China Translated

Did anyone notice a new world order emerging at the recent meeting of business leaders in Davos?  Me neither.  But we must have been looking in the wrong place, because everyone’s favourite Communist Party magazine - Outlook Weekly - saw it quite clearly.

Here’s my translation of the main points of an article on Vice Premier Li Keqiang’s trip to Switzerland, from the latest edition:

‘The summit at Davos was happily timed to coincide with two ’saying goodbye to the old and welcoming the new’ moments.  The first was the end of the 00’s and the beginning of the 10’s.  The second was the waning of the old Western dominated world order, and the dawning of a new world order, where large emerging countries will have greater power and influence.

The world is becoming multi-polar, and this process is leading to rapid reform of global systems of governance.  International power and influence is shifting from the West to the East and from the North to the South.  Western countries are being compelled to share their influence with emerging countries in the East.

After the financial crisis, the centers of global influence are the US, EU, China, Russia, Japan, India, and Brazil.  ‘One super power many strong powers’ （一超多强）has become ‘One super power six strong powers’ （ 一超六强).  The US might still be the only super power, bu the six other powers now includes four developing countries.’

The article goes on to set out China’s ‘four principles’ for global economic governance, as set out by the Chinese representative at the G8 meeting in September 2009.  These are:

1. The objectives of governance: to push forward economic globalisation, with a focus on mutual benefit and win-win solutions

2. The subject of governance: all countries should participate on an equal basis in global governance

3. The process of governance: the process should be consultative, with the interests of all countries - especially developing countries - considered

4. The system of governance - at different levels and in different spheres, to increase the representative nature of global governance, a new framework for economic governance should be constructed

Finally, the article notes that at a briefing for Chinese media ahead of Vice Premier Li’s trip, a spokesman for the Foreign Ministry added his own three principles for reform, which can basically be boiled down to a greater role for developing countries in global governance, and respect for all countries’ right to determine their own development model.

The main points and general tone of the argument in this article certainly supports the idea that post-crisis China has growing confidence about its weight in world affairs.  The authors use of the term ‘one super power six strong powers’ is also interesting.  The term ‘one super power many strong powers’ has been in China’s international relations vocabulary since the end of the cold war, expressing the hope that multiple smaller powers would be able to check the influence of the US.  The transition from ‘many strong powers’ to ’six strong powers’ might be wishful thinking on the part of China, but also indicates some crystallisation of thought in Beijing as to who those ‘many strong powers’ might be.

China - Africa relations, China - Latin America relations, EU-China Relations, Financial Crisis, IFIs, International Relations, US-China Relations

Outlook Weekly is an official magazine with a focus on political, economic, and international relations issues.  Apparently it is widely read by government officials and party members.  To coincide with the Obama visit, the latest issue has a  lengthy piece explicating Hu Jintao’s 5-principles for the conduct of international relations. 

Here is my translation of the 5-principles:

1. The principle of deep change (深刻变革论) - today’s world is going through a process of unprecedented and historic changes, our world is everywhere a world of opportunities and challenges.

2. The harmonious world principle (和谐世界论) - the need for peace, the urge for development, the importance of cooperation - these are unalterable historical trends.  International society should work hard to construct lasting peace, shared prosperity; and a harmonious world.

3. The shared development principle (共同发展论) - the relationship between countries is one of collective interests, with joys and sorrows borne together.  We must work toward a way of thinking about our collective development that places greater emphasis on communication and cooperation, learning from each other, win-win solutions and shared development.

4. The principle of shared responsibilities (共担责任论) - international society has to establish the idea of shared responsibility.  Considering matters from all sides, we should join hands together to face shared challenges and threats.

5. The principle of active participation (积极参与论) - China’s fate is more and more interwoven with the fate of the world.  We must synthesis the objectives of retaining our independence and participating in the global economy, taking account of domestic and international interests as we play our part in the high task of promoting peace and development.

The other noteworthy point about the article is that there are lots of pictures of Hu in friendly mood with other world leaders, including former US President George W. Bush, the leaders of Brazil, India and Russia, and some African leaders.  But the following article on the meeting with Obama shows Hu looking decidedly less welcoming.

