Chinese century may be a long time coming

Geoff Dyer – The Financial Times

Copyright The Financial Times
As China prepares for its big military parade next Thursday, when it will celebrate 60 years of Communist party rule with a display of power, it is clear the country has come out of the global crisis with its prestige greatly enhanced.
It is not just the strong rebound in the economy. China is becoming more influential and confident overseas, shaping events rather than reluctantly reacting. President Hu Jintao even stole the show this week at the United Nations climate change summit with his pledge to restrain carbon emissions. Two years ago, environmental groups were terrified by China’s galloping energy demand and addiction to coal: now they brandish it as an example for others.
Amid all the praise and trepidation that China is currently generating, it is a good time to point out some of the many reasons why China will not come to dominate the world any time soon. Even proponents of “China’s century” do not think it will arrive in the next few years. If this sounds a little curmudgeonly, Chinese officials make some of the same points themselves, usually when they are asked to hand over a large chunk of their reserves to some worthy international project.
For all the cosmopolitan affluence of Beijing or Shanghai, with their luxury shopping malls and Champagne-soaked gallery openings, it is easy to forget just how poor China still is. One of the more surprising statistics about the Chinese economy is that, in terms of per capita gross domestic product, it is still not in the top 100 countries. According to the International Monetary Fund, China ranked behind Cape Verde and Armenia in 2008, and only just ahead of Iraq and the Republic of Congo. Despite the remarkable reduction in poverty, daily life for most Chinese families is still a struggle to get by.
The crisis has also given China, with its $2,000bn-plus foreign exchange reserves, a lesson in the harsh realities of economic power. Many developing countries have sensibly built up a foreign currency pile to insulate themselves from financial crises. Yet real power lies not with the country with the most reserves, but with governments that can easily borrow in their own currency. After all, who does the US borrow from? China.
Beijing has moved from a sullen resentment of the US and its dollar privileges to plot a different international monetary system – hence the proposal from central bank governor Zhou Xiaochuan to replace the dollar as the global reserve currency eventually. But before the renminbi can play a large international role, it will need to be fully convertible and China will need a deep domestic bond market – two reforms that could be a question of decades rather than years.
Chinese citizens know too well how arbitrary political power can be: it always surprises me how many well-to-do Beijingers I meet have quietly arranged a foreign passport, just in case. This year has been a wake-up call for multinationals operating here. Rio Tinto’s bosses thought the mining group was involved in a tough negotiation with the Chinese steel industry over iron ore prices; then one day in July they found four of their China executives had been arrested for stealing state secrets. That the charges were later reduced to bribery and information theft will not have changed their view on China’s legal system.
The Xinjiang riots over the summer were another important warning. Like the turmoil in Tibet the year before, they exposed how large parts of the local population on China’s western frontier does not feel included in the new economic dynamism, or feel part the grand national project. By treating almost all dissent as a form of “evil separatism”, these provinces seem destined to face years of instability.
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