Tuesday, August 10, 2010

The China Dream


Why the Middle Kingdom isn’t really taking over the world.
George Osodi

The rise of China is, as we all know by now, the definitive economic and political story of our time. Every week a new book title announces an “irresistible” tilt east, the emergence of “Chimerica” and a not-too-distant future when China “rules” the planet. The mainstream media, and especially the business press, are gripped by the narrative of China taking over the world—every other headline in the Financial Times and The Wall Street Journal has a China focus.

But the coverage of China’s global inroads has been profoundly short on context, particularly when it comes to how China is—and is not—surpassing the U.S. as a global power. There are plenty of stories of a Chinese-sponsored infrastructure project or a Chinese company cutting a deal to feed its “insatiable thirst” for raw materials, while Western involvement of similar or greater magnitude is lucky to make a headline at all. Meanwhile, a close look at the key economic metrics and the subtler shades of power, such as cultural influence and humanitarian aid, reveals that while China is indeed one of the great powers in the world now (late last month it officially overtook Japan as the world’s second-largest economy), its influence is mixed, and often undercut by America’s.

While China’s trade with regions like Africa and Latin America is growing exponentially, it is still outpaced by America’s, which tends to be more diverse. In Asia, China is now the dominant trading partner, yet the flows are mainly in low-end goods, while America dominates higher up the food chain. U.S. aid and foreign direct investment in these regions still eclipses that of the Chinese, and its soft power still reigns, as does its military might, despite recent Chinese buildups in this area. “Economic heft alone has never been enough for a country to be dominant outside its borders,” says Charles Onyango-Obbo, a journalist who writes for the weekly newspaper The East African. He recently penned a column titled “Chinese Takeover? I’m Not Losing Any Sleep.” “It’s really been American education, technology, culture [Hollywood and music], business, and sport that has enabled it to be so overarching,” says Onyango-Obbo. “China is going to be a very important power in the world, but it will not be dominant.”

Perhaps nowhere is this more apparent than in Africa, where China has been depicted as the shrewd winner of a neocolonial scramble for resources, offering developmental assistance—mainly in the form of low-priced manufactured goods, infrastructure investment, and soft loans—all proffered with no pesky Western-style demands to respect human rights. In exchange, China gets access to raw materials to fuel its economic boom. No doubt China’s presence on the continent has expanded considerably in recent years. But the U.S. remains sub-Saharan Africa’s largest trading partner, accounting for 15 percent of Africa’s total trade versus 10 percent for the Chinese (it’s also worth noting that Africa has been a low trading priority for the U.S., accounting for a mere 2 percent of its global trade).

Indeed, the bulk of China-Africa trade is made up of Chinese oil imports from five countries, and even with respect to oil—said to be at the heart of China’s drive on the continent—America holds a sizable lead. China imports 17 percent of all African oil compared with 29 percent for the U.S. (and 35 percent for Europe). Western companies are the leading foreign partners in oil projects in Nigeria, which is sub-Saharan Africa’s largest oil producer, and in the continent’s largest emerging oil producers such as Ghana and Uganda.

This trend may well continue, in part because of allegations of corruption and shoddy execution in a number of Chinese energy and infrastructure projects throughout Africa. An $8 billion Chinese-sponsored road and mine project in Congo, deemed the “Marshall Plan of Africa” when it was unveiled a couple of years ago, has been tainted by allegations of corruption and poor implementation, as has a massive Chinese-funded fiber-optic project in Uganda. A recent study from the African Labor Research Network, called “Chinese Investments in Africa: A Labour Perspective,” looked at labor conditions at Chinese companies in 10 African countries and found them “among the worst employers everywhere,” according to the report’s author, Herbert Jauch.

Disenchantment with the Middle Kingdom is particularly strong in Angola and Nigeria, which a few years ago were both tilting China’s way, lured by the promise of soft, unconditional development loans and noninterference in domestic politics. Two-way trade between China and Nigeria doubled to $7 billion between 2006 and 2008 (though still dwarfed by $42 billion with the U.S. in 2008). Yet Nigeria’s late president Umaru Yar’Adua ended up canceling a number of the projects due to scandals and delays. Washington has been quietly capitalizing; according to the U.S. Department of Commerce, exports to Nigeria have risen 48 percent and imports (consisting predominantly of oil) by 16 percent this year alone.

The situation is the same in Angola, where Angolan Rafael Marques de Morais, founder of Maka, which monitors corruption in the country, says, “Corruption and a lack of accountability on China-Angola deals have undermined a more sustainable and long-term relationship between the two countries.” He points to the General Hospital built by Chinese contractors in Luanda, the capital’s first new hospital since independence, which “four years after its inauguration is basically collapsing.” In July patients and staff were evacuated due to safety concerns. Once again, Washington moved to exploit disenchantment with Beijing, meeting with Angolan officials in June to discuss ways to deepen and diversify trade, and pushing a newly signed IMF agreement of understanding that may lead to fresh loans from Western banks.

