial Crisis and the Peace and

A secondpredominantgroup are the Realists. Realism has had deep roots in Chinas intellectual worldview for several centuries. Chinese realists have a long and strong tradition, even during the socialist era of the PRC. Chinese realists take the nation-state as their core unit of analysis. They uphold the principle of state sovereignty above all else, and reject arguments that transnational issues penetrate across borders. Like realists elsewhere, they tend to see the international environment as anarchic and unpredictablethus placing a premium on building up a strong state that can navigate its own way in the world and resist outside pressures. But the realists are not isolationiststhey accept China must act outside its borders and participate in the international community. But they believe in maximizing Chinas own self-interests while not allowing international actors to impinge on Chinas sovereignty or core interests (Taiwan, Tibet). Some realists, such as Tsinghua University Professor Yan Xuetong, would even like China to be more assertive on the international stagethrowing its weight around, responding to American pressures with similar counter-measures, and striking alliance-like relations with like-minded states. Moving along the spectrum to the right, another group, which I label the Major Powers School, argues that China should concentrate its diplomacy on managing its relations with the worlds major powers and blocsthe United States, Russia, European Unionwhile paying relatively less attention to the developing world or multilateralism. This group stresses the crucial importance of relations with other great powers in Chinas foreign affairs, and often sees

Sino-US Relationship: the key of the key?

Although some tensions remain, Beijings ties with its neighbours have improved in recent years

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power, and influence. They are more supportive and trusting of multilateral institutions than the Selective Multilateralists, and they believe China should become much more fully engaged in global governance across the globe. They see the world in highly interdependent terms, and believe China to be an integral part of international society (as advocated by the English School of international theory). The Globalists are strong advocates of the United Nations and Chinas activism in the Security Council. They are also strong proponents of Chinas participation in regional diplomatic groupings all over the world (in East Asia, Central Asia, Middle East, Africa, and Latin America) where China has been centrally involved in forming new dialogue groupings as well as becoming observers or full members of existing ones. The Globalists are of the view that it is incumbent upon China, given its global rise, to contribute much more to global governance and to act as a responsible power (fuzeren de daguo) in the international arena. The Globalists are interdependence institutionalists in essence, and their analytical starting point is globalization. As with their Liberal Institutionalist counterparts in the West, they recognize that in the era of globalization sovereignty has its limits as various non-traditional challenges regularly cross sovereign borders and must be dealt with in a multilateral manner. Much of their analytical focus therefore is on non-traditional security, e.g. human security, economic security, counter-terrorism, public health, organized crime, smuggling, piracy, etc. Finding the Equilibrium Point The fact that China has such a broad spectrum of opinion says much about the identities that are competing with each other in Chinas international relations discourse today. China possesses multiple international identities and is a very conflicted country when it comes to its global persona. As a result, we are not likely to see any one school of thought prevail to dictate or dominate Chinese diplomacy on the international stage. More likely is that the world will continue to witness all of these distinct personas in one place or at one time or another. As in all countries, however, policy debates tend to cluster towards the centrewith the peripheral schools of thought being marginalized. This is the case in China, as both the Nativists and the Globalists are distinct minority voices. Thus, we will likely continue to see evidence of the other schools at the centre of the spectrum represented in Chinese diplomacythe realists, the major power advocates, the South/South Cohort, the Asia Firsters, and the Selective Multilateralists. But within this band, I believe that we are likely to see an emphasis in domestic arguments and Chinese global behavior around the lower-left end of the spectrumthe realists and major power schoolswith the Asia First, South/South, and Selective Multilateral groups playing secondary roles. In the end, it explains why China seems to be such a confused and unpredictable actor on the world stage.

Chinas international persona remains a work-in-progress

Development Debate of the same year, China began to emphasize much more its neighborhood diplomacy (zhoubian waijiao). The result was that China decided to become much more proactive on its periphery to shape a peaceful environment. This policy has born much fruit, as China has managed to dramatically improve and stabilize relations all around its periphery. Certain tensions remain in Beijings ties with Japan, Vietnam, and India, but even in these cases bilateral ties have improved markedly and are stable overall. Those that emphasize Chinas ties within Asia do not do so to the exclusion to relations with other regions or nations; rather they argue in favor of not neglecting Asia relative to the major powers or Chinas relations with the developing world. Indeed China practices the official policy of daguo shi guanjian, zhoubian shi shouyao, fazhanzhong guojia shi jichu, duobian shi zhongyao wutai (major powers are the key, surrounding areas are the first priority,

developing countries are the foundation, and multilateral forums are the important stage). But the Asia Firsters do believe in giving Asia a relatively greater emphasis over relations with the US, Russia, Europe, or the developing world. Moving along the spectrum to the right, another identifiable group are the selective multilateralists. They believe that China should expand its global involvements gradually, but only on issues where Chinas national (security) interests are directly involved. There are several variations and splinter factions of this group: one argues China should only engage in UN-mandated activities, another argues that China should only become involved on its periphery and far away, while another believes it should not so constrain itself from getting involved in multinational (as distinct from multilateral) actions together with other major powers. The Selective Multilateralists generally eschew increasing Chinas global involvements, but realize that China must be seen to be contributing to global governance. They have advocated increasing Chinas participation in UN peacekeeping operations (PKO), contributing to disaster relief, fighting international piracy in the Gulf of Aden, being diplomatically involved in the North Korean and Iranian nuclear issuesbut they eschew deeper involvement in sensitive and risky areas like Iraq and Afghanistan. The Selective Multilateralists are wary of foreign entanglements but they recognize that China must do some things (yousuo zuowei, as Deng Xiaoping instructed) in the international arena and not be perceived to be self-interested free riders in international affairs. At the far end of the spectrum are a distinct minority of Globalists, who believe that China must shoulder an ever-greater responsibility for addressing international issues commensurate with Chinas size,

David Shambaugh is Professor of Political Science & International Affairs and Director of the China Policy Program in the Elliott School of International Affairs at George Washington University.

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CHINA HAS EMERGED as a major power on the world stage only in the last decade. During the course of the last ten years the significance of Chinas trade and investment has expanded beyond its own region to include Africa, the Middle East, Latin America and the Caribbean. This year its GNP is set to pass that of Japan to be second only to the United States and last year China replaced Germany as the worlds largest exporter. China is by far the largest holder of US dollars as its currency reserve and American leaders recognize that their country has become economically interdependent with China. Indeed the Obama administration regards the relationship with China as its most important bilateral relationship bar none. Chinas character as a global power It is important to recognize that China is not a global power like the United States. It cannot project

military power far beyond its own borders. It has only recently begun to feel its way as a maritime power and it will remain mainly a continental one for the immediate future. Nor is China a centre of technological innovation comparable to Japan or Europe, let alone the United States. Perhaps more significantly, despite much talk of the Chinese model or the Beijing consensus, neither the Chinese government, nor its many academics and international affairs commentators present their country as a model. China cannot build on its political values of nationalism and communist party rule to project a universal message, which can appeal to others in the way that America can point to the abiding appeal of democracy and free markets. The Chinese government tends to project an image of the country in a number of ways, not all of which are consistent. China is said to be a great power (daguo) whose

