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Its Chinas World Were Just Living in It
The middle kingdom is rewriting the rules on trade, technology, currency, climateyou name it.
By Rana Foroohar and Melinda Liu | NEWSWEEK
Published Mar 12, 2010
From the magazine issue dated Mar 22, 2010
Back when President Obama lived in Indonesia, in the late 1960s, China loomed as a malign force to the north, where communist cadres plotted to export their revolution to the rest of Asia. The Jakarta he'll visit later this month has an entirely different attitude toward the People's Republic. Local companies are doing deals in yuan, the Chinese currency, rather than dollars. If Jakarta gets in financial trouble, as it did back in 1997, it will be able to call on a $120 billion regional reserve fund, an Asia-only version of the International Monetary Fund due to be launched this month, bankrolled in part by China's massive foreign-exchange reserves. Asia's key economic and political issues are no longer being hashed out on trips like Obama'sbetween individual nations and the United Statesbut at summits that include only China, Japan, South Korea, and the Southeast Asian countries. "China has been instrumental in this shift in focus from 'Asia-Pacific,' which was largely about the U.S. and Japan, to 'East Asia,' which has China at the center," says Martin Jacques, author of When China Rules the World.
Fair enough: everyone understands that China deserves a big say in what goes on in its neighborhood. But what most people haven't noticed yet is that Beijing also wants to writeor, at least, help writenew rules of the road for the world. "China now wants a seat at the head of the table," says Cheng Li, director of research at the John L. Thornton China Center at the Brookings Institution. "Its leaders expect to be among the key architects of global institutions."
It's easy to forget that big international bodies like the IMF and the World Bank were created by just a few nations, led by the United States. These economic organizations have global reach, but that globe used to be dominated by the American superpower, and their policies were suffused with U.S. values. When Beijing was a small-stakes player its leaders didn't always like the setup, but they lived with it, even facing down fierce grassroots opposition to join the World Trade Organization.
But now China has more worldwide clout, and public opinion at home has taken on a combative (and sometimes downright jingoistic) tone. So with one eye on China's national interests and the other on domestic critics accusing the regime of "coddling" the West, Beijing has begun to push harder to reshape international systems to make them more China-friendly (and, in the process, to raise the regime's chances of survival).
Ironically, U.S. officials often complain that Beijing isn't more involved in running the worlddeclining to help security efforts in Afghanistan, for instance. But in most such cases, China is being asked to take part in a system it didn't set upone it views as inherently biased in favor of the West. The Chinese are far more eager to participate in groups they've had a hand in building, like the Shanghai Cooperation Organization, a sort of Central Asian NATO in which China (as might be guessed from the name) plays the leading role. While that alliance started out as something of a joke in 1996, it's grown into a pillar of regional security.
Similarly, Beijing's efforts to push the yuan as a rival to the dollar are now making tentative progress. In the last few months, China has inked $100 billion in currency-swap agreements with six countries, including Argentina, Indonesia, and South Korea. The yuan has become an official trading currency between Southeast Asia and two Chinese provinces along its periphery. "The yuan will next be used as a trading currency with India, Pakistan, Russia, Japan, and Korea," says Gu Xiaosong, director of the Institute of Southeast Asian Studies in Nanning.
Those countries will eventually be able to use the Chinese currency for deals between each other. And in an-other low-profile but important step toward making the yuan a freely convertible, international currency, Beijing issued its first international bond offering in Hong Kong late last year.
Equally quietly, Beijing is helping re-design the Web. Recent headlines have focused on China's spat with Google, which announced it would refuse to abide by local censorship rules anymore after the company's networks were hacked from Chinese computers. But separately, the Chinese have been working hard on the next generation of Internet standardswhat's called IPv6, for Internet Protocol version 6. The current version, IPv4, is expected to run out of usable IP addresses as soon as next year. That day can't come soon enough for Beijing, since the vast majority of addressessome 1.4 billion as of August 2007have gone to American businesses and individuals, versus a measly 125 million to China. That's fewer than one IP address per 100 people, compared with five per person in the United States.