This underscores America’s deeper and more diversified engagement not only with Africa, but many other parts of the world, via international institutions as well as humanitarian aid and military assistance. Despite high-profile ties with Zimbabwe and Sudan, China has little military presence in Africa and almost none in Latin America, and is still overshadowed by the U.S. even within its own backyard. Last month in Hanoi, for instance, the U.S. was a welcome presence at the ASEAN Regional Forum, Asia’s largest security meeting, amid growing concerns about China’s military buildup and its claims to the disputed Paracel and Spratly islands, which are also claimed in part by Taiwan, Vietnam, Brunei, Malaysia, and the Philippines. Obama plans to invite ASEAN leaders to a second U.S. ASEAN meeting in the fall, and ASEAN foreign ministers have invited the U.S. to a regional dialogue, known as the East Asia Summit, which diplomats reportedly said would help counter Chinese influence in the region. Washington recently boosted humanitarian and military aid to Laos and Cambodia and removed them from a trade blacklist, which should attract more U.S. investment. And in July Vietnam’s Deputy Prime Minister Pham Gia Khiem said America and Vietnam are “leaving the past behind” as they strengthen commercial and military ties. Their two-way trade leapt from $2.91 billion in 2002 to $15.4 billion last year. The U.S. has made similar progress with Indonesia, signing an agreement in April that will allow greater American capital flows into Southeast Asia’s largest economy.

Of course, Asia is still the one region in the world where China now dominates regional trade—overall trade between China and the rest of the continent hit $231 billion versus the U.S.’s $178 billion in 2008. But most of the flows are in intermediary goods of low value (China buys cheap components and raw materials from poorer nations and uses them to make products for export, just as it supplies the same to richer nations like South Korea). This trade does not foster the skills transfer that Southeast Asian countries so desperately need in their bid to move up the technology ladder. Countries such as Malaysia, Singapore, Vietnam, Thailand, and Indonesia still rely on entrepreneurial, technological, and educational engagement with the U.S. for that. And America still accounts for a far greater chunk of regional foreign direct investment—8.5 percent versus China’s 3.8 percent, or $3.4 billion to $1.5 billion, in 2009. Experts such as Elizabeth Economy, director of Asia studies for the Council on Foreign Relations, believe that the moves toward closer U.S. political, economic, and security cooperation in Southeast Asia will continue. “There’s no intention of wasting the opportunity,” she says.

In other places where China is increasingly prominent economically, such as Latin America, the U.S. still has important cards to play as well. Last year China replaced the U.S. as Brazil’s leading trading partner, and it’s now the second-largest trading partner in Venezuela, Chile, Peru, Costa Rica, and Argentina. But while Asia’s overall trade with the region (driven largely by China) rose 96 percent over the past decade, the U.S. saw an even greater rise—118 percent—in total trade. And according to Shanghai’s SinoLatin Capital, China’s accumulated investment in Latin America by the close of 2008 was a mere $12 billion—or less than the state of Michigan invests in the region, according to China Economic Review.

As in many regions, there are cultural and geographical barriers to closer China–Latin America relations. “The U.S. and Latin America are doomed to live closely together, and China can never compete with that,” says Kevin Casas-Zamora, a Latin America expert with the Brookings Institution. America’s soft-power appeal in the region dwarfs China’s, resonating through popular culture, language, and ideals. Most Latin American countries are functioning or aspiring democracies, and despite China’s attempts to attract interest in Chinese language and culture via Confucius Institutes (300 are being rolled out around the world, including 21 in Latin America), there remain few Chinese speakers in Latin America and Spanish speakers in China. Soft power is also very much at play in Africa, particularly given President Obama’s connection to the region (everything from restaurants to car washes are named after him). Signs of American culture, from film to music to fashion, permeate the region. African students still dream of going to the U.S. to

What’s more, the U.S. still tends to be the country to call when there is trouble. Consider the terrorist bombings in Kampala, Uganda, that left more than 85 people dead this summer. President Yoweri Museveni had been trading barbs with Washington prior to the incident about the pace of democratic reforms in his country. Museveni had also been tightening relations with China. But after the bombings, he swiftly turned not to Beijing but to Washington for assistance, and received $24 million in manpower and technical resources.

This sort of effort, particularly when contrasted with China’s recent political bumbles in Africa and elsewhere (for example, its growing reputation for shoddy construction work in Africa; its South China Sea squabbles with its Asian neighbors), makes America look good and underscores the opportunity for it to better play the myriad cards it has at its disposal—cultural, military, scientific, and economic. Many of these were underutilized or misused during its two decades as the world’s lone superpower. To the extent that China’s rise forces America’s nimble reengagement with the world, the effect may be win-win.

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