The Chinese economist, Ma Jianmin, uses a keynote speech to discuss the competition with the U.S. in a recently published book. He emphasizes that China’s growth story is the main factor driving international relations, but also addresses how Western societies are beginning to look at China as an economic competitor rather than as a partner in trade and in cooperation. His remarks about this issue are interesting and deserve closer scrutiny. We will examine whether President Bush is correct when he says that the U.S. must take China on in the economic realm, as he has previously stated.
The Chinese economy is growing at a rapid pace. China is beginning to become a more powerful player in global affairs, as evidenced by the recent Asian Financial Crisis and trade relations with the European Union. The Chinese economy is now the largest in the world and is a major provider of jobs for many people throughout the region. Many in attendance at the recent APEC gathering in China were impressed with the number of questions President Bush was able to get answered. As the Chinese economist discusses competition with the U.S., he offers advice on how to win friends and influence the U.S. to do the same.
Ma Jianmin is a former Chinese premier and current advisor to the National Development and Reform Commission (NDRC). He is currently the chief adviser to the deputy prime minister. In this role, he often gives speeches on economics and is considered a top expert on the subject. During his keynote speech at the APEC gathering, he takes some time to examine U.S. policies toward China and suggests several policy changes.
One of the issues that the Chinese economist highlight in his speech is a lack of a clear understanding of the concepts involved in the Two Pairing Theory. In his view, if the U.S. would embrace the One-for-One policy, it could foster cooperation between the two countries. To support his point, he refers to a policy adopted in 1971 wherein the U.S. allowed China to buy American Treasury debt. The Chinese government was receptive to the offer because it offered a means of reducing its trade surplus. In addition to that, the U.S. was offering to sell dollar-based commodities in return for the Chinese goods. The Chinese agreed to participate in the program; however, they soon made it clear that they were not interested in a One-for-One deal.
According to the Chinese observer, this example illustrates how the Two Pairing Theory can be misused by powerful nations in pursuit of economic goals. For example, he notes that Great Britain pursued policies of free-market capitalism and joined the European Union. At the same time, the EU pursued policies of structural adjustment that favored banks and financial institutions over the private sectors. Both the British and EU began to experience severe trade imbalances and their currencies lost value. Eventually, both of them were forced into a One-for-Many scenario, which left them with a severe economic deficit and declining international trade.
The Chinese economy is also suffering from the constraints of the One-for-One theory. Because of the concentration of wealth in the hands of a small number of Chinese families, there has been a significant increase in asset manipulation or crony capitalism. The top leadership is also using their enormous wealth to secure political favors. The outcome is that there are large sections of the Chinese economy that are effectively functioning without any type of freer market. This means that the terms’ free market and competition are no longer applicable in the Chinese economy.
This makes the Chinese observer conclude that the One-for-Many approach of unbalanced competition and excessive leverage does not work in China’s growth model. There needs to be a fundamental shift in the way the economy is run and decisions have to be made about how to manage the inevitable conflicts within the system. Instead of relying on state-sponsored or -induced integration, the Chinese must develop a more independent path. The current trend in China is moving away from the concept of relying on globalization to promote economic growth. For decades, China has been acting like a luring river for global businesses by offering low-cost markets, state-of-the-art infrastructure, and access to a global trading network. Although there have been some successful ventures, most have failed because they were either poorly implemented or misused.
The Chinese government should recognize that the days when a country can rely on state-of-the-art technology, cheap labor, and a supportive free market are gone. In this age of globalization and technology diffusion, Chinese companies need to explore more efficient ways to compete. The recent boom in the Chinese economy is unlikely to last. A more realistic and flexible approach is required if China is to foster long-term sustainable growth. A premier Chinese planner, who is not tied to the Chinese State leadership but rather listens to the needs of business executives, can help by giving them the freshest perspective on Chinese economic problems and a strategy that will make the most long-lasting and effective impact on Chinese society.