China - Africa relations, China - Latin America relations, EU-China Relations, International Relations, US-China Relations

As part of preparations for writing an article on the forthcoming US-China Strategic & Economic Dialogue I spoke to one of the leading US experts on China’s environmental issues, Elizabeth Economy.  She was kind enough to agree that I could reproduce the whole interview here.

Chinatranslated: In your discussion of China’s participation in the framework negotiation on climate change (published in The Making of Chinese Foreign and Security Policy) you characterised the Chinese position in 1998 as reflecting the same set of interests as in the early 1990s: the need for developed countries to take action first; continued technology transfer from developed countries under favourable terms; and no commitments or timetables for emissions reductions. 

More than 10 years on, what has changed?  What would need to happen for China to take a more proactive stance?
 
Elizabeth Economy: There has been virtually no change in the Chinese negotiating stance on climate change in over 25 years: the Chinese will play if the world will pay. That is why the Clean Development Mechanism is such a hit in China.

Beyond that, however, much has changed. On the downside, in the late 1990s, the world thought China would double its coal consumption during 2000-2020; instead it doubled its coal use by 2007 from 2000, making it the largest emitter of CO2 in the world. In the late 1990s, the greatest challenge China posed to climate change in terms of deforestation was within its own borders. Today, China is the largest importer of illegally logged timber in the world, contributing to serious deforestation throughout Southeast Asia and Africa in particular.

On the upside, China has a far more extensive climate change bureaucracy in place to manage both the technical and political aspects of climate change, it is ratcheting up the role of renewables in its energy mix, and it is taking steps to reduce energy intensity in significant sectors of the economy.
 
For China to adopt a more aggressive climate change policy will require someone within China’s leadership to champion the issue. What former Premier Zhu Rongji did for China’s accession to the WTO—in essence saying that there will be serious short term pain for long term gain—someone needs to do in China in the lead- up to Copenhagen. 
 
Chinatranslated: In your recent testimony before the Senate Foreign Relations committee you stressed the importance of building on and working with existing mechanisms, especially the Strategic Economic Dialogue.  What prominence do you expect climate change to have within the new Strategic & Economic Dialogue and is there a danger it will be lost in the middle of discussions of economic and security issues?
Your testimony also suggests various ways in which the US can exert positive pressure on China to step up its climate change strategy, including leading by example, listening to Chinese concerns, and focussing on urbanisation as a key issue.  What other sticks and carrots does the US and the world have to exert positive pressure on China on this issue?
What is the best outcome we can hope for on climate change from the first round of the Strategic and Economic Dialogue?

Elizabeth Economy: With the new U.S. administration, climate change has jumped to the top of the agenda, along with economic and security issues. Climate is, itself, an economic and security issue. I think initially, there was a seriously mistaken impression that working on climate change with China would be easy—somehow there had been a missed opportunity over the past eight years. I think the administration now realizes that climate is every bit as difficult an issue to negotiate as any trade or security issue. I don’t think the issue will get lost. I just don’t anticipate a true breakthrough.
In addition to working with China, the most significant potential leverage the United States could have would be to work with other developing nations to put pressure on China to do more. China considers itself a champion of the developing world. In many respects pressure from the small island states or African nations that will be devastated by climate change will do far more than more lectures from the US or EU.
What I would like to see is a progress report on the energy and climate-related initiatives the two countries began at the last SED. What’s working? What’s not? I am not a big believer in simply launching new initiatives for the sake of having something to announce.
I think the best we can hope for, in addition to announcements of various small scale joint efforts such as the new clean energy research centers, would be for the Chinese to indicate that they are prepared to continue with steep cuts in energy intensity and dramatic moves forward on renewables as far out as 2025. These are the types of initiatives they are excited about because they can be done within the context of continuing to grow their economy and enhancing energy security. Otherwise, I don’t expect much.

You can see more of Elizabeth Economy’s work at the Council for Foreign Relations website here.