IPv6 will provide trillions of new addresses for everything from Web sites to intelligent home appliances and military applicationsand Beijing intends to get its share of them. China may also get a new opportunity for cyber-spying: unlike the previous architecture, IPv6 allows addresses to be attached to specific computers or mobile devices, which would give the regime greater ability to police its Netizens.
All these efforts are motivated by an odd mix of confidence, pride, and insecurity. On the one hand, China knows its technological capabilities are dramatically improving and sees a chance to move beyond the West in certain fields. "There's always been this feeling in China and a number of other developing nations that the West was the place to beand now suddenly it's not," says Ruchir Sharma, head of emerging markets for Morgan Stanley Investment Management. Chinese scientists and researchers are flocking home to conduct original research at well-funded labs.
On the other hand, the Chinese worry that if they're not involved in writing the new standards, those could be manipulated by their enemies. The regime has tried to bar government computers from running Microsoft software, for example, largely because it's assumed that such software might include a "back door" that would allow the U.S. government to launch cyberattacks against China.
Indeed, while China isn't necessarily looking to take over the world, its actions all put Chinese interests foremost. Beijing's space programs are highly secret, but they've been ramped up in recent years with the first successful test of an antisatellite weapon in 2007, followed this year by the launch of an exo-atmospheric surface-to-air missile (which some Western security experts think may actually be a new satellite-killer weapon). Earlier this month China confirmed plans for its second unmanned lunar probe in October and the 2011 launch of a space module for the country's first docking exercise, all leading up to a 2013 moon landing. With NASA's budgetary rollback, China is now the only country making major investments in space exploration.
Why the big push to reach the moon? Beijing clearly expects more material gain from its celestial adventures than the Americans have gotten. Some Chinese scientists are sure that space is the place to find potential new energy sources like helium-3, as well as fresh lodes of rare minerals that are being gobbled up by industrial production on earth; Ye Zili of China's Space Science Society has been quoted as saying that when the Chinese reach the moon, they won't "just pick up a piece of rock"a clear dig at past U.S. missions. The rules governing the exploitation of extraterrestrial resources have yet to be written. When they are, China wants its stake to be well represented.
The same principle explains the country's overall drive to move ahead of the rest of the world: to make sure it gets a real say in setting its future rules and standards. It knows it can climb the economic ladder more easily in new and developing technologies than in traditional industries, and that's why China, the world's biggest polluter, has also become the single biggest state supporter of green technology. Thanks to massive government subsidies, it's now a world leader in solar- and wind-energy hardware and is moving fast to set the standard in the next generation of clean-energy vehicles. Batteries made by the Chinese firm BYD are already used in at least a quarter of the world's mobile-phone market; now the battery maker is leading the global race to adapt these batteries for cars, the biggest remaining hurdle in creating a viable market for electric and hybrid automobiles.
Thanks to state mandates, China already has the largest fleet of clean-energy vehicles in the world. As the technology improves, you can bet Beijing will push clean cars throughout the Chinese consumer market (which last year overtook the United States in sheer numbers of vehicles sold). And should the Chinese succeed in developing not only the automotive field's gold-standard technology but also a market of that size, they can expect to control the future of the global car business.
If and when that day comes, it will be interesting to see whether the Chineseand the worldcontinue to support the current rules of free trade and open global competition that helped provide their current level of peace and prosperity. Already one can see worrisome changes in the way China deals with foreign firms. Ten years ago Beijing did everything possible to woo investors from abroad. Today the rules have changed. The country's $800 billion fiscal-stimulus package channeled much more clout to state-run firms and away from the private sector. New merger laws are making it tougher for foreign firms to acquire Chinese companies.
In December, the U.S. Chamber of Commerce and 33 other business organizations from around the world sent a letter to Beijing protesting legislation that they claimed would effectively bar foreign firms from China's lucrative government-procurement markets. Beijing is even taking control of the venture-capital business. One of the world's top private-equity firms, the Carlyle Group, was recently obliged to join forces with the Beijing city government in order to be allowed to invest in more deals in China.