An armed UN Chinese peacekeeper stands guard near a church during a religious celebration in the Haitian Capital

CHINAS EMERGENCE AS A GLOBAL POWER

B Y M I C H A E L Y A H U D A

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what they see as Western interference in their own country and to the need to protect communist party rule, their foreign aid is not subject to the kind of conditionality demanded by Western governments and international organizations, which has led to much criticism from the latter. Chinas leaders may project a newfound confidence in dealing with the outside world, especially after its success in handling the recent international economic crisis whose ramifications are still being felt in the US, the EU and Japan. But at home they project concern if not anxiety. A cursory reading of Premier Wen Jiabaos recent report to the National Peoples Congress will show an abiding concern with what he regards as structural imbalances in the economy, pervasive corruption and problems in Tibet and Xinjiang. Social order cannot be taken for granted despite the improvements in peoples living conditions. The number of mass incidents (protests, some of them violent, by relatively large numbers of aggrieved people) is estimated to have reached 100,000 last year. Hence expenditure on the organs of public security has grown at a rate almost commensurate with military expenditure. Faced with the prospect of shrinking markets in the developed world the Chinese authorities recognize the need to shift the emphasis of the domestic economy from intensive development and over-capacity building towards a more household-led consuming society. That will mean a new and painful transition. China will continue to require a peaceful international environment for many years to come. China and Multilateralism It was in the 1980s that the Chinese began to appreciate the benefits of belonging to key international economic organizations, notably the World Bank and the IMF, which helped lay the foundation for Chinas later remarkable economic development. Through the 1990s the Chinese also became inducted into membership of regional associations such as the Asia Pacific Economic Forum (APEC) and the ASEAN Regional Forum. From a Chinese perspective, these had the virtue of being non-rulemaking

voice must be heard on every important global issue. At the same time China is also said to be a developing country. Although its aggregate GNP ranks second in the world, its per capita GNP according to the IMF ranks 97 in the world just below Nambia. As one prominent Chinese scholar told me last year, China has many faces. The domestic focus of Chinas leaders For the last three decades Chinas approach to the outside world has been dictated by the need to develop the economy, to maintain social stability and to retain the communist partys monopoly of power. To this end Chinas leaders have sought to cultivate peaceful relations with neighbours and beyond that to discourage conflicts that could damage Chinese interests. China has been the main beneficiary of economic globalization and, as far as East Asia and the Pacific are concerned, that has depended on the public goods provided by the United States. Despite concerns that the United States may seek to limit Chinas rise (many Chinese think that the American support for Taiwan is designed with that in mind), the nations leaders have taken care not to undermine their working relationship with the American superpower. Chinas growing economic footprint in East Asia and in the wider world stems from the way its economy has developed at home. The concentration on manufacturing and the building of cities and infrastructure demanded both export markets and the importing of ever-greater amounts of mineral and energy resources. It was Chinas domestic economic needs that led to huge surplus trade with the United States and the European Union. As a relative latecomer to the extraction of resources abroad, China through its State Owned Enterprises sought special access to iron ore, manganese, copper and other resources including oil for which it became the first or second largest importer in the world. It was this need for resources that first drew China to Africa in the 1990s and which gathered steam in the first decade of this century. Chinese companies had already been engaged in the Middle East, but energy needs soon drove an expansion in import trade and investment. The Chinese quickly found that their expertise in building infrastructure projects was well received in Africa and elsewhere. Chinas aid projects in the developing world also have a domestic orientation as they call for Chinese technology and often for Chinese workers, as opposed to local ones. Given the hostility of the authorities in China to

ASEAN summits have helped to promote free trade

Social order cannot be taken for granted despite improvements in peoples living conditions

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Page 9 Chinas Emergence as a Global Power

bodies whose decisions were non-binding and had to be based on consensus and non-interference. The Chinese applied the same approach in helping to establish the central Asian Shanghai Cooperation Organization. The advantage of these and similar groupings is that southeast Asian neighbours felt that China had been socialized into their forms of regional conduct and that the Chinese in turn felt that they could dissipate lingering suspicions of their smaller neighbours. In Central Asia China could present itself as a stabilizing influence for the vulnerable new states in opposing terrorism, splittism and Islamic extremism, while balancing Russian influence and promoting economic development. Beijing, of course, had its own interest in preventing neighbouring regimes from giving support to disaffected Uighurs and others in Xinjiang. China has since gone on to develop free trade agreements with ASEAN and a few Asian countries, while tying the economies of regional states more closely to its economy and those of adjacent Chinese provinces. China has also embraced broader international organizations, especially those centering on the United Nations, where China has a veto power in the UN Security Council. It has become active in many international regimes, including non-proliferation, and, reversing its previous position, China has become an important contributor to UN Peacekeeping Operations.

The jury is still out as to whether or not China has genuinely embraced the internationalism implicit in regional and international organizations. Some have argued that China has in fact been socialized, pointing to its observance of various international norms of behaviour. One example often cited is Chinese forbearance in forcibly asserting its claims in the South China Sea since 1995. Others point to the same example to argue that Chinese forbearance has less to do with norms and more from a hard headed cost-benefit analysis as to the damage that might accrue to Chinas broader interests if it were to be seen to be using force to those ends. However, regardless of the precise motives, the longer the Chinese exercise forbearance the more difficult and more costly it would be

for them to resort to force. In that sense China has become a better international citizen. Conclusion Having arrived as a major global power, Chinas particular focus on its domestic interests and its opaque authoritarian system leaves considerable ambiguities about its future trajectory and behaviour. Most of its smaller and medium sized neighbours sense that it is advisable to hedge against Chinas continuing rise by welcoming the United States as an off-shore balancer, whom they would like to draw in closer. For its part the United States and especially the Obama administration has looked to China to become a partner in addressing global and regional concerns, so far without a great deal of success. Perhaps it is best to recognize that it is possible to work fruitfully with the Chinese government where interests may overlap, to explore where differences may be narrowed and to uphold ones own critical interests as fiercely as the Chinese authorities uphold their own. From a Chinese perspective, it is clear that Chinas weight in international affairs is substantial and growing, but that clearly derives in the main part from its growing economy and the maintenance of the power of the Communist Party. Despite their successes Chinas rulers are keenly aware that their country faces a demographic time bomb; by 2050 the number of citizens aged sixty and over will have grown from just over 10 percent of the population to just over 30 percent. The authorities will also have to deal with structural economic and social imbalances and find ways to introduce better ways of increasing public political participation. In other words, China may have arrived as world power, but it still has a long way to go to consolidate its position.

the US has looked to China to become a partner in addressing global and regional concerns, so far without a great deal of success

Professor Michael Yahuda is Professor Emeritus of International Relations at the London School of Economics and Political Science, University of London

By 2050 the number of Chinese citizens aged 60 and over will have grown from just over 10 % of the population to just over 30%

