The financial crisis of 2008 has left much of the world in turmoil, while leaving one economic powerhouse relatively unaffected and still fast growing after the crash. Prior to the meltdown that shook the biggest economies in the world and even after that, China experienced double digit growth. Last year, China overtook Japan as the second largest economy, seemingly challenging the US as the powerhouse as the country experiences recession and subsequent recovery.
The so-called Chinese model of economic success has garnered worldwide recognition amidst many experts’ forecast of China becoming the new superpower on the world stage. A policy document released by China on September of last year stated that it only wishes “to be a rich and strong country, peacefully coexisting with other nations”.
How true will this be in the coming years and to what extent will China’s economy play a role in its newfound influence?
Loans for resources
In an interview with The LaSallian, Former Beijing Bureau Chief for ABC News Chito Sta. Romana mentions that given the country’s large foreign exchange reserve – the largest in the world – its leaders have decided to invest and lend to debtor nations.
China’s economic success has enabled it to gain the capacity to give out loans, particularly to African and Latin American nations. These loans are considered to have a “no strings attached” policy which means it does not have conditionalities that are usually present in IMF and World Bank Loans.
“The Chinese loan program is now bigger than the loans offered by these two institutions on an aggregate basis. It poses as a direct challenge because the Chinese approach has ostensibly no strings tied. They don’t have [conditions] in which [a country] has to improve human rights or governance,” says Sta. Romana.
He continues to explain that such behavior could be mistaken for support for allegedly corrupt regimes and that the underlying reason for the approach is China’s goal of fostering friendly relations and acquiring the needed resources to further fuel its growth.
International relations professor Dr. Renato de Castro, affirms that this move by China aims to balance the influence of Europe and the US. “That’s basically part of China’s strategy of transforming the world from a unipolar to a multipolar system.”
Economics professor and University Fellow, Dr. Tereso Tullao Jr. corroborates the rationale by stating that China’s problem is its availability of raw materials. However, he adds that the country would also need to invest in human capital and innovation.
“I’m not belittling the ability of the Chinese but it takes a certain caliber of engineers or scientists to [propel] a country forward,” he adds.
For Tullao, the loans serve as a declaration to other countries that China is a mighty and at the same time friendly nation.
However, Sta. Romana cautions that the Philippines should be careful of countries that offer financial or economic assistance. He cites the botched North Luzon Railway project which witnessed failed negotiations between the Philippines and China as a clear example of this risk.
Maintaining success
The rule of Deng Xiaoping in the 70s witnessed unprecedented economic reforms which opened the country to foreign investments. During its economic take-off, China exported nearly half of their output to developed countries — namely the United States, the European Union, and Japan.
Sta. Romana shares his experience living in China during the early 70s. “China was very much like the Philippines, [it was] underdeveloped and more [economically] backward, he recalls.
Dr. Winfred Villamil, Dean for the School of Economics, adds that that China’s growth has been quite fast and notes that the rapid growth is driven by foreign direct investment and exports.
However, Sta. Romana cautions that China can no longer rely on an export-oriented growth due to the crisis in US and Europe. He states that the country is on the lookout for new strategies to sustain growth; one of these is capitalizing on the domestic market.
China has a population of approximately 1.6 billion; despite having the world’s largest population, Sta. Romana is still concerned whether the country will be able to bolster its purchasing power. He proceeds to make a contrast saying, “consumption is higher [in the Philippines] but we don’t have enough money for investments and the savings rate is lower because people spend [more]. In China, people save; they have a lot of money for investments. They are consuming but their purchasing power is limited.”
Villamil also adds that China may have difficulty in adopting such an approach since to a large extent, they have been producing for foreign markets.
According to data from the World Bank in 2011, China registered a GDP per capita of 5,445; a low figure in relation to its GDP growth of 9.2 percent in the same year.
A key element in China’s export-led growth is its low labor wages. Villamil suggests that an increase in income would help the population avail of more goods and services. Thus, a consumption-driven economy would likely ease China’s current economic constraints.
Last month, Wen Jiabao, the country’s Premier, announced China’s target growth of 7.5 percent for 2012 against the backdrop of a decline in manufacturing and export. The expected growth rate is a departure from the double digit growth in the recent years.
Nonetheless, Tullao thinks that China’s performance remains impressive. He says, “That is still a substantial growth when the rest of the world is growing by [approximately] 2 percent.”
Villamil admits that its (China) exports are suffering but mentions that the effect on its economy is relatively small.
The low growth target – for Chinese standards – portrays a China that has been conspicuously affected by the continuing economic crisis. “This is already the equivalent of a recession. If they go below 7 percent they call that a hard landing, especially if it’s below 6 percent,” Sta. Romana shares.
Shift from soft power to hard power?
In asserting soft power, which makes use of persuasion rather than coercion, China is widely seen as a novice. “The Chinese have a long way to go when it comes to soft power,” Sta. Romana comments.
The language tends to be nationalistic, very sharp and most of the time, not suitable for persuasion. This expression from China, as Sta. Romana explains, is backed by the appeal of its strong economic growth which is not as appealing as democracy and the reforms a legitimate democracy demand.
Interestingly, de Castro posits that the focus for China is no longer asserting economic clout but rather the strengthening of military potential. He also says that soft power is no longer a major concern. “The [plan] now [by China] is to assert military capability,” he says.
China’s territorial row with claimants in South East Asia has soured the country’s projected image of a rising peaceful power and gives way to the pervading notion of China as a bully in the region.
Furthermore, de Castro believes that the US will still retain its status as the dominant power in the coming years. He explains that during the early stages of its economic development, China’s progress was buttressed by American and Japanese companies, since the country initially lacked the necessary industrial facilities.
“[Given] the recent territorial assertions by China, there is now a move on the part of American and Japanese corporations to move out of the country. Let’s see what will happen in the [coming years],” he shares.