The idea that as China got rich it would simply become more like America, or at least more sympathetic to the U.S. agenda, is turning out to be wrong. China has never been transformed from without, and it's unlikely to be now. Among ordinary Chinese, pride in their nation's prospects is matched by a nagging feeling that it's all still too new and precarious. The dizzying pace of change is having a particularly dramatic effect on younger Chinese, turning them inward and making them more nationalistica trend that experts like Hudson Institute fellow John Lee believe to be a factor in China's new and more aggressive policies on security, trade, and foreign affairs. That aggressiveness is only likely to increase between now and 2012, when the top leadership of the Communist Party will be changed. Officials jockeying for positions between now and then will "lose points if they are perceived as being too soft in any sort of negotiation with the U.S.," says Li of Brookings.
China is clearly still working out its identity: is it a rich nation or a poor one, a major power that should lead on global issues or a developing one that should simply look out for itself? That confusion is likely to lead to more debacles like the December climate-change summit in Copenhagen, where Beijing scuppered a deal by refusing to commit to binding emissions cuts. Much was made of the fact that Premier Wen Jiabao snubbed President Obama by sending a lower-level official to a crucial meeting for global heads of state. If China really wants a seat at the table, one might ask, why fill the seat with a flunky?
According to a foreign official familiar with the proceedings who was not authorized to speak on the record, Wen had not been granted the authority to make decisions at the meeting. Rather than being embarrassed by his lack of mandate, he chose to stay away. (The Chinese official who replaced him protested that he too couldn't make any decisionsbecause his cell-phone battery had run out.)
In the end, it was the Chinese fear of being caught, or contained in a trap laid by the West, that drove much of the delegation's eyebrow-raising behavior in Copenhagen. It's nowhere near clear what our world will look like when China has done its part to reshape it. But the journey toward that world promises to be a bumpy one.
With bureau reports © 2010
It?s China?s World We?re Just Living in It - Newsweek.com
The middle kingdom is rewriting the rules on trade, technology, currency, climateyou name it.
By Rana Foroohar and Melinda Liu | NEWSWEEK
Published Mar 12, 2010
From the magazine issue dated Mar 22, 2010
Back when President Obama lived in Indonesia, in the late 1960s, China loomed as a malign force to the north, where communist cadres plotted to export their revolution to the rest of Asia. The Jakarta he'll visit later this month has an entirely different attitude toward the People's Republic. Local companies are doing deals in yuan, the Chinese currency, rather than dollars. If Jakarta gets in financial trouble, as it did back in 1997, it will be able to call on a $120 billion regional reserve fund, an Asia-only version of the International Monetary Fund due to be launched this month, bankrolled in part by China's massive foreign-exchange reserves. Asia's key economic and political issues are no longer being hashed out on trips like Obama'sbetween individual nations and the United Statesbut at summits that include only China, Japan, South Korea, and the Southeast Asian countries. "China has been instrumental in this shift in focus from 'Asia-Pacific,' which was largely about the U.S. and Japan, to 'East Asia,' which has China at the center," says Martin Jacques, author of When China Rules the World.
Fair enough: everyone understands that China deserves a big say in what goes on in its neighborhood. But what most people haven't noticed yet is that Beijing also wants to writeor, at least, help writenew rules of the road for the world. "China now wants a seat at the head of the table," says Cheng Li, director of research at the John L. Thornton China Center at the Brookings Institution. "Its leaders expect to be among the key architects of global institutions."
It's easy to forget that big international bodies like the IMF and the World Bank were created by just a few nations, led by the United States. These economic organizations have global reach, but that globe used to be dominated by the American superpower, and their policies were suffused with U.S. values. When Beijing was a small-stakes player its leaders didn't always like the setup, but they lived with it, even facing down fierce grassroots opposition to join the World Trade Organization.