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THE MODERN ERA OF globalisation began in the 1970s. It was characterised by ever-increasing economic liberalisation underpinned by an ideological belief that the free market is the best way to organise economic activity. The United States of America led this process through its position at the core of the Washington Consensus institutions. After three decades of wild capitalist globalisation the international system of political economy stands at a crossroads, facing a series of fundamental contradictions arising from the unconstrained operation of the free market. Humanity faces a Darwinian challenge of species survival. Americas interaction with China and the Muslim world will be critically important in determining the resolution of the contradictions that confront the human race. It is an open question whether this interaction will end in terrifying conflict or in cooperation. At the dawn of the twenty-first century, despite the fact that the zenith of American power has already passed,

America sits at the centre of global political economy. The free market policies that lie beneath the comprehensive global system crisis are the child of the Washington Consensus. The Social Darwinist policies that America has promoted globally have produced profound contradictions within America itself as well as in the relationship between the United States and the rest of the world. Constructive engagement Ever since the publication of Samuel Huntingtons famous book it has become widely accepted in America that there is The Clash of Civilisations with both China and the Muslim world, each of which contains 1.3 billion people. In fact, neither China nor the Muslim world is hostile to capitalism. They each have their own rich traditions through which they can contribute to a sustainable future for humanity in the twenty-first century. The possibility of their doing so will be much greater if America is able to develop

China Review Summer 2010

THE END OF WILD CAPITALISM

B Y P E T E R N O L A N

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The End of Wild Capitalism Page 11

an evolving pattern of constructive engagement with both of them. Destructive engagement will lead to disaster. The essence of capitalism is its propensity towards universalism. In the pursuit of profit capitalism pushes beyond local boundaries, whether village, town, region or country. However, there is a persistent tension between capitalisms universal impulse, and the nation. In the process of constructing modern capitalism, against the expectations of nineteenth century political economists, the national state propelled capitalism forward and reinforced the sense of national identity and interests, through the mechanisms of mass education, the mass media and government ideology. The rise of modern capitalism in the late nineteenth century erupted into the international conflict that dominated much of the twentieth century. Even in the era of capitalist globalisation, there persists a profound tension between the national state and the international impulse of capital. The tension is crystallised today in the relationship between America and China. Confucian values The possibility that the relationship between America and China might result in terrifying conflict is attracting increased attention. Political commentators routinely refer to the Peloponnesian Wars in which the rising Athenian power fought a long and destructive war with the dominant power, Sparta: The Peloponnesian War not only lasted for a long time, but it brought unprecedented suffering for Hellas. Never before had so many cities been captured and devastated; never had there been so many exiles; never such loss of life, both in actual warfare and in internal revolutions (Thucydides, The Peloponnesian Wars). Capitalist development has a long history in China. Prior to the early modern period Chinas embryonic capitalism was far more developed than that of Europe.

Chinas capitalist development took place within the context of a powerful state that, in periods when the system functioned well, shaped the pattern of capitalist development in numerous ways to meet common social interests. This was the foundation of its hugely impressive long-run economic and social development. Confucianism nurtured a deeply developed concept of duty which was the foundation of collective action and social prosperity.

Confucianism was a complete philosophy. It combined a carefully thought out system of morality for rulers, bureaucrats and ordinary people with a comprehensive analysis of concrete ways of both stimulating and controlling the market. When the system worked well the government attempted in anon-ideological, pragmatic fashion to solve practical problems that the market could not solve. The fact that the system went through regular cycles when these principles were poorly observed, rulers and bureaucrats were corrupt and the economy and society foundered should not blind us to the underlying coherence and lasting benefit from this integrated system of philosophy and public action. Chinas policy-makers today can gain i n s p i r a t i o n f r o m t h i s

Taxis queue for 4 hours to get their tanks filled in Zhengzhou, Henan, November 2009. Meeting fuel and energy needs remains a significant developmental challenge for China

Chinese students embrace their duty to society in an adulthood ceremony in Fujian this year

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experience, using the past to serve the present, as they struggle to find their own path through which to relate to capitalisms surging power and contradictory character. In China after the 1970s the combination of political stability under the leadership of the Chinese Communist Party, and experimental economic system reform and opening up, resulted in a remarkable period of development. China is unique among large late-comer countries in its degree of openness to trade, international capital and business, and international culture. Chinas ever-expanding incorporation into global capitalism has transformed the countrys productive forces and socia l re la t ionships , producing enormous benefits for Chinese people. Explosive growth of inequality However, Chinas deep integration with global capitalism has led to wide-ranging problems that threaten the entire social, economic and political system. These include the explosive growth of inequality, drastic deterioration in the physical environment, the harsh challenge of the Global Business Revolution for Chinese firms, widespread corruption, and the difficulties of reforming its financial sector. China faces the daunting prospect that while it is still a lower middle-income country it will become grey and will move out of the Lewis phase of economic development with unlimited supplies of labour. Within only a few years these developments will profoundly affect its political economy.

The Chinese government is working hard to overcome the countrys immense development challenges. These include policies to equip the countrys leading firms to compete internationally, to mitigate the unequal distribution of income, to improve health and educational for the mass of the population, to improve energy efficiency, to reduce environmental pollution, and to tackle corruption. No sector is more vital to the governments reform efforts than finance. China is groping for a way to achieve harmonious development, which establishes a

balance between Chinas inland and coastal regions, urban and rural areas, society and economy, and nature and man. Harmonious society Traditional China was the most isolated of the great civilisations of the ancient and medieval world, cut off from them by physical barriers. The concept of Great Harmony is not in principle confined to China. Many people in China hope and believe that its ancient civilisation can make an important contribution towards building cooperative institutions that help ensure a globally sustainable future for all human beings. The idea that China is a superpower is already deeply ingrained in American public consciousness. However, despite its rapid development China is still far behind the development level of the high-income countries and has many interests in common with other developing countries. China has a highly developed sense of its own national interests and has numerous urgent domestic development problems that need to be resolved. However, since the 1970s, the Chinese government has emphasised repeatedly its commitment to reform and opening up, and constructive engagement with the international community of nations in a non-ideological, pragmatic fashion. Capitalist globalisation brought enormous benefits to America. Chinas increasing involvement in the global capitalist economy contributed greatly to American prosperity. American firms benefit from their investments in China. American high technology companies benefit by their sales to China and by employing large numbers of Chinese scientists and engineers. American consumers benefit from Chinas cheap exports. The American Government benefits from Chinas bond purchases. However, global capitalism has also given rise to intense contradictions within American capitalism in respect to social inequality, energy security, the environment, and financial fragility. There is a growing perception that Chinas rise threatens the dominant position

China Review Summer 2010

Celebrating the 60th anniversary of the founding of the PRC. The idea that China is a superpower is already deeply ingrained in American public consciousness

Many people in China hope and believe that its ancient civilisation can help ensure a globally sustainable future for all human beings