China - Africa relations, Energy, Environment, US-China Relations

In an article in the latest issue of Caijing, Yu Yongding, Head of the Chinese Academy of Social Science International Economics and Politics Research Center, sets out his views on the creation of a new international reserve currency, and on how China should deal with new flows into its reserves, and its stock of existing dollar debt.  Below is my rough translation of his main points.
Zhou Xiaochuan’s proposal for moving toward a super-national international reserve currency based on SDRs is similar to proposals from other international economists and, whilst it is a good idea, it is in all probability not something that we will see in our lifetime.  Yu draws an analogy with the euro – which had a fifty-year journey from initial suggestion to appearance as a real currency.
He notes that China does not and should not wait for the appearance os a new international reserve currency to solve its problems.  Faced with the very real possibility of a depreciation in the value of China’s holdings of dollar denominated debt, he has some practical suggestions of what to do.
First, China should shift decisively toward domestic demand as a drive of growth.  Less dependence on exports would mean a smaller trade surplus (and less need to manage the exchange rate) and therefore less opportunity (and reason) to buy dollar denominated debt.
Second, if domestic consumption and investment cannot soak up all of China’s spare cash and it absolutely has to be invested overseas, Yu suggests diversifying away from US$ denominated debt.  Specifically he suggests money from the future trade surplus that cannot be invested or spent at home should be invested directly in Asia, Latin America and Africa, and help Chinese firms take advantage of opportunities for overseas acquisitions.
Third, for dealing with existing reserves, without reducing its holdings of US$ denominated debt, China can make some sensible changes in the structure of that debt, for example moving from long to short-term debt (to guard against the predicted long-term decline in the value of the dollar) and toward inflation indexed debt (to guard against the predicted increase in inflation eroding the value of the debt).
Yu also believes that China’s reserve holdings are in excess of its needs and are excessively concentrated in US$ debt.  He suggests selling some of the existing reserves and using the proceeds to diversify into other currencies.  Another portion of the existing reserves should be sold and the proceeds used to fund FDI and financial investments.  Yu notes that the biggest objection to this idea is that if China sells its holdings of US$ debt it will take a loss (both on the sale and on the value of remaining US$ assets).  Yu notes that this is not, of course, a perfect solution.  But diversification is a basic principle of investment, and by taking the loss now, China will guard against a larger loss if the US$ should depreciate suddenly in the future.

China - Africa relations, China - Latin America relations, Financial Crisis, IFIs, Trade, US-China Relations

What does China want from the G20 summit in London next week?  I’ve spent some time looking at what China’s leaders, economic commentators, and participants in online forums have to say on the subject.  Starting with the rather high-level messages from the government the key points are:

He Yafei of the Ministry of Foreign Affairs outlines the government’s top priorities:

1. Strengthen international confidence and restore growth to the world economy

2. Give emerging market economies a greater say in how the the world economy isrun

3. Oppose trade protectionism and enhance trade support to developing countries

4. Avoid decreasing aid to developing countries.

Meanwhile, Hu Xiaolian, of SAFE - the institution which governs the majority of China’s US$2trn in currency reserves - appears to put Zhou Xiaochuan’s suggestion of an expanded role for the IMF in managing a new international reserve currency (see earlier post ‘The knives are out for the IMF’) on the back burner.  She suggests that reforms to the share of financial contributions - and therefore control - of the IMF is a long term proposition.

Hu also remarks on the factors governing China’s appetite for US debt, saying: ‘we obviously pay attention to risk and to yield.  Looking forwards, we will continue according to need to purchase US Treasury debt, paying a high degree of attention to fluctuations in the value of assets.’

Hu suggests that strengthened supervision of the US economy and the US$ as the international reserve currency is a key priority - without saying what form that strengthened supervision should take.

Senior Finance Ministry official Li Yong meanwhile, promises that China will hold developed countries to their promise of 0.7% of GDP in development spending.  This reiterates the point made by He Yafei and also by Hu Jintao on his recent African tour.  I think this focus signals that, with the West focussed on its own problems, China are trying to position themselves as the champions of the interests of the developing world.

Turning away from government to the view from the experts, Yin Jianfeng of the Chinese Academy of Social Science notes that reform of the IMF will be difficult because of the US veto on IMF decisions (decisions on the organisation of the IMF require a 85% majority and the US has 17% of the votes).