But now China has more worldwide clout, and public opinion at home has taken on a combative (and sometimes downright jingoistic) tone. So with one eye on China's national interests and the other on domestic critics accusing the regime of "coddling" the West, Beijing has begun to push harder to reshape international systems to make them more China-friendly (and, in the process, to raise the regime's chances of survival).
Ironically, U.S. officials often complain that Beijing isn't more involved in running the worlddeclining to help security efforts in Afghanistan, for instance. But in most such cases, China is being asked to take part in a system it didn't set upone it views as inherently biased in favor of the West. The Chinese are far more eager to participate in groups they've had a hand in building, like the Shanghai Cooperation Organization, a sort of Central Asian NATO in which China (as might be guessed from the name) plays the leading role. While that alliance started out as something of a joke in 1996, it's grown into a pillar of regional security.
Similarly, Beijing's efforts to push the yuan as a rival to the dollar are now making tentative progress. In the last few months, China has inked $100 billion in currency-swap agreements with six countries, including Argentina, Indonesia, and South Korea. The yuan has become an official trading currency between Southeast Asia and two Chinese provinces along its periphery. "The yuan will next be used as a trading currency with India, Pakistan, Russia, Japan, and Korea," says Gu Xiaosong, director of the Institute of Southeast Asian Studies in Nanning.
Those countries will eventually be able to use the Chinese currency for deals between each other. And in an-other low-profile but important step toward making the yuan a freely convertible, international currency, Beijing issued its first international bond offering in Hong Kong late last year.
Equally quietly, Beijing is helping re-design the Web. Recent headlines have focused on China's spat with Google, which announced it would refuse to abide by local censorship rules anymore after the company's networks were hacked from Chinese computers. But separately, the Chinese have been working hard on the next generation of Internet standardswhat's called IPv6, for Internet Protocol version 6. The current version, IPv4, is expected to run out of usable IP addresses as soon as next year. That day can't come soon enough for Beijing, since the vast majority of addressessome 1.4 billion as of August 2007have gone to American businesses and individuals, versus a measly 125 million to China. That's fewer than one IP address per 100 people, compared with five per person in the United States.
IPv6 will provide trillions of new addresses for everything from Web sites to intelligent home appliances and military applicationsand Beijing intends to get its share of them. China may also get a new opportunity for cyber-spying: unlike the previous architecture, IPv6 allows addresses to be attached to specific computers or mobile devices, which would give the regime greater ability to police its Netizens.
All these efforts are motivated by an odd mix of confidence, pride, and insecurity. On the one hand, China knows its technological capabilities are dramatically improving and sees a chance to move beyond the West in certain fields. "There's always been this feeling in China and a number of other developing nations that the West was the place to beand now suddenly it's not," says Ruchir Sharma, head of emerging markets for Morgan Stanley Investment Management. Chinese scientists and researchers are flocking home to conduct original research at well-funded labs.
On the other hand, the Chinese worry that if they're not involved in writing the new standards, those could be manipulated by their enemies. The regime has tried to bar government computers from running Microsoft software, for example, largely because it's assumed that such software might include a "back door" that would allow the U.S. government to launch cyberattacks against China.
Indeed, while China isn't necessarily looking to take over the world, its actions all put Chinese interests foremost. Beijing's space programs are highly secret, but they've been ramped up in recent years with the first successful test of an antisatellite weapon in 2007, followed this year by the launch of an exo-atmospheric surface-to-air missile (which some Western security experts think may actually be a new satellite-killer weapon). Earlier this month China confirmed plans for its second unmanned lunar probe in October and the 2011 launch of a space module for the country's first docking exercise, all leading up to a 2013 moon landing. With NASA's budgetary rollback, China is now the only country making major investments in space exploration.
Why the big push to reach the moon? Beijing clearly expects more material gain from its celestial adventures than the Americans have gotten. Some Chinese scientists are sure that space is the place to find potential new energy sources like helium-3, as well as fresh lodes of rare minerals that are being gobbled up by industrial production on earth; Ye Zili of China's Space Science Society has been quoted as saying that when the Chinese reach the moon, they won't "just pick up a piece of rock"a clear dig at past U.S. missions. The rules governing the exploitation of extraterrestrial resources have yet to be written. When they are, China wants its stake to be well represented.