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The End of Wild Capitalism Page 13

of its firms, as well as its social stability, the identity of American firms, its energy security, its natural environment and its financial stability. These perceptions influence decisions taken by the leadership and they can be exploited by politicians in a time of socio-economic crisis. America now faces the prospect of a prolonged period of economic difficulties, which increases the possibility of looking upon China as the scapegoat. Ever since Independence America has a long history of achieving internal political stability by uniting the nation against a perceived external threat. The degree of inter-connectedness in world affairs is now so great that it is no longer possible even for the strongest political economy in the world to establish national security within its own borders. It is a delusion to imagine that in a globalised political economy even the most powerful economy can isolate itself securely within its own national boundaries while contradictions rage in the world around it. If America seeks long-term security it faces a choice of no choice. It must cooperate with Communist China to support the construction of a harmonious society internally within China. The areas of necessary cooperation include resolving Chinas energy needs, its ecological difficulties, its financial system reform, and reform of its health and education system, and supporting Chinas efforts to establish a just distribution of income. In other words, it must accept and contribute to Chinas peaceful development, even if that means accepting that the resulting system of political economy will look very different from that of the United States today. America and China have no choice but to cooperate to solve the global challenges produced by capitalist globalisation, and work together to build the global institutions that are necessary to ensure a sustainable future for the human species. Conclusion Humanity stands at a crossroads. The era of wild capitalist globalisation has drawn to a close, hastened by the global financial crisis. The contradictions of capitalism in the early twenty-first century are, for the first time, global in nature. In the search for solutions to the multiple threats to the sustainability of life for the human species, there is no

alternative other than to work together across national frontiers, cultures and levels of development, to find a pragmatic, non-ideological, cooperative way to overcome these threats. Global institutions are necessary to resolve the global contradictions of wild capitalism. Americas relationship with China and the Muslim world is central to the prospect for global regulation. The mainstream of neither the Confucian nor the Islamic world

has sought to destroy capitalism. Rather, it has sought to regulate the market in the wider social interest. The Confucian and Islamic traditions can each contribute to the ethic of the moral economy that sits at the heart of the regulatory system that is needed to resolve the profound contradictions that confront the human species. It is an ethic that combines a concern with individual rights and freedoms with a concern for duties and responsibilities towards the collective interest. Polarisation of discussion into a choice between American Enlightenment values and Oriental Confucian and Muslim values is destructive to progress in regulating the capitalist global market to which all nations now inescapably belong. The Darwinist threats that face the human species derive from the nature of capitalist globalisation itself. The solutions also are immanent within the universal tendencies of capitalism. America bears a heavy burden of historical responsibility. It has the opportunity to grasp the nettle of leadership and build on its own traditions to lead the world towards cooperation and harmony, or it can pursue its own self-interest, wrapped in the cloak of ideology, and lead the world towards disaster. The path taken by the United States at this crossroads in its own history and in that of the human race as a whole will determine the outcome for the whole human species. This is a mighty new frontier in American history.

Peter Nolan is Director of the Chinese Big Business Programme at Cambridge Judge Business School. The above text is a summary of his book 'Crossroads: The End of Wild Capitalism' (Marshall Cavendish, 2009).

Cooperation is the only way forward

America faces a choice of no choice. It must cooperate with Communist China to support the construction of a harmonious society internally within China

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CHINAS FAST TRAINS INSPIRE THE WORLD

B Y C A L U M M A C L E O D

Page 14 China Review Summer 2010

ABOARD THE GUANGZHOU-WUHAN Express, once the speed gauge hits 350 kilometres (217 miles) per hour, passengers charge down the aisle to photograph the electronic display. "If we go any faster, we'll take off!" jokes Hu Qing, cracking open another can of beer on Chinas world record-breaking train. The opening of the high-speed link between the south Chinese cities Guangzhou and Wuhan in December last year is the latest example of massive state spending to keep China's economy roaring. The fast-expanding network of high-speed trains is stoking patriotism, too. This train is the pride of the Chinese people," says Hu, 42, the boss of a paper factory, who chose the train over a direct flight home to northeast China. While American firms await the first round of government grants announced by President Obama in his State of the Union address totalling 5.6 billion to jump-start long delayed high-speed rail in the US, China enjoys a considerable head start. Last year, Beijing invested $88 billion in the country's railways, according to the Ministry of Railways, and now operates a world-leading 1,758 miles of high-speed rail. An alternative to flying or driving President Obama said he wanted to study China's high-speed trains during his November 2009 visit, recalls

the ministry's beaming spokesman Wang Yongping. The USA "can learn from Chinese rail's speed, comfort and other aspects," Wang suggests. Like railway advocates in America, the Ministry touts rail as a greener, more energy-efficient form of transportation than driving or flying. For passengers, it promotes high-speed trains as "fast, safe, comfortable, convenient and punctual." With top operating speeds of 221 mph, the new trains connect cities almost as fast as a jet but without the lengthy security procedures at airports. Speed and convenience are paramount for business traveller Zhao Shiquan. The founder of an environmental equipment company, Zhao stopped checking in for a Wuhan flight at Guangzhou airport in late December when a friend suggested the new train. "I wanted to know which is more convenient, the plane or the train?" says Zhao, settling into his reclinable, first-class seat. At 77 one way, the train is more expensive than flying because airlines such as China Southern Airlines offer prices as low as 20 to fight the new competitor. But many people still prefer the trains. "Planes are often late, and time is vital to a company," says Zhao, 42, who employs 100 people in his firm in Changsha, a major city en route. "In China, you need to meet people in person to do business, and take clients out for meals, so I often have to travel. High-speed trains could be the answer."

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Chinas Fast Trains Inspire the World Page 15

Onboard, in Second Class, Wang Jin, checks his cellphone. Fast, new rail routes remain a dream for US commuters, but the reality of high-speed making China a smaller place is already forcing decisions upon Wang Jin, a building projects bidder who regularly rides the rails of south China. My girlfriend wants me to buy an apartment in Guangzhou, but house prices are too expensive there, and Id rather live back home in Changsha, where its cheaper and the nightlife is better, says Wang, 27, who expects the new route will push him to move and end the relationship. His parents want him to marry but a bride of their choice. Mulling his future, in a second class carriage, Wang compares the train to a comfortable home, and is surprised by the calm atmosphere. Many trains are noisy, with people shouting and rubbish thrown on the floor. I dont know why this train is so quiet, says Wang, but I like it. The previous ride for the 664-mile Guangzhou-Wuhan journey took 10 hours and 30 minutes in cars filled with cigarette smoke. The new train takes 3 hours, 45 minutes, or 3 hours for the express, and smoking is banned. The route is an important one. Guangzhou is one of China's richest cities, an export powerhouse whose thousands of factories manufacture many of the items found in an average U.S. home. Wuhan is a Yangtze River port and central China's major industrial centre.

