Wednesday, 16 December 2009

• China’s economic rise will not make it the dominant political power

  

  Image from the Economist
  

  Imaduddin Ahmed
  

  Tufts Roundtable
  

  Given its domestic market size, resources and untapped potential for leverage, China, according to Goldman Sachs’ projected rates of growth, is set to become the largest state economy by 2030.[1] The other BRIC economies, meanwhile, are projected to an aggregate economy worth half of the USA’s by that time, which will drop to the second largest economy. By 2050, China’s economy will, according to the same projections, be worth almost double the USA’s. The core EU states and Japan’s economies will have grown relatively little. A discussion, therefore, of China’s economy becoming the largest economy is relevant. 

  This article attempts to model the incentives, constraints and strategies of China and other relevant actors (the United States, Japan, the EU and multinational corporations) through a state-non-state actor prism in order to predict whether China’s rise as the world’s largest economy will spell the end of the current era of globalization and a new dawn for mercantilism.
  

  The USA, EU states and Japan have grown together since the Second World War under the cover of US hegemonic stability, with the USA lending capital, maintaining open markets, creating a foreign-exchange regime and coordinating macroeconomic lending.[2]

  While the EU states and Japan have not enjoyed hegemonic status, they have enjoyed economic prosperity, which is what the constituents of these liberal democracies demand of their elected state officials.
  

  In light of US Cold-War posturing and military interventions since the 1950s, Gilpin and Krasner’s state-centric, realist view of the USA as a hegemon that created a liberal international economy primarily to promote its own political and security interests[3] seems compelling. 

  China, meanwhile, is best understood as a realist state with a social contract with its citizenry to pursue power and economic growth,
  

  ‘Nationalism and economic performance [are] the twin pillars of [Chinese Communist Party] CCP legitimacy.’[4]

  By liberalizing its economy, China has become the fourth largest economy in the world;[5] Chwieroth might try and explain this liberalization as the work of liberal economists within the Chinese state,[6] but Viner would correctly counter that as a realist state, China is concerned with accumulating wealth as a means of sustaining power, which in turn is necessary to sustain long-term prosperity and the security of the state.[7]

  Nevertheless, China has attained its gain in wealth and power by playing the global hegemon’s game of trade liberalization. Can China usurp the role of global hegemon by playing a little longer? Why is the USA allowing China to play its game when China is seemingly making relative gains?

  As a liberal-economy and democracy, the United States has weaknesses as a realist state. One is that it does not control enterprise. American firms will, as profit maximizing entities, seek to make investments in high growth markets, such as China, even if it means that China gains relatively more from the investment than does the USA. According to Oliver Williamson, American firms will even manage to create their own rules and transact where there was a lack of state governance of markets,[8] which further weakens the USA’s status as a purely realist state.

  But a better explanation as to why the USA is seemingly conceding relative gains to China is suggested by Ikenberry. Although it may be possible for the Chinese economy to overtake the USA’s, it is much less likely that China will manage to overtake the Western order.[9] The economy of China will be much smaller than the combined economies of the OECD by 2030.[10] The EU, Japan and USA have functioned well as trading partners without China thus far, even before there was a uni-polar world. There is no compelling reason why their economies should close to one another or why their economic integration (or ‘globalization’ as is referred to in the question) should come to an end.
  

  If the USA takes, as Drezner advocates,[11] a leadership role, rather than Gilpin’s hegemonic role, in remolding multilateral institutions so that they better represent the current structure of global power and make China feel enfranchised in the world order; and if the USA promotes John Ruggie’s ‘embedded liberalism’ in which governments intervene in their domestic policies to conform to internationally-agreed upon rules;[12] China will have to adhere to Benjamin Cohen’s ‘social conventions’[13] – residual existing rules of the game as they were once played when there was a clear global hegemon – in order to continue trading with the USA and its liberal allies and hence in order to continue achieving its goals of economic prosperity and gain in power. China’s gain in power, though, will be incremental. 
  

  
  

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  [1] Wilson, Dominic and Anne Stupnytska, "The N-11: More Than an Acronym," Goldman Sachs: Global Economics Paper No: 153, , (March 28, 2007), http://www.chicagobooth.edu/alumni/clubs/pakistan/docs/next11dream-march '07-goldmansachs.pdf

  [2] Gilpin, Robert Global Political Economy - Understanding the International Economic Order (Princeton and Oxford: Princeton University Press, 2001), 93-100.

  [3] Gilpin, 93-100.

  [4] Ross, Robert S. “Navigating the Taiwan Strait: Deterrence, Escalation, Dominance and US China Relations,” International Security, Vol 27, No 2 (Autumn 2002), 48-85.

  [5] “World Economic Outlook Database,” International Monetary Fund, , (October 2009), http://imf.org/external/pubs/ft/weo/2009/02/weodata/index.aspx.

  Nominal GDP list of countries. Data for the year 2008.

  	GDP (millions of USD)	% of world economy
  World	60,917,477
  EU	18,387,785	30.18%
  US	14,441,425	23.71%
  Japan	4,910,692	8.06%
  China	4,327,448	7.10%

   

  [6] Chwieroth, Jeffrey. “Neoliberal Economists and Capital Account Liberalization in Emerging Markets,” International Organization 61, (April 2007), 443-463. 

  [7] Viner, Jacob. “Power versus plenty as objectives of Foreign Policy in the Seventeenth and Eighteenth centuries” World Politics, Vol. 1, No. 1 (Oct 1948), 1-29.

  [8] Maclay, Kathleen. “UC Berkeley’s Oliver Williamson shares Novel Price in economics,” UC Berkeley News, (October 12, 2009), http://www.berkeley.edu/news/media/releases/2009/10/12_nobel.shtml.

  [9] Ikenberry, G. John. “The Rise of China and the Future of the West,” Foreign Affairs 87 (January/February 2008), 23-37. 

  [10] Ibid.                                          

  [11] Drezner, Daniel W. “The New New World Order,” Foreign Affairs 86 (March/April 2007), 34-46. 

  [12] Ruggie, John Gerard. “International Regimes, Transactions, and Change: Embedded Liberalism in the   Postwar Economic Order,” International Organization 36 (Spring 1982): 379-415. 

  [13] Cohen, Benjamin J. “The Triad and the Unholy Trinity: Problems of International Monetary Cooperation.” In International Political Economy, edited by Jeffry A. Frieden and David A. Lake, 245-256. Belmont, CA: Thomson Wadsworth, 2000.

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