The same principle explains the country's overall drive to move ahead of the rest of the world: to make sure it gets a real say in setting its future rules and standards. It knows it can climb the economic ladder more easily in new and developing technologies than in traditional industries, and that's why China, the world's biggest polluter, has also become the single biggest state supporter of green technology. Thanks to massive government subsidies, it's now a world leader in solar- and wind-energy hardware and is moving fast to set the standard in the next generation of clean-energy vehicles. Batteries made by the Chinese firm BYD are already used in at least a quarter of the world's mobile-phone market; now the battery maker is leading the global race to adapt these batteries for cars, the biggest remaining hurdle in creating a viable market for electric and hybrid automobiles.
Thanks to state mandates, China already has the largest fleet of clean-energy vehicles in the world. As the technology improves, you can bet Beijing will push clean cars throughout the Chinese consumer market (which last year overtook the United States in sheer numbers of vehicles sold). And should the Chinese succeed in developing not only the automotive field's gold-standard technology but also a market of that size, they can expect to control the future of the global car business.
If and when that day comes, it will be interesting to see whether the Chineseand the worldcontinue to support the current rules of free trade and open global competition that helped provide their current level of peace and prosperity. Already one can see worrisome changes in the way China deals with foreign firms. Ten years ago Beijing did everything possible to woo investors from abroad. Today the rules have changed. The country's $800 billion fiscal-stimulus package channeled much more clout to state-run firms and away from the private sector. New merger laws are making it tougher for foreign firms to acquire Chinese companies.
In December, the U.S. Chamber of Commerce and 33 other business organizations from around the world sent a letter to Beijing protesting legislation that they claimed would effectively bar foreign firms from China's lucrative government-procurement markets. Beijing is even taking control of the venture-capital business. One of the world's top private-equity firms, the Carlyle Group, was recently obliged to join forces with the Beijing city government in order to be allowed to invest in more deals in China.
The idea that as China got rich it would simply become more like America, or at least more sympathetic to the U.S. agenda, is turning out to be wrong. China has never been transformed from without, and it's unlikely to be now. Among ordinary Chinese, pride in their nation's prospects is matched by a nagging feeling that it's all still too new and precarious. The dizzying pace of change is having a particularly dramatic effect on younger Chinese, turning them inward and making them more nationalistica trend that experts like Hudson Institute fellow John Lee believe to be a factor in China's new and more aggressive policies on security, trade, and foreign affairs. That aggressiveness is only likely to increase between now and 2012, when the top leadership of the Communist Party will be changed. Officials jockeying for positions between now and then will "lose points if they are perceived as being too soft in any sort of negotiation with the U.S.," says Li of Brookings.
China is clearly still working out its identity: is it a rich nation or a poor one, a major power that should lead on global issues or a developing one that should simply look out for itself? That confusion is likely to lead to more debacles like the December climate-change summit in Copenhagen, where Beijing scuppered a deal by refusing to commit to binding emissions cuts. Much was made of the fact that Premier Wen Jiabao snubbed President Obama by sending a lower-level official to a crucial meeting for global heads of state. If China really wants a seat at the table, one might ask, why fill the seat with a flunky?
According to a foreign official familiar with the proceedings who was not authorized to speak on the record, Wen had not been granted the authority to make decisions at the meeting. Rather than being embarrassed by his lack of mandate, he chose to stay away. (The Chinese official who replaced him protested that he too couldn't make any decisionsbecause his cell-phone battery had run out.)
In the end, it was the Chinese fear of being caught, or contained in a trap laid by the West, that drove much of the delegation's eyebrow-raising behavior in Copenhagen. It's nowhere near clear what our world will look like when China has done its part to reshape it. But the journey toward that world promises to be a bumpy one.
With bureau reports © 2010
It?s China?s World We?re Just Living in It - Newsweek.com