The trains are powered by electricity, so they're not weighed down by huge engines and hundreds of gallons of diesel fuel. The carriages of the "Harmony" trains running between these two cities bear a smart, plane-like appearance, with restrooms far larger than their airborne counterparts. Attendants dressed like air stewards push trolleys of snacks, including beer and peanuts, down aisles that are patrolled by two armed, uniformed policemen. The

dining car, usually a noisy focus of days-long Chinese rail journeys, appears a zone of quiet. Only microwaved Chinese dishes and fast food such as beef burgers are available. The debate about national and international payoff While most media coverage in China's state-run press has been reliably positive, some commentators

complain about prohibitively high ticket prices. At 48, the second-class fare from Guangzhou to Wuhan costs far more than regular trains, and several slower services have been cancelled to make way for the new trains. The focus on infrastructure, and failure to raise incomes, has created a "lopsided development model," that may leave China as "an emerging market economy without emerging consumers," worried You Nuo in the state-run China Daily. The cost of building high-speed tracks, at 14 million per mile, is money well spent, counters Qian Lixin, a veteran rail expert at the China Academy of Railway Sciences in Beijing. "China has met many difficulties in construction, and gained experience in building railroads at low cost. But American railways are owned by individuals, not the government, so investment is the biggest

The US is going to benefit significantly from the work that is being done in China

Onboard, in First Class, enjoying beer and snacks

CHINAS RAILWAYS China s railways had an inauspicious start. In

1877, the Shanghai governor bought and tore out the countrys first line, a foreign-built stretch near the city. There had been popular discontent at the way the rail line and its alien fire wagons sliced up the natural harmony of the earth. By 1949, only half the nations 14,000 miles of track remained in operation.

Over 40 new high-speed and inter-city lines are currently under construction. One of the most anticipated is the Beijing-Shanghai link, cutting journey time to just 4 hours. Hong Kong to Beijing will shrink to 8 hours from 23. For now, China is sticking to more traditional, although super-fast, wheeled trains, and not expanding its magnetic levitation experiment the expensive line to Shanghais Pudong airport.

By 2012, China will operate over 68,000 miles of track. By 2020, the total and high-speed lengths are planned to increase to 75,000 and 11,000 miles.

Chinas first high-speed service, the 73-mile Beijing-Tianjin line, opened in August 2008, slashing journey time from 70 to 30 minutes.

The Guangzhou-Wuhan line opened December 26, 2009; China-made Harmony trains complete the 664-mile journey in 3 hours, down from the previous 10.5 hours. The top speed of 245 mph is a world record for a train in coupled operation [double-locomotive], according to China s Ministry of Railways.

Sources: Chinas Ministry of Railways; author research

Calum MacLeod

Calum MacLeod is Asia correspondent for USA Today

Page 16 China Review Summer 2010

problem," Qian says. In the UK, High Speed One line, from St Pancras to the Channel Tunnel, is the only existing high-speed line, but plans for a new high-speed rail network linking London to Birmingham are being hotly debated. Details such as precise speeds and journey times, costs and funding of the new line, as well as the environmental impact (the line will go through the Chiltern hills, an area of outstanding natural beauty) are still to be confirmed. Earlier attempts to increase speeds to 140mph on the UKs East Coast Main Line and West Coast Main Line initially both failed, due to safety concerns and a lack of investment in new track. But Virgin Trains have had some success slashing journey times between London and Manchester to just over two hours by investing in new track and trains. T h e p r e v i o u s L a b o u r government were strongly in favour of investing in a new London-Birmingham high speed train line, arguing that Britains future prosperity depends upon investing in technologies that drive economic growth and that high speed rail has a crucial role to play. The new Tory government are also keen. They talk of extending the line to the north of England and Scotland, as well as linking the high speed line with Heathrow airport.

At the end of the line, businessman Zhao considers his trial run a success, and vows to return. "I feel very proud, as China now has the fastest train in the world. On average incomes, we remain far behind the West, and it's very hard to catch up," he says. "But in some areas we are very advanced."

TheBritishChinese LawAssociation (theBCLA) isabilateral lawassociation recognisedby the LawSociety.

TheBCLAbrings together lawyers from theUnitedKingdomand thePeople'sRepublicofChinaandaims to encourage business relationships between its members, promote mutual understandingbetweenthe legalprofessionsofthetwocountriesand foster legalbestpracticeandknowhow.Weorganiseseminars,roundtables,socialeventsandlegallanguageexchangesessions.

ForthelatestinformationonforthcomingBCLAeventspleaseseewww.bclaw.org.uk.

The coincidenceof theBCLAs10yearanniversaryand relaunchwasmarkedby theBCLAChina10series,launchedin2010toaddressthenexttenyearsoflegaldevelopmentsinBritainandChina.

Excited passengers at Guangzhou North Railway Station pose for photos before boarding the worlds fastest passenger train

Calum MacLeod

Advertisement Page 17

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contemporary China. In the last year, we have had Professor Jerome Cohen on Chinese law, Professor David Shambaugh on Chinese soft power,

Professor Hans van den Ven of Cambridge University on Taiwan, and Dr Frank Pieke of Oxford on elite training at the CCP Party Schools. We have also run events on Chinese business, overseas investment, Taiwan, Hong

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China Review Summer 2010 Page 18

The war memorial in Chongqing

CHINAS WARTIME PAST A N D H O W I T I S S H A P I N G T H E P R E S E N T

B Y R A N A M I T T E R

WE ARE BEGINNING TO wake up to the significance of the city of Chongqing in western China. Its classified as the most populous city in China (some 30 million inhabitants), and is at the head of the Three Gorges Dam, one of the most important infrastructure projects in contemporary China. The city is open for business in a big way: Britain is just one of the countries that opened up a consulate there in the last decade, confident that the west of China is going to be the new frontier of development in a growing economy that even the world financial crisis hasnt managed to kill. The city is not beautiful, but it has a real energy and sense of place, sitting on cliffs above the confluence of two major rivers, the Yangtze and the Jialing. One of the most impressive, if hair-raising rides in China is the five minute cable car journey across the river, with only some slightly creaky-looking engineering preventing you from dropping into the fast-flowing waters below. The whole city has an air of purpose, a sense that it is going places in the new China. However, one of the elements of the citys concentration on the future is, perhaps surprisingly, a new emphasis on Chongqings past. For there was a time, not that long past, when the city of Chongqing was in the centre of the worlds attention. For seven years, from 1938 to 1945, Chongqing (then known in the West in the romanized form of Chungking) was the temporary capital of China, whose Nationalist (Kuomintang) government held out in resistance against the Japanese invasion; the

second Sino-Japanese War. This story was lost both in China and the West for most of the period of the Cold War. Chairman Maos China, the product of the Communist victory in 1949, did not wish its official histories to tell any story which might reflect credit on their old enemy, Chiang Kaishek, who had fled to Taiwan. So the focus of the official histories in the mainland moved emphasis from the Nationalist contribution to that of the Communists. Many in the West shared this perspective. Chiangs government was perceived not without reason as corrupt and abusive, and the regimes defeat on the mainland was regarded as good riddance to a nasty regime. But this interpretation

played down the importance of the Nationalist regimes continued resistance to Japan, without which it would have been much harder for the western allies to win the war in Asia. But in recent years, there has been a radical shift in China. The Chinese sense of nationalism is being officially nurtured, and one aspect of the past that is fuelling the new patriotism is a revived memory of the Sino-Japanese War including the memory of the contribution made by the Nationalists. No longer regarded as enemies pure and simple, Chiang Kaishek is now regarded in mainland China as a figure who did make a patriotic contribution to resisting the Japanese. And the city that has made the most of this new freedom for the study of history is Chongqing, for decades denied the chance to celebrate its own heroic

