Being clear-eyed about China’s power

By East Asia Forum editors
There are many anxieties and uncertainties out there in the world about China and its future. In this year’s Pew polling, almost 90 percent of those surveyed in Japan are anxious about growing Chinese power with only 11 percent having a favourable view of China. In Australia, the proportion is 52 percent and 43 percent of those surveyed saw their country’s relationship with China as important, the same proportion as those who nominated the relationship with the United States important.

A large majority in Australia nominated the Chinese economy a positive factor, while the different system of government and troubles in the South China Sea came through as clear negatives. But despite the average Australian’s clear-eyed view of China, there is a small industry in this country promoting the argument that security concerns on many levels should dominate the positive effects of the big economic relationship and positive inter-personal interaction (79 percent of those surveyed).

China’s international economic presence has suddenly become big; people all around the world have to deal with the China factor because it permeates every major issue of the day, whether they know terribly much about it or not.
What China has to deal with in keeping its economy on course and delivering moderate affluence to the Chinese people in the next decade or two — the ambition that the Chinese leadership has declared for the country — is a huge challenge. No country has ever had to effect a set of reforms under such intense international spotlight in the global market or of this scale and complexity ever before in human history.
One major anxiety is that the Chinese political system is different from that of countries which are already rich. Indeed, there are no significantly sized countries in the world that have achieved advanced per capita income levels without some form of representative government, the oil states being the exceptions. Is China capable of delivering on its goals to become rich while preserving its political system and how can other countries deal with China if it does — or for that matter if it doesn’t?

No country has trod the path of economic advance before without presuming to use its economic power to carve a greater slice of global political power. Japan — the second time around — is perhaps the exception, with the adoption of its ‘peace constitution’ and its constrained position within the US–Japan alliance. Every move China makes in the political sphere, whether in the South China Sea or in setting up the AIIB, seems open to the interpretation that China is aiming to overthrow the established order. Exacerbating this is that China’s own regional and global ambitions remain unclear. Hence, China’s behaviour in the South China Sea and elsewhere is being used as a proxy for how China might behave when it becomes even more powerful.

These anxieties are major undercurrents in thinking about China in the established industrial powers as well as in smaller countries, especially those within its neighbourhood.
Clear-eyed perception of China
But despite the scale of all the challenges it faces and the anxieties there are about how they will be managed, the clear-eyed perception of China, more now than perhaps even a few months ago, is of a country that is still growing at more than twice the rate of the world economy and appears to be an island of economic stability in a global sea of economic troubles, as Brexit in Europe and the Trump phenomenon in North America have created anxieties in other parts of the world. China’s leadership as president of the G20 this year modestly reinforced that image of reliability and China’s claims to significant ownership in the international public good, though there is still quite a way to go.

James Laurenceson, in this week’s lead essay, reminds us that ‘economics is at the heart of military and strategic power’. Economic analysis, he suggests, is key to getting a clear-eyed understanding of Chinese strategic policy and its limits.
The simple arithmetic is that, with a population of 1.4 billion, income per person in China only has to reach one quarter of that in the United States for it to have the world’s largest economy, allowing it to buy sophisticated weapons systems from abroad. In purchasing power parity (PPP) terms China’s real output, the measure that is relevant for paying the wages of war, the International Monetary Fund (IMF) estimates, will already be 12 percent larger than that of the United States at the end of this year. China is large and dealing with this reality is not only or even largely at this point about dealing with the risks of its military power. It is more about the risks in China’s transition towards advanced economic power.

“Economics can also help to restore some clear-headed thinking on complex matters such as the South China Sea,” Laurenceson points out. “The narrative proposed by strategic hawks is that since President Xi Jinping came to power in 2012 the Chinese government has begun aggressively pursuing expansionism. Yet, since the South China Sea arbitration decision was published in July, both China and the Philippines have shown restraint in their response, albeit neither side has backed down from their original positions.”
Rigorous analysis, informed by a modicum of economic training or business savvy, makes this restraint understandable. The economics opens the possibility of these international relations being a positive, or at least mixed interest, rather than a zero-sum game.

“With income per person still only at 14 percent of that in the United States (25 percent in PPP terms),” says Laurenceson. “China can ill afford a dramatic recasting of its relationship with the rest of the world.” Continuing to put its own commitments to economic and political reform on the table, moving forward on open trade and investment, committing to deeper financial reform and capital account opening (as well as concomitant political reform), undertaking to be a leading partner in a new global trade and investment agenda and extricating itself from its overbearing projection in the South and East China Seas will all be critical elements in building momentum for the Chinese in managing to calm some of the anxieties about the impact of China’s rise on the international community. 

(Courtesy East Asia Forum)
(The East Asia Forum (EAF) Editorial Group is comprised of Peter Drysdale, Shiro Armstrong, Ben Ascione, Ryan Manuel, Amy King and Jillian Mowbray-Tsutsumi and is located in the 
Crawford School of Public Policy in the ANU College of Asia and the Pacific)