The key question for economist Xiang Songzuo is whether the US will surrender its veto in the IMF and Shanghai Academy of Social Sciences economist Xu Mingqi also points to a reallocation of votes within the IMF as the key question.  Tsinghua University economist He Maochun meanwhile thinks that a move from the G8 to the G20 as the main decision making body for international economic co-ordination will be an important step.

Finally, a few views from the popular press and comments on blogs and internet bulletin boards.  Fan Huiyong of the 21st Century Business Herald says that the G20 is like a party where the music is so loud you can’t here what people are saying - an expensive waste of time.

One anonymous poster to a bulletin discussion thinks that the outcome of the G20 meeting is not what is important, the important thing is the process - and it is clear that China’s role in the process has increased substantially.

Another anonymous poster believes that China should balance between the EU and the US, noting that there is potential for a pure trading relationship with the EU, whereas the relationship with the US will be tinged with concerns about security threats.

Finally, echoing a theme running through Chinese commentary, another anonymous poster suggests that the US stimulus plan is robbery of partner countries through inflating away the value of their dollar reserves.  Adding a novel additional thought, the poster suggests that the reason the US won’t allow stronger supervision of their financial system is that it would reveal the true extent of the problems they have.

China - Africa relations, EU-China Relations, Financial Crisis, US-China Relations

February witnessed a Southern Hemisphere charm offensive from China.  Hu Jintao paid a trip to Saudi Arabia, Mali, Senegal, Tanzania, and Mauritius, saying in one address that ‘every time I come to Africa I feel like I am coming home’.  Xi Jinping visited Mexico, Jamaica, Columbia, Brazil and Venezuela。  Hui Liangyu meanwhile visited Ecuador, Barbados and the Bahamas.  For those unfamiliar with Hui Liangyu you can see a picture of him here.

Africa is an important source for China’s raw materials and Beijing has had some success at doing deals with ruling elites - generally involving some form of infrastructure for minerals swap.  It is also hoped that Africa’s middle income countries, like South Africa, will increasingly be a market for China’s middle technology products.

Between 2006 and 2008 the Chinese government invested $400m in Africa, catalysing investment of $2bn from Chinese companies.  On trade, total trade of $10bn in 2000 has risen to $106.8bn in 2008 (though there are concerns that China’s competitiveness is wiping out Africa’s nascent manufacturing industry).

Latin America is also an important source for China’s raw materials - oil from Venezuela and Ecuador and soy beans and iron ore from Brazil.  It is also already an important market for China’s goods, and joint ventures in Mexico and elsewhere have allowed Chinese firms to sell into the US market through NAFTA.

There was an attempt to set out an overarching strategy for engagement with the region in a paper published by the Chinese government in late 2008 which you can read in Chinese here.

What to make of this latest series of visits?  A review of articles in Caijing and Southern Weekend sheds a little light on the situation.

On Africa, Caijing notes that Hu Jintao has been to Africa six times as President.  Many have accused China of being interested only in Africa’s mineral wealth.  On this trip, however, Hu did not visit any resource rich countries.  What is more, China is only the third largest market for Africa’s oil exports, accounting for 12.5%, behind the US (31.8%) and EU (31.5%).

Instead, an expert from the Chinese Academy of Social Sciences argues, Hu’s trip was carefully designed to indicate the China has a holistic interest in Africa.  The trip included an island, an inland country, a country China had only just established relations with, and a country with whom they had enjoyed good relations for many years.

With debt forgiveness and infrastructure investment an important part of China’s relations with Africa, the Hu Jintao trip, coming at a time when Western countries might be backing away from their development work, is also intended to indicate that China is a reliable development partner. Apparently Hu used the visit to assure African countries that China would, on their behalf, urge developed countries not to forget their obligations.

The Southern Weekend article notes that Chinese leaders are also aiming to expand investment and market opportunities for Chinese firms - lining up behind the ‘defend eight’ policy (defend 8% GDP growth).

Demand from the US and the EU has already shrunk, the author notes, but the fear is that governments in the Washington and across Europe will be unable to withstand protectionist pressures.  China needs to build consensus for free trade, and keep national markets open, to ensure demand for its products and keep its export engine ticking over.

You can see the Southern Weekend article here.  The Caijing article has mysteriously disappeared from their website.

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