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Page 19 Chinas Wartime Past

past, and now making up for lost time. Former sites of wartime activity from the old home of US general Vinegar Joe Stilwell (who fell out badly with Chiang and referred to him as the Peanut) being opened as a museum, to public sculptures, to literary supplements in the newspapers. Over sixty years after it ended, the rediscovery of Chinas wartime experience is big business in China, and in Chongqing in particular. Yet it is a potent combination of history and contemporary politics that is still little understood in the west. At the University of Oxford, we are now making our own contribution to illuminating and exploring that combination, with a five-year research programme which looks at the experience, legacy and memory of that war on China. The war was, after all, perhaps the most devastating event in the history of twentieth-century China. The Nationalist wartime capital of Chongqing was subjected to years of terrifying air raids, many of which dropped incendiary bombs on an almost defenceless city. Over the eight years of the war, tens of millions, perhaps 100 million, Chinese became refugees. The country was faced with ever more stark political choices: the increasingly discredited nationalism of Chiang Kaishek, still holding out against all odds; a Communist alternative that promised (or threatened) to overturn Chinese society completely; and collaboration with the Japanese, a fate that affected Chinas great cultural heartland, including cities such as Nanjing and Beijing. This was a war that transformed the nature of Chinese society fundamentally. Although its often forgotten, there is a very British side to this story. You may be surprised to find how close the war in China was to the lives of your parents or grandparents, for all that it has faded in western memories today. Thousands of British and American missionaries and businessmen stayed in China all the way up to Pearl Harbor in 1941: as J. G. Ballards magnificent Empire of the Sun showed, others had the ill fortune to be caught there for the

duration of the war. But delving into the records held at the National Archive in London show that Chinas wartime role played an important part in reshaping Britains attitude to the rest of the world. Winston Churchill famously dismissed Chiang Kaishek as a leader, hoping that he would go off and look at the pyramids at the Allied Conference in Cairo in 1943, while the real powers (US, UK, USSR) got on

with business. But by 1945, it was clear that the Chinese contribution had been real and that the country would no longer tolerate being under western domination. The British imperial presence in China had crumbled during the eight years of war. Although India was much more at the forefront of British thinking at the time, the Foreign Office cables still hummed back and forth as they adjusted to a world in which the Chinese Foreign Minister had equal status in the new United Nations Security Council the result of Chinas contribution to the war in Asia. There are a wealth of issues that remain to be explored in the history of wartime China and the way in which that history connects to contemporary politics. But I still think the most poignant reminder of the connections between the two is in that city of Chongqing. Something of a backwater (literally) during Maos period of rule, Chongqing is now gaining a role as a motor for the Chinese economic miracle. If you go to the centre of the city, you will see a wealth of gleaming skyscrapers, of the sort that have become iconic of the 21st century Chinese cityscape. But still standing there is a monument, just a few metres tall, that is almost dwarfed by the buildings around it. That monument was erected during the war to symbolize the hoped-for victory in the struggle against Japan. It survived the years of Maoist revolution and is still there today, a clear reminder in the centre of one of Chinas most dynamic modern cities that the past, however long forgotten, can eventually be rescued from obscurity and play a role in the present and future. For more details on the Chinas War with Japan project, please visit the website of the Oxford University research programme, funded by the Leverhulme Trust, at www.history.ox.ac.uk/china.

Rana Mitter is Professor of History and Politics of Modern China at the University of Oxford

Something of a backwater during Maos period of rule, Chongqing is now gaining a role as a motor for the Chinese economic miracle

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Chongqing: once a backwater, now a motor for the Chinese economy

Page 20

THE WORLDS EMERGING SUPERPOWERS China, India, Brazil, Russia demand an increasingly prominent role in the global migration order, not only as countries of origin but also, and increasingly, as countries of destination for international migrants. The Peoples Republic of China is the largest and arguably most important of the twenty-first centurys new superpowers. It is well-documented that Chinas economic development has given rise to massive flows of domestic migration and international out-migration. However, as international migration is now beginning to fill specific gaps in the labour market and foreigners are attracted by the promise of a better life, China is also rapidly becoming an important destination of immigrants. For decades already, China has had sizeable foreign student and expatriate communities, mainly from the West, East, and Southeast Asia. However, in the past few years immigration to China has become much more diverse. Many of these new immigrants are not simply expatriates or short-term visitors, but bring or start families and expect to stay. In addition, an increasing number of Chinese return to China after study or work abroad. All are attracted by the business climate, jobs and life style that China now offers. Not only have major cities such as Beijing, Shanghai or Guangzhou become as cosmopolitan

and culturally diverse as other major metropolitan centres around the world, but smaller, rapidly growing cities and towns like Shenzhen, Xiamen, Wenzhou, Yiwu, Shaoxing, Weihai, Nanjing and Kunming are following suit. According to United Nations data, Chinas stock of immigrants was projected to reach 685,800 in 2010. This is certainly a severe undercount, and a more realistic number may be around the two million mark. Despite this seemingly large number, we should bear in mind that international migrants still are only a minute fraction of Chinas huge population. Yet the scale and variety of immigration in China already clearly defies easy and unambiguous characterizations. Three broad and overlapping categories of immigrants can be distinguished: (1) students; (2) middle class professionals, businesspeople and traders; and (3) cross-border migrants. Students In addition to large numbers of short-term students of Chinese language and culture, China has also become a magnet for foreign degree students. Some of this is part of the governments soft power strategy, but many students from Vietnam, Cambodia, Laos, India, Bangladesh and Pakistan apply to Chinese universities also because of the combination of good-quality education, reasonable fees and

CHINAS IMMIGRANT POPULATION

BY FRANK N. PIEKE

China Review Summer 2010

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Chinas Immigrant Population Page 21

geographic proximity. The rise in foreign student numbers is by no means limited to the metropolitan areas of the coastal region. In Yunnan, the number of Vietnamese students rose from 89 in 2002 to 515 in 2006. Other sharp risers in the province included South Korea, Thailand, Laos and Burma, with a more moderate rise recorded for Americans and Japanese. Among these foreign students, the number of non-Chinese language students rose sharpest, for instance in medicine, art and business. Private universities saw an especially rapid rise in foreign student numbers. Professionals, businesspeople and traders The communities of middle class and elite resident foreigners in Chinas cities are no longer dominated by expatriate employees of foreign multinationals, international organizations, diplomatic missions and foreign experts hired by Chinese state enterprise organizations. Large numbers of foreigners have independently taken up long-term residence in search of local employment, cheaper living costs, or to set up their own company. In addition, we should also include in this category the very diverse group of traders from Russia, Central, South and Southeast Asia, the Middle East and Africa. To all of these foreigners, China is the land of opportunity, not just a stopover on an international career. In the eyes of many Chinese, (white) westerners are the paradigm of what are known as yang dagong (foreign workers). However, numerically this category of foreign residents is dominated by hundreds of thousands of middle class Taiwanese, Hong Kong Chinese, South Koreans, Japanese and Southeast Asians and of course returned Chinese students and professionals. Very prominent are also the much smaller communities of traders from Africa, South, Central and Southeast Asia, Russia and the Middle East. Many groups of immigrants who share a common background tend to concentrate in one particular city or neighbourhood and specialize in a particular type of employment or business. The group of foreign traders that are by far the best researched are the Africans in Guangzhou, partially because of the visibility of what is locally known as Chocolate City and partially also as a

corollary of the recent interest in the connections between China and Africa, including Chinese migration to the continent. Starting with a few enterprising students some fifteen years ago, currently about 30,000 Africans operate in Guangzhou purchasing manufactured goods for export. Many of these traders have become long-term residents of China, often with families; quite a few of them have become very wealthy. Others operate more in the margin, searching for the deal that will make them rich too, often residing in China illegally or shuttling back and forth between China and Africa on tourist visas. Cross-border migrants Chinas international borders no

longer divide and separate. They are becoming part of larger cross-border regions defined by complex relationships of co-ethnicity, religion, legal trade and illegal smuggling, marriage, employment, study, immigration and emigration, crime and (particularly in the case of Xinjiang) terrorism. North Korea provides perhaps the clearest example. The famine in the late 1990s led to a flood of immigrants from North Korea into China. The PRC government has treated illegal Koreans with little sympathy. In 2002, Amnesty International and Human Rights Watch reported massive roundups, detentions and repatriations of North Koreans, and a crackdown on religious and human rights groups that assisted them. The issue is made more complex because of the large ethnically Korean population that lives in China just across the border from North Korea. Many North Koreans were taken into rural Korean households and even irregularly registered as members of these households by the local authorities. Fortune seekers and problems of immigration Neatly dividing foreign immigrants into the categories such as students, traders, businesspeople, professionals and cross-border migrants hardly covers the reality on the ground in China. Migrants are highly enterprising and proactive in exploring the opportunities that China has to offer, and there is very considerable overlap and spillover between all of these categories as a result. From the perspective of the Chinese authorities, the dynamic nature of migration has created a further category of immigrant that does not come to China for bona fide business, study, or employment, but opportunistically in search of wealth or survival. Such fortune seekers (taojinzhe, literally gold panners), do not bring any skills or capital to China. They come to China not to contribute to its modernization, but merely to take advantage of its new prosperity. In fact, of course, almost every group of immigrants in China is internally stratified, having both highly successful professionals and businesspeople and more marginal groups without formal jobs or fully registered businesses. New immigrants rely on their own resources and personal contacts, causing the growth of

Banging the drum for Chinese education: numbers of South Korean students in China have risen sharply.

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Page 22

residentially concentrated urban villages (cun) or towns (cheng) of foreigners, such as the Burmese and Vietnamese in Guangxi and the South Koreans in Beijing. Here we see the beginnings of the ethnic enclave pattern of immigrant settlement found among many immigrant groups the world over, where the institutional infrastructure and employment offered by a co-ethnic community provides new arrivals with the chance to get established and ultimately become successful too. Chinese studies often conclude that fortune seekers do not deserve the courtesies extended to foreigners, but should rather be considered part of the floating population of rural-urban migrants. Increasingly, the problem of the foreign blind flow (waiguo mangliu) is directly connected with that of the three illegalities (san fei) of illegal entry, illegal residence and illegal work. Moreover, the three illegalities and the foreign floating population are often discussed together with many other much more serious problems, including terrorism, organized and petty crime, drinking, drugs and violence, prostitution and unemployment, a list that is depressingly similar to observations on immigration in western countries. Yet most authors also agree that the lack of compliance with Chinas regulations regarding foreign entry, employment and residence should be separated from more serious law enforcement issues. The illegality of many foreigners in China often has to do more with the lack of appropriate regulation, the continued restrictions on travel and other activities by foreigners, and a general lack of expertise and coordination within those branches of the administration that are responsible for foreigners. Even many professional and business migrants, the kind of people China says it wants, either often have no choice but to bend the rules in order to live and work in China, or else

Frank N. Pieke is University Lecturer of Modern Politics and Society of China and Fellow of St Cross College, University of Oxford

have little incentive to comply with the regulations. China still does not possess the regulatory framework and administrative capacity to fully deal with large-scale immigration. Currently, the trend is towards a more integrated approach that facilitates the entry and stay of foreigners. The recognition that foreigners are there to stay also comes with the necessity to cater to their needs, such as education for their children and the right to profess their religion in churches, mosques, or temples. However, the normalization of immigration also means that, increasingly, foreign residents are only entitled to the rights that Chinese citizens enjoy as well, and should no longer get privileged treatment. Yet in certain respects, the normalization of immigration will continue to be less than straightforward as it touches on some politically very sensitive issues. In these areas, foreigners are still treated on the basis of the old exclusionary discourse as carriers of subversive influences (or spiritual pollution in the CCPs own terminology) that may harm Chinese society and even the rule of the Communist Party. In addition, as we have seen, a new perception is emerging that not all of immigration is necessarily a good thing. The growth of a foreign floating population is considered a burden on Chinese society, while immigration is also associated with terrorism, subversive activities and international organized crime. As a result, an increasing emphasis on control and national security in addition to service and equal treatment is to be expected in immigration management.

China Review Summer 2010

An African woman sells traditional African wares at an Expo event in Wuhan chinafotopress

China and the Global Financial Crisis Page 23

THE GLOBAL FINANCIAL CRISIS of 2007/08 and the ensuing Great Recession hit China in the autumn of 2008 when exports collapsed. China suffered some losses from the failure of Lehman Brothers, but did not become embroiled in a financial crisis and thus only suffered from the ensuing Great Recession, notably a contraction in global trade. No country has avoided the effects of the global financial crisis. However, the impact on China whilst significant, has been limited. The two avenues of this impact were via financial contagion and the economic downturn. Because China does not have a financial sector that trades extensively in derivatives, it did not suffer a credit crunch or have to contend with toxic assets stemming from sub-prime mortgages and related securitised assets. Its large state-owned banks registered losses estimated to be in the billions due to their positions as Lehman creditors, but there are no ongoing balance sheet impairments in its financial system, which would have been far more damaging.

The larger impact is from the downturn in the global economy which caused exports to dramatically decline during the height of the crisis. The severity of the financial crisis led to a contraction in global trade for the first time in 30 years. Exports account for over 30% of Chinas GDP and the closing of export-oriented factories resulted in an estimated 20 million unemployed rural-urban migrants. Although the outlook for trade has improved due to the global economy and the easing of trade finance (letters of credit guaranteeing traded goods) by an injection of funds by the G20 group of major economies, exports have yet to return as a strong growth engine. Exports grew again in December 2009 but the external sector continued to subtract from growth, for example net trade reduced the annual GDP growth rate in the first quarter of 2010 by over 1 percentage point. China certainly confounded expectations when it achieved its targeted 8% growth rate in 2009 and avoided a technical recession during the worst global downturn in

CHINA AND THE GLOBAL FINANCIAL CRISIS:

RESPONSES AND OUTLOOK

B Y L I N D A Y U E H

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recent memory. Although there are questions about its credit-fuelled recovery, China can emerge stronger from the global crisis if it re-orients its economy towards developing domestic demand and reducing the volatility associated with being excessively export-oriented. China can be a large, open economy which reaps the benefits of global integration but also the stability of growth that is supported by a sizeable domestic market. How China escaped the worst of the financial crisis China injected a fiscal stimulus package of 4 trillion Yuan ($586 billion) in the spring of 2009 which is continuing to be disbursed in 2010 amidst signs of continuing weakness in global demand. Chinas fiscal stimulus was only $200 billion less than the USA whose economy is three times larger. As a result, Chinas pace of growth picked up by the second quarter of 2009 and the economy grew at 8.7% for the year with the 4th quarter registering an impressive 10.7% year-on-year growth. But, around half of the stimulus package is on infrastructure and less than 5% is earmarked for social spending. This was viewed as inadequate to stimulate private consumption because it fails to address one of the main causes of Chinas low level of domestic demand which is the high level of household saving. China subsequently announced the latter measures on health and pensions. So, another $125 billion on health (to work towards achievng universal health coverage by 2020 by covering 200 million uninsured people) and another $400 million on rural pensions were later added. In one sense, although criticized, Chinas focus on infrastructure, particularly roads and rail, is necessary and builds on (though perhaps double-counts) the large-scale transport project that had been underway in the 11th Five Year Plan which began in 2006. Such public works can be quickly implemented and provide jobs for the millions of workers laid-off from factories who can be re-deployed to build in not just coastal regions but in rural and interior parts of China as these projects span the country. Although joblessness is difficult to gauge because China only counts the urban unemployed (the official unemployment rate of less than 5% is unlikely to be accurate), the stabilisation of migration (and even reported labour shortages) in the first part of 2010 suggests that jobs are being created. The investment in roads and rail creates the same type of low-skill, low-wage jobs that migrant workers had done in factories. Of course, there remains under-employment as not all of the unemployed found new jobs and some returned to farming, but the probable employment creation points to the real success of Chinas stimulus spending. There is certainly inefficiency as well as waste, which will likely generate problems in the banking system when those unnecessary projects become bad debts. Assessing the extent of those bad debts will be important in assessing the stability of the banking system. Becoming a large, open economy For China to achieve a more stable economic growth model, it will need to institute reforms that can boost domestic demand whilst promoting global integration. The aim of reform in the context of a weaker global economy has to be two-fold: (1) to improve the structure of the Chinese economy towards a model suitable for a large, open

economy; (2) to ensure stability. Stability in terms of economic transition and development means guarding against external shocks by designing better institutional integration with the global economy in recognition that world markets are linked, but not governed. Better integration limits positive spill-overs and instead transmits shocks. The structure of the Chinese economy needs to evolve to become like the USA and Japan, which are large countries whose growth is primarily driven by domestic demand but at the same time are the largest traders in the world. Small countries in population are more determined by international trade and must rely on external markets, which was one of the rationales for the EU single market that has become the largest economic entity in the world. China would be less subject to the volatility of the world economy by following a path that strengthens both internal and external demand which can cause the proportion of growth to be driven by domestic demand to increase even as trade expands in absolute terms. As China affects the global terms of term (prices of exports to imports), structuring itself as a large, open economy which recognises the benefits of global integration whilst maintaining a strong base of domestic demand to shield it from the worst excesses of external shocks is feasible. To orient toward domestic demand means boosting consumption in China which is to say that there is a need to reduce the savings motives by households and firms.

China Review Summer 2010

Construction of the Beijing-Shanghai high-speed railway in Nanjing

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Consumption fell from around 50% of GDP in the early 1990s to nearly one-third by the late 2000s. As a share of GDP in market economies, consumption is typically around 50-66% of GDP (in Japan it is 60%, whilst it was a whopping 72% in the U.S. before the onset of the global financial crisis, which was considered to be too high). For households, precautionary savings motives are important to address, particularly in rural areas. Increasing incomes and wealth along with improved social security provision will be needed. These issues are well rehearsed and the latter additions to the governments stimulus plan demonstrate recognition of the challenges, though funding remains inadequate in some areas such as pensions. Other measures, such as developing the service sector, will boost domestic demand by increasing the non-tradable component of the economy and also create jobs along the low and high-ends of the skills spectrum. This will suit the Chinese (urban and migrant) labour force. Increasing income, including through greater urbanisation, which can improve the earning potential of rural residents, will be a crucial driver in boosting consumption. Savings by firmsstate-owned and non-state-ownedare even higher than those of households and reforms are necessary to reduce business savings. Chinas distorted financial system that is biased towards state-owned enterprises also leads private firms to save in order to grow and invest, while even state-owned enterprises save due to minimal taxation of their profits. This was evident when Chinas current account surplus surpassed 10% of GDP after 2004. Investment maintained its share of GDP, even though investment is typically squeezed when countries develop a current account surplus. In China, consumption instead suffered as the motives for saving were undiminished by the export boom.

State-owned enterprises should be taxed and dividend payments to the government should be increased. Private firms have trouble obtaining creditwhether from banks or the underdeveloped domestic capital marketsso they rely heavily on retained earnings to finance growth. With economic growth exceeding 10% annually in the past decade, the need to finance expansion was high as was

saving by the non-state sector, which accounts for over two-thirds of industrial output. Complete liberalization of interest rates will improve credit allocation to non-state sector firms and reduce the savings incentive as well. Although interest rates were partially liberalized in 2004 when the ceiling on inter-bank lending rates was lifted, there are still limits in terms of the floor as well as a ceiling on deposit rates. Interest rates reflect the internal rate of return to investment, so such controls distort lending decisions. Gradual capital account liberalization, in particular the going out policy, will help reduce savings if firms can operate in global markets and be allowed to access funding from better-developed overseas credit markets. In other words, firms will be able to raise money on capital markets and not just rely on Chinas banking system with its controls on credit. This will not only reduce the motive for corporate savings but also cut the portion of the current account surplus that is funded through the purchase of U.S. Treasury bills by allowing capital outflows in the form of investments instead of accumulated in foreign exchange reserves. The external benefits do not end there. The exchange rate should also become more flexible with greater capital account liberalization since the capital account as well as the current account will require the Yuan. China can be a fast growing, large, open economy developing domestic demand and upgrading industry and promoting globally competitive firms that recognises its wider impact. It is unlike small, open, export-led economies which do not affect the global terms of trade. Given Chinas still low level of development, global integration would benefit its own development as well as that of the world. These macroeconomic reforms will be important to position China optimally in a global economy that is si